Unofficial Consolidation: Form 45-106F15 Rights Offering Circular for Reporting Issuers

Unofficial Consolidation: Form 45-106F15 Rights Offering Circular for Reporting Issuers

Forms

Ontario Securities Commission

Form 45-106F15

Unofficial consolidation current to 2015-12-08

This document is not an official statement of law or policy and should be used for reference purposes only.

Form 45-106F15
Rights Offering Circular for Reporting Issuers

Contents

PART 1 INSTRUCTIONS

Overview of the rights offering circular

Incorporating information by reference

Plain language

Format

Omitting information

Date of information

Forward-looking information

PART 2 SUMMARY OF OFFERING

Required statement

Basic disclosure about the distribution

Purpose of the rights offering circular

Securities offered

Right entitlement

Subscription price

Expiry of offer

Description of the securities

Securities issuable under the rights offering

Listing of securities

PART 3 USE OF AVAILABLE FUNDS

Available funds

Use of available funds

How long will the available funds last?

PART 4 INSIDER PARTICIPATION

Intention of insiders

Holders of at least 10% before and after the rights offering

PART 5 DILUTION

Dilution

PART 6 STAND-BY COMMITMENT

Stand-by guarantor

Financial ability of the stand-by guarantor

Security holdings of the stand-by guarantor

PART 7 MANAGING DEALER, SOLICITING DEALER AND UNDERWRITING CONFLICTS

The managing dealer, the soliciting dealer and their fees

Managing dealer/soliciting dealer conflicts

PART 8 HOW TO EXERCISE THE RIGHTS

Security holders who are registered holders

Security holders who are not registered holders

Eligibility to participate

Additional subscription privilege

Transfer of rights

Trading of underlying securities

Resale restrictions

Fractional securities upon exercise of the rights

PART 9 APPOINTMENT OF DEPOSITORY

Depository

Release of funds from depository

PART 10 FOREIGN ISSUERS

Foreign issuers

PART 11 ADDITIONAL INFORMATION

Additional information

PART 12 MATERIAL FACTS AND MATERIAL CHANGES

Material facts and material changes

 

 

PART 1
INSTRUCTIONS

Overview of the rights offering circular

1.           This is the form of circular you must use for a distribution of rights under section 2.1 of National Instrument 45-106 Prospectus Exemptions. In this form, a distribution of rights is sometimes referred to as a "rights offering".

The objective of the rights offering circular is to provide information about the rights offering and details on how an existing security holder can exercise the rights.

Prepare the rights offering circular using a question-and-answer format.

Guidance

We do not expect the rights offering circular to be longer than 10 pages.

Incorporating information by reference

2.           You must not incorporate information into the rights offering circular by reference.

Plain language

3.           Use plain, easy to understand language in preparing the rights offering circular. Avoid technical terms but if they are necessary, explain them in a clear and concise manner.

Format

4.           Except as otherwise stated, use the questions presented in this form as headings in the rights offering circular. To make the rights offering circular easier to understand, present information in tables.

Omitting information

5.           Unless this form indicates otherwise, you are not required to complete an item in this form if it does not apply.

Date of information

6.           Unless this form indicates otherwise, present the information in this form as of the date of the rights offering circular.

Forward-looking information

7.           If you disclose forward-looking information in the rights offering circular, you must comply with Part 4A.3 of National Instrument 51-102 Continuous Disclosure Obligations.

PART 2
SUMMARY OF OFFERING

Required statement

8.           State in italics, at the top of the cover page, the following:

"This rights offering circular is prepared by management. No securities regulatory authority or regulator has assessed the merits of these securities or reviewed this circular. Any representation to the contrary is an offence.

This is the circular we referred to in the [insert date of the rights offering notice] rights offering notice, which you should have already received. Your rights certificate and relevant forms were enclosed with the rights offering notice. This circular should be read in conjunction with the rights offering notice and our continuous disclosure prior to making an investment decision."

Guidance

We remind issuers and their executives that they are liable under secondary market liability provisions for the disclosure in this rights offering circular.

Basic disclosure about the distribution

9.           Immediately below the statement referred to in item 8, state the following with the bracketed information completed:

"Rights offering circular

[Date]

[Name of Issuer]"

If you have less than 12 months of working capital and are aware of material uncertainties that may cast significant doubt upon your ability to continue as a going concern, state the following in bold immediately below the name of the issuer:

"We currently have sufficient working capital to last [insert the number of months of working capital as at the date of the rights offering circular] months. We require [insert the percentage of the rights offering required to be taken up]% of the offering to last 12 months."

Purpose of the rights offering circular

10.         State the following in bold:

"Why are you reading this circular?"

Explain the purpose of the rights offering circular. State that the rights offering circular provides details about the rights offering and refer to the rights offering notice that you sent to security holders.

Securities offered

11.         State the following in bold:

"What is being offered?"

Provide the number of rights you are offering to each security holder under the rights offering. If your outstanding share capital includes more than one class or type of security, identify which security holders are eligible to receive rights. Include the record date the issuer will use to determine which security holders are eligible to receive rights.

Right entitlement

12.         State the following in bold:

"What do[es] [insert number of rights] right[s] entitle you to receive?"

Explain what the security holder will receive upon the exercise of the rights. Also include the number of rights needed to acquire the underlying security.

Subscription price

13.         State the following in bold:

"What is the subscription price?"

Provide the price a security holder must pay to exercise the rights. If there is no published market for the securities, either explain how you determined the fair value of the securities or explain that no insider will be able to increase their proportionate interest through the rights offering.

Guidance

Refer to paragraph 2.1(3)(g) of NI 45-106 which provides that the subscription price must be lower than the market price if there is a published market for the securities. If there is no published market, either the subscription price must be lower than the fair value of the securities or insiders are not permitted to increase their proportionate interest

Expiry of offer

14.         State the following in bold:

"When does the offer expire?"

Provide the date and time that the offer expires.

Guidance

Refer to paragraph 2.1(6)(b) of NI 45-106 which provides that the prospectus exemption is not available where the exercise period for the rights is less than 21 days or more than 90 days after the day the rights offering notice is sent to security holders.

Description of the securities

15.         State the following in bold:

"What are the significant attributes of the rights issued under the rights offering and the securities to be issued upon the exercise of the rights?"

Describe the significant attributes of the rights and securities to be issued upon exercise of the rights. Include in the description the number of outstanding securities of the class of securities issuable upon exercise of the rights, as of the date of the rights offering circular.

Securities issuable under the rights offering

16.         State the following in bold:

"What are the minimum and maximum number or amount of [insert type of security issuable upon the exercise of the rights] that may be issued under the rights offering?"

Provide the minimum, if any, and maximum number or amount of securities that may be issuable upon the exercise of the rights.

Listing of securities

17.         State the following in bold:

"Where will the rights and the securities issuable upon the exercise of the rights be listed for trading?"

Identify the exchange(s) and quotation system(s), if any, on which the rights and underlying securities are listed, traded or quoted. If no market exists, or is expected to exist, state the following in bold:

"There is no market through which these [rights and/or underlying securities] may be sold."

PART 3
USE OF AVAILABLE FUNDS

Available funds

18.         State the following in bold:

"What will our available funds be upon the closing of the rights offering?"

Using the following table, disclose the available funds after the rights offering. If you plan to combine additional sources of funding with the offering proceeds to achieve your principal capital-raising purpose, provide details about each additional source of funding.

If there is no minimum offering or stand-by commitment, or if the minimum offering or stand-by commitment represents less than 75% of the rights offering, include threshold disclosure if only 15%, 50% or 75% of the entire offering is taken up.

Disclose the amount of working capital deficiency, if any, of the issuer as of the most recent month end. If the available funds will not eliminate the working capital deficiency, state how you intend to eliminate or manage the deficiency. If there has been a significant change in the working capital since the most recently audited annual financial statements, explain those changes.

Guidance

We would consider a significant change to include a change in the working capital that results in material uncertainty regarding the issuer's going concern assumption, or a change in the working capital balance from positive to deficiency or vice versa.

 

 

 

Assuming minimum offering or stand-by commitment only

Assuming 15% of offering

Assuming 50% of offering

Assuming 75% of offering

Assuming 100% of offering

A

Amount to be raised by this offering

$

$

$

$

$

B

Selling commissions and fees

$

$

$

$

$

C

Estimated offering costs (e.g., legal, accounting, audit)

$

$

$

$

$

D

Available funds: D = A - (B+C)

$

$

$

$

$

E

Additional sources of funding required

$

$

$

$

$

F

Working capital deficiency

$

$

$

$

$

G

Total: G = (D+E) - F

$

$

$

$

$

Use of available funds

19.         State the following in bold:

"How will we use the available funds?"

Using the following table, provide a detailed breakdown of how you will use the available funds. Describe in reasonable detail each of the principal purposes, with approximate amounts.

Description of intended use of available funds listed in order of priority.

Assuming minimum offering or stand-by commitment only

Assuming 15% of offering

Assuming 50% of offering

Assuming 75% of offering

Assuming 100% of offering

 

$

$

$

$

$

 

$

$

$

$

$

Total: Equal to G in the available funds in item 18

$

$

$

$

$

If there is no minimum offering or stand-by commitment, or if the minimum offering or stand-by commitment represents less than 75% of the rights offering, include threshold disclosure if only 15%, 50% or 75% of the entire offering is taken up.

Instructions:

1.           If the issuer has significant short-term liquidity requirements, discuss, for each threshold amount (i.e., 15%, 50% and 75%), the impact, if any, of raising that amount on its liquidity, operations, capital resources and solvency. Short-term liquidity requirements include non-discretionary expenditures for general corporate purposes and overhead expenses, significant short-term capital or contractual commitments, and expenditures required to achieve stated business objectives.

When discussing the impact of raising each threshold amount on your liquidity, operations, capital resources and solvency, include all of the following in the discussion:

•             which expenditures will take priority at each threshold, and what effect this allocation would have on your operations and business objectives and milestones;

•             the risks of defaulting on payments as they become due, and what effect the defaults would have on your operations;

•             an analysis of your ability to generate sufficient amounts of cash and cash equivalents from other sources, the circumstances that could affect those sources and management's assumptions in conducting this analysis.

State the minimum amount required to meet the short-term liquidity requirements. In the event that the available funds could be less than the amount required to meet the short-term liquidity requirements, describe how management plans to discharge its liabilities as they become due. Include the assumptions management used in its plans.

If the available funds could be insufficient to cover the issuer's short-term liquidity requirements and overhead expenses for the next 12 months, include management's assessment of the issuer's ability to continue as a going concern. If there are material uncertainties that cast significant doubt upon the issuer's ability to continue as a going concern, state this fact in bold.

2.           If you will use more than 10% of available funds to reduce or retire indebtedness and the indebtedness was incurred within the two preceding years, describe the principal purposes for which the indebtedness was used. If the creditor is an insider, associate or affiliate of the issuer, identify the creditor and the nature of the relationship to the issuer and disclose the outstanding amount owed.

3.           If you will use more than 10% of available funds to acquire assets, describe the assets. If known, disclose the particulars of the purchase price being paid for or being allocated to the assets or categories of assets, including intangible assets. If the vendor of the asset is an insider, associate or affiliate of the issuer, identify the vendor and nature of the relationship to the issuer, and disclose the method used to determine the purchase price.

4.           If any of the available funds will be paid to an insider, associate or affiliate of the issuer, disclose in a note to the use of available funds table in item 19 the name of the insider, associate or affiliate, the relationship to the issuer, and the amount to be paid.

5.           If you will use more than 10% of available funds for research and development of products or services,

a. describe the timing and stage of research and development that management anticipates will be reached using the funds,

b. describe the major components of the proposed programs you will use the available funds for, including an estimate of anticipated costs,

c. state if you are conducting your own research and development, are subcontracting out the research and development or are using a combination of those methods, and

d. describe the additional steps required to reach commercial production and an estimate of costs and timing.

6.           If you may reallocate available funds, include the following statement:

"We intend to spend the available funds as stated. We will reallocate funds only for sound business reasons."

How long will the available funds last?

20.         State the following in bold:

"How long will the available funds last?"

Explain how long management anticipates the available funds will last. If you do not have adequate funds to cover anticipated expenses for the next 12 months, state the sources of financing that the issuer has arranged but not yet used. Also, provide an analysis of the issuer's ability to generate sufficient amounts of cash and cash equivalents in the short term and the long term to maintain capacity, and to meet planned growth or to fund development activities. You should describe sources of funding and circumstances that could affect those sources that are reasonably likely to occur. If this results in material uncertainties that cast significant doubt upon the issuer's ability to continue as a going concern, disclose this fact.

If you expect the available funds to last for more than 12 months, state this expectation.

PART 4
INSIDER PARTICIPATION

Intention of insiders

21.         State the following in bold:

"Will insiders be participating?"

Provide the answer. If "yes", provide details of insiders' intentions to exercise their rights, to the extent known to the issuer after reasonable inquiry.

Holders of at least 10% before and after the rights offering

22.         State the following in bold:

"Who are the holders of 10% or more of our securities before and after the rights offering?"

Provide this information in the following tabular form, to the extent known to the issuer after reasonable inquiry:

Name

Holdings before the offering

Holdings after the offering

[Name of security holder]

[State the number or amount of securities held and the percentage of security holdings this represents]

[State the number or amount of securities held and the percentage of security holdings this represents]

PART 5
DILUTION

Dilution

23.         State the following in bold:

"If you do not exercise your rights, by how much will your security holdings be diluted?"

Provide a percentage in the rights offering circular and state the assumptions used, as appropriate.

PART 6
STAND-BY COMMITMENT

Stand-by guarantor

24.         State the following in bold:

"Who is the stand-by guarantor and what are the fees?"

Explain the nature of the issuer's relationship with the stand-by guarantor including whether, and the basis on which, if applicable, the stand-by guarantor is a related party of the issuer. Describe the stand-by commitment and the material terms of the basis on which the stand-by guarantor may terminate the obligation under the stand-by commitment.

Instructions:

In determining if a stand-by guarantor is a related party, you should refer to the issuer's GAAP which has the same meaning as in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards.

Financial ability of the stand-by guarantor

25.         State the following in bold:

"Have we confirmed that the stand-by guarantor has the financial ability to carry out its stand-by commitment?"

If the offering has a stand-by commitment, state that you have confirmed that the stand-by guarantor has the financial ability to carry out its stand-by commitment.

Security holdings of the stand-by guarantor

26.         State the following in bold:

"What are the security holdings of the stand-by guarantor before and after the rights offering?"

Provide this information in the following tabular form, to the extent known to the issuer after reasonable inquiry:

Name

Holdings before the offering

Holdings after the offering if the stand-by guarantor takes up the entire stand-by commitment

[Name of stand-by guarantor]

[State the number or amount of securities held and the percentage of security holdings this represents]

[State the number or amount of securities held and the percentage of security holdings this represents]

PART 7
MANAGING DEALER, SOLICITING DEALER AND UNDERWRITING CONFLICTS

The managing dealer, the soliciting dealer and their fees

27.         State the following in bold:

"Who is the [managing dealer/soliciting dealer] and what are its fees?"

Identify the managing dealer, if any, and the soliciting dealer, if any, and describe the commissions or fees payable to them.

Managing dealer/soliciting dealer conflicts

28.         State the following in bold:

"Does the [managing dealer/soliciting dealer] have a conflict of interest?"

If disclosure is required by National Instrument 33-105 Underwriting Conflicts, include that disclosure.

PART 8
HOW TO EXERCISE THE RIGHTS

Security holders who are registered holders

29.         State the following in bold:

"How does a security holder that is a registered holder participate in the rights offering?"

Explain how a registered holder can participate in the rights offering.

Security holders who are not registered holders

30.         State the following in bold:

"How does a security holder that is not a registered holder participate in the rights offering?"

Explain how a security holder who is not a registered holder can participate in the rights offering.

Eligibility to participate

31.         State the following in bold:

"Who is eligible to receive rights?"

List the jurisdictions in which you are making the rights offering.

Explain how a security holder in a foreign jurisdiction can acquire the rights and securities issuable upon the exercise of the rights.

Additional subscription privilege

32.         State the following in bold:

"What is the additional subscription privilege and how can you exercise this privilege?"

Describe the additional subscription privilege and explain how a holder of rights who has exercised the basic subscription privilege can exercise the additional subscription privilege.

Transfer of rights

33.         State the following in bold:

"How does a rights holder sell or transfer rights?"

Explain how a holder of rights can sell or transfer rights. If the rights will be listed on an exchange, provide further details related to the trading of the rights on the exchange.

Trading of underlying securities

34.         State the following in bold:

"When can you trade securities issuable upon the exercise of your rights?"

State when a security holder can trade the securities issuable upon the exercise of the rights.

Resale restrictions

35.         State the following in bold:

"Are there restrictions on the resale of securities?"

If the issuer is offering rights in one or more jurisdictions where there are restrictions on the resale of securities, include a statement disclosing when those rights and underlying securities will become freely tradable and that until then such securities may not be resold except pursuant to a prospectus or prospectus exemption, which may be available only in limited circumstances.

Fractional securities upon exercise of the rights

36.         State the following in bold:

"Will we issue fractional underlying securities upon exercise of the rights?"

Respond "yes" or "no" and explain (if necessary).

PART 9
APPOINTMENT OF DEPOSITORY

Depository

37.         State the following in bold:

"Who is the depository?"

If the rights offering is subject to a minimum offering amount, or if there is a stand-by commitment, state the name of the depository you appointed to hold all money received upon exercise of the rights until the minimum offering amount or stand-by commitment is received or until the money is returned.

Release of funds from depository

38.         State the following in bold:

"What happens if we do not raise the [minimum offering amount] or if we do not receive funds from the stand-by guarantor?"

If the offering is subject to a minimum offering amount, or if there is a stand-by commitment, state that you have entered into an agreement with the depository under which the depository will return the money held by it to holders of rights that have already subscribed for securities under the offering, if you do not raise the minimum offering amount or receive funds from the stand-by guarantor.

PART 10
FOREIGN ISSUERS

Foreign issuers

39.         State the following in bold:

"How can you enforce a judgment against us?"

If the issuer is incorporated, continued, or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, state the following:

"[The issuer] is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada. It may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada."

PART 11
ADDITIONAL INFORMATION

Additional information

40.         State the following in bold:

"Where can you find more information about us?"

Provide the SEDAR website address and state that a security holder can access the issuer's continuous disclosure from that site. If applicable, provide the issuer's website address.

PART 12
MATERIAL FACTS AND MATERIAL CHANGES

Material facts and material changes

41.         State the following in bold:

"There is no material fact or material change about the issuer that has not been generally disclosed."

If there is a material fact or material change about the issuer that has not been generally disclosed, add disclosure of that material fact or material change.

Guidance

Issuers should be aware that disclosing a material change in the rights offering circular does not relieve the issuer of the requirement to issue a news release and file a material change report as required by Part 7 of NI 51-102.