EXHIBIT 10.13
UNANIMOUS SHAREHOLDERS AGREEMENT
OF CORPORATION CINE-GROUPE
Page 116
TABLE OF CONTENTS
1. DEFINITIONS 5
2. CONTRIBUTION OF THE SHAREHOLDERS 7
3. RESTRICTIONS ON TRANSFER OF SHARES 7
4. ISSUANCE OF SHARES 9
5. RIGHTS OF FIRST REFUSAL 11
6. RIGHTS OF PETTIGREW AND PETTIGREW'S CORPORATION TO PURCHASE
ALL SHARES AND/OR CONVERTIBLE DEBENTURE COVERED BY AN
OFFEROR'S OFFER MADE TO CINEPIX (AND ITS SUCCESSORS) 13
7. DEATH OR DISABILITY OF PETTIGREW 14
8. LIFE INSURANCE AND DISABILITY INSURANCE 14
9. ADDITIONAL RIGHTS OF PETTIGREW 16
10. DEFAULT 18
11. VALUATION 20
12. CLOSING 21
13. MANAGEMENT 22
14. TRANSFER OF VOTING RIGHTS; CONVERSION OF SHARES; QUEBEC
CONTROL; SHARES IN TRUST 28
15. FINANCING 30
16. UNDERTAKINGS IN CASE OF A PUBLIC LISTING 31
17. REPRESENTATIONS AND WARRANTIES 32
18. CONFIDENTIALITY AND NON-SOLICITATION 33
19. ESTABLISHMENT OF A STOCK OPTION PLAN FOR DIRECTORS AND
SENIOR EXECUTIVES AND BONUS PLAN FOR SENIOR OFFICERS 34
20. ARBITRATION 34
21. GENERAL 35
SCHEDULE 1 - CONVERTIBLE DEBENTURE 41
SCHEDULE 2 - OPTION TO FAIRE TRUST 41
SCHEDULE 3 - OPTION TO PETTIGREW 41
SCHEDULE 4 - EMPLOYMENT AGREEMENT OF PETTIGREW 41
Page 117
THIS UNANIMOUS SHAREHOLDERS AGREEMENT made as of the 23rd day of
June, 1998, AS AMENDED as of the 8th day of September, 2000
BETWEEN: ANIMATION CINEPIX INC., a body corporate,
incorporated under the laws of Canada, and
represented by Andre Link, its President, duly
authorized as he so declares (hereinafter "Cinepix")
OF THE FIRST PART
AND: JACQUES PETTIGREW, businessman, residing at 6
Croissant Merton, Hampstead, Quebec H3X 1L6
(hereinafter "Pettigrew")
OF THE SECOND PART
AND: ROBERT PAUL, in his capacity as trustee of the
Faire Trust, a trust governed by the laws of the
Province of Ontario (hereinafter "Faire Trust")
OF THE THIRD PART
AND: FOX FAMILY WORLDWIDE, INC., a body corporate,
incorporated under the laws of the State of
Delaware, U.S.A., and represented by its duly
authorized representative (hereinafter "Fox
Family")
OF THE FOURTH PART
AND: FIDUCIE FAMILLE PETTIGREW, a trust created and
governed by the laws of the Province of Queec
(hereinafter "Fiducie Pettigrew")
OF THE FIFTH PART
(Cinepix, Pettigrew, Faire Trust, Fox Family and
Fiducie Pettigrew and any other shareholder bound
by this Agreement are collectively hereinafter
referred to as the "Shareholders" and each one of
the Shareholders may also be referred to
hereinafter as the "Shareholder")
AND: CORPORATION CINE-GROUPE, a body corporate,
incorporated under the laws of the Province of
Quebec, and represented by Andre Link and Jacques
Pettigrew, two of its directors, duly authorized
as they so declare (hereinafter the "Company")
OF THE SIXTH PART
AND AS INTERVENING PARTY :
LIONS GATE ENTERTAINMENT CORP., a body corporate,
incorporated under the laws of the Province of
British Columbia, and represented by Gordon Keep,
its Senior Vice-President, duly authorized as he
so declares (hereinafter "Lions Gate")
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AND AS INTERVENING PARTY :
LIONS GATE FILMS CORP., a body corporate,
incorporated under the laws of Canada, and
represented by Andre Link, its Chief Executive
Officer, duly authorized as he so declares
(hereinafter "Lions Gate Films")
AND AS INTERVENING PARTY :
CINEPIX FILMS INC., a body corporate, incorporated
under the laws of the Province of Quebec, and
represented by Andre Link, its President, duly
authorized as he so declares (hereinafter "Cinepix
Films ")
AND AS INTERVENING PARTY :
CINEPIX INC., a body corporate, incorporated under
the laws of the Province of Quebec, and
represented by Andre Link, its President, duly
authorized as he so declares (hereinafter "Cinepix
Inc.")
WHEREAS Cinepix beneficially owns one hundred and nineteen
thousand (119,000) of the two hundred and six thousand (206,000)
issued and outstanding Class A shares as well as all the issued
and outstanding Class B shares, namely ten thousand (10,000)
Class B shares, which Class B shares it acquired upon conversion
of Five Hundred Thousand Canadian Dollars (CAN $500,000) in
capital of a convertible debenture originally of a capital of
Four Million Canadian Dollars (CAN $4,000,000) in the Company;
WHEREAS Pettigrew beneficially owns seventy-seven thousand five
hundred and twenty (77,520) of the eighty-four thousand (84,000)
issued and outstanding Class P shares;
WHEREAS Faire Trust beneficially owns twenty-nine thousand
(29,000) of the two hundred and six thousand (206,000) issued
and outstanding Class A shares;
WHEREAS Fox Family beneficially owns fifty-eight thousand
(58,000) of the two hundred and six thousand (206,000) issued
and outstanding Class A shares;
WHEREAS Fiducie Pettigrew beneficially owns six thousand four
hundred and eighty (6,480) of the eighty-four thousand (84,000)
issued and outstanding Class P shares;
WHEREAS other than as noted above, there are no other issued and
outstanding shares or debentures in the Company;
WHEREAS the Company carries on the business of producing and
distributing movies, television series, mini-series, motion
pictures, films, videotapes, animated productions or other
programs produced for television or theatrical release or for
release in any other medium, whether theatrically released or
shown on network, free or cable, pay and/or other television
medium or in the home-movie market, and all ancillary activities
relating thereto, specifically within the fields of animation,
children and family, and documentary products and activities
(hereinafter the "Business");
WHEREAS it is the intent of the Shareholders that the Company
successfully complete a Public Listing by no later than June 23,
2001;
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WHEREAS each of the Shareholders wishes to provide for the manner
in which the affairs of the Company shall be conducted, their
obligations with respect to the Company, and the disposition of
their shares in the Company on the happening of certain events as
well as various other issues;
WHEREAS the Shareholders, except Fiducie Pettigrew, the Company
and various intervening parties have executed as of June 23, 1998
an unanimous shareholders agreement (the "Unanimous Shareholders
Agreement");
WHEREAS Fiducie Pettigrew, who subsequently to June 23, 1998
became a Shareholder, has agreed by an instrument in writing to
be bound by and to benefit of the provisions of the Unanimous
Shareholders Agreement;
WHEREAS this Agreement contains the Unanimous Shareholders
Agreement, as amended since that date;
WITNESSETH THAT in consideration of the sum of One Canadian
Dollar (CDN$1.00) now paid by each of the parties to each of the
others (the receipt and sufficiency of which is hereby
acknowledged by all of the parties) and in consideration of the
mutual covenants herein, the parties agree with each other as
follows:
1. DEFINITIONS
1.1 "Affiliate" has the same meaning as the term "Affiliate" is
given in the Securities Act (Quebec) as in effect at the
date hereof.
1.2 "Agreement" means, unless the context otherwise requires,
this Agreement and any schedules attached hereto.
1.3 "Auditors" means the auditors of the Company and shall be
deemed to include the accountants of the Company where the
Company has not appointed auditors.
1.4 "Business" has the meaning ascribed thereto in the recitals
hereto.
1.5 "Business Day" means a day which is not Saturday, Sunday or
civic or statutory holiday in Montreal, Quebec.
1.6 "Canadian Tax Credits" includes any and all tax credits,
benefits, capital cost allowances, advantages, grants or
subventions of any sort, existing or not at the date hereof,
which are or may become available to the Company relating
directly and available exclusively to businesses that
conduct the Business (in whole or in part), including those
currently provided by, or arising from (without being
limitative), Sections 125.4 and 125.5 of the Income Tax Act
(Canada) and Regulation 1106 of the Income Tax Regulations,
as amended from time to time, or any replacement legislation
or regulation, as the case may be.
1.7 "Class A Share(S)" means one or more Class A share(s) in the
share capital of the Company as constituted at the date of
this Agreement.
1.8 "Class B Share(S)" means one or more Class B share(s) in the
share capital of the Company as constituted at the date of
this Agreement.
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1.9 "Class C Share(S)" means one or more Class C share(s) in the
share capital of the Company as constituted at the date of
this Agreement.
1.10 "Class D Share(S)" means one or more Class D share(s) in the
share capital of the Company as constituted at the date of
this Agreement.
1.11 "Class P Share(S)" means one or more Class P share(s) in
the share capital of the Company as constituted at the date
of this Agreement.
1.12 "Control", whether used as a noun or verb, means the de jure
and/or de facto control of a partnership, joint venture,
corporation, trust or other entity (hereafter in this
definition the "Entity"), consisting of (i) the right
(whether through agreements or by law) to a majority of the
votes in the election of the board of directors of the
Entity; or (ii) the right (whether through agreements or by
law) to direct the majority of members of the board of
directors of the Entity in the exercise of their discretion
and powers.
1.13 "Convertible Debenture" means the non-secured and
convertible debenture of a face value of Three Million Five
Hundred Thousand Canadian Dollars (CDN$3,500,000), in
capital, issued by the Company to Cinepix, which under
certain conditions, is convertible for each Fifty Canadian
Dollars (CDN$50) of capital into one (1) Class B share or
Class A share, as the case may be; copy of said Convertible
Debenture is attached hereto as Schedule 1.
1.14 "Disability" means in respect of Pettigrew (a) the physical
or mental disability of Pettigrew, whether caused by
accident, illness or otherwise, arising during the time
Pettigrew is an employee of the Company and resulting in the
fact that Pettigrew cannot for any consecutive period of two
(2) years perform all his then duties and responsibilities
as employee of the Company, as determined in writing by his
doctor, or (b) the fact that a court of competent
jurisdiction has declared Pettigrew to be mentally
incompetent or incapable of managing his affairs, or (c) if
the Company has disability insurance, the definition of
disability as provided in such disability insurance.
1.15 "Fair Market Value" means the price determined in an open
and unrestricted market between informed and prudent
parties, acting at arm's length and under no compulsion to
act, expressed in terms of money. The Fair Market Value of
the Shares shall be determined by reference to the aggregate
price at which the Company, as a going concern, could be
sold in an arm's length transaction to an unaffiliated bona
fide third party in an orderly sale without regard to the
lack of liquidity of its capital stock.
1.16 "Officer" means a person holding a management or executive
position, including a position considered as such in
accordance with the then existing rules and practices
applicable in the Business of the Company, within the
Company, and includes a Senior Officer.
1.17 "Option to Faire Trust" means the option granted to Faire
Trust under the agreement reproduced in Schedule 2.
1.18 "Option to Pettigrew" means the option granted to Pettigrew
under the agreement reproduced in Schedule 3.
1.19 "Public Listing" means an initial public offering of the Class A
shares or any other event resulting in the Class A shares or
such shares of the Company or of another company into which
the Class A shares have been converted or for which they have
been exchanged, being listed and
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traded on a stock exchange in Canada, the New York Stock Exchange,
the American Stock Exchange, NASDAQ or the Canadian Dealer Network
or any successor thereto.
1.20 "Purchaser", unless the context otherwise requires, means
the acquirer of Shares pursuant to this Agreement.
1.21 "Quebec Officer" means an Officer who is a Quebec Resident.
1.22 "Quebec Resident" means a person domiciled in the Province
of Quebec who also complies with all the requirements to
qualify the Company and its Business for the Quebec Tax
Credits and, for greater certainty, excludes any person who
is not resident in Quebec under Section 1029.8.34 of the
Taxation Act (Quebec) (R.S.Q., c. I-3), as amended or
replaced, and any person not domiciled in the Province of
Quebec for the prescribed periods under the Regulation
respecting the recognition of films as Quebec films, adopted
pursuant to the Cinema Act (Quebec) (R.S.Q., c. C-18.1), as
amended or replaced.
1.23 "Quebec Tax Credits" includes any and all tax credits,
benefits, capital cost allowances, advantages, grants or
subventions of any sort, existing or not at the date hereof,
which are or may become available to the Company relating
directly and available exclusively to businesses that
conduct the Business (in whole or in part), including those
currently provided by, or arising from (without being
limitative), Sections 1029.8.34 through 1029.8.36.0.16
(inclusive) as well as 1129.1 through 1129.4.3.17
(inclusive) of the Taxation Act (Quebec) and Regulations
130 R 55.3.1 through 130 R 55.6.1 (inclusive), 1029.8.34R1
as well as 1029.8.34R2 of the Regulation respecting the
Taxation Act, as amended from time to time, or any
replacement legislation or regulation, as the case may be.
1.24 "Senior Officer" means an Officer holding a senior position
within the Company, including the offices of chairman of the
board, president, chief executive officer, chief operating
officer, general manager, chief financial officer, vice-
presidents and treasurer.
1.25 "Shares" means any share or shares in the capital stock of
the Company now or at any time hereafter beneficially owned
by the Shareholders and includes options to buy Shares
pursuant to the Option to Pettigrew, the Option to Faire
Trust and Article 19.
1.26 "Subsidiary" has the same meaning as the term "Subsidiary"
is given in the Securities Act (Quebec) as in effect as
the date hereof.
2. CONTRIBUTION OF THE SHAREHOLDERS
2.1 Subject to Article 2.2 in the case of Fox Family, the
Shareholders of the Company hereby undertake to contribute,
on a reasonable basis, to the Business of the Company, to
enable the Company to have access to their own network of
contacts and markets and, subject to execution of
appropriate agreements, to allow the Company to benefit from
their own expertise in so far as it can be useful to the
Company in the operation of the Business.
2.2 Fox Family acknowledges that the Company has issued shares
of its Class A capital to Fox Family in order to induce Fox
Family to continue to contract with the Company to produce
or co-produce animated, children and family movies,
televisions series, mini-series, motion pictures, films,
videotapes, or other programs to be procured for television
exhibition or theatrical release. Fox Family and the
Company have entered into similar business arrangements in
the past and
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currently intend to explore additional productions and co-
productions in the future, it being understood and agreed,
however, that Fox Family is under no obligation to deal with
the Company on an exclusive basis and that it has no obligation
to enter into any additional production or co-production
whatsoever.
3. RESTRICTIONS ON TRANSFER OF SHARES
3.1 Except as provided in this Agreement and except (i) with
respect to Pettigrew's and Pettigrew's Corporation's (as
defined in Article 3.2 below) right to borrow and hypothec
Shares and/or Convertible Debenture (then held and/or to be
purchased) to finance purchases of Shares or of the
Convertible Debenture, which may be acquired by Pettigrew
(and/or Pettigrew's Corporation, as the case may be) under
the Option to Pettigrew or under Articles 6 or 9.2, and for
the transfer of Shares or of the Convertible Debenture
bought by Pettigrew (and/or Pettigrew's Corporation, as the
case may be) under the Option to Pettigrew or under Articles
6 or 9.2 if a creditor having funded the acquisition of said
Shares or the Convertible Debenture enforces its rights and
for the sale or transfer of said Shares or the Convertible
Debenture by such creditor to a third party in case of
enforcement of said creditor's rights, and (ii) with respect
to Fox Family, A Faire Aujourd'hui Inc. ("A Faire") and
Faire Trust, for the pledge of Fox Family's Shares pursuant
to the Share Pledge Agreement entered on June 23, 1998,
between Fox Family and A Faire of fifty-eight thousand
(58,000) Class A shares as security for a Three Million
Canadian Dollars (CDN$ 3,000,000) loan made by A Faire to
Fox Family (the "Pledged Shares"), for the transfer of
Pledged Shares by Fox Family to A Faire, if A Faire enforces
its Pledge Agreement, for the sale or transfer of Pledged
Shares by A Faire to a third party or to Faire Trust,
following an enforcement of its Pledge Agreement, for the
transfer of the Pledged Shares to Lions Gate pursuant to the
Put Agreement entered on June 23, 1998 between Fox Family
and Lions Gate (the "Put Agreement") and for the transfer of
the Pledged Shares to Lions Gate by A Faire or Faire Trust
pursuant to the Put Agreement, which has been assigned to A
Faire by Fox Family pursuant to the Put Agreement Assignment
entered on June 23, 1998, between Fox Family and A Faire, no
Shareholder shall sell, transfer, assign or otherwise
dispose of any Shares or the Convertible Debenture, or
mortgage, pledge, hypothecate, charge or otherwise encumber
any Shares or the Convertible Debenture, without the prior
written consent of the other Shareholders. Except under
Article 3.2 hereunder, Shareholders may only sell, transfer,
assign or otherwise dispose of the totality, and not part,
of their Shares or Convertible Debenture.
3.2 Notwithstanding Article 3.1 above, each of the Shareholders
(hereinafter in Article 3, the "Transferor") shall, at all
times, have the right to transfer all or part of its Shares,
the Convertible Debenture and/or rights pursuant to this
Agreement to one of its Affiliates or Subsidiaries or, in
the case of Pettigrew, to a corporation that he Controls
and/or to Fiducie Pettigrew (except if stipulated otherwise,
hereinafter collectively "Pettigrew's Corporation"); in the
event of such a transfer (with respect to transferred
Shares, Convertible Debenture and/or rights), the given
Affiliate or Subsidiary or Pettigrew's Corporation shall be
previously required to confirm in writing to the other
Shareholders its irrevocable consent to be bound by the
provisions of this Agreement relative to the Transferor
(with respect to transferred Shares, Convertible Debenture
and/or rights) and to succeed in all of the Transferor's
rights, advantages, obligations and liabilities hereunder
(with respect to transferred Shares, Convertible Debenture
and/or rights) and is deemed to substitute itself to the
Transferor as if it were named in each provision of this
Agreement (other than this Article 3.2) (with respect to
transferred Shares, Convertible Debenture and/or rights),
it being understood however that the Transferor shall
remain solidarily liable for the entire compliance with
this Agreement by such an Affiliate or a Subsidiary or
Pettigrew's Corporation. The Shares and the Convertible
Debenture will remain subject to the provisions of
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this Agreement within the hands of such an Affiliate or a
Subsidiary or Pettigrew's Corporation. The Transferor must
give notice of its intention to effect a transfer pursuant
to this Article 3.2 at least fifteen (15) days before the
transfer. Before a transfer is effected and once a year
thereafter, the other Shareholders may require from the
president of the Affiliate or Subsidiary or Pettigrew's
Corporation (or in the case of Fiducie Pettigrew, from the
trustees thereof) who is to receive Shares, the Convertible
Debenture from the Transferor or, as the case may be, has
been transferred Shares, the Convertible Debenture of the
Company, a sworn affidavit as to the name of its controlling
shareholders and the percentage of voting shares they hold
in the Affiliate or Subsidiary or Pettigrew's Corporation
(or in the case of Fiducie Pettigrew, a sworn affidavit to
the effect that Pettigrew is one of the trustees thereof).
Any default to produce this sworn affidavit and any loss of
Control of the Affiliate or Subsidiary or Pettigrew's
Corporation by the Transferor (or in the case of Fiducie
Pettigrew, any default to produce the sworn affidavit or the
fact that Pettigrew is no longer a trustee of Fiducie
Pettigrew) shall be deemed to be a default under this
Agreement and shall give rise to the application of Article
10 of this Agreement.
3.3 In the event that any Shares or the Convertible Debenture,
are sold, transferred or assigned to a person who is not an
original Shareholder to this Agreement, including for
greater certainty in the circumstances described in Article
3.1, as a condition precedent to being registered as a
holder of such Shares or the Convertible Debenture, and to
the exercise by such transferee of any rights attaching to
such Shares or the Convertible Debenture, the transferee of
such Shares or the Convertible Debenture, shall execute and
deliver an agreement, in form and on terms reasonably
satisfactory to the Shareholders, whereby such transferee
agrees to be bound by the provisions hereof as if he were an
original Shareholder hereto. After the execution of such
agreement and subject to all other relevant provisions of
this Agreement, the transferee shall have the same rights
and obligations with respect to such Shares or the
Convertible Debenture, as the Shareholder from whom it
acquired such Shares or the Convertible Debenture.
3.4 The Company shall cause all share certificates now or later
authorized or issued to have printed thereon :
"The right of the holder of this certificate
to sell, transfer, assign or otherwise
dispose, mortgage, pledge, hypothecate,
charge or otherwise encumber the Shares
represented by this certificate is governed
by an unanimous shareholders' agreement,
dated as of the 23rd day of June, 1998, as
may be amended from time to time, and by the
articles of the Company, as may be amended
from time to time."
3.5 No sale, transfer, assignment or other disposal of Shares or
the Convertible Debenture, in violation of this Agreement
shall be valid and no such sale, transfer, assignment or
other disposal shall be recorded in the securities register,
minute book or corporate records of the Company.
3.6 The Shareholders and the Company expressly consent to any
sale, transfer, assignment or other disposal of Shares or
the Convertible Debenture, pursuant to this Agreement and
carried out in accordance with the provisions of this
Agreement and any sale, transfer, assignment or other
disposal of Shares or the Convertible Debenture permitted by
Article 3.1 of this Agreement. Notwithstanding anything else
in this Agreement, other than the transfer of the Pledged
Shares to Lions Gate by Fox Family under the Put Agreement,
the Company hereby undertakes to not consent to, or give
effect to, any sale, transfer, assignment or other disposal
of any of the Pledged Shares without first obtaining the
written consent of A Faire to such sale, transfer,
assignment or other disposal.
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ISSUANCE OF SHARES
3.7 Subject to Articles 4.7 to 4.11, no Shares of any classes
shall be issued by the Company, unless Article 13.1(p) of
this Agreement was complied with, and furthermore, when an
issue of Class A shares is involved, unless the Class A
shares to be issued have been first offered to the
Shareholders holding either Class A shares, Class B shares
and Class P shares, each of whom hold a pre-emptive right to
acquire the offered Class A shares in proportion to their
aggregate holdings (in aggregate number) of the Class A
shares, Class B shares and Class P shares, at such price and
conditions as those of the contemplated issue.
3.8 The pre-emptive right provided for in Article 4.1 may be
exercised by each Shareholder holding either Class A, Class
B or Class P shares within fifteen (15) days of receipt of a
written notice by the Company with respect to said
contemplated issue of Class A shares; such notice must
inform each such Shareholder of the number of Class A shares
he may acquire and all conditions of the issue, including
the issue price. Failure by a Shareholder to notify the
Company within the fifteen (15) day delay that he accepts to
exercise his pre-emptive right is deemed a refusal.
3.9 Each Shareholder may exercise his pre-emptive right by
notifying the Company in writing of the exercise of his pre-
emptive right acceptance and by notifying the Company (in
the same notice) of the maximum number of Class A shares he
would acquire if one (or more) Shareholder does not
exercise his pre-emptive right.
3.10 If one (or more) Shareholder refuses to exercise his pre-
emptive right, his pre-emptive right will accrue (in
proportion to his aggregate Class A, Class B and Class P
shares ownership in aggregate number) in favour of those
Shareholders who have duly exercised their pre-emptive
rights and have duly notified the Company of their consent
to acquire additional Class A shares under their accrued pre-
emptive rights. If more than one Shareholder want to
exercise their accrued pre-emptive rights, the additional
Class A shares shall be divided between the Shareholders
exercising said accrued pre-emptive rights in proportion to
their aggregate holdings (in aggregate number) of Class A,
Class B and Class P Shares.
3.11 Failure by Shareholders to accept to acquire all or part of
the contemplated issue of Class A shares and to duly comply
with their acceptance shall allow the Company to issue the
non-subscribed Class A shares to third parties who do not
have any pre-emptive rights, at terms and conditions
including the price of issue, not more advantageous than
those offered to the Shareholders in the notice to exercise
the pre-emptive rights, provided however that such third
parties must agree to be bound by the terms of this
Agreement as provided in Article 3.3. Such issuance must
take place no sooner than fifteen (15) days and no later
than sixty (60) days after the expiry of the above process
provided for in Articles 4.1 to 4.3, failing which the
provisions of these Articles shall again apply to said
issuance.
3.12 Notwithstanding the foregoing and Article 13.1(p), the
Company shall be entitled to issue the following Shares from
its treasury, only with resolutions of the board of
directors of the Company, without, if applicable, having to
first offer to all the Shareholders by virtue of their pre-
emptive rights :
(a) such number of Shares to Faire Trust as required
following any exercise by Faire Trust of the Option to
Faire Trust;
(b) the Shares that may be issued pursuant to the
Convertible Debenture;
(c) such number and types of Shares to Pettigrew as
required following any exercise by Pettigrew of the
Option to Pettigrew;
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(d) such number of Class D shares as required by any stock
option exercise pursuant to a stock option plan of the
Company put in place pursuant to Article 19;
(e) Shares issued following the automatic conversions
provided for in Article 14.2;
(f) such number of Class C shares that may be issued
pursuant to Articles 14.3 and 14.6.
3.13 No Class B shares may be issued except upon a conversion of
part or all of the Convertible Debenture or in accordance
with the automatic conversion provided for in Article 14.2
and in the Company's articles.
3.14 No Class P shares may be issued except to Pettigrew or
Pettigrew's Corporation.
3.15 No Class C shares may be issued except to Pettigrew or
Pettigrew's Corporation, or if Pettigrew is no longer an
Officer of the Company, to the highest ranking Quebec
Officer of the Company pursuant to the terms of the Option
to Pettigrew or the provisions of Articles 14.3 or 14.6 of
this Agreement, as the case may be.
3.16 No Class D shares may be issued except pursuant to a stock
option plan of the Company put in place pursuant to Article
19.
3.17 Except in compliance with this Agreement and with the
Option to Pettigrew and the Option to Faire Trust, and
without restricting the provisions of Article 14 of this
Agreement, the Company hereby agrees not to issue any
additional voting Shares and not to approve any transfer of
voting Shares, unless an affirmative written unrestricted
legal opinion is obtained from an independent counsel
jointly retained by the Company, Pettigrew and Cinepix (or
its successors and assigns), at the Company's costs, which
states that said issuance or transfer, as the case may be,
would not result in the loss for the Company of any of the
Quebec Tax Credits and Canadian Tax Credits for a given
financial year, it being provided however that this Article
4.11 shall cease to apply (without retroactive effects) if
the aggregate of the Quebec Tax Credits and the Canadian Tax
Credits (without taking into account any expected loss of
these credits resulting from said issue or transfer)
represent for a given financial year (of twelve (12) months)
and are expected to represent for the following financial
year (of twelve (12) months) (according to the then approved
budget) less than five percent (5%) of the Company's annual
revenues.
It is also agreed that this Article 4.11 shall not apply to
said issue or transfer (but may apply to subsequent issues
or transfers) : (1) in the case of an expected loss of the
Quebec Tax Credits only, resulting from said issue or
transfer, if the Quebec Tax Credits (without taking into
account the expected loss of the Quebec Tax Credits)
represent for a given financial year (of twelve (12) months)
and are expected to represent for the following financial
year (of twelve (12) months) (according to the then approved
budget) less than two percent (2%) of the Company's annual
revenues; or (2) in the case of an expected loss of the
Canadian Tax Credits only, resulting from said issue or
transfer, if the Canadian Tax Credits (without taking into
account the expected loss of the Canadian Tax Credits)
represent for a given financial year (of twelve (12) months)
and are expected to represent for the following financial
year (of twelve (12) months) (according to the then approved
budget) less than two percent (2%) of the Company's annual
revenues.
4. RIGHTS OF FIRST REFUSAL
4.1 Subject to Article 6 hereunder, when this Article 6 is
applicable, in the event any Shareholder receives a bona
fide offer from a third party or another Shareholder to
purchase all but not less
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than all of his Shares (hereinafter in this Article the
"Offeror"), such Shareholder (hereinafter in this Article,
the "Vendor") shall, before accepting the offer of the
Offeror, offer the Shares, which are the subject of the
Offeror's offer in writing to the other Shareholders in
proportion to their shareholdings (in aggregate number)
of Class A, Class B and Class P shares (excluding the
Shares of the Vendor) at the price and on the terms set
out in the offer of the Offeror; said notice must include
a copy of the offer received from the Offeror and an
undertaking that the Vendor will accept the offer of the
Offeror if Shareholders do not exercise their rights of
first refusal (hereinafter in this Article and in Article
6 hereafter the "Notice").
In the event that Article 6 is not applicable by reasons of
(A) the Offeror's offer not covering the Shares and/or
Convertible Debenture of Cinepix (and its successors); or
(B) if Pettigrew and Pettigrew's Corporation refuse or fail
to exercise their rights to purchase under Article 6, the
Shareholders (other than the Vendor but including Pettigrew
and Pettigrew's Corporation) may accept in writing the offer
of the Vendor within (i) sixty (60) days after the receipt
of the Notice if Article 6.1 is not applicable because the
Offeror's offer does not cover the Shares and/or Convertible
Debenture of Cinepix (and its successors); or (ii) ninety
(90) days after the receipt of the Notice if Pettigrew and
Pettigrew's Corporation advise that they do not wish, or if
they fail, to exercise their rights pursuant to Article 6
hereunder; or (iii) one hundred and twenty (120) days after
the receipt of the Notice if Pettigrew and Pettigrew's
Corporation, after having exercised their rights to purchase
under Article 6 hereunder, fail to purchase at the Closing,
as outlined in Article 6.2 hereunder. Any acceptance must
notify the Vendor of the additional number of Shares, any
accepting Shareholder is willing to purchase pursuant to the
Vendor's offer in the event one or more other Shareholders
shall not accept the Vendor's offer. Any Shareholder not
responding within this delay shall be deemed to have refused
the offer of the Vendor. In the event one or more of the
other Shareholders do not accept to purchase all Vendor's
Shares pursuant to the offer as contained in the Notice, the
Vendor shall be obliged to sell his Shares to the Offeror at
the price and on the terms set out in the offer of the
Offeror within the next sixty (60) days, provided however
that the Offeror, if he is not a Shareholder, agrees to be
bound by the terms of this Agreement as provided in Article
3.3.
In the event more than one Shareholder accepts the Vendor's
offer as contained in the Notice and expresses its
acceptance to purchase additional Shares not bought by other
Shareholders, if the accepting Shareholders offer to
purchase more than one hundred per cent (100%) of the
Offeror's Shares pursuant to this Article 5, those
Shareholders who accept such offer or any of them, having
expressed their consent to acquire an additional number of
Shares shall be entitled, to purchase the remainder of the
Vendor's Shares in proportion to their Shareholdings (in
aggregate number) of Class A, Class B and Class P shares
(excluding the Shares of the Vendor, the Shares of any other
Shareholder refusing the offer pursuant to this Article 5
and the Shares of any other Shareholder accepting the offer
made pursuant to this Article in proportion of his
shareholdings (in aggregate number) of Class A, Class B and
Class P shares but refusing to purchase additional Shares)
at the price and on the terms set out in the offer of the
Offeror. In the event none of the other Shareholders
accepts to purchase all Vendor's Shares pursuant to the
offer, if the Vendor's Shares are not sold to the Offeror
within the sixty (60) days next following the completion of
the above process, the provisions of this Article 5 shall
again apply from that time forward and from time to time.
4.2 Without limiting Article 5.1 above and when Article 6.1
hereafter does not apply or if Pettigrew and Pettigrew's
Corporation refuse or fail to exercise their rights to
purchase or refuse or fail to purchase at Closing under
Article 6, should a Shareholder holding more than fifty
percent (50%) of the votes in Company's Shares (a "Majority
Shareholder") or Pettigrew (including
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Pettigrew's Corporation) receive a third party offer, all
other Shareholders must have the right (but not the obligation),
under said Offeror's offer to sell their Shares in the
Company on the same terms and conditions as those offered to
the Majority Shareholder or Pettigrew (including Pettigrew's
Corporation), otherwise the Majority Shareholder or
Pettigrew (including Pettigrew's Corporation), may not
accept the Offeror's offer. The Offeror's offer made to the
Majority Shareholder or Pettigrew (including Pettigrew's
Corporation) must be open for acceptance by all other
Shareholders for a period of not less than one hundred and
twenty (120) days from the receipt of the Notice by all
other Shareholders. Notwithstanding this Article 5.2, when
Pettigrew and/or Pettigrew's Corporation exercise their
rights provided by Article 6.1 herein on the sale of Shares
of a Majority Shareholder, this Article 5.2 is not
applicable, unless the closing of such transaction by
Pettigrew and/or Pettigrew's Corporation, as purchaser, does
not take place.
4.3 Cinepix and Lions Gate Films hereby irrevocably agree in
favour of Pettigrew and Pettigrew's Corporation that if
there is a direct or indirect change in Control of Cinepix
and/or Lions Gate Films (except only in the case of a change
in Control of Lions Gate), Pettigrew and Pettigrew's
Corporation shall have the option within sixty (60) days of
their knowledge of said change, to solidarily require
Cinepix and Lions Gate Films to purchase their Shares at
the price stipulated in Article 11, it being understood
however that: (i) without restricting Pettigrew's rights
under his employment agreement with the Company attached
hereto as Schedule 4 (the "Employment Agreement") to
exercise the option provided by this Article 5.3, Pettigrew
shall be under the obligation to submit his resignation as
an employee of the Company; (ii) for evaluation purposes the
fact that Pettigrew ceases to be an employee of the Company
shall be considered in the determination of the Fair Market
Value of his Shares, (iii) payment of the purchase price to
Pettigrew and Pettigrew's Corporation shall be made as
follows : (a) twenty-five percent (25%) at closing, which
shall occur at the latest thirty (30) days after Fair Market
Value of Pettigrew's Shares and Pettigrew's Corporation's
Shares has been determined; (b) twenty-five percent (25%)
six (6) months after closing; (c) twenty-five percent (25%)
twelve (12) months after closing; and (d) twenty-five
percent (25%) eighteen (18) months after closing.
Subject to Pettigrew's and Pettigrew's Corporation's rights
outlined in Article 6 hereafter, any sale, transfer,
assignment or other disposal of the Convertible Debenture
shall be subject to this Article 5. For greater certainty,
no partial sale of the Convertible Debenture is permitted.
4.4 Article 5 shall cease to apply should the Company
successfully complete a Public Listing, except for an event
giving rise to the first refusal mechanism which has
occurred prior to the completion of said Public Listing and
which is still existing when the Company completes its
Public Listing.
5. RIGHTS OF PETTIGREW AND PETTIGREW'S CORPORATION TO PURCHASE
ALL SHARES AND/OR CONVERTIBLE DEBENTURE COVERED BY AN
OFFEROR'S OFFER MADE TO CINEPIX (AND ITS SUCCESSORS)
5.1 Without restricting the provisions of Article 14
hereinafter, in the event Cinepix (and its successors)
receives a bona fide offer from a third party or another
Shareholder (other than Pettigrew or Pettigrew's
Corporation) (hereinafter in this Article the "Offeror") to
purchase all of its Shares and/or Convertible Debenture (in
its entirety) which it desires to accept, Pettigrew and/or
Pettigrew's Corporation (at Pettigrew's choice) shall,
notwithstanding the provisions of Article 5.1 above, have
the exclusive right to purchase all the Shares and/or
Convertible Debenture mentioned in the Offeror's offer made
to Cinepix (and its successors) at the price and on the
terms set out therein. The parties agree that, provided that
a sale by Cinepix (or its successors) to a third party or a
Shareholder has taken place after giving rise to this
Article 6, this priority right of first refusal shall not
apply thereafter and Pettigrew and Pettigrew's Corporation
shall only benefit from the rights of first refusal provided
in Article 5.
Pettigrew and/or Pettigrew's Corporation may accept in
writing to purchase all the Shares and/or Convertible
Debenture mentioned in the Offeror's offer within sixty (60)
days from receipt of the
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Notice by forwarding acceptance in writing to Cinepix (or
its successors) together with (i) a letter or other
documents from a bona fide financial institution, lender
or investor (or a combination thereof) approving with or
without conditions to finance such an eventual acquisition
by Pettigrew and/or Pettigrew's Corporation or (ii)
evidence of sufficient funding by Pettigrew and/or
Pettigrew's Corporation to finance such an eventual
acquisition. Failure to respond as aforesaid within
this delay shall be deemed to be a refusal of Pettigrew
and/or Pettigrew's Corporation to exercise their rights
pursuant to this Article 6.1 and then Cinepix (and its
successors), as Vendor, shall be required to continue the
process already commenced pursuant to Article 5 above.
5.2 Notwithstanding any provision to the contrary, to finance
the acquisition of the Shares and/or Convertible Debenture
covered by an Offeror's offer pursuant to this Article 6,
Pettigrew and/or Pettigrew's Corporation shall be entitled
to sell Shares to raise the sum required for the purchase as
long as Pettigrew and Pettigrew's Corporation remain the
owners of Shares representing at least ten percent (10%) of
equity (exclusive of votes) at closing of the acquisition.
Closing shall occur within thirty (30) days of the
forwarding of written acceptance (accompanied with
appropriate documents as provided for in the second
paragraph of Article 6.1) by Pettigrew and/or Pettigrew's
Corporation; if for any reason whatsoever Pettigrew and/or
Pettigrew's Corporation, acting in good faith, cannot close
the transaction, Cinepix (and its successors), the other
Shareholders, the Offeror and any other party involved will
have no recourse against Pettigrew and Pettigrew's
Corporation and then, Cinepix (and its successors), as
Vendor, shall be required to continue compliance with the
provisions of Article 5 above. It is agreed that even in the
cases of failure to respond to the Notice or if, after
acceptance of the Offeror's offer contained in the Notice,
a closing does not occur in accordance with this Article
6.2, Pettigrew and Pettigrew's Corporation shall have the
benefit of the provisions of Article 5.1.
5.3 The rights to purchase given to Pettigrew and Pettigrew's
Corporation pursuant to this Article 6 shall continue to
exist even if the Company successfully completes a Public
Listing. However, if the sale of Shares and/or
Convertible Debenture by Cinepix (and its successors) would
not result in a loss of Control of the Company by Cinepix
(and its successors), these rights to purchase would only
cover the Class B shares and the Convertible Debenture held
by Cinepix (and its successors) which are intended to be
sold, if any, and not the Class A shares of the Company
which are intended to be sold. For greater certainty, if,
after a Public Listing, the sale of Shares and/or
Convertible Debenture would result in a loss of Control of
the Company by Cinepix (and its successors), these rights to
purchase would cover all the Shares and/or Convertible
Debenture which are intended to be sold.
5.4 In the event Article 6.1 applies and Pettigrew and/or
Pettigrew's Corporation exercises the exclusive right to
purchase all the Shares and/or Convertible Debenture
mentioned in the Offeror's offer, all other Shareholders
have the right (but not the obligation) to sell to Pettigrew
and/or Pettigrew's Corporation, their Shares in the Company
on the same terms and conditions as those offered to Cinepix
(and its successors) by the Offeror. The other Shareholders
will have a period of not less than twenty (20) days from
the receipt of the Notice (as defined in Article 5.1) to
exercise this option to sell. For greater certainty,
Article 6.2 shall apply mutatis mutandis when other
Shareholders exercise their option to sell hereunder.
5.5 The Shareholders agree that this Article 6 shall apply as
long as Pettigrew (i) is a Senior Officer of the Company,
subject to what is provided hereunder in case of wrongful
dismissal of Pettigrew; and (ii) has (considering any anti-
dilution option he has under the Option to Pettigrew, as
deemed exercised) either a) at least five percent (5%) of
the equity of the Company (exclusive of voting rights)
provided he has at least eighty-four thousand (84,000)
Shares of
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the Company, whether in Class A, Class B and/or Class P
shares or b) at least ten percent (10%) of equity of the
Company (exclusive of voting rights) if he has less than
eighty-four thousand (84,000) Shares of the Company, whether
in Class A, Class B and/or Class P shares. The Shareholders
agree that if Pettigrew alleges, in writing, within ten (10)
Business Days of his knowledge of his dismissal, to have
been wrongfully dismissed, his option pursuant to this
Article 6 shall remain in full force and effect (subject to
compliance with this paragraph) until a final arbitration
award has been rendered on this matter by the arbitration
tribunal of which the members shall have been nominated
pursuant to the Employment Agreement declaring that the
dismissal of Pettigrew was not a wrongful dismissal or the
execution of an out of court settlement to this effect.
6. DEATH OR DISABILITY OF PETTIGREW
6.1 Pettigrew and, as the case may be, Pettigrew's Corporation
and Pettigrew's estate, hereby irrevocably offer to sell to
the Company, which irrevocably accepts to buy, at the price
stipulated in Article 11 hereof and upon the terms and
conditions set forth hereinafter all of his (its) Shares and
Convertible Debenture(in its entirety) then held in the
event of the death or Disability of Pettigrew, whichever
comes first, which events are each a suspensive condition to
this offer.
6.2 Article 7 shall cease to apply should the Company
successfully complete a Public Listing, unless the death or
Disability of Pettigrew has occurred prior to the closing of
said Public Listing.
6.3 The closing of the sale of Shares and Convertible Debenture
provided for in Article 7 shall occur within six (6) months
of the death or Disability of Pettigrew.
7. LIFE INSURANCE AND DISABILITY INSURANCE
7.1 In order to fulfill the Company's obligations in the event
of Pettigrew's death or Disability pursuant to Article 7,
the Company shall use its best efforts to subscribe and
maintain in full force and effect throughout the term of
this Agreement a policy or policies of life insurance on the
life of Pettigrew for an aggregate coverage amount of at
least Six Million Canadian Dollars (CDN$6,000,000) payable
upon the death of Pettigrew and the Company shall use its
best efforts to subscribe and maintain in full force and
effect throughout the term of this Agreement a policy or
policies on the Disability of Pettigrew for such reasonable
available coverage (hereinafter collectively the "Policies")
and Pettigrew hereby accepts to submit himself to, as may be
reasonably required at any time and from time to time, any
medical examination for the purposes of subscribing and
maintaining in full force and effect the Policies. The
owner of such Policies and the beneficiary (hereinafter the
"Beneficiary") of the proceeds of the Policies (hereinafter
the "Proceeds") shall be the Company. On a yearly basis,
the Company shall review and increase, if necessary, the
Proceeds payable under the Policies to ensure that the
amount of life insurance in such year is at least equal to
the value of the Shares and Convertible Debenture held by
Pettigrew or Pettigrew's Corporation calculated as if the
obligations to purchase those Shares and Convertible
Debenture was created on the first day of January of any
year this Agreement is in force, starting January 1, 2000
and make the necessary adjustments to any policies payable
upon the Disability of Pettigrew.
Notwithstanding anything to the contrary in this Agreement :
a) When upon Pettigrew's death or Disability, the
Company must buy Shares and Convertible Debenture from
Pettigrew, Pettigrew's estate or Pettigrew's
Corporation (hereinafter in this Article "Pettigrew's
Shares") the first One Million Canadian Dollars
(CDN$1,000,000) payable out of the Proceeds shall be
used by the Company to buy
Page 130
Pettigrew's Shares and Convertible Debenture, the next
One Million Five Hundred Thousand Canadian Dollars
(CDN$1,500,000) payable out of the Proceeds shall be
kept by the Company and the remainder of the Proceeds
shall be used by the Corporation to fund the purchase
of Pettigrew's Shares and Convertible Debenture.
The foregoing amount of One Million Five Hundred
Canadian Dollars (CDN$1,500,000) shall read as One
Million Two Hundred and Fifty Thousand Canadian Dollars
(CDN$1,250,000) after June 23, 2000.
b) Unless all Shareholders consent to the contrary, in any
Company's financial year, the Company shall not pay, as
premiums excluding applicable taxes, more than Fifty
Thousand Canadian Dollars (CDN$50,000) for the
Policies. If the Company has to pay more than Fifty
Thousand Canadian Dollars (CDN$50,000) for the
Policies, then the insurance coverage shall be
diminished to such an amount where the insurance
premiums shall not be more than Fifty Thousand Canadian
Dollars (CDN$50,000).
7.2 Upon the death of Pettigrew or his Disability, subject to
Article 8.1, all or part of the Proceeds shall be used by
the Beneficiary to fund the purchase of such Shares and
Convertible Debenture, directly or indirectly, held and/or
controlled by Pettigrew, Pettigrew's Corporation or the
estate of the deceased Pettigrew (Pettigrew, Pettigrew's
Corporation and the estate of the deceased Pettigrew, as the
case may be, in this Article, the "Selling Shareholder"), so
that the purchase price payable by the Company to the
Selling Shareholder in respect of such Shares and
Convertible Debenture be fully funded by all or part of the
Proceeds, as the case may be. Notwithstanding anything to
the contrary herein, in the event that the Proceeds
(distributed in accordance with Article 8.1) are not
sufficient to fund or fully fund the payment of the purchase
price, then the Company shall only buy and the Selling
Shareholder shall only sell to Company such number of Shares
and that part of the Convertible Debenture which may be
fully paid out of the Proceeds; any Shares and part of the
Convertible Debenture of the Selling Shareholder which have
not been bought by the Corporation because the Proceeds were
insufficient shall be bought by the Company and sold by the
Selling Shareholder as follows for each financial year ended
after the foregoing purchase:
(i) within three (3) months after the approval of the
Company's financial statements, the Auditors shall
determine the Company's after tax profit for said year,
as determined by said Auditors applying the generally
accepted accounting principles applicable in Canada and
the board of directors of the Company shall cause, to
the extent permitted by the Companies Act (Quebec), the
Company to use twenty-five percent (25%) of said amount
to fund purchase of additional Shares and part of the
Convertible Debenture from the Selling Shareholder. The
purchase price of these additional Shares and part of
the Convertible Debenture shall be equivalent to the
purchase price per Share which had been paid out of the
Proceeds to the Selling Shareholder.
When Article 13.4 applies, the purchase of these
additional Shares and part of the Convertible Debenture
shall occur before the declaration and payment of the
annual dividend provided in said Article 13.4.
The Company shall take all such commercial efforts which may
be required to designate or qualify any and all part of the
purchase price payable out of the Proceeds as a "capital
dividend" or such other designation qualifying the payment
of the purchase price as tax free to the recipients to the
extent available under prevailing tax laws at the relevant
time.
7.3 The premiums payable in respect of the Policies in any
financial year shall be assumed by the Company. In the event
the Company fails to maintain the Policies, any Shareholder
may do so for
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the account of the Company and the Company shall consequently
reimburse any insurance premiums paid by a Shareholder.
7.4 If Pettigrew ceases to be a direct or indirect Shareholder
of the Company or if the Company completes a Public Listing
prior to the death or Disability of Pettigrew, the Company
shall relinquish all of its interest in and under all
Policies held on the life and Disability of Pettigrew and
shall take such steps as are necessary or expedient to
assign such interest in accordance with Pettigrew's
instructions. The Company shall pay all premiums for said
Policies until the date such assignment is effective.
8. ADDITIONAL RIGHTS OF PETTIGREW
8.1 In the event of termination of Pettigrew's employment with
the Company resulting from non-renewal of the Employment
Agreement by the Company or of termination of Pettigrew's
employment without Cause (as defined in the Employment
Agreement) or of retirement by Pettigrew from his employment
after the age of fifty-five (55) years old, the parties
agree that Pettigrew and Pettigrew's Corporation shall have
the right, within ninety (90) days of occurrence of the
relevant event, to require that the Company (or a third
party solicited by the Company) purchase their Shares and
Convertible Debenture at the price set forth in Article 11
and, upon receipt of a notice for this purpose, the Company
(or the acquiring third party), shall be obliged to purchase
such Shares and Convertible Debenture from them, upon the
terms and conditions contained in this Agreement. The
Company and any third party acquiring said Shares and
Convertible Debenture are solidarily bound towards Pettigrew
and Pettigrew's Corporation to comply with all provisions of
this Agreement. The above option to Pettigrew and
Pettigrew's Corporation shall cease should the Company have
completed a Public Listing prior to the exercise of the
option or if Pettigrew and/or Pettigrew's Corporation
acquire the Control of the Company.
8.2 Without limiting the provisions of Article 14 and as long as
Cinepix, Cinepix Films, Cinepix Inc. and/or Lions Gate
Films, directly or indirectly, Control the Company, in the
event of a direct or indirect change of Control of Cinepix,
Cinepix Films, Cinepix Inc. or Lions Gate Films (except only
in the case of a change of Control of Lions Gate) Pettigrew
shall have, in his sole discretion, the option to purchase,
directly or through Pettigrew's Corporation, all but not
less than all of the issued and outstanding Shares and the
Convertible Debenture of the Company held by Cinepix (and
its successors pursuant to Article 3.2) (the Shares and the
Convertible Debenture are collectively designated in this
Article the "Purchased Shares and Debenture").
Pettigrew must exercise this option within sixty (60) days
following the earlier of a) his receipt of a notice
containing all relevant details of such a transaction or b)
his knowledge of the occurrence of the transaction with all
relevant details of such transaction by sending to the
owner of said Purchased Shares and Debenture a notice
stating that Pettigrew or Pettigrew's Corporation exercises
his option under this Article 9.2. Pettigrew may, at his
discretion, but without any obligation to do so, renounce,
in writing, to the term provided above in a) or b), and
exercise this option even if he has not received a notice of
the transaction or all relevant details of such a
transaction.
Pettigrew shall have an additional sixty (60) days after the
Fair Market Value of the Purchased Shares and Debenture has
been determined in accordance with Article 11 (which Article
11 shall be applicable in its entirety except the delay of
thirty (30) days within which Pettigrew or Pettigrew's
Corporation (as the Purchaser as defined in Article 11) and
the Vendor (as defined in Article 11) shall try to reach an
agreement as to the purchase price shall start from the
occurrence of the earliest of event a) or b) above described
in this Article 9.2 or the renunciation of Pettigrew
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to the term provided above in a) or b)) to obtain the
requisite financing to buy the Purchased Shares and Debenture.
The terms of payment for the Purchased Shares and Debenture (as
the case may be) shall be those stated in Article 12.2 b) of
this Agreement. If for any reason whatsoever Pettigrew or
Pettigrew's Corporation, acting in good faith, cannot close
the transaction after having exercised his option, the
Shareholders and any other party involved will have no
recourse against Pettigrew or Pettigrew's Corporation;
however, in such a case, this Article will cease to receive
application for the future.
Article 6.2 of this Agreement shall apply mutatis mutandis
in favour of Pettigrew and Pettigrew's Corporation to
finance an acquisition pursuant to this Article 9.2
This Article 9.2 applies whether or not the change of
Control contemplated herein would result in the loss for the
Company of the Quebec Tax Credits and/or Canadian Tax
Credits, or would have a negative impact thereon.
The Shareholders agree that Article 9.2 shall apply as long
as Pettigrew (i) is a Senior Officer of the Company, subject
to what is provided hereunder in case of wrongful dismissal
of Pettigrew; and (ii) has (considering any anti-dilution
option he has under the Option to Pettigrew, as deemed
exercised) either a) at least five percent (5%) of the
equity of the Company (exclusive of voting rights) provided
he has at least eighty-four thousand (84,000) Shares of the
Company, whether in Class A, Class B and/or Class P shares;
or b) at least ten percent (10%) of equity of the Company
(exclusive of voting rights) if he has less than eighty-four
thousand (84,000) Shares of the Company, whether in Class A,
Class B and/or Class P shares.
The Shareholders agree that if Pettigrew alleges, in
writing, within ten (10) Business Days of his knowledge of
his dismissal, to have been wrongfully dismissed, his option
pursuant to this Article 9.2 shall remain in full force and
effect (subject to compliance with the above paragraph)
until a final arbitration award has been rendered on this
matter by the arbitration tribunal of which the members
shall have been nominated pursuant to the Employment
Agreement declaring that the dismissal of Pettigrew was not
a wrongful dismissal or the execution of an out of court
settlement to this effect.
This Article 9.2 applies even after the Company successfully
completes a Public Listing and applies regardless of the
fact that the change of Control may have resulted into
conversion of Class P shares into Class B shares.
9. DEFAULT
9.1 The occurrence of any of the following events shall
constitute an event of default (an (r)Event of Default")
hereunder on the part of the Shareholder with respect to
whom such event occurs (the "Defaulter"), if, within the
number of Business Days, provided in the notice of such
default sent by any other party in the manner set forth in
Article 10 below, following receipt of said notice, the
Defaulter fails to cure the default; provided, however, that
the occurrence of any event described in Articles 10.1 (a)
to (d), 10.1(g) and 10.1 (i) shall constitute an Event of
Default immediately upon such occurrence without any
requirement of notice or passage of time, except as
specifically set forth in any such Articles :
(a) the institution by a Shareholder of proceedings of any
nature under any laws of Canada, of any province, of
the United States of America or of any American State
for the relief of debtors wherein such Shareholder is
seeking relief as debtor including the taking of any
action by a Shareholder to participate in, or commence
any proceeding relating to,
Page 133
insolvency or bankruptcy or the seeking of reorganisation,
arrangement, protection, relief or composition of a
Shareholder or any of his or its property or debt or
the making of a proposal under any law relating to
bankruptcy, insolvency, reorganisation or compromise
of debt;
(b) a general assignment by a Shareholder for the benefit
of its creditors in general;
(c) the institution against a Shareholder of a petition of
bankruptcy under any section of the Bankruptcy and
Insolvency Act (Canada) or any similar act under the
U.S. or any American State laws, which proceeding is
not dismissed, stayed or discharged within a period of
sixty (60) days after the filing thereof or, if stayed,
which stay is thereafter lifted without a
contemporaneous discharge or dismissal of such
proceeding;
(d) any admission by a Shareholder in writing of its
inability to pay its debts as they become due or any
acknowledgement of insolvency;
(e) any material breach or violation of this Agreement by a
Shareholder;
(f) except as provided for in Articles 3.1 or 12.2(b) of
this Agreement, the registration of any legal hypothec
on all or part of the Shares held by a Shareholder
where such hypothec remains registered for a period of
more than twenty (20) days after the registration
thereof or the rendering of any judgment against any
Shareholder as a result of any action taken by any
third party, which condemns the Shareholder to the
payment of an amount of $100,000 or more unless an
appeal is taken therefrom within the period of time
permitted by law to appeal from such judgment, and as
long as said appeal is not partly or fully dismissed,
or the amount payable under such judgment (as modified
by an out of court settlement) is paid and discharged
in full and evidence of such appeal or of such payment
and discharge is provided to all the other parties
hereto within the aforesaid period of time or if no
appeal may be taken from such judgment unless the
amount payable under such judgment is paid and
discharged in full and evidence of such payment and
discharge is provided to all the other parties hereto
within a period of thirty (30) days following the date
such judgment is rendered;
(g) private appointment of a receiver, trustee or similar
official for a Shareholder's property and assets or any
part thereof, which appointment is not dismissed,
stayed or discharged within a period of sixty (60) days
after the filing thereof or, if stayed, which stay is
thereafter lifted without a contemporaneous discharge
or dismissal of such appointment;
(h) seizure of his or its Shares or Convertible Debenture,
including execution, distress or other enforcement
process (in this Article 10.1 (h), the "Seizure"), not
opposed within five (5) days of such Seizure or if
after such opposition the Seizure is not quashed and
the seizing party could become owner of the Shares or
Convertible Debenture; or
(i) any Shareholder or any of its directors and officers
commits a fraud against the Company or one of its
Subsidiaries.
9.2 Should any of the events described in Article 10.1 (e), (f)
or (h) occur, any Shareholder may send a notice to the
Defaulter and to all the other Shareholders hereto, setting
forth the details of the default, and, if any, the manner in
which such default may be cured by the Defaulter together
within a fifteen (15) Business Days delay of sending of said
notice to the Defaulter.
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9.3 If a default under Article 10.1 (a) to 10.1 (d), 10.1 (g)
and 10.1 (i) arises or if a default arises under Article
10.1 (e), 10.1 (f) or 10.1 (h) which is not cured following
the notice of default sent pursuant to Article 10.2 within
the delay therein stipulated, which default is a suspensive
condition of this offer, then the Defaulter irrevocably
offers to sell to other Shareholders at the price stipulated
in Article 11; his (its) Shares, as determined at the
occurrence of the condition of this offer.
9.4 In the event that any Shareholder wants to accept the offer
made pursuant to Article 10.3 within thirty (30) days of his
knowledge of an Event of Default, he shall send a notice of
his acceptance to the other Shareholders, the Defaulter and
the Company. After receipt of this notice, if one or more
of the other Shareholders also want to accept the offer made
pursuant to Article 10.3, within thirty (30) days of receipt
of the acceptance of the offer from the first accepting
Shareholder, said other Shareholders shall give notice of
their acceptance to the Defaulter, the Company and all other
Shareholders, including the first accepting Shareholder,
failing which all other Shareholders are deemed not to have
accepted the offer. If more than one Shareholder accepts
the offer made pursuant to Article 10.3, the accepting
Shareholders shall acquire the Shares of the Defaulter in
proportion to the Class A, Class B and Class P shares (in
aggregate number) they hold (excluding the Shares of all
other Shareholders and of the Defaulter).
9.5 The closing of the sale provided for in this Article must
occur within sixty (60) days of the last acceptance of the
offer by the other Shareholders.
9.6 The Shareholders and the Company hereby renounce to Article
1392 of the Civil Code of the Province of Quebec.
9.7 Any Event of Default by Pettigrew shall be deemed to be an
Event of Default by Pettigrew's Corporation and vice versa.
10. VALUATION
10.1 The value (or purchase price) of each of the Shares and
Convertible Debenture pursuant to Articles 5.3, 7, 9 and 10
of this Agreement shall be the amount agreed to by the
Purchaser acquiring the Shares and Convertible Debenture
and the vendor of said Shares and Convertible Debenture
(hereinafter the "Vendor") within the thirty (30) day period
following request by the Purchaser or the Vendor to
establish the purchase price. In the event agreement is not
reached within such thirty (30) day period, each of the
Vendor and the Purchaser shall, within fifteen (15) days
following the expiry of such thirty (30) day period, appoint
a business valuator having experience in the Business to
determine the Fair Market Value of the Shares and
Convertible Debenture as at the date of the event giving
rise to the sale. Each such valuator (the "Original
Valuators") shall be instructed to deliver its valuation as
soon as practicable, and in any event within thirty (30)
days of his appointment. Each party to valuation and the
Company (when the Company is not the Purchaser) must
collaborate to promptly give all relevant information to the
Original Valuators. If a party to valuation does not so
appoint such a valuator, then the valuation determined by
the valuator appointed by the other party shall be the
purchase price for the Shares and Convertible Debenture.
For greater certainty, the costs and expenses of each
Original Valuator shall be paid by the party retaining such
valuator. For the purposes of Article 11, Pettigrew and
Pettigrew's Corporation (if such a corporation is a Vendor )
shall be deemed to be one party to valuation and if more
than a person is the Purchaser, said persons shall be deemed
to be one party to valuation.
10.2 If the lowest of the two (2) valuations of the Original
Valuators is at least ninety percent (90%) of the highest
valuation of the Original Valuators, the purchase price for
the Shares and Convertible
Page 135
Debenture shall be equal to the mid-point of the two (2)
original valuations. If the lowest of the two (2) valuations
is less than ninety percent (90%) of the highest valuation,
the Original Valuators shall, within ten (10) days of the
delivery of the last of the valuations, mutually agree upon
a third valuator having xperience in the Business (the
"Third Valuator") who shall determine the Fair Market Value
of the Shares and Convertible Debenture as aforesaid which
valuation shall be the purchase price for the Shares and
Convertible Debenture and which shall be final and binding
upon the Purchaser and the Vendor, unless the valuation of
the Third Valuator is lower than the two (2) valuations of
the Original Valuators, in which case the lowest valuation
of the Original Valuators shall be deemed to be the Fair
Market Value of the Shares and Convertible Debenture and
shall be final and binding upon the Purchaser and the Vendor.
If the Original Valuators fail to appoint a Third Valuator
within such ten (10) day period, the Third Valuator shall
be appointed by the Auditors of the Company. The Third
Valuator shall be instructed to deliver its valuation as
soon as practicable, and in any event within thirty (30)
days of his appointment. Each party and the Company (when
the Company is not the Purchaser) must collaborate to
promptly give all relevant information to the Third
Valuator. The costs of the Third Valuator shall be paid
by the party whose Original Valuator provided a valuation
which is furthest from the valuation determined by the
Third Valuator.
10.3 For the purposes of valuation under Article 11, the Original
Valuators and the Third Valuator must consider that
Pettigrew and/or Pettigrew's Corporation (if such a
Corporation is a Vendor) have exercised any and all options
(under the Option to Pettigrew and any other stock option
plan to be put in place in the future by the Company) to buy
Company's Shares and the value of such deemed Shares is
equivalent to the Fair Market Value of such deemed Shares
less the amount that would have to be paid by Pettigrew
and/or, as the case may be, Pettigrew's Corporation to
exercise such options; it being understood however that if
the latter amount is greater than the Fair Market Value, the
value of the deemed shares will be considered to be nil.
11. CLOSING
11.1 Unless otherwise agreed by the Purchaser and the vendor of
the Shares (hereinafter in this Article the "Vendor"), the
closing of any sale and purchase contemplated in this
Agreement shall be at a place (in Montreal, Quebec) and time
as determined by the Purchaser; provided, however, the date
is within the time limit set for the sale, purchase and
payment of the purchase price for the first part thereof.
11.2 Unless otherwise agreed by the Purchaser and the Vendor, the
Purchaser shall deliver to the Vendor:
(a) In the circumstances contemplated by Article 7.1, when
Pettigrew, Pettigrew's Corporation and/or Pettigrew's
estate is the Vendor, in the case of Proceeds being
payable to the Company in respect of the death of
Pettigrew or its Disability, the Company (acting as
Purchaser) shall, subject to Article 8.1, remit to the
Vendor the lesser of (i) the purchase price for such
shares and (ii) up to the amount of life insurance
Proceeds paid to the Company, a certified cheque for
the full amount payable under Article 8.1;
(b) In the circumstances contemplated by Article 9.2, the
terms of payment will be forty percent (40%) at
closing; twenty percent (20%) six (6) months after
closing; twenty percent (20%) twelve (12) months after
closing and twenty percent (20%) eighteen (18) months
after closing; furthermore, all Shares and Convertible
Debenture of Pettigrew and/or Pettigrew's Corporation
shall be given as a collateral guarantee of the
purchase price to the Vendor by way of hypothec
(subject to the rights of a third party having
Page 136
financed part of the purchase price pursuant to Article
9.2) and in case of default of payment, this shall not
result into a default pursuant to Article 10 and the only
recourse under this Agreement or at law would be
exercisable against such collateral security and no
personal recourse or other type of recourse would exist
against Pettigrew and Pettigrew's Corporation.
(c) In all cases other than Article 12.2(a) and (b):
(1) a certified cheque in an amount equal to forty
percent (40%) of the purchase price, except in
case of bankruptcy where the amount of certified
cheque shall be limited to ten percent (10%) of
the purchase price; and
(2) a Promissory Note of the Purchaser of the balance
of the purchase price, payable over three (3)
years in equal annual instalments of principal and
interest with interest at the prime commercial
lending rate of the Company's bankers determined
as at the Closing, except in case of bankruptcy
where the purchase price shall be payable over
seven (7) years in equal annual instalments of
principal and interest at the prime commercial
lending rate of the Company's bankers determined
as at the Closing.
(d) In the case where a Promissory Note is issued by the
Purchaser, a hypothecation, of the Shares or
Convertible Debenture which are the subject matter of
the sale and purchase, to the Company's legal counsel
in each case to be held in trust for the Vendor and the
given Purchaser as their interests appear under the
terms of this Agreement;
(e) Any on demand or no term indebtedness owing by the
Company to the Vendor shall be repaid by the Company to
the Vendor within a one (1) year period of the closing of the
sale of the Shares, it being understood that this term of
payment is in favour of the Company;
(f) A release of all guarantees given by the Vendor
(including Pettigrew's wife, Luz Dary Quintero, if
Pettigrew is the Vendor and including Pettigrew and his
wife Luz Dary Quintero, if the Vendor is Pettigrew's
Corporation) in respect of the Company's indebtedness
and all collateral security relating thereto. If the
Purchaser is unable to obtain such releases by Closing,
the Purchaser shall indemnify, in writing, the Vendor
(and Pettigrew if the Vendor is Pettigrew's
Corporation) against all claims on such guarantees and
shall continue to use best efforts to obtain the
release of such guarantees.
11.3 Unless otherwise agreed by the Purchaser and the Vendor, at
the Closing, the Vendor shall deliver to the Purchaser the
following:
(a) Share certificates for all Vendor's Shares duly
endorsed for transfer in blank;
(b) Resignation of Vendor's nominee directors from the
board of directors of the Company.
11.4 Unless otherwise agreed by the Purchaser and the Vendor and
subject to Article 12.2(d), after closing provided in
Article 12, the Vendor shall not, thereafter, be entitled to
any dividends or other distributions which may be declared
and become payable on those Shares being sold and in the
event that such Shares are hypothecated, such dividends or
other distribution shall be paid by the Company to its legal
counsel, who shall in turn apply such dividends or other
distributions in payment of the purchase price to the extent
that such dividends or other distributions are in cash. To
the extent that such dividends or other distributions are
not in cash, they should be held by
Page 137
the legal counsel of the Company on the same terms and subject
to the same conditions as those on which the Shares on which
the dividends or other distributions have been made are held.
12. MANAGEMENT
12.1 The day to day operation of the Company shall be carried on
under the management of the President and Chief Executive
Officer of the Company, subject to the supervision of the
board of directors of the Company in accordance with the
Companies Act (Quebec) it being agreed that no Major
Decision shall be made except with the approval of the board
of directors of the Company and the consent of Shareholders
holding not less than eighty percent (80%) in aggregate of
the voting rights in issued Shares for Major Decisions
provided for under Articles 13.1 (b), (c), (d), (e), (f),
(g), (k) and (q) and the unanimous consent of Shareholders
holding not less than one hundred percent (100%) in the
aggregate of the voting rights in issued Shares for Major
Decisions provided for in Articles 13.1 (a), (h), (i), (j),
(l), (m), (n), (o), (p), (r) and (s) in addition in all
cases to any other approval which may be required by law or
by the articles of the Company, it being further agreed that
the following matters shall be Major Decisions:
(a) Subject to the provisions of various paragraphs of
Article 13, Article 14.4 and Article 16.1 of this
Agreement, any change in the number of directors and
any action which would impair the rights of any
Shareholder to nominate their representatives to the
board of directors of the Company;
(b) The salary, bonuses or other compensation to be paid by
the Company to the President and Chief Executive
Officer, except as agreed in the Employment Agreement
or in any stock option plan put in place by the Company
for its directors and senior executives or bonus plan put
in place by the Company for its Senior Officers;
(c) Subject to the provisions of various paragraphs of
Article 13, Article 14.4 and of Article 16.1 of this
Agreement, any change of the quorum of the meetings of
the board of directors of the Company and of
Shareholders;
(d) Any change in the Auditors of the Company;
(e) Any change in the Business, as currently carried on by
the Company;
(f) Any change in the head office and principal place of
business of the Company outside the Metropolitan Region
of Montreal;
(g) Any acceptance and go-ahead on a production of the
Company which exceeds CDN$1,000,000 in budget
(excluding direct and indirect producer and
administrative fees and profits of Company's
Subsidiaries), except :
i) when the total budget production is
between CDN$1,000,000 and CDN$5,000,000 if at
least eighty percent (80%) of the production
budget (excluding direct and indirect producer and
administrative fees and profits of Company's
Subsidiaries) is covered by financings,
commitments, agreements, tax credits and tax
advantages, by among others, co-producers,
distributors, sponsors, bankers, lenders,
financial partners, governments and/or other
parties; and
ii) when the total budget production is more
than CDN$5,000,000, if at least ninety percent
(90%) of the production budget (excluding direct
and indirect
Page 138
producer and administrative fees and profits of
Company's Subsidiaries) is covered by financings,
commitments, agreements, tax credits and tax
advantages by, among others, co-producers,
distributors, sponsors, bankers, lenders,
financial partners, governments and/or other
parties.
For the purposes of this Article 13.1(g) deferred
payments may be considered as financings when said
differed payments shall be made out of the production
revenues.
(h) The dissolution, winding-up and liquidation of the
Company;
(i) Any assignment of the assets of the Company in
bankruptcy, deposit of a proposal in bankruptcy and any
other recourse for the protection of debtors;
(j) The amalgamation or merger of the Company with another
entity;
(k) The granting of a loan or other financial aid of more
than CDN$25,000 to or the guaranteeing of more than
CDN$25,000 of a debt of a Shareholder or an Affiliate
of a Shareholder;
(l) Any acquisition or disposition by the Company of any
asset of the Company worth more that CDN$100,000 if not
already in the Company's budgets or business plans
approved by the board of directors of the Company;
(m) Any other change in the Articles or By-Laws of the
Company;
(n) Any matters relating to the payment of dividends,
distribution of surplus, repurchase or redemption of
Shares of the Company, except as provided in this
Agreement or the Employment Agreement;
(o) Any sale, transfer, assignment or other disposal of
Shares of the Company, except if made in accordance
with the provisions of this Agreement, the Option to
Pettigrew, the Convertible Debenture or the stock
option plan to be established under Article 19;
(p) Any issuance of Shares and options and other securities
of the Company, except for those issued under:
i) the Option to Pettigrew;
ii) the Option to Faire Trust;
iii) the stock option plan to be put in place for the
directors and senior executives of the Company
under Article 19;
iv) the Convertible Debenture;
v) if in the reasonable opinion of a majority of
members of the board of directors an issue of
shares is necessary because the Company has a cash
balance of CDN$500,000 or less after reserving
cash to meet the Company's short-term then
outstanding obligations, debts and liabilities and
no other source of financing is reasonably
acceptable and available (including without
limitation issues of shares to Shareholders), at
standard business terms; and
Page 139
vi) Shares issued following the automatic conversions
provided for in Article 14.2 and Shares issued
pursuant to Articles 14.3 and 14.6.
(q) Any transaction between the Company and any Shareholder
of the Company and any of their Affiliates or their
Subsidiaries, unless such transaction is no less
favourable to the Company than could be obtained from
persons dealing at arm's length with the Company;
(r) The sale of all or substantially all of the assets of
the Company; and
(s) Any transaction out of the ordinary course of the
Business of more than CDN$25,000.
In addition, the parties hereto covenant and agree that any
change in the name of the Company shall require the consent
of Pettigrew as long as Pettigrew shall be the President and
Chief Executive Officer of the Company or hold (directly
and/or through Pettigrew's Corporation) more than ten
percent (10%) of the aggregate of Class A, Class B and
Class P shares.
12.2 Subject to the terms of the Employment Agreement, the
parties hereto covenant and agree that the President and
Chief Executive Officer of the Company chooses and dismisses
the senior executives (excluding the president, chief
executive officer, vice-president, secretary, assistant-
secretary and treasurer) and employees of the Company and
its Subsidiaries and establishes their remuneration.
12.3 As provided in Article 13.5, the Shareholders hereto
covenant and agree that there shall be a maximum of nine (9)
members to be elected to the board of directors of the
Company; a majority of said directors must be Quebec
Residents, except if Article 14.7 becomes applicable.
12.4 If by June 23, 2001, the Company has not completed a Public
Listing, and as long as such a Public Listing is not
completed, the board of directors shall cause, to the extent
permitted by the Companies Act (Quebec) and agreements
binding on the Company, the declaration and payment of an
annual dividend equal to twenty-five percent (25%) of the
Company's after tax profit for each of its financial year
ended after said date, as determined by the Auditors
applying the generally accepted accounting principles
applicable in Canada. For greater certainty, the
declaration and payment of this additional dividend shall
occur after purchase and payment of the additional Shares
provided for in Article 8.2 i) of this Agreement.
12.5 The parties hereto covenant and agree that each of the
Shareholders shall be entitled to nominate directors to the
board of directors of the Company as follows and each
Shareholder covenant and agree to exercise his (its) voting
rights consequently :
CINEPIX
(a) as long as Cinepix shall own fifty percent (50%) or
more of the voting rights in issued Shares of the
Company, it may elect five (5) directors;
(b) as long as Cinepix shall own between forty percent
(40%) and fifty percent (50%) of the voting rights in
issued Shares of the Company, it may elect four (4)
directors;
(c) as long as Cinepix shall own between thirty percent
(30%) and forty percent (40%) of the voting rights in
issued Shares of the Company, it may elect three (3)
directors;
Page 140
(d) as long as Cinepix shall own between twenty percent (20%)
and thirty percent (30%) of the voting rights in
issued Shares of the Company, it may elect two (2)
directors;
(e) as long as Cinepix shall own between seven percent (7%)
and twenty percent (20%) of the voting rights in
issued Shares of the Company, it may elect one (1)
director;
PETTIGREW
(f) as long as Pettigrew and/or Pettigrew's Corporation
shall own fifty percent (50%) or more of the voting
rights in issued Shares of the Company, he/it may elect
five (5) directors;
(g) as long as Pettigrew and/or Pettigrew's Corporation
shall own between forty percent (40%) and fifty percent
(50%) of the voting rights in issued Shares of the
Company, he/it may elect four (4) directors;
(h) as long as Pettigrew and/or Pettigrew's Corporation
shall own between thirty percent (30%) and forty
percent (40%) of the voting rights in issued Shares of
the Company, he/it may elect three (3) directors;
(i) as long as Pettigrew and/or Pettigrew's Corporation
shall own between twenty percent (20%) and thirty
percent (30%) of the voting rights in issued Shares of
the Company, he/it may elect two (2) directors;
(j) as long as Pettigrew and/or Pettigrew's Corporation
shall own between seven percent (7%) and twenty
percent (20%) of the voting rights in issued Shares of
the Company or own Shares and Pettigrew is the
President of the Company, he/it may elect one (1)
director;
FAIRE TRUST
(k) as long as Faire Trust shall own seven percent (7%) or
more of the voting rights in issued Shares of the
Company, it may elect one (1) director. Notwithstanding
the above, it is also agreed that in the event of the
automatic conversion of the Class P shares into Class B
shares, Faire Trust shall maintain its right to elect
one (1) director (even though it may hold less than
seven percent of the voting rights in issued Shares of
the Company) provided Faire Trust still holds more than
70% of the 29,000 Class A shares it currently holds in
the Company (as such shares may be consolidated,
subdivided or amended);
FOX FAMILY
(l) as long as Fox Family shall own seven percent (7%) or
more of the voting rights in issued A Shares of the
Company, it may elect one (1) director. Notwithstanding
the above, it is also agreed that in the event of the
automatic conversion of the Class P shares into Class B
shares, Fox Family shall maintain its right to elect
one (1) director (even though it may hold less than
seven percent of the voting rights in issued Shares of
the Company) provided Fox Family still holds more than
70% of the 58,000 Class A shares it currently holds in
the Company (as such shares may be consolidated,
subdivided or amended);
Page 141
(m) For greater certainty, subject to Articles 13.6 and
13.8, only the Shareholder having appointed his (its)
director to the board of directors of the Company may
remove him from office and in the event of a vacancy to
the board of directors, the Shareholder who appointed
the director may only fill the vacancy and all the
other Shareholders agree to vote in favour of the
appointment of such new nominee.
12.6 Notwithstanding Article 13.5, the Shareholders agree that
the directorship allotment of Cinepix and Pettigrew will be
such that out of the seven directors currently available for
these two (2) Shareholders, Cinepix (and its successors or
assigns) and Pettigrew will each appoint, at their
discretion, two (2) directors, and the other three (3) will
be appointed by Cinepix with a veto right of their
appointment given to Pettigrew, which veto right is subject
to the following:
12.6.1 Pettigrew may only reject a nominee of Cinepix if,
acting bona fide:
(a) the nominee works or renders services as a
consultant, an adviser, an agent, a director, an
officer or an employee of or is a majority or a
minority shareholder having a significant
influence on or a partner or the sole owner of a
competitor or of an enterprise, a business or an
organization which could be considered as
detrimental to the Company's business or image;
(b) the nominee is not a Quebec Resident ( when the
majority of board members would not be Quebec
Residents if the nominee becomes a director of the
Company and Article 4.11 applies with respect to
the Quebec Tax Credits), unless the first
paragraph of Article 14.7 receives application;
(c) the nominee does not bring a recognized expertise
in :
S the animation industry;
S the financial field;
S the taxation field; or
S any other relevant business
experience.
(d) the nominee is not independent from Lions Gate or
Lions Gate Films or any direct and indirect
significant shareholders, subsidiaries and
affiliates of the foregoing.
An employee, director, officer, agent, advisor or
provider of material goods and services of the
above corporations is deemed to be not
independent;
(e) the nominee has been found guilty or is charged
with intellectual property infringement or
securities violation or any other crime.
12.6.2 Pettigrew will inform Cinepix whether he will
exercise or not his veto within ten (10) Business Days
after he is aware that Cinepix wants to nominate a
person to the Company's board of directors and he has
obtained a detailed curriculum vitae of the nominee. In
the course of determining whether he is going to
exercise his veto right, Pettigrew may consult the
Company's other Shareholders and speak with the
nominee.
12.6.3 If Pettigrew acts in bad faith and contrary to
what is above provided in Article 13 and to the bests
interests of the Company in exercising his veto right,
then after having received a letter from Cinepix
stating relevant details and giving him ten (10) days
to withdraw his veto and accept the proposed nominee,
he shall lose his veto right and Article 13.6 shall
Page 142
cease to be applicable, it being understood however
that this shall not result into a default pursuant to
Article 10.
12.7 In the event that Cinepix (and its successors or assigns)
has the right (or discretion) to appoint less or more than
five (5) members to the board of directors of the Company,
the Shareholders agree that the veto right of Pettigrew will
apply on any number of directors which is superior to two
(2) that Cinepix has then the right to appoint and if
Pettigrew has the right to appoint more than two (2)
directors pursuant to Article 13.5, then the number of
directors he may appoint pursuant to his discretionary right
to appoint directors shall be increased from two (2) to the
number of directors he may appoint pursuant to Article 13.5.
12.8 The Shareholders agree that Article 13.6 shall apply as long
as Pettigrew (i) is a Senior Officer of the Company, subject
to Article 13.18 hereunder; and (ii) has (considering any
anti-dilution option he has under the Option to Pettigrew,
as deemed exercised) either a) at least five percent (5%) of
the equity of the Company (exclusive of voting rights)
provided he has at least eighty-four thousand (84,000)
Shares of the Company, whether in Class A, Class B and/or
Class P shares; or b) at least ten percent (10%) of equity
of the Company (exclusive of voting rights) if he has less
than eighty-four thousand (84,000) Shares of the Company,
whether in Class A, Class B and/or Class P shares. Article
13.6 shall cease to receive application if Pettigrew and/or
Pettigrew's Corporation is the majority shareholder or
Controls the Company.
12.9 In the event that a Shareholder loses the right to nominate
a director on the board of directors of the Company, such
Shareholder shall cause its director or one of its
directors, as the case may be, to resign in a timely manner.
12.10 The parties covenant and agree that the quorum for
meetings of the board of directors shall require a majority
of the directors to be present and that, within that
majority, at least one representative of Cinepix and of
Pettigrew must be present. In the event that the absence of
one representative of Cinepix or Pettigrew causes a meeting
of the board of directors to be adjourned to a date which
may not be earlier than five (5) Business Days after the
originally convened meeting, quorum for such adjourned
meeting shall only require a majority of the directors to be
present.
12.11 A director of the Company may participate at a meeting
of the board of directors by means of conference call or
other telecommunication means allowing all participants to
the meeting to communicate between themselves. Such a
director is deemed to be present at such a meeting as any
other director present physically.
12.12 For matters other than Major Decisions, the parties
covenant and agree that the quorum for meetings of
Shareholders shall be a majority in votes of the
Shareholders to be present personally or by proxy.
12.13 Unless otherwise stipulated in this Agreement, the
parties covenant and agree that questions to be decided by
any meeting of Shareholders or the board of directors shall
be decided by a majority vote.
12.14 No Shareholder or director, whether chairman of a
Shareholders' meeting or chairman of the board or otherwise
shall exercise a casting vote.
12.15 Unless otherwise decided by the board of directors of
the Company and subject to Pettigrew's rights provided for
in the Employment Agreement, Pettigrew is the Chairman of
the Board, President and Chief Executive Officer. The vice-
presidents, the secretary and the treasurer as
Page 143
well as an assistant-secretary of the Company shall be
nominated by resolutions of the board of directors.
12.16 Unless otherwise decided by Major Decision of the
Shareholders, Samson Belair Deloitte & Touche of Montreal
are chosen as Auditors of the Company.
12.17 The parties covenant and agree that unless decided
otherwise by the board of directors of the Company, the
president shall exercise the voting rights of the Company as
shareholder of any of its Subsidiaries or any other company
and shall be the authorized signatory of the Company for
such purposes in accordance with the instructions of the
board of directors.
12.18 The Shareholders agree that if Pettigrew alleges, in
writing, within ten (10) Business Days of his knowledge of
his dismissal, to have been wrongfully dismissed, his veto
right under Article 13.6 shall remain in full force or
effect (subject to compliance with condition (ii) a) or b)
in Article 13.8 above) until a final arbitration award has
been rendered on this matter by the arbitration tribunal
of which the members shall have been nominated pursuant
to the Employment Agreement declaring that the dismissal of
Pettigrew was not a wrongful dismissal or the execution of
an out of court settlement to this effect.
12.19 The Shareholders and the Company agree that the spirit
of the provisions of Article 13 should be preserved in as
much as possible after the Company has successfully
completed a Public Listing and, in this respect, to execute
any agreement or other instrument reasonably required for
such purpose.
12.20 Subject to Pettigrew's veto right, Cinepix agrees to
review and replace two of its current appointed directors
in the Company, before the sooner of a) September 1, 2000 or
30 days after an agreement has been executed with brokers to
make the Company become public.
13. TRANSFER OF VOTING RIGHTS; CONVERSION OF SHARES; QUEBEC
CONTROL; SHARES IN TRUST
13.1 In the event of any transaction or agreement of any sort
whatsoever (including a transfer of shares) to which either
or both Cinepix Films, Cinepix (and their successors or
assigns) or their direct or indirect shareholders are party,
that but for the provisions of Article 14, would result in
the loss of the Quebec Tax Credits and/or Canadian Tax
Credits by the Company, the Shareholders and the Company
agree that a voting trust with respect to Cinepix's Shares
in the Company and its successors' or assigns' Shares in the
Company will be granted to Pettigrew (or if he is no longer
an Officer of the Company, to the highest ranking Quebec
Officer of the Company) and this voting trust will
automatically become effective immediately prior to the
occurrence of such event and shall remain in effect for a
period of 90 days from the earliest of a) the receipt of any
notice of such a possible transfer, transaction or other
agreement to the Company and to Pettigrew (or to said
highest ranking Quebec Officer) or b) the day the Company
and/or Pettigrew (or said highest ranking Quebec Officer)
finds out about such possible transfer, transaction or other
agreement by any other means. During the period of the
voting trust, Cinepix and Cinepix Films shall be entitled
(but not obliged) to take such steps as each of them
determines necessary or advisable to ensure that the Company
continues to be eligible for the Quebec Tax Credits and/or
Canadian Tax Credits (as applicable). The Shareholders and
the Company hereby undertake and agree to do all reasonable
acts and to provide such assistance as may be requested of
them by Cinepix in this regard. The Company's eligibility
for such tax credits will be determined pursuant to an
affirmative written unrestricted legal opinion obtained from
an independent Quebec legal counsel retained jointly by the
Company, Pettigrew (or the highest ranking Quebec Officer,
if
Page 144
Pettigrew is no longer an Officer of the Company) and
Cinepix at the Company's costs. Provided such an affirmative
written unrestricted legal opinion is obtained within the
said 90-day period, the voting trust will terminate.
13.2 If at the end of such 90-day period while the voting trust
is in force, no such affirmative written unrestricted legal
opinion has been obtained or the then shareholder(s) of
Cinepix Films and/or Cinepix (or its successors and
assigns), as the case may be, has (have) not rectified or,
as the case may be, may not rectify, the situation to the
satisfaction of the independent Quebec legal counsel (as
confirmed by such counsel in a written unrestricted legal
opinion) in such a way that the Company will not lose the
benefit of the Quebec Tax Credits and/or the Canadian Tax
Credits, then all of the following events will occur
simultaneously:
o all Class P shares held by Pettigrew and Pettigrew's
Corporation and their successors or assigns in the
Company will be automatically converted into Class B
shares;
o thereafter, the Convertible Debenture, if still held by
Cinepix or any other person (other than Pettigrew and
Pettigrew's Corporation or their successors or assigns),
automatically ceases to be convertible in Class B shares
and can only be converted in Class A shares; and
o all Class B shares of the Company (except for the Class B
shares held by Pettigrew and Pettigrew's Corporation or
their successors or assigns following the conversion of the
Class P shares into Class B Shares which are being converted
simultaneously) will be automatically converted into Class A
shares.
13.3 In addition to the provisions of Article 14.2 above, if
Pettigrew and/or Pettigrew's Corporation does not own enough
Shares to obtain (with other holders who are Quebec
Residents) a 51% voting Control of the Company (or such
control of the Company by Quebec Residents as is necessary
for the Company to remain eligible for the Quebec Tax
Credits and/or Canadian Tax Credits), (or if Pettigrew is no
longer an Officer of the Company, if the highest ranking
Quebec Officer of the Company does not have with other
holders who are Quebec Residents such a 51% voting Control
of the Company (or such control of the Company by Quebec
Residents as is necessary for the Company to remain eligible
for the Quebec Tax Credits and/or Canadian Tax Credits)),
Pettigrew or the highest ranking Quebec Officer of the
Company, as the case may be, shall have the right to
receive, at no cost, except a nominal value of 1$ (and
without tax consequences), a sufficient number of Class C
shares to achieve the required control, it being understood
that such Class C shares will be redeemed by the Company if
holders who are Quebec Residents eventually come to achieve
the required control . Any tax consequences will be borne
by the Company.
13.4 When the voting trust mechanism provided in Article 14 is
triggered, Pettigrew (or the highest ranking Quebec Officer
of the Company, if Pettigrew is no longer an Officer of the
Company) is automatically granted the right to appoint such
number of directors to obtain a majority in board members
(if necessary, the number of directors will be increased to
such number required, notwithstanding the provisions of
Article 13.3), it being understood that the Shareholders
(except Pettigrew and Pettigrew's Corporation if Pettigrew
is benefiting of the voting trust mechanism provided for in
this Article 14) shall maintain their rights to appoint the
same number of directors they had the right to appoint as of
the date of beginning of the voting trust mechanism, as
outlined in Article 13.5.
13.5 Given the fact that eligibility of the Company for the
Quebec Tax Credits is based on a Control of the Company by
Quebec Residents, the Shareholders, the Company, Cinepix
Inc. and Cinepix Films agree that: (I) the Shares owned by
Cinepix in the Company as well as shares owned by Cinepix
Films in Cinepix from time to time (collectively the "Voting
Trust Shares") may not be
Page 145
directly or indirectly transferred or agreements with respect
to exercise of voting rights of the Voting Trust Shares cannot
be entered into before a 45-day prior written notice has been
given to the Chief Executive Officer of the Company. This
Article 14.5 will cease to apply if Pettigrew and/or Pettigrew's
Corporation have Control of the Company.
13.6 Any issuances of voting Shares occurring after Article 14
has given voting Control to Pettigrew or to the highest
ranking Quebec Officer of the Company shall require
additional and simultaneous issues of Class C shares to
Pettigrew or, as the case may be, the highest ranking Quebec
Officer of the Company, to the extent necessary to ensure
that the Control of the Company be preserved in the hands of
Quebec Residents. Such additional issues of Class C shares
shall be made at nominal value and without tax consequences for
their holder.
13.7 This Article 14 shall cease to apply (without retroactive
effects) if the aggregate of the Quebec Tax Credits and the
Canadian Tax Credits (without taking into account any
expected loss of these credits resulting from any
transaction or agreement contemplated in Article 14.1)
represent for a given financial year (of twelve (12) months)
and are expected to represent for the following financial
year (of twelve (12) months) (according to the then approved
budget) less than five percent (5%) of the Company's annual
revenues.
It is also agreed that this Article 14 shall not apply to
said transaction or agreement (but may apply to subsequent
transactions or agreements) : (1) in the case of an expected
loss of the Quebec Tax Credits only, resulting from said
transaction or agreement, if the Quebec Tax Credits (without
taking into account the expected loss of the Quebec Tax
Credits) represent for a given financial year (of twelve
(12) months) and are expected to represent for the following
financial year (of twelve (12) months) (according to the
then approved budget) less than two percent (2%) of the
Company's annual revenues; or (2) in the case of an expected
loss of the Canadian Tax Credits only, resulting from said
transaction or agreement, if the Canadian Tax Credits
(without taking into account the expected loss of the
Canadian Tax Credits) represent for a given financial year
(of twelve (12) months) and are expected to represent for
the following financial year (of twelve (12) months)
(according to the then approved budget) less than two
percent (2%) of the Company's annual revenues.
13.8 The Shareholders and the Company agree that the spirit of
the provisions of Article 14 should be preserved in as much
as possible after the Company has successfully completed a
Public Listing and, in this respect, to execute any
agreement or other instrument reasonably required for such
purpose.
14. FINANCING
14.1 Except for existing investments, loans or guarantees by the
Shareholders with respect to the Company, none of the
Shareholders shall have any obligation to provide, or to
arrange for or to cause others to provide, any financing to
the Company, whether by way of subscription for Shares, the
making of loans, the giving of guarantees or otherwise.
14.2 Except as provided for in Article 13.1(p), nothing contained
in this Agreement restricts the right of the Company to
obtain financing through loans and other financial
instruments.
14.3 Without restricting Article 15.1, any loans and advances
made by a Shareholder to the Company (and its Subsidiaries
or Affiliates) shall bear, from April 1, 1998, an annual
rate of interest equal to the prime commercial lending rate
of the Company's banker plus one percent (1%).
Page 146
14.4 Without restricting Article 15.1, any Shareholder who
guarantees the debts or obligations of the Company (and its
Subsidiaries and Affiliates) shall have a right to receive
from the Company (or, as the case may be, its Subsidiaries
and Affiliates): a) upon execution of any guarantee, a fee
equivalent to one percent (1%) of the amount of guarantee;
and b) from June 23, 1998 an annual fee equivalent to one
percent (1%) of the averaged yearly amount of guarantees
which is in place during each financial year of the Company
(or, as the case may be, its Subsidiaries and Affiliates'
financial year). For greater certainty, for purposes of
Article 15.4, guarantees of Company's debts and obligations
by a Shareholder, existing as of June 23, 1998, shall be
deemed to be executed as of the date of this Agreement.
15. UNDERTAKINGS IN CASE OF A PUBLIC LISTING
15.1 Should the Company complete a Public Listing as long as they
will hold Shares in the Company the Shareholders covenant
and agree that they will do everything in their power to
have elected and maintained to the board of directors their
representatives then in place and that they will renegotiate
this Agreement in the context of a Public Listing, it being
understood however that Articles 3, 4.1 to 4.6, 7, 8.1 to
8.4 and 9.1 shall cease to apply, without affecting accrued
or existing rights and obligations existing pursuant to
these Articles when the Company completes a Public Listing.
15.2 In the case of a Public Listing or subsequent public
offerings of the Company, the Shareholders (other than
Pettigrew and/or Pettigrew's Corporation) covenant and agree
that they will consent to a full priority of release from
escrow of Pettigrew's (and/or Pettigrew's Corporation)
Shares up to an aggregate value of One Million Canadian
Dollars (CDN$1,000,000) of value of Shares in all such
public offering(s) (including the Public Listing).
15.3 In the case of a Public Listing or subsequent public
offerings of the Company, the Shareholders (other than
Pettigrew and/or Pettigrew's Corporation) covenant and agree
that they will consent in favour of Pettigrew (and/or
Pettigrew's Corporation) that the latter may sell, if the
underwriter or lead agent so accepts, in priority to all
other Shareholders up to an aggregate value of One Million
Canadian Dollars (CDN$1,000,000) of value of Shares in all
such public offering(s) (including the Public Listing).
15.4 In the case of a Public Listing or subsequent public
offerings of the Company, the Shareholders (other than Fox
Family and Faire Trust) covenant and agree that they consent
in favour of Fox Family and Faire Trust that Fox Family and
Faire Trust may sell, if the underwriter or lead agent so
accepts, in priority to all other Shareholders, but after
the priority right provided for in Article 16.3, up to an
aggregate value equivalent to, on a prorata basis between
Fox Family and Faire Trust :
a) in the case of Fox Family, Three Million Canadian
Dollars (CDN$3,000,000) plus interest paid or payable
pursuant to the loan agreement entered into between
Faire Trust and Fox Family on June 23,1998 referred to
in Article 3.1; and
b) in the case of Faire Trust, one half (") the amount
provided above in Article 16.4 a);
in all such offering (s) (including the Public Listing).
15.5 At any time after a Public Listing, if the Company proposes
to register any additional Class A shares in a given
territory, it will give prompt written notice to the
Shareholders and, if permitted by the proposed form of
registration statement, will include in such registration,
subject to the
Page 147
allocation provisions discussed below, any of the Shareholders'
Class A shares with respect to which it has received written
request for inclusion within twenty (20) days after such notice
is given by the Company.
In all such piggyback registration, the Company will pay the
reasonable expenses related to the registration of Shares
held by the Shareholders (including, without limitation, the
Shareholders' legal fees for said registration).
Without restricting Articles 16.3 and 16.4, if a piggyback
registration is an underwritten registration on behalf of
the Company and the managing underwriter advises the Company
in writing that in the underwriter's opinion the number of
securities to be included exceeds the number that can be
sold in such offering at a price reasonably related to fair
value, the Company will allocate the securities to be
included as follows : first, the securities the Company
proposes to sell on its own behalf; and second, the
securities the Shareholders propose to sell, determined pro
rata among the Shareholders on the basis of the number of
Class A shares owned.
16. REPRESENTATIONS AND WARRANTIES
16.1 Each Shareholder hereby represents and warrants the
following to the other Shareholders, as of the date hereof:
(a) except in the case of Pettigrew who is an individual,
and in the cases of Faire Trust and Fiducie Pettigrew
which are trusts, it is a corporation duly organized,
validly existing and in good standing under the laws
pertaining to its incorporation;
(b) it (he) has all requisite power and authority to own
and operate its assets, properties and business and to
carry on its business as now conducted;
(c) it (he) has all requisite power, authority and approval
required to enter into, execute and deliver this
Agreement and to perform fully its obligations
hereunder;
(d) it (he) has taken all actions necessary to authorize it
to enter into and perform its obligations under this
Agreement and this Agreement is a legal, valid and
binding obligation of it (him); and
(e) neither the execution and delivery of this Agreement by
it (him), nor the performance of its (his) obligations
hereunder, will conflict with, or result in a breach
of, or constitute a default under any provision of its
constating documents or its by-laws, if applicable, or
any law, judgment, order or decree of any Court or of
any contract, agreement or other instrument to which it
(he) is a party or by which it (he) is bound.
16.2 Other representations and warranties of Faire Trust and
Fiducie Pettigrew :
16.2.1 Faire Trust is a duly organized, validly existing
and a good standing trust under the laws of Ontario and
Robert Paul is its sole trustee.
16.2.2 Fiducie Pettigrew is a duly organized, validly
existing and a good standing trust under the laws of
Quebec and Pettigrew and Jacqueline Pettigrew are its
sole trustees, and as long as Pettigrew shall remain a
trustee of Fiducie Pettigrew, there shall be only two
(2) trustees of Fiducie Pettigrew.
Page 148
16.3 Each of the Shareholders hereby covenants and agrees to do,
and to use its (his) best efforts in order to cause to be
done by any other person, all things or acts necessary or
desirable so that its (his) representations and warranties
contained in this Article remain in full force and effect
at any time hereafter during the term of this Agreement.
17. CONFIDENTIALITY AND NON-SOLICITATION
17.1 All confidential records, material and information and
copies thereof, and all trade secrets (and without
restricting the generality of the foregoing, including all
confidential information and documentation relating to the
products in which the Company has an interest and all
intellectual property of the Company) concerning the
Business of the Company obtained by any of the Shareholders
of the Company shall remain the exclusive property of the
Company. During this Agreement, or at any time thereafter,
each such persons shall not divulge the contents of such
confidential records or any of such confidential information
or trade secrets to any person other than to the Company or
the Company's qualified employees, except as may be required
by law or otherwise in the proper discharge of their duties
for the Company, and each such persons shall not, following
the termination of this Agreement, for any reason, use the
contents of such confidential records or such confidential
information or trade secrets for any purpose whatsoever.
Under no circumstances shall any such persons remove any
books, records or documents or copies thereof (whether or
not confidential) from the offices of the Company, nor shall
they make any copies of any such books, records or documents
or copies thereof for use outside the offices of the
Company, except as specifically authorized by the board of
directors or except in the proper discharge of their duties
for the Company.
17.2 For the purposes hereof, confidential records, material and
information including confidential or proprietary
information known or used by the Company in connection with
its Business, including but not limited to any matters
relating to products owned by or in which the Company has
any interest including any scripts, all intellectual
property owned by the Company or in which it has an
interest, information and documentation relating to output
and/or distribution arrangements, compilation of
information, data, program, code, method, technique or
process, information about or relating to suppliers or
customers of the Company and markets and marketing plans of
the Company, present and future, information about or
relating to potential business ventures of the Company,
financial information of all kinds relating to the Company
and its activities, all inventions, ideas, and related
material, but does not include any of the foregoing which is
not of a confidential or proprietary nature or becomes a
matter of public knowledge through no fault of any such
persons concerned by this Article.
17.3 Without intending to limit the remedies available to the
Company, the Shareholders of the Company acknowledge that
damages at law will be an insufficient remedy to the Company
in view of the irreparable harm which will be suffered if
the terms of Article 18 are violated by any of them, as the
case may be, and agree that the Company may apply for and
have injunctive relief in any court of competent
jurisdiction specifically to enforce any such covenants upon
the breach or threatened breach of any such provisions, or
otherwise specifically to enforce any such covenants and
hereby waives all defences to the strict enforcement thereof
by the Company.
17.4 In the event that any provision, clause or covenant herein,
or part thereof, shall be deemed void or invalid or
unenforceable by a court of competent jurisdiction, the
remaining provisions, clauses and covenants, and parts
thereof, shall be and remain in full force and effect. If,
in any judicial proceeding, any provision, clause or
covenant of this Agreement is found to be so broad as to be
unenforceable, it is hereby agreed that such provision,
clause or covenant shall be interpreted to be only so broad
as it may be to be enforceable.
Page 149
18. ESTABLISHMENT OF A STOCK OPTION PLAN FOR DIRECTORS AND
SENIOR EXECUTIVES AND BONUS PLAN FOR SENIOR OFFICERS
18.1 The Shareholders and the Company hereto covenant and agree
that the board of directors of the Company shall establish,
within three (3) months of the execution of this Agreement,
a stock option plan which will provide that Class D shares
of the Company may be issued, from time to time up to the
equivalent of five percent (5%) of the issued and
outstanding Class A shares, but subject to conditions to be
determined by the board of directors, to the directors and
senior executives of the Company and its Affiliates, as an
incentive for such persons.
18.2 The Shareholders and the Company hereto covenant and agree
that the board of directors of the Company shall establish,
within three (3) months of execution of this Agreement, a
bonus plan for Senior Officers of the Company and its
Affiliates, as an incentive for such persons.
19. ARBITRATION
19.1 In the event of any dispute between the parties (including
the intervening parties) relating to this Agreement, whether
such dispute is relating to the interpretation or
application of its provisions or to the existence of any of
their respective rights and obligations hereunder or to the
nature or the amount of the obligations and responsibilities
resulting from this Agreement, such dispute shall be
submitted to arbitration, to the exclusion of any court of
law having otherwise competent jurisdiction, in accordance
with the provisions of the Code of Civil Procedure of the
Province of Quebec, modified as follows, it being understood
that Article 20 shall constitute an arbitration agreement
within the meaning of the Civil Code of the Province of
Quebec :
(a) Three Arbitrators - the dispute shall be submitted to
the arbitration of three arbitrators, the party
requiring the arbitration designating the first
arbitrator and the other party or the other parties to
the dispute having a conflicting interest with the
requiring party designating the second arbitrator and
the third arbitrator being designated jointly by the
two first arbitrators so designated. All arbitrators
must be lawyers qualified to practise law within the
Province of Quebec;
(b) Notice of Arbitration - a party requiring arbitration
shall give notice thereof to the other party or the
other parties to the dispute having a conflicting
interest and shall provide in such notice the name and
address of the arbitrator for the purposes of this
Agreement as well as the details of the dispute;
(c) Designation of a Second Arbitrator - within ten (10)
Business Days after a notice of arbitration has been
sent pursuant to paragraph (b) above, all of the other
parties to the dispute having a conflicting interest
with the party submitting the issue to arbitration
shall agree on the name of the second arbitrator and
shall give notice of the name and address of such
second arbitrator to the requesting party and the first
arbitrator within such ten (10) Business Days period,
failing which all of such other parties shall be deemed
to have waived their rights to designate an arbitrator,
and the arbitration shall be held by one arbitrator
only, namely the arbitrator designated pursuant to
paragraph (b) above;
(d) Designation of a Third Arbitrator - subject to the
provisions of the preceding paragraph relating to the
resolution of the dispute by one arbitrator, the third
arbitrator shall be designated by the other two
arbitrators within five (5) Business Days following
receipt by the requiring party and the first arbitrator
of the notice described in paragraph (c) above in
respect of the designation of a second arbitrator;
Page 150
(e) Hearing of the Arbitration - the hearing of the
arbitration shall be held on the territory of the
Metropolitan Region of Montreal , at such place and at
such time as shall be determined jointly by the
arbitrators and within a delay of ten (10) Business
Days of the nomination of the third arbitrator or sole
arbitrator, as the case may be;
(f) Procedure and Expenses Relating to Arbitration - the
arbitrators are authorized to determine their own
procedure and shall render their decision in writing in
such form as they shall decide; the arbitrators shall
allocate the expenses relating to the arbitration in
the manner which they shall see fit which for such
purposes shall take into account, inter alia, the
relative success of the arguments of each of the
parties to the arbitration;
(g) Delay to Render Decision - the arbitrators shall, to
the extent possible, render their decision and give
notice thereof to the parties within a period of ten
(10) Business Days following the hearing of the parties
involved in the arbitration or, as the case may be,
such period of time (which shall not be more than five
(5) Business Days) which they shall grant to the
parties involved to the arbitration to submit in
writing their arguments following the hearing;
(h) Final Decision - the decision of the arbitrators shall
be final and binding on the parties to the arbitration
and the provisions of Sections 946 to 946.6 inclusively
of the Code of Civil Procedure of the Province of
Quebec relating to the homologation of arbitration
decisions shall apply;
(i) Rules of Law - the arbitrators shall resolve the
dispute in accordance with the rules of law and shall
not act as "amiables compositeurs"; and
(j) Language of Arbitration - the English language shall be
the language of arbitration, it being understood
however that if Pettigrew and/or Pettigrew's
Corporation is a party to arbitration, he (it) will
have the right to obtain simultaneous translation at
the costs of the Company.
19.2 Specific Performance. Nothing in Article 20 shall be
interpreted or construed so as to affect or limit the rights
of any parties hereto of seeking any injunction,
constraining order, or other mandatory relief available to
them under the law from any court having jurisdiction with
respect to any breach or violation or anticipated breach or
violation of any of the covenants provided in this
Agreement.
20. GENERAL
20.1 A copy of this Agreement shall be filed with the Corporate
Records of the Company at the office of the Company.
20.2 Time shall be of the essence of this Agreement.
20.3 Any notices, demand or other communication required or
permitted to be given to any party or intervening party
hereunder shall be in writing and shall be either :
(a) personally delivered;
(b) sent by same-day or next-day courier; or
Page 151
(c) sent by facsimile
Any notice so given shall be sent to the parties or
intervening parties at their respective addresses set out
below:
(a) ANIMATION CINEPIX INC.
3600 Thimens Boulevard
St-Laurent, Quebec
Canada H4H 1V6
Fax: (514) 336-6606
Attention : The President
(b) JACQUES PETTIGREW
6 Croissant Merton
Hampstead, Quebec
Canada H3X 1L6
(c) ROBERT PAUL, Trustee
Faire Trust
45 Charles Street
Suite 702
Toronto, Ontario
Canada M4Y 1S2
Fax : (416) 920-5140
with a copy to:
FOLEY, BRODERICK, c.a.
130 Adelaide Street West
32nd Floor
Toronto, Ontario
Canada M5H 3P5
Fax: (416) 863-1510
Attention: Mr. Brent Insley
(d) FOX FAMILY WORLDWIDE, INC.
10960 Wilshire Boulevard
Los Angeles, California
United States of America 90024
Fax : (310) 235-5552
Attention : The President
(e) FIDUCIE FAMILLE PETTIGREW
6 Croissant Merton
Hampstead, Quebec
Canada H3X 1L6
Attention : Mr. Jacques Pettigrew and Mrs. Jacqueline
Pettigrew, Trustees
Page 152
(f) CORPORATION CINE-GROUPE
1151 Alexandre-de-Seve
Montreal, Quebec
Canada H2L 2T7
Fax : (514) 524-1997
Attention : The President
(g) LIONS GATE ENTERTAINMENT CORP.
Suite 3123, Three Bentall Centre
595 Burrard Street
Vancouver, British Columbia
Canada V7X 1J1
Fax : (604) 609-6145
Attention : The President
(h) LIONS GATE FILMS CORP.
3600 Thimens Boulevard
St-Laurent, Quebec
Canada H4H 1V6
Fax : (514) 336-6606
Attention : The President
(I) CINEPIX FILMS INC.
3600 Thimens Boulevard
St-Laurent, Quebec
Canada H4H 1V6
Fax: (514) 336-6606
Attention : The President
(j) CINEPIX INC.
3600 Thimens Boulevard
St-Laurent, Quebec
Canada H4H 1V6
Fax: (514) 336-6606
Attention : The President
Either party and intervening party may from time to time
change its address by written notice to the other party and
intervening party given in accordance with the provisions
hereof. Any notice or communication shall be deemed to have
been received on the next Business Day after which it was
delivered, if personally delivered or sent by courier, or on
the next Business Day after it was sent by facsimile, if it
was so sent.
20.4 The provisions of this Agreement shall apply to any shares
issued pursuant to an option granted by the Company, to
Shares issued pursuant to a convertible debenture, to any
shares resulting from the reclassification, subdivision,
consolidation or corporate reorganization and to any shares
of the Company received by the holders as a stock dividend
and to any shares or other securities of the Company which
may be received by the holder of such shares on
amalgamation,
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reorganization or reconstruction of the Company or to any other
shares which may hereafter be issued to the shareholders.
20.5 This Agreement shall enure to the benefit of and be binding
upon the parties and intervening parties, their respective
heirs, executors, administrators, successors and permitted
assigns as the case may be.
20.6 Unless otherwise stipulated, all amounts expressed in this
Agreement are in the Canadian currency.
20.7 This Agreement shall be the only Agreement between the
parties and intervening parties in respect of their interest
in the Company and all subject matters expressed in this
Agreement.
20.8 If any of the provisions of this Agreement are ever held
illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining parts of the
Agreement, and the Agreement shall be construed and enforced
as if such illegal and invalid provisions had never been
inserted therein. If, in any judicial proceeding, any
provision, clause or covenant of this Agreement is found to
be so broad as to be unenforceable, it is hereby agreed that
such provision, clause or covenant shall be interpreted to
be only so broad as it may be to be enforceable.
20.9 This Agreement may be executed in counterparts, each of
which, when so executed and delivered to all other parties
and intervening parties, shall be deemed to be an original,
and when taken together shall be deemed to be one and the
same agreement.
20.10 The Shareholders, the Company and the other intervening
parties agree to do all things and execute any and all
documents, upon the request of any of the other, to better
effect complete consummation of the transactions
contemplated by this Agreement as well as the true intent
and purposes of this Agreement including vote Shares which
any one of them may hold or have Control over, use its best
efforts so as to cause to be done, executed, acknowledged or
delivered by any other person, all such further acts or
other things, deeds, documents, assignments, transfers,
conveyances, powers of attorney and assurances as may be
reasonably necessary or desirable.
20.11 This Agreement is an unanimous shareholders' agreement
within the meaning of Sections 123.91 and following of the
Company Act (Quebec) and must be interpreted as such. No by-
law or resolution of the board of directors and of the
Shareholders of the Company may contradict or modify the
provisions of this Agreement and, should this occur, this
Agreement shall prevail. This Agreement is governed by the
laws of the Province of Quebec, Canada.
20.12 The preamble forms an integral part of this Agreement.
20.13 The parties and the intervening parties declare that
they have requested and do hereby confirm their request,
that this Agreement and any other agreement or document with
respect to corporate organisation of the Company be drafted
and signed in English. Les parties et les intervenants
declarent qu'ils ont exige, et par les presentes, confirment
leur demande que cette convention et toute autre entente ou
document relatif a l'organisation corporative de la
Compagnie soient rediges en anglais. The Company shall bear
all translation costs required by this Article or by Article
20.1 (j).
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20.14 The trustee of Faire Trust incurs no personal liability
under this Agreement and his liability is limited to the
assets of Faire Trust. The trustees of Fiducie Pettigrew
incur no personal liability under this Agreement and their
liability is limited to the assets of Fiducie Pettigrew.
20.15 All rights of Pettigrew and Pettigrew's Corporation
provided in this Agreement are in addition to all rights of
Pettigrew and Pettigrew's Corporation in the Employment
Agreement or under the Company's statutes, and Pettigrew may
select to exercise some or all his rights thereunder,
hereunder or under Company's statutes, at his discretion.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE DULY EXECUTED THIS
AGREEMENT
ANIMATION CINEPIX INC.
/s/ ANDREW LINK
------------------------
Andre Link
/s/ JACQUES PETTIGREW
------------------------
JACQUES PETTIGREW
/s/ ROBERT PAUL
------------------------
ROBERT PAUL, in his capacity
as trustee of the Faire Trust
FOX FAMILY WORLDWIDE, INC.
/s/ MEL WOODS
------------------------
Mel Woods, President
FIDUCIE FAMILLE PETTIGREW
/s/ JACQUES PETTIGREW
------------------------
Jacques Pettigrew, in his
capacity as Trustee, without
personal liability
/s/ JACQUELINE PETTIGREW
------------------------
Jacqueline Pettigrew, in her
capacity as Trustee, without
personal liability
Page 155
CORPORATION CINE-GROUPE
/s/ ANDRE LINK
------------------------
Andre Link
/s/ JACQUES PETTIGREW
------------------------
Jacques Pettigrew
AND INTERVENING HERETO:
LIONS GATE ENTERTAINMENT CORP.
LIONS GATE FILMS CORP.
/s/ GORDON KEEP
------------------------
Gordon Keep, Senior Vice-
President
/s/ ANDRE LINK
------------------------
Andre Link
CINEPIX FILMS INC.
CINEPIX INC.
/s/ ANDRE LINK
Andre Link
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