A copy of this preliminary short form prospectus has been filed with the securities regulatory authorities in each of the provinces of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this preliminary short form prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the short form prospectus is obtained from the securities regulatory authorities.

This short form prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise.

Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of MGI Software Corp., 333 Preston Street, 11th Floor, Ottawa, Ontario, K1S 5N4, Telephone (613) 231-3000. For the purpose of the Province of Que´bec, this simplified prospectus contains information to be completed by consulting the permanent information record. A copy of the permanent information record may be obtained from the Secretary of MGI Software Corp. at the above-mentioned address and telephone number.

Preliminary Short Form Prospectus Dated January 18, 2001

New Issue ● , 2001

MGI SOFTWARE CORP.

Cdn$20,000,000 2,500,000 Units

This offering of Units of MGI Software Corp. (‘‘MGI’’ or the ‘‘Corporation’’) consists of a treasury offering in Canada of 2,500,000 units (‘‘Units’’) by the Corporation. Each Unit consists of one common share (‘‘Common Share’’) of the Corporation and one-half of one warrant (a ‘‘Warrant’’). Each whole Warrant entitles the holder thereof to purchase one Common Share of the Corporation at a purchase price of $9.50 at any time prior to the date that is 18 months from the completion of this offering. See ‘‘Plan of Distribution’’.

The outstanding Common Shares are listed on The Toronto Stock Exchange under the symbol ‘‘MGI’’. The closing market price of the Common Shares on January 17, 2001 was Cdn$7.85.

The Units will not be registered under the United States Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the U.S. Securities Act. See ‘‘Plan of Distribution’’.

The Units will not be precluded as investments under certain statutes. See ‘‘Eligibility for Investment’’.

Investing in the Units involves risks. See ‘‘Risk Factors’’.

Price: Cdn$8.00 per Unit

(1) The Underwriters’ fee represents 5% of the offering price.

(2) Before deducting expenses of the offering, estimated at Cdn$350,000, together with the Underwriters’ fee, will be paid by the Corporation from its general funds.

(3) The Corporation has granted to the Underwriters an option (the ‘‘over-allotment option’’) to acquire up to an aggregate of 375,000 additional Units at the offering price to cover over-allotments, if any, which will be satisfied by the Corporation. The over-allotment option is exercisable for a period of 30 days after the date of closing of this offering. If the over-allotment option is exercised in full, the total price to the public will be Cdn$23,000,000, the total Underwriters’ fee will be Cdn$1,150,000, and the total net proceeds to the Corporation will be Cdn$21,850,000. This prospectus also qualifies the distribution of the Units issuable or sold upon the exercise of the over-allotment option.

The Underwriters, as principals, have agreed to purchase the Units in accordance with the conditions contained in the Underwriting Agreement referred to under ‘‘Plan of Distribution’’ and subject to the approval of certain legal matters in respect of this offering on behalf of the Corporation by LaBarge Weinstein, Ottawa, Ontario and for the Underwriters by Wildeboer Rand Thomson Apps & Dellelce, LLP, Toronto, Ontario.

Subscriptions will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that delivery of certificates evidencing the Common Shares and the Warrants will be made on the closing of the offering, which is expected to be on or about January 31, 2001.

Prospective investors should rely only on the information contained or incorporated by reference in this prospectus. The Corporation has not authorized anyone to provide prospective investors with information different from that contained in this prospectus. The Corporation is offering to sell, and seeking offers to buy, Units only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the Units.

TABLE OF CONTENTS

In this prospectus, unless stated otherwise, all references to ‘‘US$’’ are to U.S. dollars and all references to ‘‘Cdn$’’ and ‘‘$’’ are to Canadian dollars. Unless the context otherwise indicates, references in this prospectus to ‘‘we’’, ‘‘us’’, ‘‘our’’, ‘‘MGI’’ or ‘‘Corporation’’ are references to MGI Software Corp., and its subsidiaries and predecessor companies.

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DOCUMENTS INCORPORATED BY REFERENCE

Information has been incorporated by reference in this prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of the Corporation, 333 Preston Street, 11th Floor, Ottawa, Ontario, K1S 5N4, Telephone (613) 231-3000. For the purpose of the Province of Que´bec, this simplified prospectus contains information to be completed by consulting the permanent information record. A copy of the permanent information record may be obtained from the Secretary of the Corporation at the abovementioned address and telephone number.

The following documents of the Corporation, filed with the securities commissions or similar authorities in certain of the provinces of Canada, are specifically incorporated by reference in and form an integral part of this short form prospectus:

1. the management proxy circular dated April 26, 2000 in connection with the annual general meeting of the Corporation’s shareholders held on June 7, 2000, other than the sections entitled ‘‘Corporate Governance’’, ‘‘Report on Executive Compensation’’, and ‘‘Performance Graph’’;

2. the Corporation’s interim unaudited comparative consolidated financial statements as at and for the periods ended April 30, 2000, July 31, 2000, and October 31, 2000;

3. the Corporation’s audited comparative consolidated financial statements for the fiscal year ended January 31, 2000, together with the notes thereto and the auditor’s report thereon, which are set forth at pages 16 to 32 of the Corporation’s annual report for the year ended January 31, 2000; and

4. the Corporation’s annual information form dated April 11, 2000, which includes the Corporation’s management’s discussion and analysis of operating results and financial position for the year ended January 31, 2000.

Copies of the foregoing documents incorporated herein by reference may be obtained on request without charge from the Secretary of the Corporation, 333 Preston Street, 11th Floor, Ottawa, Ontario, K1S 5N4, Telephone (613) 231-3000. For the purpose of the Province of Que´bec, this simplified prospectus contains information to be completed by consulting the permanent information record. A copy of the permanent information record may be obtained from the Secretary of MGI Software Corp. at the above-mentioned address and telephone number.

Any documents of the type referred to above and any material change reports (excluding confidential material change reports) filed by the Corporation with a securities commission or any similar authority in Canada subsequent to the date of this short form prospectus and prior to the termination of the offering hereunder shall be deemed to be incorporated by reference into this short form prospectus.

Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this short form prospectus to the extent that a statement contained herein, or in any other subsequently filed document which is or is deemed to be incorporated by reference herein, modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document which it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this short form prospectus.

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ELIGIBILITY FOR INVESTMENT

Subject to compliance with the prudent investment standards and general investment provisions of the statutes referred to below (and, where applicable, the regulations thereunder) and, in certain cases, subject to the satisfaction of additional requirements relating to investment or lending policies or goals, Common Shares and Warrants comprising the Units offered hereby will not, at the date of issue, be precluded investments under the following statutes:

Insurance Companies Act (Canada) Loan and Trust Corporations Act (Ontario) Pension Benefits Standards Act, 1985 (Canada) Pension Benefits Act (Ontario) Trust and Loan Companies Act (Canada) An act respecting insurance (Que´bec) Financial Institutions Act (British Columbia) An act respecting trust companies and savings Pension Benefits Standards Act (British Columbia) Companies (Que´bec) Loan and Trust Corporations Act (Alberta) Supplemental Pension Plans Act (Que´bec)

In the opinion of LaBarge Weinstein, counsel to the Corporation, and Wildeboer Rand Thomson Apps & Dellelce LLP, counsel to the Underwriters, provided the Common Shares comprising the Units offered hereby are listed on a prescribed stock exchange (which currently includes The Toronto Stock Exchange), based on the law as of the date hereof, the Common Shares and Warrants comprising the Units will be qualified investments under the Income Tax Act (Canada) and the regulations thereunder for trusts governed by registered retirement savings plans, registered retirement income funds, registered education savings plans and deferred profit sharing plans. In the opinion of such counsel, the Common Shares and Warrants comprising the Units would not as of the date hereof be considered foreign property under the Income Tax Act (Canada) for trusts governed by registered retirement savings plans, registered retirement income funds and deferred profit sharing plans.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This short form prospectus and the documents incorporated herein by reference, contain forward-looking statements which reflect management’s expectations regarding the Corporation’s future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as ‘‘anticipate’’, ‘‘believe’’, ‘‘expect’’, ‘‘intend’’ and similar expressions have been used to identify these forward-looking statements. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements involve significant risk, uncertainties and assumptions. A number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forwardlooking statements. These factors should be considered carefully and prospective investors should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this prospectus, and the documents incorporated herein by reference, are based upon what management believes to be reasonable assumptions, the Corporation cannot assure prospective purchasers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this prospectus, and the Corporation assumes no obligation to update or revise them to reflect new events or circumstances.

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THE CORPORATION

MGI Software Corp. (‘‘MGI’’ or the ‘‘Corporation’’) was incorporated under the laws of the Province of Ontario on September 22, 1995. The registered and principal office of MGI is located at 50 West Pearce Street, Richmond Hill, Ontario, L4B 1E3. The Corporation has offices in Campbell, California and San Francisco, California and maintains sales offices to support its global operations in London, UK, Paris, France, Paderborn, Germany, Tokyo, Japan, Taipei, Taiwan, and Seoul, Korea.

The Corporation is a leading provider of visual media and software products and infrastructure that enable businesses and individuals to more effectively develop and utilize digital photographs and video. The Corporation has developed a portfolio of imaging solutions within two business segments: e-imaging, which includes digital photography and server-based imaging infrastructure, and digital video. The Corporation’s imaging solutions optimize the use of high resolution, photograph-quality digital images on personal computers, the Internet, and other information appliances.

The Corporation offers software products targeted to the digital photography and video market. These products enable users to create, composite, manipulate, view, stream, and distribute digital photographs and video. In addition, our software provides digital versatile disk (DVD) and personal video recorder capability for personal computers. Our products are distributed in over 40 countries through our license relationships with original equipment manufacturers, (OEMs) such as Canon, Compaq, Dell, Fujitsu, Gateway, Hitachi, IBM, NEC, and Sony, as well as through leading computer and electronics retail stores.

The Corporation is leveraging its success in digital photography and video to expand its server-based imaging infrastructure business. The Corporation’s server-based imaging infrastructure technologies and applications provide a platform for businesses to differentiate themselves and engage their customers online. These tools allow businesses to create zoomable images, panoramas, 360 degree object rotation and virtual tours, resulting in a more realistic and compelling online visual experience. The Corporation’s clients are able to simulate online the physical experience of interacting with products, thereby encouraging longer and more frequent visits to their websites. The Corporation also offers enabling technologies that support online photo-finishing and editing tools for online photo-finishing businesses. The Corporation’s server-based technologies are used by over 200 commercial websites including those of Artmuseum.net, Bloomingdales, Four Seasons, Gucci, JC Penney, Macy’s, Martha Stewart, Neiman Marcus, and Nine West.

The Corporation has and will continue to seek key strategic relationships for the development, enhancement and marketing of its products. The Corporation’s proprietary technologies form a critical part of its Internet imaging solutions. As of the date of this prospectus, the Corporation held eight issued United States patents, 10 foreign issued patents and has 33 United States and 33 foreign patent applications pending.

USE OF PROCEEDS

The net proceeds to the Corporation from the sale of the Units offered hereby are estimated to be approximately $18,650,000, (approximately $21,500,000 if the over-allotment option is exercised in full) after deducting underwriting commissions and estimated expenses of the offering. The Corporation will use the net proceeds from this offering to expand its marketing and selling and research and development activities and for working capital and general corporate purposes. Consistent with its business strategy, the Corporation continually considers acquisition opportunities that will enhance its business. If the opportunity arises, the Corporation may use a portion of the net proceeds of this offering to acquire or invest in related businesses, products, and technologies. As of the date of this prospectus, the Corporation has no understandings, commitments or agreements with respect to any acquisitions or strategic investments. Until the Corporation uses the net proceeds of this offering, the Corporation plans to invest the proceeds in short-term investment grade or marketable securities.

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PLAN OF DISTRIBUTION

Subject to the terms and conditions of an underwriting agreement made as of January 16, 2001 (the ‘‘Underwriting Agreement’’) between the Corporation and National Bank Financial Inc., BMO Nesbitt Burns Inc., and Yorkton Securities Inc., as underwriters (the ‘‘Underwriters’’), the Corporation has agreed to issue and sell and the Underwriters have severally agreed to purchase 2,500,000 Units at a purchase price of $8.00 per Unit, payable in cash against delivery and upon the terms and subject to the conditions contained therein. The offering price of the Units was determined by negotiation between the Corporation and the Underwriters. Each Unit consists of one Common Share and one-half of one Warrant. Each whole Warrant entitles the holder to purchase one Common Share of the Corporation at a purchase price of $9.50 at any time prior to the date that is 18 months from the date of completion of this offering. The Corporation will pay the Underwriters a fee equal to $0.40 per Unit sold, for an aggregate fee of $1,000,000 (assuming no exercise of the over-allotment option).

The obligations of the Underwriters to purchase Units are several and may be terminated at their discretion upon the occurrence of certain stated events or on the basis of their assessment of the state of the financial markets. The Underwriting Agreement also provides that the Corporation will indemnify the Underwriters against certain liabilities and expenses, or will contribute to payments that the Underwriters may be required to make in respect thereof.

This offering is being made in all of the provinces of Canada. This offering is not being made in the United States. The Common Shares will be offered in all of the provinces of Canada by the Underwriters and other registered dealers that may be designated by the Underwriters.

The Corporation has granted to the Underwriters an option (the ‘‘over-allotment option’’) to acquire up to an aggregate of 375,000 additional Units at the offering price to cover over-allotments, if any. The over-allotment option is exercisable for a period of 30 days after the date of closing of this offering. If the over-allotment option is exercised in full, the total price to the public will be Cdn$23,000,000, the total Underwriters’ fee will be Cdn$1,150,000, the total net proceeds to the Corporation will be Cdn$21,850,000. The Underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional shares proportionate to the Underwriters’ initial allotments. This prospectus also qualifies the distribution of the Common Shares issuable or sold upon the exercise of the over-allotment option.

The Corporation has agreed not to issue, offer, sell, contract to sell or otherwise dispose of any Common Shares or any securities convertible into or exchangeable for Common Shares, subject to certain exceptions, for a period of 90 days from the closing of the offering without the prior written consent of the Underwriters, such consent not to be unreasonably withheld. The Chief Executive Officer and Chief Financial Officer of the Corporation, together with all officers and directors of the Corporation who each own, directly or indirectly, 1% or more of the issued and outstanding Common Shares of the Corporation (including options to purchase Common Shares), and their respective affiliates have agreed not to sell any Common Shares held by them for a period of 45 days from the closing of the offering without the prior written consent of the Underwriters, such consent not to be unreasonably withheld.

Pursuant to policy statements of the Ontario Securities Commission and the Commission des valeurs mobilie`res du Que´bec, the Underwriters may not, throughout the period of distribution under this prospectus, bid for or purchase Common Shares. The foregoing restriction is subject to certain exceptions, on the condition that the bid or purchase is not engaged in for the purpose of creating actual or apparent active trading in, or raising the price of, the Common Shares. These exceptions include a bid or purchase permitted under the by-laws and rules of The Toronto Stock Exchange relating to market stabilization and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was not solicited during the period of distribution. Pursuant to the first-mentioned exception, in connection with this offering and subject to applicable law, the Underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Common Shares of the Corporation at levels other than those which might otherwise prevail on the open market. Such transactions, if commenced, may be discontinued at any time.

Stabilization and syndicate covering transactions may cause the price of the Common Shares to be higher than it would be in the absence of such transactions.

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Neither MGI nor the Underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the Common Shares. These transactions may occur on the The Toronto Stock Exchange or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

The Corporation has applied to list the securities distributed under this short form prospectus on The Toronto Stock Exchange. Listing will be subject to the Corporation fulfilling all the listing requirements of The Toronto Stock Exchange.

Neither the offer nor the sale of the Units has been registered under the United States Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’), or any securities or ‘‘blue sky’’ laws of any of the states of the United States. Accordingly, the Units (or any right thereto or intent therein), may not be offered for purchase or sale, sold or otherwise transferred or disposed of within the United States, except pursuant to a registration statement declared effective by the United States Securities and Exchange Commission under the U.S. Securities Act, or pursuant to an available exemption from such registration.

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DESCRIPTION OF UNITS

Each Unit consists of one Common Share and one-half of one Warrant. Each whole Warrant entitles the holder to purchase one Common Share of the Corporation at a purchase price of $9.50 at any time prior to the date that is 18 months from the date of completion of this offering.

Holders of the Corporation’s Common Shares are entitled to dividends on a pro rata basis if, as and when declared by the board of directors. On the liquidation, dissolution or winding up of the Corporation, holders of Common Shares are entitled to participate rateably in any distribution of its assets. Holders of the Common Shares are entitled to receive notice of and attend all annual and special meetings of the shareholders of the Corporation and are entitled to one vote in respect of each Common Share held at such meetings.

Each whole Warrant will entitle the holder thereof to purchase one Common Share at a price of $9.50 per Common Share at any time for a period of 18 months following the closing of the Offering. The Warrants will be separable from the corresponding Common Shares immediately upon issue.

The Warrants will be issued under an indenture (the ‘‘Warrant Indenture’’) to be dated as of the closing date of this offering between the Corporation and Trust Company of Bank of Montreal c/o Computershare Trust Company of Canada, as trustee. The Warrant Indenture will contain provisions to the effect that in the event of any subdivision, consolidation, change, reclassification or alteration of the Common Shares or in the event of the consolidation, amalgamation or merger of the Corporation with another corporation, a proportionate adjustment or change will be made in the number and kind of securities issuable on the exercise of the Warrants.

The Warrant Indenture will also provide that the exercise price per Common Share is subject to adjustment in certain events including:

• (a) the subdivision or consolidation of the Common Shares or the issue of Common Shares to all or substantially all of the holders of Common Shares by way of a stock dividend, other than an issue of Common Shares to such holders as a ‘‘dividend paid in the ordinary course’’ (as defined in the Warrant Indenture);

• (b) the issue of rights, options or warrants to all or substantially all the holders of Common Shares entitling them within a period of no longer than 45 days after such date of issue to acquire (i) Common Shares at less than 90% of the ‘‘current market price’’ (as defined in the Warrant Indenture) of the Common Shares or (ii) securities convertible into Common Shares where the conversion price at the date of issue of such convertible securities is less than 90% of the ‘‘current market price’’ of the Common Shares; and

• (c) the distribution to all or substantially all of the holders of Common Shares or of shares of any other class or of rights, options, or warrants (other than those referred to above) or of evidences of indebtedness or of assets, excluding ‘‘dividends paid in the ordinary course of business’’ (as defined in the Warrant Indenture).

No adjustment in the exercise price of the Warrants will be required to be made unless the cumulative effect of such adjustment or adjustments would change the exercise price of the Warrants by at least one percent (1%).

‘‘Current market price’’ will be defined in the Warrant Indenture to mean at any date the weighted average closing price per Common Share for the 20 trading days ending not more than five trading days before such date on the principal stock exchange on which the Common Shares are then listed.

The Corporation will also covenant in the Warrant Indenture that, during the period in which the Warrants are exercisable, it will give public notice of certain stated events at least 14 days prior to the record date or the effective date, as the case may be, of such event. To the extent that the holder of a Warrant would otherwise be entitled to purchase a fraction of a Common Share, such right may be exercised only in combination with other rights which, in the aggregate, entitle the holder to purchase a whole number of Common Shares. No adjustments as to dividends will be made upon any exercise of Warrants. Holders of Warrants do not have any voting or pre-emptive rights or any other rights as shareholders of the Corporation.

Reference is made to the Warrant Indenture for the full extent of the attributes of the Warrants. A copy of the Warrant Indenture (in draft form prior to closing) will be available for examination from the Secretary of the Corporation, 333 Preston Street, 11th Floor, Ottawa, Ontario, K1S 5N4.

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INCOME TAX CONSIDERATIONS

In the opinion of LaBarge Weinstein, counsel for the Corporation, and Wildeboer Rand Thomson Apps & Dellelce LLP, counsel for the Underwriters, the following is a summary of the principal Canadian federal income tax considerations, as of the date of this prospectus, generally applicable to a holder who acquires Units pursuant to this offering and who, for purposes of the Income Tax Act (Canada) (the ‘‘Tax Act’’), holds the Common Shares and Warrants comprising such Units as capital property and deals at arm’s length with the Corporation. This summary only applies to a holder who, for purposes of the Tax Act and any applicable tax treaty or convention, is resident or deemed to be resident in Canada at all relevant times. Certain of such persons to whom Common Shares might not constitute capital property may elect, in certain circumstances, to have the Common Shares treated as capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act.

The Tax Act contains certain ‘‘mark-to-market rules’’ relating to securities held by certain financial institutions. This summary does not take into account those mark-to-market rules, and holders that are ‘‘financial institutions’’ for purposes of such rules should consult their own tax advisors.

This summary is based on the current provisions of the Tax Act, the regulations thereunder, all specific proposals to amend the Tax Act or the regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (‘‘Proposed Amendments’’), and counsel’s understanding of the current administrative practices of the Canada Customs and Revenue Agency (the ‘‘CCRA’’). This summary takes into account the Proposed Amendments and assumes that all such Proposed Amendments will be enacted in their present form. No assurances can be given that the Proposed Amendments will be enacted in the form proposed, if at all.

This summary is not exhaustive of all possible Canadian federal income tax considerations and, except as mentioned above, does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may differ from the Canadian federal income tax considerations described herein.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder, and no representation with respect to the income tax consequences to any particular holder is made. Consequently, prospective purchasers should consult their own tax advisors with respect to their particular circumstances.

Allocation of the Purchase Price

The holder of each Unit acquired pursuant to this offering must allocate the purchase price thereof on a reasonable basis between the Common Share and the one-half Warrant comprising the Unit. The Corporation will allocate $ ● of the price of each Unit to the Common Share included in the Unit, and the remainder of the price to the one-half Warrant. While the Corporation believes that such allocation is reasonable, this allocation will not be binding on the CCRA.

Exercise or Expiry of Warrants

No gain or loss will be realized by a holder upon the exercise of a Warrant to acquire a Common Share. When a Warrant is exercised, the holder’s cost of the Common Share acquired on exercise will be the aggregate of the holder’s adjusted cost base of the Warrant so exercised and the exercise price paid for the Common Share. In the event of the expiry of an unexercised Warrant, the holder will realize a capital loss equal to the holder’s adjusted cost base of such Warrant.

Taxation of Dividends

Dividends received or deemed to be received on a Common Share will be included in computing the holder’s income for purposes of the Tax Act. The gross-up and dividend tax credit rules normally applicable to taxable dividends paid by taxable Canadian corporations will apply to such dividends received by an individual, and such dividends received or deemed to be received by a corporation normally will be deductible in computing its taxable income. A holder that is a ‘‘private corporation’’ or a ‘‘subject corporation’’ (as defined in the Tax Act) may be liable

9

under Part IV of the Tax Act to pay a refundable tax of 33¹ ⁄3% on such dividends to the extent that such dividends are deductible in computing the holder’s taxable income.

Disposition of Common Shares or Warrants

Upon a disposition or a deemed disposition of a Common Share or Warrant (other than on exercise thereof), a holder generally will realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of such security, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of such security to the holder. The cost to a holder of a Common Share acquired pursuant to this offering or on exercise of a Warrant will be averaged with the adjusted cost base of any other Common Share of the Corporation owned by such holder as capital property immediately prior to such acquisition (except, pursuant to the Proposed Amendments, certain Common Shares acquired on the exercise of employee stock options) for purposes of determining the adjusted cost of each such share to the holder.

Pursuant to the Proposed Amendments and subject to certain transitional rules, generally one-half of the amount of any capital gain (a ‘‘taxable capital gain’’) realized by a holder will be required to be included in computing the holder’s income for the year of disposition, and one-half of the amount of any capital loss (an ‘‘allowable capital loss’’) realized by a holder in a taxation year may normally be deducted from taxable capital gains realized by the holder in that year. Allowable capital losses in excess of taxable capital gains may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains to the extent and under circumstances described in the Tax Act, subject to the detailed rules in the Tax Act and certain transitional rules in the Tax Act and the Proposed Amendments in this regard. A capital gain realized by an individual (other than certain specified trusts) may give rise to a liability for alternative minimum tax.

The amount of any capital loss realized on the disposition or deemed disposition of a Common Share by a holder that is a corporation may be reduced by the amount of dividends received or deemed to have been received by it on such Common Share to the extent and in the circumstances prescribed by the Tax Act. Similar rules may apply where a holder that is a corporation is a member of a partnership or beneficiary of a trust that owns Common Shares or is itself a member of a partnership or a beneficiary of a trust that owns Common Shares. Holders to whom these rules may be relevant should consult their own tax advisors.

A ‘‘Canadian-controlled private corporation’’ (as defined in the Tax Act) may be liable to pay a 6² ⁄3% refundable tax on investment income, including taxable capital gains.

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RISK FACTORS

An investment in the Units should be considered speculative due to the risk factors set out below, all of which should be carefully considered by a prospective investor.

Competitive Environment. The development and marketing of software for digital photography, video editing, DVD recording and the Internet is intensely competitive and is characterized by frequent and rapid changes in technology and customer preferences. Competition in this industry is expected to increase and intensify. Competition is generally based on product positioning, features and functionality, ease of use, quality of customer support, timeliness of product upgrades and price, among other factors. As the market for MGI’s software products and services continues to develop and other software vendors expand their product lines to include products and services that compete with those of MGI, competition will continue to intensify. Similarly, if MGI acquires or enters markets for new products and services that are competitive with those of other software vendors, it will also encounter new competition. Aside from the programming time and expertise necessary to develop computer software, there are relatively few barriers to entry into these markets. There can be no assurance that MGI’s products and services will either be successful or gain market acceptance. In addition, MGI may encounter competition from other technologies. A number of competitors and potential competitors of MGI possess significantly greater financial, technical, marketing, sales and other resources than MGI. Microsoft Corporation’s Windows 98 and NT operating systems and other operating systems include an increasing array of basic utilities. There can be no assurance that this will not adversely affect sales of similar products and services offered by MGI. In the event that Microsoft or other operating system manufacturers decide to include enhanced versions of such basic utilities in future operating systems or to sell such software on a stand-alone basis, MGI’s sales could be materially adversely affected.

Limited Operating History. MGI was incorporated in September of 1995 and it has a limited operating history upon which an evaluation of the Corporation and its prospects can be based. The Corporation and its prospects must be considered in light of the risks, expenses and difficulties that may be encountered by companies in the emerging market for digital imaging and video editing software, and companies whose businesses depend on the increased growth and acceptance of the Internet. There can be no assurance that the Corporation will be successful in addressing such risks, or that it will be successful in increasing its revenue.

Losses. MGI has had significant losses since its inception and the Corporation expects that it may continue to incur significant losses for a limited period of time. Although the Corporation’s revenue increased significantly in the fiscal year ended January 31, 2000, there can be no assurances that such increases will continue. In addition, MGI’s expenses continue to increase as it expands its sales, marketing and research and development activities and product and service offerings. There can be no assurance that MGI will become and remain profitable.

Future Revenues are Unpredictable; Operating Results May Fluctuate Significantly. As a result of MGI’s limited operating history and the rapidly changing nature of the markets in which it competes, MGI may not predict its quarterly and annual revenues accurately. MGI expects its future operating results to fluctuate significantly and quarterto-quarter comparisons should not be relied upon as indications of future performance. In some future quarterly periods, MGI’s operating results may fall below the expectations of securities analysts and investors, which could materially and adversely affect the trading price of MGI’s Common Shares. The following factors, several of which are beyond MGI’s control, are some of the factors which may affect future performance: (i) the market acceptance of MGI products and services; (ii) how and when MGI introduces new products and services and enhances its existing products and services; (iii) prices for MGI’s products and services; (iv) how MGI distributes its products; (vii) how MGI’s competitors compete in the areas of new products and services, pricing and distribution; (viii) costs of litigation, if any, and intellectual property protection; (ix) growth in Internet and Intranet use; (x) timing of releases and market acceptance of Windows operating environments and the emergence of alternative operating environments; (xi) the emergence of new competition; (xii) varying operating costs and capital expenditures related to expansion of MGI’s business operations and infrastructure; and (xiii) seasonality.

Dependence on Acceptance of Products and Services. The Corporation’s profitability will depend upon the development of widespread acceptance of its software products and services, including the continued growth and acceptance of the Internet. Failure of these products and services to achieve significant market acceptance and usage, or failure by MGI to develop new software products and services and enhancements for current products and services, would adversely affect the Corporation’s business, operating results and financial condition. Acceptance of MGI’s

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product offerings is dependent on a number of factors, including: the availability, quality and price of competing products and services; the development of technologies that will facilitate the use of MGI’s product offerings by consumers and businesses; the relative features and functionality and ease of use of MGI’s products and services; and the effectiveness of MGI’s marketing efforts. With respect to MGI’s ZOOM Server, Viewer and authoring tools, widespread acceptance will also depend to a large extent on the successful implementation and use of such products and services by MGI’s early key customers. There can be no assurance that the Corporation’s products and services will receive widespread market acceptance.

Importance of New Products and Services. One factor contributing to the short life span of software products and services has been rapid technological change. Software companies must continue to develop, market, support or acquire new products and services or upgrade existing products and services on a timely basis to sustain growth rates, revenues and profitable operations. Companies must create or acquire innovative new products and services reflecting technological changes in hardware and software and the increasing use of the Internet, as well as translate current products and services for new hardware and software formats in order to gain and maintain a viable market for their products and services. In particular, personal computer (PC) hardware is advancing steadily in power and functionality, thereby expanding the market for increasingly complex and flexible software products and services. This also has resulted in generally longer periods for the research and development of new products and services and a greater degree of unpredictability in the time necessary to develop and market products and services. It is expected that this trend will continue and may become more pronounced in the future. If MGI is unable to develop or acquire new products and services to gain market acceptance, and as revenue decreases from products and services reaching the end of their natural life cycle, the results of operations will be adversely affected. In addition, there can be no assurance that MGI will not experience delays in the development of its products and services that could result in a loss of competitiveness, or that its OEM partners will not experience delays in product launches.

Acquisitions and Integration of Operations. MGI is continuously looking to acquire other companies or assets. Acquisitions involve a number of risks, including the diversion of management’s attention to pursuing the acquisition, assimilating the operations and personnel of the acquired companies or assets, the potential loss of key employees and the difficulty of unifying two corporate cultures and images.

Dependence upon Third Party Relationships for Internet-based Marketing and Sales. Most of MGI’s products and services can be evaluated and purchased electronically over the Internet, either directly from MGI or through any of its electronic software distributors. MGI believes that sales through the Internet will increase as a percentage of overall sales. Like most companies, MGI depends on third party Internet service providers to host and maintain its Internet servers. Any system failure, including network, software or hardware failure, that causes an interruption of services or decrease in responsiveness could result in reduced revenue and could be harmful to MGI’s reputation and brand. MGI’s Internet service providers do not guarantee that Internet access will be uninterrupted, error free or secure. Any disruption in Internet access could be materially adverse to MGI’s business.

Dependence upon Distributors and Distribution Arrangements. The Corporation has entered into certain distribution arrangements and informal relationships with consumer and Internet retail software vendors and photo retail chains. The Corporation believes that these arrangements and relationships are important to the successful promotion of its products and services. Sales to a relatively small number of distributors account for a substantial percentage of the revenue of MGI. It is anticipated that sales through distributors will likely continue to constitute a significant portion of the Corporation’s sales. The Corporation’s agreements with its distributors are generally nonexclusive, and they may be terminated by either party without cause. Such distributors are not, and will not, be within MGI’s control. They also are not obligated to purchase products and services and also may represent other vendors’ product lines. There can be no assurance that these distributors will continue their current relationships with MGI on the same basis, or that they will not give higher priority to the sale of other products and services, which could include products and services of competitors. Additionally, certain distributors and resellers have experienced financial difficulties in the past. There can be no assurance that distributors that currently account for significant sales of MGI’s products and services will not experience financial difficulties in the future. Any such problems could lead to reduced sales and could adversely affect operating results of MGI. There can be no assurance that MGI will be able to continue to obtain adequate distribution channels for all of its products and services in the future. The channels of distribution in the software industry have become increasingly concentrated during the past several years, particularly with respect to PC software chain stores and software distributors. With the increasing concentration in the channels of distribution and the high percentage of sales of MGI’s products and services accounted for by distributors, customers may have

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substantial strength in negotiating favourable terms of sale, including price discounts. There can be no assurance that the Corporation will be successful in developing and maintaining a competitive position in these markets.

Dependence on OEM Partners. The Corporation has entered into, and intends to continue to enter into, relationships with OEMs of both hardware and software for the distribution of its products and services. Such OEMs are not, and will not be, within MGI’s control. There can be no assurance that any OEMs will continue their current relationships with MGI on the same basis, or that MGI will be successful in securing relationships with additional OEMs. Further, there can be no assurance that OEM partners will not experience delays in launching their products and services, which could adversely affect the Corporation.

Limited Capital Resources. The net proceeds to the Corporation of the offering of Units to which this short form prospectus relates may not be sufficient to meet all of the Corporation’s current and future operating and capital requirements. There can be no assurance that the Corporation will not require significant additional sources of financing, or that such financing will be available on satisfactory terms.

Volatility of Trading Price . The trading price of the Common Shares has been and may be in the future highly volatile and it could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products and services by the Corporation or its competitors, changes in financial estimates by securities analysts or other events or factors. Further, the financial markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies.Some of these fluctuations have been unrelated to the operating performance of such companies.

Principal Shareholders. Upon completion of the distribution of the Common Shares issuable upon the exercise of the Units, the present directors, executive officers, other insiders and their respective affiliates collectively will own beneficially approximately 10.7% of the outstanding Common Shares. In particular, Oren Asher will own beneficially an aggregate of 3,067,423 Common Shares, representing approximately 8% of the voting securities of MGI. As a result, these shareholders would be able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions.

Risks Associated with Intellectual Property Matters. The Corporation’s business is highly dependent upon its ability to protect and enforce its intellectual property rights. Effective trademark protection may not be available in every country in which the Corporation’s products and services are distributed. The Corporation has not registered all of its copyright interests. There can be no assurance that other parties will not assert infringement claims against the Corporation in the future, or that any such assertions will not result in costly litigation. Additionally, these claims may require the Corporation to obtain a licence to use the intellectual property rights of third parties which may not be available on reasonable terms, if at all. Further, there can be no assurance that the steps taken by the Corporation to protect its proprietary rights will be adequate to protect it from all such claims, or that third parties will not infringe or misappropriate the Corporation’s trade-marks, copyrights and similar intellectual property rights. Existing copyright and patent laws do not afford complete protection from infringement by third parties. As the number of software products and services in the industry increases and the functionality of these products and services further overlaps, MGI believes that software developers will become increasingly subject to infringement claims. Although such claims may ultimately prove to be without merit, they can be time consuming and expensive to defend. In addition, intellectual property rights relating to the establishment, development and maintenance of the DVD standard are unclear and may be subject to conflicting claims by numerous third parties. Moreover, there has been a general increase in the number of patents issued in the United States and Canada relating to computer software and, accordingly, the risk of patent infringements in the industry can be expected to increase, resulting in a potential for an increase in patent infringement claims against MGI. Certain parties have asserted that the Corporation may be infringing on, and therefore may need to obtain licenses to use, their patented intellectual property. These assertions may have retroactive implications relating to products and services licensed by MGI to its customers in the past. If substantiated, MGI may be required to make payments to such third parties without having the corresponding right to claim such payments from its customers. MGI periodically obtains licenses to use or copy software written or supplied by third parties for use in the Corporation’s products and services. If such licenses are terminated or MGI’s use of such third party software is otherwise enjoined, there can be no assurance that any necessary licenses or rights could be obtained on terms satisfactory to MGI to allow continued use of such third party software which may be necessary for the functionality or features of the Corporation’s products and services.

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International Operations. MGI derives a significant percentage of its revenue from sales outside of North America. These revenues are subject to the risks normally associated with international operations, including currency conversion risks, taxation, limitations on the repatriation of earnings, slower and more difficult accounts receivable collection, greater difficulty and expense in administering business abroad, complications in complying with foreign laws and the necessity of obtaining requisite export licences, which on occasion may be delayed or difficult to obtain. In addition, while U.S. and Canadian copyright law, international conventions and international treaties provide some protection against unauthorized duplication of software, the laws of some foreign jurisdictions do not protect proprietary rights to the same extent as the laws of the United States and Canada. Software piracy has been, and can be expected to be, a persistent problem for the software industry, and these problems are particularly acute in certain international markets.

Variations in Operating Results. A variety of factors may cause period-to-period fluctuations in MGI’s operating results, including the integration of operations resulting from acquisitions of companies, products and services or technologies, revenue and expenses related to the introduction of new products and services or new versions of existing products and services, changes in selling process, delays in purchases in anticipation of upgrades to existing products and services or introduction of new products and services, currency fluctuations, dealer and distributor order patterns, general economic trends or a slowdown of PC sales and seasonality.

Key Personnel. The loss of the services of any of the executive officers, software developers or other key employees of the Corporation could have a material adverse effect on the business, operating results or financial condition of the Corporation. The Corporation currently has ‘‘key man’’ insurance only in respect of its President and Chief Executive Officer. The success of the Corporation is highly dependent upon its continuing ability to identify, hire, train, retain and motivate highly qualified management, technical and sales and marketing personnel. Competition for such personnel is intense and there can be no assurance that the Corporation will be able to attract, assimilate or retain such personnel in the future.

Lack of Established Market for Products and Services; Changes in Technology. The market for MGI’s software and Internet products and services is new and evolving rapidly and is characterized by rapid technological developments, evolving industry standards and customer demands as well as the possibility of new and competitive product introductions and enhancements.

Exchange Rates. MGI prices its products and services primarily in U.S. dollars and most of its revenue is received in U.S. dollars, but a significant portion of its costs are in Canadian dollars. As a result, MGI may suffer gains or losses because of currency fluctuations, which could have a material adverse effect on its operating results. MGI has not entered into any hedging transactions to mitigate currency risk.

Dilution. Purchasers of the Units will suffer immediate and substantial dilution in the net tangible book value of their investment.

LEGAL MATTERS

Certain legal matters relating to the offering will be passed upon for the Corporation by LaBarge Weinstein, Ottawa, Ontario and for the Underwriters by Wildeboer Rand Thomson Apps & Dellelce, LLP. The partners and associates of each of LaBarge Weinstein and Wildeboer Rand Thomson Apps & Dellelce, LLP as a group beneficially own, directly or indirectly, less than one percent of the outstanding Common Shares of the Corporation.

AUDITORS, TRANSFER AGENT AND REGISTRAR

The auditors of the Corporation are PricewaterhouseCoopers LLP, Toronto, Ontario. The registrar and transfer agent for the Common Shares and the trustee for the Warrants is Trust Company of Bank of Montreal c/o Computershare Trust Company of Canada at its principal office in Montreal.

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PURCHASERS’ STATUTORY RIGHTS

Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal adviser.

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CERTIFICATE OF THE CORPORATION

Dated: January 18, 2001

This short form prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of each of the provinces of Canada. For the purpose of the Province of Que´bec, this simplified prospectus, as supplemented by the permanent information record, contains no misrepresentation that is likely to affect the value or the market price of the securities to be distributed.

(Signed) ANTHONY DECRISTOFARO President & Chief Executive

(Signed) RODNEY DAVIS

On behalf of the Board of Directors

(Signed) DENNIS BENNIE Director

(Signed) HARVEY GOLDBERG Director

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CERTIFICATE OF THE UNDERWRITERS

Dated: January 18, 2001

To the best of our knowledge, information and belief, this short form prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of each of the provinces of Canada. For the purpose of the Province of Que´bec, to our knowledge, this simplified prospectus, as supplemented by the permanent information record, contains no misrepresentation that is likely to affect the value or the market price of the securities to be distributed.

NATIONAL BANK FINANCIAL INC.

BMO NESBITT BURNS INC.

By: (Signed) BRIAN CAMPBELL

By: (Signed) W. J. BLAIR AGNEW

YORKTON SECURITIES INC.

By: (Signed) MARK R. MCQUEEN

The following includes the name of every person or Corporation having an interest, either directly or indirectly, to the extent of not less than 5% in the capital of:

NATIONAL BANK FINANCIAL INC.: an indirect wholly-owned subsidiary of a Canadian chartered bank.

BMO NESBITT BURNS INC.: a wholly-owned subsidiary of BMO Nesbitt Burns Corporation Limited, an indirect majority-owned subsidiary of a Canadian chartered bank.

YORKTON SECURITIES INC.: G. Scott Paterson and Yorkton Holdings Limited.

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