Chesswood -- summary under Convertible Debentures

General

Offering by the Corporation of $20 million of 6.5% convertible unsecured subordinated debentures at their principal amount ($1,000 per debenture), and with a maturity date of December 31, 2018. The interest is payable semi-annually in arrears. The Debentures are conditionally listed on the TSX.

Repayment/Conversion

Provided it gives notice at least one business day prior to the conversion date, the Corporation has the option, upon a holder electing to convert, to pay in cash (based on the 10-day VWAP of the Corporation's common shares on the TSX commencing on the third day following the conversion date) in lieu of delivering shares. The debentures are optionally redeemable by the Corporation during the year following December 31, 2016 if the market price of the common shares (as defined) exceeds 125% of the conversion price - or earlier, on a change of control. Thereafter, they may be redeemed at par.

On redemption or maturity, the Corporation may repay the principal amount by delivering common shares whose number is based on a 5% discount to the shares' market price, as computed.

Change of control

In the event of a Change of Control (as defined and including a sale of substantially all the assets), the Corporation is required to offer to purchase debentures for cash at 101% of the principal amount (plus accrued and unpaid interest). Furthermore, if there is a Change of Control in which 10% or more of the consideration consists of cash or non-traded securities, then commencing 10 days before the effective date up until 30 days after the effective date of the Change of Control, holders will be entitled to convert using a discounted conversion price based on prorating a conversion premium of 35% for the number of days remaining until December 31, 2017 compared to the total number of days from the issue date to that date (so that, for example, if the Change of Control occurred 1/4 (or 3/4) of the way to December 31, 2017, the conversion price of $21.25 would be divided by 122.5% (or 107.5%).)

Business

The Corporation is an Ontario corporation which is the successor to the Chesswood Income Fund. It invests in the financial services industry in the U.S. and Canada.

Canadian tax consequences

Conversion. Although the matter is not free from doubt, a resident holder who converts a Debenture into common shares pursuant to the conversion privilege should be deemed not to have disposed of the Debentures. [See AC58563 and 91 C.R.-Q.17.]