SUBSCRIPTION FOR CONVERTIBLE DEBENTURES
SUBSCRIPTION
FOR CONVERTIBLE DEBENTURES
TO: Red
Mile Entertainment Inc. (the "Corporation")
AND
TO: X.X.
Xxxxxx & Company Ltd. (the "Agent" or "X.X. Xxxxxx")
The
undersigned (the "Subscriber")
hereby
irrevocably subscribes for and agrees to purchase the principal sum set forth
below of senior secured convertible debentures of the Corporation having the
terms set forth in Exhibit 3 hereto (the "Debentures"),
at a
subscription price of USD $1,000 per Debenture (the "Subscription
Price"),
upon
and subject to the terms and conditions set forth in "Terms and Conditions
of
Subscription for Convertible Debentures of Red Mile Entertainment Inc." attached
hereto (together with this page and the attached Exhibits, the "Subscription
Agreement").
In
addition to this face page, the Subscriber must complete all applicable
Exhibits.
|
______________________________________________________________________________
(Name
of Subscriber - please print)
By: ___________________________________________________________________________
(Authorized
Signature)
______________________________________________________________________________
(Official
Capacity or Title if Subscriber is a corporation - please
print)
______________________________________________________________________________
(Please
print name of individual whose signature appears above if different
than
the name of the Subscriber printed above.)
______________________________________________________________________________
(Subscriber's
Address)
______________________________________________________________________________
______________________________________________________________________________
(Telephone
Number) (E-Mail
Address)
|
Number
of Debentures Subscribed For: ___________________
Principal
Amount of Debentures Subscribed for (Number of Debentures X $1,000):
$_____________________________________________________________________________
|
|
|
If
the Subscriber is signing as agent for a principal and is not deemed
to be
purchasing as principal pursuant to NI 45-106 (as defined herein)
by
virtue of being either (i) a trust company or trust corporation
acting on behalf of a fully managed account managed by the trust
company
or trust corporation; or (ii) a person acting on behalf of a fully
managed account managed by it, and in each case satisfying the
criteria
set forth in NI 45-106, complete the following and ensure that
Exhibit 1
is completed in respect of such principal ("Disclosed Beneficial
Purchaser"):
_____________________________________________________________________________
(Name
of Principal)
_____________________________________________________________________________
(Principal's
Address)
_____________________________________________________________________________
(Principal's
Address)
_____________________________________________________________________________
(Principal's
Telephone Number)(Principal's
E-Mail Address)
|
||
|
Register
the Debentures as set forth below:
_____________________________________________________________________________
(Name)
_____________________________________________________________________________
(Account
reference, if applicable)
_____________________________________________________________________________
(Address)
_____________________________________________________________________________
(Address)
|
Deliver
the Debentures as set forth below:
_____________________________________________________________________________
(Name)
_____________________________________________________________________________
(Account
reference, if applicable)
_____________________________________________________________________________
(Contact
Name)
_____________________________________________________________________________
(Address)
_____________________________________________________________________________
(Address)
|
ACCEPTANCE:
The
Corporation hereby accepts the subscription as set forth above on the terms
and
conditions contained in this Subscription Agreement and the Corporation
represents and warrants to the Subscriber that the representations and
warranties made by the Corporation to the Agent in the Agency Agreement (as
defined herein) are true and correct in all material respects as of the Closing
Date (as defined herein) (save and except as may be waived by the Agent) and
that the Subscriber is entitled to rely thereon and on the respective covenants
of the Corporation set out in the Agency Agreement as if the Subscriber were
a
party thereto and such representations, warranties and covennts are incorporated
herein and form part of this Subscription Agreement.
_________________________,
2006
|
_______________________________________________
By:
|
Subscription
No:
|
This
is the first page of an agreement comprised of 10 pages (not including Exhibits
1, 2 and 3).
TERMS
AND CONDITIONS OF SUBSCRIPTION FOR
CONVERTIBLE
DEBENTURES OF RED MILE ENTERTAINMENT INC.
Terms
of the Offering
1. The
Subscriber acknowledges (on its own behalf and, if applicable, on behalf of
each
person on whose behalf the Subscriber is contracting) that this subscription
is
subject to rejection or allotment by the Corporation in whole or in part at
any
time and is effective only upon acceptance by the Corporation.
2. The
Subscriber acknowledges (on its own behalf and, if applicable, on behalf of
each
person on whose behalf the Subscriber is contracting) that:
| (a) |
the
Debentures
subscribed for by it hereunder form part of a larger issuance and
sale by
the Corporation of Debentures having a principal amount of a minimum
of
USD$5,000,000 and a maximum of USD$10,000,000 at a subscription price
of
USD$1,000 per Debenture;
|
| (b) |
the
Debentures have the terms and conditions set forth in Exhibit 3 hereto;
|
| (c) |
if
the Closing Date does not occur on or before October
3, 2006,
or such other date as may be agreed to by the Corporation and X.X.
Xxxxxx,
or in the event that the Corporation rejects the Subscription Agreement,
the subscription proceeds will be promptly returned to the Subscriber,
without interest or deduction; and
|
| (d) |
the
Corporation may complete additional financings in the future in order
to
fund the ongoing operations and expansion of the Corporation and
such
future financings may have a dilutive effect on security holders
of the
Corporation, including the Subscriber.
|
Representations,
Warranties and Covenants by Subscriber
3. The
Subscriber (on its own behalf and, if applicable, on behalf of each person
on
whose behalf the Subscriber is contracting) represents, warrants, certifies
and
covenants to the Corporation and the Agent (and acknowledges that the
Corporation and the Agent, and their respective counsel, are relying thereon)
both at the date hereof and at the Closing Time (as herein defined)
that:
| (a) |
it
has been independently advised as to restrictions with respect to
trading
in the Debentures
and in the common shares ("Common
Shares")
of the Corporation issuable on the conversion of the Debentures (the
"Underlying
Securities")
imposed
by applicable securities legislation in the jurisdiction in which
it
resides, confirms that no representation has been made to it by or
on
behalf of the Corporation or the Agent with respect thereto, acknowledges
that it is aware of the characteristics of the Debentures
and the Underlying Securities,
the risks relating to an investment therein and of the fact that
it may
not be able to resell the Debentures
or Underlying Securities, except
in accordance with limited exemptions under applicable securities
legislation and regulatory policy until expiry of the applicable
hold
period and compliance with the other requirements of applicable law;
and
it agrees that any certificates representing the Underlying
Securities will
bear a legend indicating that the resale of such securities is restricted;
and
|
| (b) |
it
has not received or been provided with, nor has it requested, nor
does it
have any need to receive, any offering memorandum, any prospectus,
sales
or advertising literature, or any other document (other than financial
statements, interim financial statements or any other document, the
content of which is prescribed by statute or regulation) describing
or
purporting to describe the business and affairs of the Corporation
which
has been prepared for delivery to, and review by, prospective purchasers
in order to assist it in making an investment decision in respect
of the
Debentures;
and
|
| (c) |
it
has not become aware of any advertisement in printed media of general
and
regular paid circulation (or other printed public media), radio,
television or telecommunications or other form of advertisement (including
electronic display such as the Internet) with respect to the distribution
of the Debentures;
and
|
-3-
| (d) |
it
is aware that: (i) the Corporation is not a reporting issuer under
the
securities legislation of any province and that as a result the applicable
hold period on the Debentures and the Underlying Securities may never
expire; (ii) if no further statutory exemption may be relied upon
and no
discretionary order is obtained, this could result in it having to
hold
the Debentures and the Underlying Securities for an indefinite period
of
time; (iii) there is no market for the Debentures or the Underlying
Securities; and (iv) the Corporation is not undertaking to file a
prospectus or registration statement with respect to the Debentures
or the
Underlying Securities, now or in the future;
and
|
| (e) |
unless
it is purchasing under subparagraph 3(f), it is purchasing the Debentures
as principal for its own account, not for the benefit of any other
person,
for investment only and not with a view to the resale or distribution
of
all or any of the Debentures, it is resident in or otherwise subject
to
applicable securities laws of the jurisdiction set out as the
"Subscriber's Address" on the face page hereof and it fully complies
with
one or more of the criteria set forth below:
|
| (i) |
it
is an "accredited
investor",
as such term is defined in National Instrument 45-106 - Prospectus
and Registration Exemptions
of
the Canadian Securities Administrators adopted under the securities
legislation of the Canadian jurisdictions ("NI 45-106"),
it was not created or used solely to purchase or hold securities
as an
accredited investor as described in paragraph (m) of the definition
of
"accredited investor" in NI 45-106 (and reproduced as Appendix “A” to
Exhibit 1 hereto), and it has concurrently executed and delivered
a
Representation Letter in the form attached as Exhibit 1
to
this Subscription Agreement and has initialed or placed a check mark
in
Appendix "A"
thereto indicating that the Subscriber satisfies one of the categories
of
"accredited investor" set forth in such definition;
or
|
| (ii) |
it
is a person (as defined in NI 45-106), it has an aggregate acquisition
cost for the Debentures of not less than CDN $150,000 paid in cash
at the
time of the trade and it was not created or used solely to purchase
or
hold securities in reliance on this exemption from the registration
and
prospectus requirements of applicable securities laws;
or
|
| (iii) |
it
is resident in or otherwise subject to applicable securities laws
of a
Province of Canada other than Ontario or Saskatchewan and it is (if
applicable, please initial):
|
|
______
|
(A) a
"director", "executive officer" or "control person" (as such terms
are
defined in NI 45-106 and reproduced in Appendix A to Exhibit 1
of this
Subscription Agreement) of the Corporation, or of an affiliate
of the
Corporation; or
|
|
______
|
(B) a
"spouse" (as such term is defined in NI 45-106 and reproduced in
Appendix
A to Exhibit 1 of this Subscription Agreement), parent, grandparent,
brother, sister or child of any person referred to in subparagraph
(A)
above; or
|
|
______
|
(C) a
parent, grandparent, brother, sister or child of the spouse of
any person
referred to in subparagraph (A) above; or
|
|
______
|
(D) a
close personal friend of any person referred to in subparagraph (A)
above and has completed Exhibit
2
hereto; or
|
|
______
|
(E) a
close business associate of any person referred to in
subparagraph (A) above and has completed Exhibit
2
hereto;
or
|
|
______
|
(F) a
"founder" (as such term is defined in NI 45-106 and reproduced
in Appendix
A to Exhibit 1 of this Subscription Agreement) of the Corporation,
or a
spouse, parent, grandparent, brother, sister, child, close personal
friend
or close business associate of a founder of the Corporation and,
if
requested by the Corporation or the Agent or their respective counsel,
will provide a signed statement describing the relationship with
such
founder of the Corporation; or
|
|
______
|
(G) a
parent, grandparent, brother, sister or child of a spouse of a
founder of
the Corporation; or
|
-4-
|
______
|
(H) a
person of which a majority of the voting securities are beneficially
owned
by, or a majority of directors are, persons described in
subparagraphs (A) through (G) above; or
|
|
______
|
(I) a
trust or estate of which all of the beneficiaries or a majority
of the
trustees or executors are persons described in subparagraphs (A)
through
(G) above; or
|
(Note:
for
the purposes of subparagraphs (D) and (F) above, a person is not a close
personal friend solely because the individual is a relative or a member of
the
same organization, association or religious group or because the individual
is a
client, customer or former client or customer, nor is an individual a close
personal friend as a result of being a close personal friend of a close personal
friend of one of the listed individuals above, rather the relationship must
be
direct. A close personal friend is one who knows the director, executive
officer, founder or control person well enough and has known them for a
sufficient period of time to be in a position to assess their capabilities
and
trustworthiness. Further, for the purposes of subparagraphs (E) and (F)
above, a person is not a "close business associate" if the person is a casual
business associate or a person introduced or solicited for purposes of
purchasing securities nor is the individual a close business associate solely
because the individual is a client, customer, former client or customer, nor
is
the individual a close business associate if they are a close business associate
of a close business associate of one of the listed individuals above, rather
the
relationship must be direct. A close business associate is an individual who
had
sufficient prior dealings with the director, executive officer, founder or
control person to be in a position to assess their capabilities and
trustworthiness)
| (iv) |
it
is an employee, executive officer, director or consultant (as such
terms
(other than employee) are defined in NI 45-106 and reproduced in
Appendix A to Exhibit 1 to this Subscription Agreement) of the Corporation
or a related entity of the Corporation and its participation in the
trade
is voluntary, meaning it is not induced to participate in the trade
by
expectation of employment or appointment or continued employment
or
appointment with, or engagement to provide services or continued
engagement to provide services to, as applicable, the Corporation
or a
related entity of the Corporation;
|
| (f) |
if
it is not purchasing as a principal, it is duly authorized to enter
into
this Subscription Agreement and to execute and deliver all documentation
in connection with the purchase on behalf of each beneficial purchaser,
each of whom is purchasing as principal for its own account, not
for the
benefit of any other person, and not with a view to the resale or
distribution of all or any of the Debentures, it acknowledges that
the
Corporation and/or the Agent are required by law to disclose to certain
regulatory authorities the identity of each beneficial purchaser
of
Debentures for whom it may be acting, and it and each beneficial
purchaser
is resident in the jurisdiction set out as the "Subscriber's Address"
and:
|
| (i) |
it
is an "accredited investor" as such term is defined in paragraphs
(p) or
(q) of the definition of "accredited investor" in NI 45-106 and reproduced
in Appendix
"A"
to
Exhibit 1
of
this Subscription Agreement (provided, however, that it is not a
trust
company or trust corporation registered under the laws of Xxxxxx
Xxxxxx
Island that is not registered or authorized under the Trust
and Loan Companies Act (Canada)
or under comparable legislation in another jurisdiction in Canada)
and is
therefore deemed to be purchasing as principal pursuant to NI 45-106
and it has concurrently executed and delivered a Representation Letter
in
the form attached hereto as Exhibit 1
and has initialled or placed a check mark in Appendix "A"
thereto indicating that the Subscriber satisfies one of the categories
of
"accredited investor" set out in paragraphs (p) or (q) of Appendix "A"
thereto; or
|
| (ii) |
subject
to securities laws applicable to the Subscriber, it is acting as
agent for
one or more Disclosed Beneficial Purchasers, each of such principals
is
purchasing as principal for its own account, not for the benefit
of any
other person, for investment only, and not with a view to the resale
or
distribution of all or any of the Debentures, and each of such principals
complies with subparagraphs (i) or (ii) of paragraph 3(d) hereof
as are
applicable to it;
|
| (g) |
if
it is a resident of or otherwise subject to applicable securities
laws of
any
jurisdiction
referred to in the preceding paragraphs
but not purchasing thereunder, it is purchasing pursuant to an exemption
from prospectus and registration requirements (particulars of which
are
enclosed herewith) available to it under applicable securities legislation
of the jurisdiction of its residence and shall deliver to the Corporation
and the Agent such further particulars of the exemption(s) and the
Subscriber's qualifications thereunder as the Corporation may request;
and
|
-5-
| (h) |
if
the Subscriber is resident in or otherwise subject to applicable
securities laws of a jurisdiction other
than Canada or the United States,
the Subscriber confirms, represents and warrants
that:
|
| (i) |
the
Subscriber is knowledgeable of, or has been independently advised
as to,
the applicable securities laws of the jurisdiction in which the Subscriber
is resident (the "International
Jurisdiction")
and which would apply to the acquisition of the Debentures;
|
| (ii) |
the
Subscriber is purchasing the Debentures
pursuant to exemptions from prospectus or registration requirements
or
equivalent requirements under applicable securities laws or, if such
is
not applicable, the Subscriber is permitted to purchase the Debentures
under the applicable securities laws of the International Jurisdiction
without the need to reply on any
exemptions;
|
| (iii) |
the
applicable securities laws of the International Jurisdiction do not
require the Corporation to make any filings or seek any approvals
of any
kind whatsoever from any securities regulator of any kind whatsoever
in
the International Jurisdiction in connection with the issue and sale
or
resale of the Subscriber’s Debentures;
and
|
| (iv) |
the
purchase of the Debentures
by
the Subscriber does not trigger:
|
| (A) |
any
obligation to prepare and file a prospectus or similar document,
or any
other report with respect to such purchase in the International
Jurisdiction; or
|
| (B) |
any
continuous disclosure reporting obligation of the Corporation in
the
International Jurisdiction; and
|
the
Subscriber will, if requested by the Corporation or the Agent, deliver to the
Corporation and the Agent a certificate or opinion of local counsel from the
International Jurisdiction which will confirm the matters referred to in
subsections (ii), (iii) and (iv) above to the satisfaction of the Corporation
and the Agent, acting reasonably; and
| (i) |
it
acknowledges and certifies that:
|
| (i) |
no
securities commission or similar regulatory authority has reviewed
or
passed on the merits of the Debentures;
and
|
| (ii) |
there
is no government or other insurance covering the Debentures;
and
|
| (iii) |
there
are risks associated with the purchase of the Debentures;
and
|
| (iv) |
there
are restrictions on the Subscriber's ability to resell the Debentures
and Underlying Securities and it is the responsibility of the Subscriber
to find out what those restrictions are and to comply with them before
selling the Debentures
or Underlying
Securities; and
|
| (v) |
the
Corporation has advised the Subscriber that the Corporation is relying
on
exemptions from the requirements to provide the Subscriber with a
prospectus under the applicable securities legislation of the province
or
territory in which the Subscriber is resident, and, as a consequence
of
acquiring Debentures
pursuant to these exemptions, certain protections, rights and remedies
provided by the applicable securities legislation of the province
of
territory in which the Subscriber is resident, including statutory
or
contractual rights of rescission or damages, will not be available
to the
Subscriber; and
|
| (j) |
it
confirms that neither the Corporation, the Agent nor any of their
respective directors, officers, employees or representatives, has
made any
representations (oral or written) to the
Subscriber:
|
| (i) |
that
any person will resell or repurchase the Debentures or Underlying
Securities;
|
| (ii) |
that
any person will refund the purchase price of the Debentures;
or
|
-6-
| (iii) |
as
to the future price or value of the Debentures or Underlying Securities;
and
|
| (k) |
it
is not a "U.S. person" as defined by Regulation S promulgated under
the
Unites States Securities Act of 1933 (the "1933
Act")
and is not acquiring the Debentures for the account or benefit of
a U.S.
person or a person in the United States. A "U.S. person" is defined
by
Regulation S promulgated under the 1933 Act to be any person who
is:
|
| (i) |
any
natural person resident in the United States;
|
| (ii) |
any
partnership or corporation organized or incorporated under the laws
of the
United States;
|
| (iii) |
any
estate of which any executor or administrator is a U.S.
person;
|
| (iv) |
any
trust of which any trustee is a U.S. person;
|
| (v) |
any
agency or branch of a foreign entity located in the United States;
|
| (vi) |
any
non-discretionary account or similar account (other than an estate
or
trust) held by a dealer or other fiduciary for the benefit or account
of a
U.S. person;
|
| (vii) |
any
discretionary account or similar account (other than an estates or
trust)
held by a dealer or other fiduciary organized, incorporated, or (if
an
individual) resident in the United States;
and
|
| (viii) |
any
partnership or corporation if: organized or incorporated under the
laws of
any foreign jurisdiction; and formed by a U.S. person principally
for the
purpose of investing in securities not registered under the 1933
Act,
unless it is organized or incorporated, and owned, by accredited
investors
as defined in Rule 501(a) under the 1933 Act who are not natural
persons,
estates or trusts.
|
| (l) |
it
acknowledges and agrees that: (1) the Debentures and the Underlying
Securities
have not been registered under the provisions of the 1933 Act, and
may not
be transferred unless (A) subsequently registered thereunder or (B)
the
buyer shall have delivered to the Corporation an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Corporation,
to the effect that the securities to be sold or transferred may be
sold or
transferred pursuant to an exemption from such registration; and
(2) any
sale of the shares of securities made in reliance on Rule 144 promulgated
under the 1933 Act may be made only in accordance with the terms
of said
Rule and further, if said Rule is not applicable, any resale of such
securities under circumstances in which the seller, or the person
through
whom the sale is made, may be deemed to be an underwriter, as that
term is
used in the 1933 Act, may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the United States
Securities and Exchange Commission thereunder;
and
|
| (m) |
it
acknowledges and agrees that, until such time as the Underlying Securities
have been registered for resale under the 1933 Act and sold in accordance
with an effective registration statement, certificates and other
instruments representing the Debentures and the Underlying Securities
shall bear a restrictive legend in substantially the following form
(and a
stop-transfer order may be placed against transfer of any such
securities):
|
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ISSUED IN RELIANCE
ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT PROVIDED BY
REGULATION S PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE REOFFERED
FOR
SALE OR RESOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQURIEMENTS OF THE ACT AFTER PROVIDING A LEGAL OPINION TO SUCH
EFFECT IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION. HEDGING
TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE ACT.
-7-
| (n) |
the
Debentures have not been offered to the Subscriber in the United
States,
and the individual(s) making the order to purchase the Debentures
and
executing and delivering this Subscription Agreement on behalf of
the
Subscriber were not in the United States when the order was placed
and
this Subscription Agreement was executed and delivered;
and
|
| (o) |
the
Subscriber agrees not to engage in hedging transactions with regard
to the
Debentures or Underlying Securities except in compliance with the
1933
Act; and
|
| (p) |
the
Subscriber acknowledges that the Corporation is required to refuse
to
register any transfer of the Debentures or Underlying Securities
not made
in accordance with the resale restrictions described in paragraph
(l)
above
|
| (q) |
if
it is a corporation, partnership, unincorporated association or other
entity, it has the legal capacity to enter into and be bound by this
Subscription Agreement and further certifies that all necessary approvals
of directors, shareholders or otherwise have been given and obtained;
and
|
| (r) |
if
it is an individual, it is of the full age of majority and is legally
competent to execute this Subscription Agreement and take all action
pursuant hereto; and
|
| (s) |
this
Subscription Agreement has been duly and validly authorized, executed
and
delivered by and constitutes a legal, valid, binding and enforceable
obligation of the Subscriber; and
|
| (t) |
in
the case of a subscription by it for Debentures
acting as agent for a Disclosed Beneficial Purchaser, it is duly
authorized to execute and deliver this agreement and all other necessary
documentation in connection with such subscription on behalf of such
disclosed principal, each of whom is purchasing as principal for
its own
account, not for the benefit of any other person, and not with a
view to
the resale or distribution of all or any of the Debentures, and this
Subscription Agreement has been duly authorized, executed and delivered
by
or on behalf of, and constitutes a legal, valid and binding agreement
of,
such disclosed principal, it acknowledges that the Corporation is
required
by law to disclose to certain regulatory authorities the identity
of each
beneficial purchaser of Debentures for whom it may be acting;
and
|
| (u) |
it
has such knowledge in financial and business affairs as to be capable
of
evaluating the merits and risks of its investment and it, or, where
not
purchasing as principal, each disclosed principal is able to bear
the
economic risk of loss of its investment;
and
|
| (v) |
it
has relied solely upon publicly available information relating to
the
Corporation and not upon any verbal or written representation as
to fact
or otherwise made by or on behalf of the Corporation or the Agent,
such
publicly available information having been delivered to the Subscriber
without independent investigation or verification by the Agent, and
agrees
that the Agent and Agent's counsel assume no responsibility or liability
of any nature whatsoever for the accuracy, adequacy or completeness
of the
publicly available information or as to whether all information concerning
the Corporation required to be disclosed by the Corporation has been
generally disclosed and acknowledges that the Corporation's counsel
and
the Agent's counsel are acting solely as counsel to the Corporation
and
the Agent, respectively, and not as counsel to the Subscriber;
and
|
| (w) |
it
understands that Debentures
are being offered for sale only on a "private placement" basis and
that
the sale and delivery of the Debentures
is
conditional upon such sale being exempt from the requirements as
to the
filing of a prospectus or delivery of an offering memorandum or upon
the
issuance of such orders, consents or approvals as may be required
to
permit such sale without the requirement of filing a prospectus or
delivering an offering memorandum;
and
|
| (x) |
if
required by applicable securities legislation, regulations, rules,
policies or orders or by any securities commission, stock exchange
or
other regulatory authority, the Subscriber will execute, deliver,
file and
otherwise assist the Corporation in filing, such reports, undertakings
and
other documents with respect to the issue of the Debentures
as
may be required (including, without limitation): (a) this duly completed
and executed Subscription Agreement; (b) if the Subscriber is an
"accredited investor", a fully executed and completed Representation
Letter in the form attached as Exhibit
1;
and (c) if the Subscriber is a close personal friend or close business
associate of a director, executive officer, control person or founder
(as
defined in NI 45-106) of the Corporation, or of an affiliate (as
defined
in NI 45-106) of the Corporation, a fully executed Questionnaire
in the
form attached as Exhibit
2;
and
|
-8-
| (y) |
it
acknowledges that the certificates representing the Debentures and
Underlying Securities will bear a restrictive legend in accordance
with
applicable securities legislation; and
|
| (z) |
it
will not resell the Debentures
or Underlying
Securities except in accordance with the provisions of applicable
securities legislation and stock exchange rules, if applicable, in
the
future; and
|
| (aa) |
it
does not act jointly or in concert with any other subscriber for
Debentures for the purposes of acquisition of the Debentures;
and
|
| (bb) |
the
entering into of this Subscription Agreement and the transactions
contemplated hereby will not result in a violation of any of the
terms or
provisions of any law applicable to the Subscriber, or if the Subscriber
is not a natural person, any of the Subscriber's constating documents,
or
any agreement to which the Subscriber is a party or by which it is
bound;
and
|
| (cc) |
none
of the funds the Subscriber is using to purchase the Debentures
are, to the knowledge of the Subscriber, proceeds obtained or derived,
directly or indirectly, as a result of illegal activities and the
funds
representing the aggregate subscription amount which will be advanced
by
the Subscriber hereunder will not represent proceeds of crime for
the
purposes of the Proceeds
of Crime (Money Laundering) Act
(Canada) and the Subscriber acknowledges that the Corporation or
the Agent
may in the future be required by law to disclose the Subscriber's
name and
other information relating to this Subscription Agreement and the
Subscriber's subscription hereunder, on a confidential basis, to
regulatory authorities pursuant to the Proceeds
of Crime (Money Laundering) Act
(Canada) and (i) to the best of the Subscriber's knowledge none of
the
subscription funds to be provided by the Subscriber (A) have been
or will
be derived from or related to any activity that is deemed criminal
under
the laws of Canada, the United States of America, or any other
jurisdiction, or (B) are being tendered on behalf of a person or
entity
who has not been identified to the Subscriber, and (ii) it shall
promptly
notify the Corporation and the Agent if the Subscriber discovers
that any
of such representations ceases to be true, and to provide the Corporation
and the Agent with appropriate information in connection therewith;
and
|
| (dd) |
the
Subscriber acknowledges that the Debentures
are being purchased pursuant to exemptions from the prospectus
requirements contained in applicable securities legislation and,
as a
result:
|
| (i) |
the
Subscriber is restricted from using most of the civil remedies available
under applicable securities
legislation;
|
| (ii) |
the
Subscriber may not receive information that would otherwise be required
to
be provided to the Subscriber under applicable securities legislation;
and
|
| (iii) |
the
Corporation is relieved from certain obligations that would otherwise
apply under applicable securities legislation;
and
|
| (ee) |
the
Subscriber acknowledges that it has been encouraged to and should
obtain
independent legal and investment advice with respect to its subscription
for these Debentures
and accordingly, has been independently advised as to the meanings
of all
terms contained herein relevant to the Subscriber for purposes of
giving
representations, warranties and covenants under this Subscription
Agreement.
|
Registration
Rights
4. Corporation
Registration.
The
Subscribers shall be entitled to "piggyback" registration rights on all
registrations of the Corporation or on any demand registrations of any other
investor subject to the right, however, of the Corporation and its underwriters
to reduce the number of shares proposed to be registered pro rata in view of
market conditions, and subject to complete cutback in the case of the
Corporation’s initial public offering. If the Subscribers are so limited,
however, no party shall sell shares in such registration other than the
Corporation or the Subscriber, if any, invoking the demand registration. In
the
event that the Corporation exercises its rights to convert the Debentures into
Common Shares, no shareholder of the Corporation shall be granted registration
rights pari passu with or senior to those rights granted to the Subscribers
holding such Common Shares without the consent of the holders of 50% such Common
Shares.
-9-
5. Expenses.
The
Corporation shall bear registration expenses (exclusive of underwriting
discounts and commissions) of all such demands, piggybacks and registrations
on
Form S-3 (including the expense of a single counsel to the selling shareholders,
which counsel shall also be counsel to the Corporation unless there is a
conflict of interest with respect to the representation of any selling
shareholder or the underwriters otherwise object.
6. Transfer
of Rights.
The
registration rights may be transferred to (i) any partner or retired partner
of
any holder that is a partnership, (ii) any family member or trust for the
benefit of any individual holder, or (iii) any transferee who acquires at least
100,000 Underlying Securities, provided the Corporation is given written notice
thereof.
7. Termination
of Rights:. The
obligation of the Corporation under Section 4 shall not apply to any shares
of
the Corporation that are eligible for immediate resale pursuant to Rule 144(k)
under the 1933 Act or are otherwise eligible for resale pursuant to Rule 144(k)
within a period of three months.
8. Other
Provisions.
Other
provisions shall be contained in the Agency Agreement (as defined herein) with
respect to registration rights as are reasonable, including
cross-indemnification, the period of time in which the registration statement
shall be kept effective, and underwriting arrangements. Registration rights
provisions may be amended or waived solely with the consent of the holders
of
50% of the Underlying Securities issued or issuable pursuant to the conversion
of the Debentures.
9. Reporting
Issuer Status.
The
Corporation shall be required to make an application in the Province of Alberta
for exemptive relief from the requirements of Canadian Securities legislation
that the first trade in common shares held by Canadian subscribers which were
acquired on conversion of the Debentures be exempt from the prospectus and
registration requirements of the applicable Canadian Securities legislation.
In
the event such exemptive relief is not granted, the Corporation shall be
required to file a prospectus or otherwise become a reporting issuer in the
Province of Alberta concurrently with or promptly following the completion
of
the Corporation's initial public offering in the United States, and in any
event
within eight months of the date of the Closing Date, and to maintain its
reporting issuer status in the Province of Alberta for a period of two years
thereafter.
Closing
10. The
Subscriber agrees to deliver the Agent, not later than 4:30 p.m. (Calgary time)
on the day that is two business days before the Closing Date (as defined below):
(a) this duly completed and executed agreement; (b) if applicable, a duly
executed and completed representation letter in the form of Exhibit 1; (c)
if a
applicable, a duly completed Close Personal Friend / Close Business Associate
Questionnaire in the form of Exhibit 2; (d) a cheque payable to "X.X. Xxxxxx
and
Company Ltd.: dated no later than the Closing Date, or such other manner of
payment acceptable to the Corporation, for an amount equal to the aggregate
purchase price of the Debentures subscribed for hereunder; and (e) any
additional documentation that may be reasonably requested by the Agent or the
Corporation hereunder.
11. The
sale
of the Debentures pursuant to this Subscription Agreement will be completed
at
the offices of Xxxxxx
Xxxxxxx LLP
at
9:00
a.m.
(Calgary time) or such other time and place as the Corporation and the Agent
may
agree (the "Closing
Time")
on
October 3, 2006 or such other date as the Corporation and the Agent may agree
(the "Closing
Date").
At
the Closing Time, the Agent shall deliver to the Corporation all completed
subscription agreements, including this Subscription Agreement, and the
aggregate subscription price against delivery by the Corporation of certificates
representing the Debentures.
12. The
Corporation and the Agent shall be entitled to rely on delivery of a facsimile
copy of executed subscriptions, and acceptance by the Corporation of such
facsimile subscriptions shall be legally effective to create a valid and binding
agreement between the Subscriber and the Corporation in accordance with the
terms hereof. Notwithstanding the foregoing, the Subscriber shall deliver
originally executed copies of the documents set forth in the Delivery
Instructions attached to this Subscription Agreement to the Corporation within
two business days of the Closing Date. In addition, this Subscription Agreement
may be executed in counterparts, each of which shall be deemed to be an original
and all of which shall constitute one and the same document.
General
13. The
Subscriber agrees that the representations, warranties and covenants of the
Subscriber herein will be true and correct both as of the execution of this
Subscription Agreement and as of the Closing Time and will survive the
completion of the issuance of the Debentures.
The
representations, warranties and covenants of the Subscriber herein are made
with
the intent that
-10-
they
be
relied upon by the Corporation and the Agent in determining the eligibility
of a
purchaser of Debentures and the Subscriber agrees to indemnify the Corporation
and the Agent and their respective directors, officers, partners, affiliates,
shareholders, partners, employees, advisors, agents and representatives against
all losses, claims, costs, expenses and damages or liabilities which any of
them
may suffer or incur which are caused or arise from a breach thereof. The
Subscriber undertakes to immediately notify the Corporation at Red Mile
Entertainment Inc., 0000
Xxxxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx (Fax Number: (000)
000-0000)
and the
Agent at X.X. Xxxxxx & Company Ltd., 0000, 000 - 0xx Xxxxxx X.X., Xxxxxxx,
Xxxxxxx, Attention: X. Xxxxx Xxxxxxx, Managing Director (Fax Number: (000)
000-0000), of any change in any statement or other information relating to
the
Subscriber set forth herein which takes place prior to the Closing
Time.
14. The
Subscriber acknowledges that the Corporation and the Agent have entered into,
or
will enter into prior to the Closing Date, an agreement (the "Agency
Agreement")
pursuant to which the Agent, in connection with the issue and sale of the
Debentures, will receive a fee from the Corporation. The Subscriber hereby
irrevocably authorizes X.X. Xxxxxx: (a) to act as its representative at the
closing and to execute in its name and on its behalf all closing receipts and
documents required; (b) to complete or correct any errors or omissions in
any form or document provided by the Subscriber; (c) to receive on its
behalf certificates representing the Debentures
purchased
under this Subscription Agreement; (d) to approve any opinions,
certificates or other documents addressed to the Subscriber; (e) to waive,
in whole or in part, any representations, warranties, covenants or conditions
for the benefit of the Subscriber and contained in the Agency Agreement; (f)
to
register or permit the registration of the Debentures
purchased
hereunder by way of one or more certificates registered in the name of any
or
all of the Agent and/or in the name of each subscriber to the Offering and/or
in
the name of such other nominee or nominees as the Corporation and the Agent
may
agree; and (g) to exercise any rights of termination contained in the Agency
Agreement.
15. The
terms
and provisions of this Subscription Agreement are binding upon and enure to
the
benefit of the Subscriber and the Corporation and their respective heirs,
executors, administrators, successors and assigns; provided that, except for
the
assignment by a Subscriber who is acting as nominee or agent to a disclosed
principal and as otherwise herein provided, this Subscription Agreement is
not
assignable by any party without prior written consent of the other
parties.
16. The
Subscriber acknowledges and agrees that all costs incurred by the Subscriber
(including any fees and disbursements of any special counsel retained by the
Subscriber) relating to the sale of the Debentures
to
the
Subscriber shall be borne by the Subscriber.
17. The
contract arising out of this Subscription Agreement and all documents relating
thereto, which by common accord has been or will be drafted in English, shall
be
governed by and construed in accordance with the laws of the Province of Alberta
and the federal laws of Canada applicable therein, with the exception of those
principles relating to conflict of laws. The parties irrevocably attorn to
the
exclusive jurisdiction of the courts of the Province of Alberta. The parties
hereto confirm their express wish that this Subscription Agreement and all
documents and agreements directly or indirectly related thereto be drawn up
in
the English language. Les parties reconnaissent leur volonté expresse que la
présente convention de souscription ainsi que tous les documents et contrats s’y
rattachant directment ou indirectement soient rédigés en langue
anglaise.
18. Time
is
of the essence hereof.
19. This
Subscription Agreement represents the entire agreement of the parties hereto
relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except
as
stated or referred to herein.
20. The
covenants, representations and warranties contained herein shall survive the
closing of the transactions contemplated hereby.
21. Except
in
respect of Appendix A to Exhibit 1 hereto or otherwise in this Subscription
Agreement (including attachments), references to "$" or "USD $" are to United
States dollars.
22. The
Subscriber acknowledges that this Subscription Agreement and the Exhibits hereto
require the Subscriber to provide certain personal information to the
Corporation and the Agent. Such information is being collected by the
Corporation and the Agent for the purposes of completing the Offering, which
includes, without limitation, determining the Subscriber's eligibility to
purchase the Debentures under applicable securities legislation, preparing
and
registering any certificates representing securities to be issued to the
Subscriber and completing filings required by any stock exchange or securities
regulatory authority. The Subscriber's personal
-11-
information
may be disclosed by the Corporation or the Agent to: (a) stock exchanges or
securities regulatory authorities, (b) the registrar and transfer agent of
the
Corporation, and (c) any of the other parties involved in the Offering,
including legal counsel to the Corporation and the Agent. By executing this
Subscription Agreement, the Subscriber consents to the foregoing collection,
use
and disclosure of the Subscriber's personal information. The Subscriber also
consents to the filing of copies or originals of any of the Subscriber's
documents described herein
as
may be
required to be filed with any stock exchange or securities regulatory authority
in connection with the transactions contemplated hereby. An officer of the
Corporation is available to answer questions about the collection of personal
information by the Corporation at the address provided in Section 12.
23. The
invalidity, illegality or unenforceability of any provision of this Subscription
Agreement shall not affect the validity, legality or enforceability of any
other
provision hereof.
24. In
this
Agreement, words importing the singular number shall include the plural and
vice
versa and words importing the masculine gender shall include the feminine and
neuter genders and vice versa.
EXHIBIT
1
REPRESENTATION
LETTER
(FOR
ACCREDITED INVESTORS)
TO: Red
Mile Entertainment Inc. (the "Corporation")
|
AND
TO:
|
X.X.
Xxxxxx & Company Ltd. (the
"Agent")
|
In
connection with the purchase of Debentures of the Corporation ("Debentures")
by the
undersigned subscriber or, if applicable, the principal on whose behalf the
undersigned is purchasing as agent (the "Subscriber"
for the
purposes of this Exhibit 1), the Subscriber hereby represents, warrants,
covenants and certifies to the Corporation and the Agent that:
1. The
Subscriber is resident in or is subject to the laws of a jurisdiction of
Canada;
2. The
Subscriber is purchasing the Debentures as principal for its own
account;
3. The
Subscriber is an "accredited investor" within the meaning of National Instrument
45-106 entitled "Prospectus and Registration Exemptions" by virtue of satisfying
the indicated criterion as set out in Appendix "A" to this Representation
Letter; and
4. The
Subscriber was not created or used solely to purchase or hold securities as
an
accredited investor as described in paragraph (m) of the attached Appendix
"A"
of this Exhibit 1; and
5. Upon
execution of this Exhibit 1 by the Subscriber, this Exhibit 1 shall be
incorporated into and form a part of the Subscription Agreement.
Dated:
_________________________, 2006
Print
name of Subscriber
By:
Signature
Print
name of Signatory (if different from Subscriber)
Title
IMPORTANT:
PLEASE INITIAL APPENDIX "A" ON THE NEXT PAGE
APPENDIX
"A" TO EXHIBIT 1
Accredited
Investor
-
(defined in National Instrument 45-106) means:
NOTE:
The investor must initial beside the applicable portion of the above
definition.
|
(a) a
Canadian financial institution, or an authorized foreign bank named
in
Schedule III of the Bank
Act
(Canada),
|
|
|
(b) the
Business Development Bank of Canada incorporated under the Business
Development Bank of Canada Act
(Canada),
|
|
|
(c) a
subsidiary of any person or company referred to in paragraphs (a)
or (b),
if the person or company owns all of the voting securities of the
subsidiary, except the voting securities required by law to be
owned by
directors of that subsidiary,
|
|
|
(d) a
person registered under the securities legislation of a jurisdiction
of
Canada as an adviser or dealer, other than a person registered
solely as a
limited market dealer under one or both of the Securities
Act
(Ontario) or the Securities
Act
(Newfoundland and Labrador),
|
|
|
(e) an
individual registered or formerly registered under the securities
legislation of a jurisdiction of Canada as a representative of
a person
referred to in paragraph (d),
|
|
|
(f) the
Government of Canada or a jurisdiction of Canada, or any crown
corporation, agency or wholly owned entity of the Government of
Canada or
a jurisdiction of Canada,
|
|
|
(g) a
municipality, public board or commission in Canada and a metropolitan
community, school board, the Comité de gestion de la taxe scolaire de
l’île
de Montréal or an intermunicipal management board in Québec,
|
|
|
(h) any
national, federal, state, provincial, territorial or municipal
government
of or in any foreign jurisdiction, or any agency of that
government,
|
|
|
(i) a
pension fund that is regulated by either the Office of the Superintendent
of Financial Institutions (Canada) or a pension commission or similar
regulatory authority of a jurisdiction of Canada,
|
|
|
(j) an
individual who, either alone or with a spouse, beneficially owns,
directly
or indirectly, financial assets having an aggregate realizable
value that
before taxes, but net of any related liabilities, exceeds
$1,000,000,
|
|
|
(k) an
individual whose net income before taxes exceeded $200,000 in each
of the
two most recent calendar years or whose net income before taxes
combined
with that of a spouse exceeded $300,000 in each of the two most
recent
calendar years and who, in either case, reasonably expects to exceed
that
net income level in the current calendar year,
|
|
|
(l) an
individual who, either alone or with a spouse, has net assets of
at least
$5,000,000,
|
|
|
(m) a
person, other than an individual or investment fund, that has net
assets
of at least $5,000,000 as shown on its most recently prepared financial
statements,
|
|
|
(n) an
investment fund that distributes or has distributed its securities
only
to: (i) a person that is or was an accredited investor at the time
of the
distribution; (ii) a person that acquires or acquired securities
in the
circumstances referred to in sections 2.10 [Minimum
amount investment],
and 2.19 [Additional
investment in investment funds]
of National Instrument 45-106; or (iii) a person described in paragraph
(i) or (ii) that acquires or acquired securities under section
2.18
[Investment
fund reinvestment]
of National Instrument 45-106,
|
|
|
(o) an
investment fund that distributes or has distributed securities
under a
prospectus in a jurisdiction of Canada for which the regulator
or, in
Québec, the securities regulatory authority, has issued a
receipt,
|
-3-
|
(p) a
trust company or trust corporation registered or authorized to
carry on
business under the Trust
and Loan Companies Act
(Canada) or under comparable legislation in a jurisdiction of Canada
or a
foreign jurisdiction, acting on behalf of a fully managed account
by the
trust company or trust corporation, as the case may be,
|
|
|
(q) a
person acting on behalf of a fully managed account managed by that
person,
if that person (i) is registered or authorized to carry on business
as an
adviser or the equivalent under the securities legislation of a
jurisdiction of Canada or a foreign jurisdiction, and (ii) in Ontario,
is
purchasing a security that is not a security of an investment
fund,
|
|
|
(r) a
registered charity under the
Income Tax Act
(Canada) that, in regard to the trade, has obtained advice from
an
eligibility adviser or an adviser registered under the securities
legislation of the jurisdiction of the registered charity to give
advice
on the securities being traded,
|
|
|
(s) an
entity organized in a foreign jurisdiction that is analogous to
any of the
entities referred to in paragraphs (a) to (d) or paragraph (i)
in form and
function,
|
|
|
(t) a
person in respect of which all of the owners of interests, direct,
indirect or beneficial, except the voting securities required by
law to be
owned by directors, are persons that are accredited
investors,
|
|
|
(u) an
investment fund that is advised by a person registered as an adviser
or a
person that is exempt from registration as an adviser, or
|
|
|
(v) a
person that is recognized or designated by the securities regulatory
authority or, except in Ontario and Québec, the regulator as (i) an
accredited investor, or (ii) an exempt purchaser in Alberta or
British
Columbia after September 14, 2005.
|
For
the purposes hereof:
| (a) |
"consultant"
means, for an issuer, a person, other than an employee, executive
officer,
or director of the issuer or of a related entity of the issuer,
that
|
| (i) |
is
engaged to provide services to the issuer or a related entity of
the
issuer, other than services provided in relation to a
distribution;
|
| (ii) |
provides
the services under a written contract with the issuer or a related
entity
of the issuer; and
|
| (iii) |
spends
or will spend a significant amount of time and attention on the affairs
and business of the issuer or a related entity of the issuer and
includes,
for an individual consultant, a corporation of which the individual
consultant is an employee or shareholder, and a partnership of which
the
individual consultant is an employee or
partner;
|
| (b) |
"control
person"
has the same meaning ascribed to that term in securities legislation
except in Manitoba, Newfoundland and Labrador, Northwest Territories,
Nova
Scotia, Nunavut, Ontario, Xxxxxx Xxxxxx Island and Québec, where "control
person" means any person that holds or is one of a combination of
persons
or companies that holds:
|
| (i) |
a
sufficient number of any of the securities of an issuer so as to
affect
materially the control of the issuer,
or
|
| (ii) |
more
than 20% of the outstanding voting securities of an issuer except
where
there is evidence showing that the holding of those securities does
not
affect materially the control of that
issuer;
|
| (c) |
"director"
means:
|
| (i) |
a
member of the board of directors of a company or an individual who
performs similar functions for a company,
and
|
| (ii) |
with
respect to a person that is not a company, an individual who performs
functions similar to those of a director of a
company;
|
| (d) |
"eligibility
adviser"
means
|
-4-
| (i) |
a
person that is registered as an investment dealer or in an equivalent
category of registration under the securities legislation of the
jurisdiction of a purchaser and authorized to give advice with respect
to
the type of security being distributed,
and
|
| (ii) |
in
Saskatchewan or Manitoba, also means a lawyer who is a practicing
member
in good standing with a law society of a jurisdiction of Canada or
a
public accountant who is a member in good standing of an institute
or
association of chartered accountants, certified general accountants
or
certified management accountants in a jurisdiction of Canada provided
that
the lawyer or public accountant must
not:
|
| (A) |
have
a professional, business or personal relationship with the issuer,
or any
of its directors, executive officers, founders, or control persons,
and
|
| (B) |
have
acted for or been retained personally or otherwise as an employee,
executive officer, director, associate or partner of a person or
company
that has acted for or been retained by the issuer or any of its directors,
executive officers, founders or control persons within the previous
12
months;
|
| (e) |
"executive
officer"
means, for an issuer, an individual who
is
|
| (i) |
a
chair, vice-chair or president,
|
| (ii) |
a
vice-president in charge of a principal business unit, division or
function including sales, finance or
production,
|
| (iii) |
an
officer of the issuer or any of its subsidiaries and who performs
a
policy-making function in respect of the issuer,
or
|
| (iv) |
performing
a policy-making function in respect of the
issuer;
|
| (f) |
"financial
assets"
means cash, securities or a contract of insurance, a deposit or an
evidence of a deposit that is not a security for the purposes of
securities legislation;
|
| (g) |
"founder"
means, in respect of an issuer, a person
who,
|
| (i) |
acting
alone, in conjunction, or in concert with one or more persons, directly
or
indirectly, takes the initiative in founding, organizing or substantially
reorganizing the business of the issuer,
and
|
| (ii) |
at
the time of the trade is actively involved in the business of the
issuer;
|
| (h) |
"fully
managed account"
means an account of a client for which a person makes the investment
decisions if that person has full discretion to trade in securities
for
the account without requiring the client’s express consent to a
transaction;
|
| (i) |
"individual"
means a natural person, but does not
include
|
| (i) |
a
partnership, unincorporated association, unincorporated syndicate,
unincorporated organization or a trust,
or
|
| (ii) |
a
natural person in the person’s capacity as trustee, executor,
administrator or other legal
representative;
|
| (j) |
"mutual
fund"
includes an issuer of securities that entitles the holder to receive
on
demand or within a specified period after demand, an amount computed
by
reference to the value of a proportionate interest in the whole or
in part
of the net assets, including a separate fund or trust account, of
the
issuer of the securities;
|
| (k) |
"non-redeemable
investment fund"
means an issuer,
|
| (i) |
whose
primary purpose is to invest money provided by its security
holders,
|
| (ii) |
that
does not invest, (i) for the purpose of exercising or seeking to
exercise
control of an issuer, other than an issuer that is a mutual fund
or a
non-redeemable investment fund, or (ii) for the purpose of being
actively
involved in the management of any issuer in which it invests, other
than
an issuer that is a mutual fund or a non-redeemable investment fund,
and
|
| (iii) |
that
is not a mutual fund;
|
-5-
| (l) |
"person"
includes:
|
| (i) |
an
individual,
|
| (ii) |
a
corporation,
|
| (iii) |
a
partnership, trust, fund and an association, syndicate, organization
or
other organized group of persons, whether incorporated or not,
and
|
| (iv) |
an
individual or other person in that person’s capacity as a trustee,
executor, administrator or personal or other legal representative;
and
|
| (m) |
"related
liabilities"
means:
|
| (i) |
liabilities
incurred or assumed for the purpose of financing the acquisition
or
ownership of financial assets; or
|
| (ii) |
liabilities
that are secured by financial
assets.
|
All
monetary references set forth in Appendix A to Exhibit 1 are in Canadian
Dollars.
-6-
EXHIBIT
2
CLOSE
PERSONAL FRIEND / CLOSE BUSINESS ASSOCIATE QUESTIONNAIRE
To
be
completed by Subscribers to whom section 3(e)(iii)(D) or (E)) of the
Subscription Agreement applies.
Name
of
director, executive officer, control person or founder
Length
of
relationship
Details
of relationship or prior business dealings
The
undersigned understands that the Corporation is relying on this information
in
determining to sell securities to the undersigned in a manner exempt from the
registration and prospectus requirements of applicable securities
laws.
Dated:
_________________________, 2006
Print
name of Subscriber
By:
Signature
Print
name of Signatory (if different from Subscriber)
Title
-7-
EXHIBIT
3
TERMS
OF CONVERTIBLE DEBENTURES
|
OFFERING
TERMS
|
|
|
Amount
Raised:
|
Minimum
of USD$5,000,000, Maximum of USD$10,000,000, 5.5% Senior Secured
Convertible Debentures each Debenture having a principle amount of
$1000
(“Par”).
|
|
Closing
Date:
|
Payment
for, and delivery of the Debentures shall be made on or about October
3,
2006 or any other date acceptable to the Corporation and the Agent
(the
“Closing”).
|
|
Conversion
Price:
|
The
Debentures shall convert to Common Shares in the capital stock of
the
Corporation (the “Common Shares”) at a ratio of $1.75 per Common Share
(the “Conversion Price”) at any time at option of the holder after a
minimum non-conversion period of 12 months (the “Minimum Term”) from the
issue date (the “Issue Date”). Investors shall be entitled to accrued
unpaid interest from the last interest payment date to the date of
conversion.
|
|
Term:
|
The
Debentures shall mature on the second anniversary of the Issue Date
(the
“Maturity Date”).
|
|
Payment
at Maturity:
|
On
the Maturity Date, the Corporation shall repay the Debentures in
full with
accrued interest. The Corporation shall retain the right to make
this
payment in cash, in kind, or in cash and in kind with Common Shares
of the
Corporation based on the 20 day volume weighted average trading price
of
the Corporation’s Common Shares for the 20 days immediately prior to the
Maturity Date (subject to In Kind Limitations, as defined herein).
In the
event the Corporation exercises this right in kind, all Common Shares
shall be given Piggyback Registration rights as defined
herein.
|
|
Coupon:
|
5.5%
per annum non-compounded, payable semi-annually in cash, or in kind
based
on the 20 day volume weighted average trading price of the Corporation’s
Common Shares immediately prior to the coupon payment date (subject
to In
Kind Limitations, as defined herein). Coupon payments will occur
semi-annually on the dates of March 15 and September 15 of each year
until
Redemption or the Maturity Date. In the event the Corporation makes
payment in kind, all Common Shares shall be given Piggyback Registration
rights as defined herein.
|
|
Collateral:
|
All
assets of the Corporation and its operating subsidiaries, except
for items
related to the Accounts Receivables of the Corporation, until the
Debenture is either converted to Common Shares or repaid in
full.
|
|
Redemption:
|
After
the Minimum Term, the Corporation shall retain the right to convert
the
Debentures into Common Shares at the Conversion Price at any time
so long
as Corporation’s Common Shares have traded at a minimum volume weighted
average price of $3.00/share for 20 consecutive trading days (subject
to
In Kind Limitations, as defined herein). Such right must be exercised
by
the Corporation within 5 days of the 20 trading day period. In the
event
the Corporation exercises this right, all Common Shares shall be
given
Piggyback Registration rights as defined herein.
The
Corporation shall also retain the option to redeem the Debentures
at a
redemption price equal to 115% of their Par value, plus any accrued
and
unpaid interest, payable in cash at any time after the Minimum Term
so
long as Corporation’s Common Shares have traded at a minimum volume
weighted average price of $3.00/share for 20 consecutive trading
days
(subject to In Kind Limitations, as defined herein). If the Corporation
chooses to redeem the Debentures equal to 115% of their Par value,
the
Corporation must give written notice to the holders of the Debentures
and
allow the holders the right to convert the Debentures into the
Corporation's Common Shares at the Conversion Price within ten days
of being notified of Corporation’s intent to redeem.
|
-8-
|
In
Kind Limitations:
|
In
order for the Corporation to maintain its right to pay Coupon payments,
and/or Redemption proceeds that are payable with the Corporation’s Common
Shares, the Corporation must be publicly listed and have freely
tradable
Common Shares. For clarity, the holder of the Debentures will still
maintain the right to convert Debentures into Common Shares regardless
if
the Corporation’s Common Shares are publicly trading after the Minimum
Term.
|
|
Change
of Control:
|
In
the event of the acquisition of voting control or direction over
50% or
more of Corporation’s Common Shares before the Minimum Term, each holder
of Debentures will have the right to require the Corporation (including
any successor entity to the Corporation) to make an offer, within
20 days
following the consummation of the change of control to purchase
for cash,
such holder’s outstanding Debentures then outstanding at a price equal to
110.0% of the principal amount thereof plus any accrued interest.
|
|
Anti-Dilution:
|
Proportional
adjustments of the conversion rights attached to the Debentures
will be
made for stock splits, stock dividends, recapitalizations and the
like.
Notwithstanding the foregoing, for greater certainty, no anti-dilution
adjustment would be made on account of any new issuance of securities
of
the Corporation including (i) upon conversion of the Debentures
issued as
part of this Offering, or (ii) any issuance of stock options pursuant
to
the Corporation’s approved stock option plan, so long as the "option pool"
available for issuance pursuant to such stock option plan does
not exceed
ten percent (10%) of the Common Shares, calculated on a fully-diluted
basis as of the Closing Date, or (iii) any issuance of securities
issued
in an additional financing, however subject to applicable anti-dilution
laws in Canada and the United States, or (iv) securities issued
in
connection with mergers or acquisitions.
|
|
Liens
& Indebtedness:
|
The
Corporation will repay all outstanding indebtedness to its lenders,
if
any, out of the proceeds of the Debenture funding, and remove all
registrations, liens or other charges against the Corporation at
closing.
|
|
Registration
Rights:
|
Holders
will have full rights to Piggyback Registration after the Minimum
Term is
met, subject to customary underwriter's cutbacks, as may be required.
If
at any time the Corporation proposes to file a Registration Statement
after the Minimum Term is met, whether or not for sale for the
Corporation’s own account, on a form and in a manner that would permit
registration of Registrable Securities, Corporation shall give
to the
Agent and the holders of Debentures, written notice of such proposed
filing at least ten (10) days before the anticipated filing. The
notice
referred to in the preceding sentence shall offer Holder the opportunity
to register such amount of Registrable Securities as Holder may
request (a
"Piggyback Registration"), subject to customary underwriter's cutbacks,
as
may be required..
|
