TERM SHEET
| SELLER: | Cineflix Ltd. (“Targetco”) |
| PURCHASER: | Salem Film Studios Ltd. (“Acquireco”) |
| DEFINITIONS: | “Acquisition Proposal” means, other than the transaction contemplated by this Agreement, any offer, proposal, or inquiry from any Person(s) (other than any agreement to which Acquireco is a party) after the date hereof relating to any liquidation, dissolution, recapitalization, merger, amalgamation, or acquisition or purchase of at least 20% of the assets of or securities in Targetco. “Material Adverse Effect” means any change, event, violation, inaccuracy, circumstance, or effect that is or would reasonably be expected to be materially adverse to the business, financial condition, prospects, or results of operations of Targetco other than as a result of: (i) changes adversely affecting the Canadian economy; (ii) changes adversely affecting the industry in which Targetco operates; (iii) changes in laws or accounting principles; (iv) any future outbreak of COVID-19 affecting the industry in which Targetco operates as a whole; (v) the announcement or pendency of the transactions contemplated by this Agreement; provided that paragraphs (i) through to and including (iv) shall not have a disproportionate effect on Targetco relative to other comparable companies and entities. “Superior Proposal” means any unsolicited bona fide written Acquisition Proposal to acquire all or substantially all of the assets or securities of Targetco that is not subject to any financing or due diligence conditions, did not otherwise result from a breach of this Agreement, is reasonably capable of being completed without undue delay, and, in the Board’s good faith judgment after receiving advice from outside counsel and financial advisors, would, if consummated in accordance with its terms, but without assuming away the risk of non-completion, result in a transaction which is more favourable financially to Targetco shareholders than this Arrangement. |
| TARGETCO CIRCULAR AND RECOMMENDATION OF THE BOARD: | (1) Targetco shall, as promptly as reasonably practicable, apply for and diligently pursue the Interim Order and send the Targetco Circular. (2) Targetco shall ensure that the Targetco Circular contains a statement that the Board has unanimously determined that the Arrangement is in the best interests of Targetco and recommends that Targetco Shareholders vote in favour of the Arrangement. |
| NOTIFICATION OF ACQUISITION PROPOSALS: | Targetco shall notify Acquireco immediately of any future Acquisition Proposal. |
| NON-SOLICITATION | (1) On and after the date hereof, Targetco shall not, directly or indirectly, through any officer, director, employee, advisor, representative, agent or otherwise (i) make, solicit, initiate, or encourage any inquiry, proposal, or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition Proposal, (ii) participate in any discussions or negotiations regarding, or furnish to any person any information other than a copy of this Agreement with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person to do or seek to do any of the foregoing, (iii) withdraw the Board’s recommendation of the Offer or change such recommendation in a manner that has substantially the same effect as a withdrawal thereof, or (iv) approve or recommend any Acquisition Proposal or enter into any agreement related to any Acquisition Proposal made by a third party after the date hereof. (2) Targetco shall immediately cease and cause to be terminated any existing discussions or negotiations with any parties (other than Acquireco) with respect to any potential Acquisition Proposal. (3) If an Acquisition Proposal is received and the Board determines it not to be a Superior Proposal, the Board shall immediately publicly reaffirm its recommendation to accept the Arrangement. (4) Targetco represents and warrants that it has not waived any confidentiality, standstill, or similar agreement in effect as of the date of this Agreement to which Targetco is a party, and further covenants and agrees (i) that Targetco shall take all necessary action to enforce each such agreement, and (ii) not to release any Person from, or waive, amend, suspend or otherwise modify such Person’s obligations respecting Targetco under any such agreement. |
| FIDUCIARY OUT: | (1) The Board shall not be prevented from receiving, considering, negotiating, approving, implementing, and recommending to Targetco shareholders any Superior Proposal if the Board determines in good faith (after receiving advice and a written opinion from outside legal counsel) such that a failure to do so would be inconsistent with the Board’s fiduciary duties. (2) If a Superior Proposal is received, then, and only in such case, Targetco may provide the Offeror of the Superior Proposal with access to information as was made available to Acquireco subject to the execution of confidentiality and standstill agreements which are no less onerous and no more favourable to the offeror of the Superior Proposal than those between Acquireco and Targetco. (3) Notwithstanding sections (2) and (3) above, the Board shall submit the Arrangement to Targetco shareholders for a vote and shall not terminate the Agreement upon receipt of a Superior Proposal. |
| RIGHT TO MATCH: | (1) If a Superior Proposal is received, the Board shall deliver to Acquireco a copy of the agreement and a written notice of the financial value of the proposal. (2) Targetco covenants to refrain from entering any Superior Proposal for at least 10 business days from the day on which Acquireco receives notice and all required documentation respecting the Superior Proposal. During this 10-day period, Acquireco has the right to amend the terms of this Agreement to provide at least the financial equivalent of the Superior Proposal. If the Board determines that the amended Agreement is at least financially equivalent, Targetco covenants (i) not to enter or support in any way the proposed agreement with the third party, (ii) not to withdraw, modify, or change any recommendations regarding Acquireco’s offer, and (iii) to enter into an amending agreement to so amend this Agreement and publicly reaffirm its recommendation of the Arrangement. (3) Targetco agrees that each successive modification of any Acquisition Proposal shall constitute a new Acquisition Proposal. |
| CONDUCT OF BUSINESS BY THE COMPANY: | Targetco covenants that, during the period in which this Agreement is in effect, except with express prior written consent from Acquireco, Targetco (i) shall conduct its business in the Ordinary Course and only take measures that seek to maintain and preserve intact Targetco’s current business organization, assets, and properties, keep available services of the present employees and agents, and maintain good relations with suppliers, customers, landlords, creditors, and all other Persons having business relationships with Targetco, and (ii) shall not, directly or indirectly, sell, pledge, lease, dispose of, surrender, lose the right to use, mortgage, license, encumber or otherwise dispose of or transfer any assets of Targetco other than inventory sold in the Ordinary Course. |
| REGULATORY APPROVAL: | (1) Targetco and Acquireco shall cooperate in good faith to obtain the Regulatory Approvals and do so as promptly as practicable. Acquireco shall have the final and ultimate authority in respect of obtaining Regulatory Approval. (2) Acquireco shall use its commercially reasonable efforts to obtain Regulatory Approvals. For greater certainty, commercially reasonable efforts shall not require any action that would result in a material negative impact on Targetco or Acquireco. |
| CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIRECO: | Customary conditions precedent for the type of transaction proposed, including: (1) Acquireco shall have entered into irrevocable lock-up agreements with Major Shareholder, Steven Scorcese, and the Canada Pension Plan Investment Board in which each of the foregoing shareholders covenant and agree to vote their shares in favour of the Arrangement. (2) There shall not have been or occurred a Material Adverse Effect at closing. (3) All required Regulatory Approvals shall have been obtained. (4) Sufficient financing shall have been obtained. |
| TERMINATION | This Agreement may be terminated prior to the Effective Time by: (1) the mutual written agreement of the Parties, (2) either Acquireco or Targetco if the arrangement resolution is not approved by Targetco shareholders or the Effective Time does not occur on or prior to the Outside Date provided that, in either of subsections (2)(a) or (2)(b), a Party may not terminate this Agreement if the failure to obtain shareholder approval or of the Effective Time to occur on or prior to the Outside Date has been caused by, or is a result of, a breach by such Part under this Agreement, or (3) Acquireco if (a) Targetco breaches any representation or warranty or fails to perform any of its covenants; (b) the Board fails to unanimously recommend or fails to publicly reaffirm its recommendation as required or withdraws, amends, modifies or qualifies, or publicly proposes or states an intention to withdraw, amend, modify or qualify, the Board Recommendation; (c) Conditions Precedent are not capable of being satisfied by the Outside Date; (d) Targetco enters a written agreement with respect to a Superior Proposal. |
| TERMINATION FEES | (1) If a Termination Fee Event occurs, Targetco shall pay Acquireco the Termination Fee. (2) For the purposes of this Agreement, “Termination Fee” means $607,500,000 and “Termination Fee Event” means the termination of this Agreement pursuant to (a) section (3) of Termination, other than Regulatory Approval and conditional financing; and (b) subsections (2)(a) or (2)(b) of Termination and within 365 days after such termination, Targetco shall have consummated or entered into a definitive agreement with respect to an Acquisition Proposal. |
| ASSET OPTION | If a Termination Fee Event occurs, Aquireco shall have the option to purchase Targetco’s online streaming business at fair market value plus 35%. |
| EXPENSE REIMBURSEMENT | If this Agreement is terminated by Acquireco or Targetco pursuant to subsection 2(a) of Termination, then Targetco shall reimburse Acquireco for all expenses incurred by Acquireco in connection with the Arrangement. |
| CONSIDERATION | (1) Targetco shareholders shall elect as consideration either, or a combination of, cash and Acquireco shares, the number of Acqiureco shares per Targetco share being fixed such that Targetco shares are valued at a 35% premium as of the date hereof. (2) The maximum number of Acquireco shares issuable pursuant to this Arrangement shall not in the aggregate exceed 25% of Acquireco’s issued and outstanding shares on a non-diluted basis. |
| INDEMNIFICATION | Targetco acknowledges that an award of money damages would be inadequate for any breach of this Agreement and that such breach would cause Acquireco irreparable harm. Accordingly, Targetco agrees that in the event of any breach or threatened breach of this Agreement, Acquireco will also be entitled to equitable relief and specific performance. Such equitable remedies will not be the exclusive remedies for any breach of this Agreement but will be in addition to all other remedies available at law or equity. Acquireco shall not be liable for loss of profits or incidental, indirect, exemplary, punitive, special or consequential damages of any kind, including but not limited to, loss of synergies. |
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