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Lion’s Gate Settles With SEC for $7.5 Million

WASHINGTON (CN) - Lion's Gate Entertainment, a popular moviemaker, will pay $7.5 million to settle SEC charges that it did not fully and accurately describe a key aspect of its effort to thwart a hostile takeover bid from Carl Icahn.

Unusually for the SEC, Lion's Gate will admit wrongdoing, the SEC said in a statement announcing the settlement.

The hostile bidder was Carl Icahn, according to wire reports. The SEC never names Icahn in its 21-page administrative cease-and-desist order.

The document states: "On July 20, 2010 Lions Gate participated in an extraordinary three-part set of transactions which put over 16 million shares of the company stock in the hands of a director friendly to the company's management (collectively with his investment partnership, the 'Friendly Director') as part of the company's effort to defeat a hostile tender offer by a large shareholder (the 'Shareholder'). The Lions Gate public filings failed to disclose material information about the transactions." (Parentheses in complaint.)

The document continues: "For at least a year before these transactions occurred, Lions Gate and the Shareholder had been locked in a battle for control of the company. During this time, the Shareholder had made several tender offers and acquired over 37 percent of the outstanding stock of the company. For its part, the company believed that allowing the Shareholder to control the company was not in the best interest of the company and its shareholders and accordingly pursued a vigorous defense strategy to thwart the Shareholder's effort to take control of the company, including an active campaign to discourage shareholders from tendering their stock to the Shareholder.

"Lions Gate management knew that a large, direct sale of stock from the company to

the Friendly Director would advance management's strategy as it would put voting rights in the hands of someone supportive of management and dilute the percentage of ownership of those hostile to management. However, such a transaction, commonly known as a 'defensive recapitalization,' would have required prior approval from the company's shareholders under a NYSE rule and was not practical given the time constraints the company faced in defending against the Shareholder's takeover effort. In early July 2010, Lions Gate began to explore a three-part set

of transactions involving a holder of company notes convertible into stock (the 'Note Holder'), the Friendly Director, and the company. These transactions involved an exchange of the Note Holder's notes for new notes that could be converted to Lions Gate stock at a much more favorable rate; the sale of the new notes from the Note Holder to the Friendly Director; and the conversion of the new notes to Lions Gate stock by the Friendly Director. Lions Gate took the position that the sale of

notes to the Friendly Director was not a related party transaction and, thus, did not require shareholder approval under the NYSE rule. ...

"When the Shareholder announced a new tender offer on the morning of July 20, the convertible notes already had been exchanged by the Note Holder. Later that morning, they were sold by the Note Holder to the Friendly Director who promptly converted the notes to stock. As a result of the transactions executed on July 20 ... the Friendly Director obtained control of approximately 16 million shares, representing 9 percent of the company's outstanding stock, effectively blocking the Shareholder's bid for control of the company."

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