45-907F - Offering Memorandum [Proposed F - Lapsed]
| Published Date: | 2004-06-25 |
|---|---|
| Rescinded Date: | 2006-05-31 |
Form 45-907F
Offering Memorandum
This is the form required under section 60 of the Rules for an offering memorandum if the issuer is not a public or reporting issuer and does not have publicly traded securities. If the issuer
is a public or reporting issuer or has publicly traded securities, the required form of offering memorandum under section 60of the Rules is that required under
Multilateral Instrument 45-103 Capital Raising Exemptions.
Offering Memorandum
This is the form required under section 60 of the Rules for an offering memorandum if the issuer is not a public or reporting issuer and does not have publicly traded securities. If the issuer
is a public or reporting issuer or has publicly traded securities, the required form of offering memorandum under section 60of the Rules is that required under
Multilateral Instrument 45-103 Capital Raising Exemptions.
Date: [Insert date that offering memorandum is delivered to purchaser.]
Include all applicable information listed on this page on the cover page.
______________________________________________________________________
(Name of issuer as set out in incorporation or organization documents)
The offering
Number and type of securities offered:
Price per security:
Minimum/maximum offering: [If there is no minimum, state "$0"as the minimum and also state: You may be the only purchaser.]
Payment terms:
Proposed closing date(s):
Selling agent? [Yes/No. If yes, also state "See page ".You may also state the name of the selling agent.]
State:
If you buy these securities, there will be restrictions on who you can sell your securities to and when you may sell them. You may never be able to resell these securities. See page .
You have 2 business days to cancel your agreement to purchase these securities. If there is a misrepresentation in this offering memorandum, you have the right to sue for damages or to cancel the agreement. See page .
This is a risky investment. You could lose all the money you invest. See page •.
No securities regulatory authority has assessed the merits of these securities or reviewed this offering memorandum.
Part 1 The business
1.1 The business
Describe the business, including any products or services, operations, marketing plan, competitive position and objectives.
1.2 Our history and development
(1) Describe how the business has developed generally over the two most recent financial years and any subsequent period and disclose the major events and conditions that affected that development. (2) Discuss any changes in the business that you expect will occur during the current financial year.
Part 2 Risk factors
Describe in order of importance the risk factors that are material to the issuer, the business or the securities being offered.
Part 3 Management and others
3.1 Our management
Provide a summary of each director’s and officer’s experience that is relevant to the director or officer’s ability to manage the issuer or the business.
3.2 Arrangements with senior management and key persons
Describe any arrangements intended to ensure that the officers and any key persons will remain with the business for a period of time and will not compete with the business if they leave. If there are no arrangements, state that.
3.3 Interest of management and others
Describe, for each director, officer and significant securityholder of the issuer and its subsidiaries,any party to a management services contract with the issuer or its subsidiaries, and any of their associates or affiliates:
(a) any existing or potential conflicts of interest, and
(b) any interest in any material transaction within the three most recent financial years.
3.4 Legal, administrative and bankruptcy proceedings
(1) Disclose the following for each director, officer and significant securityholder:
(a) the circumstances and outcome of any court proceedings relating to securities, financial institutions, company or partnership legislation within the last 10 years,
(b) the circumstances and outcome of any securities regulatory, financial regulatory, or bankruptcy or similar proceedings, within the last 10 years,
(b) the circumstances and outcome of any securities regulatory, financial regulatory, or bankruptcy or similar proceedings, within the last 10 years,
(c) any cease trade or similar order lasting more than 30 consecutive days issued within the last 10 years, and
(d) any pending securities or financial regulatory proceedings.
(2) Disclose the information required in (1)(a) - (d) if a person referred to in (1) was a director, officer or significant securityholder of any issuer that was subject to an event referred to in (1)(a) - (d):(a) when the person was a director, officer or significant securityholder, or
(b) within 12 months after the person ceased to be a director, officer or significant securityholder.
3.5 Compensation
(1) Using the following table, disclose for each of the following the compensation that the issuer paid in the most recent financial year (or, if the issuer has not completed a financial year, since inception), and the compensation they are expected to receive in the current financial year:
(a) the chief executive officer, chief financial officer and chief operating officer, individually (specifying name),
(b) the other officers, as a group,
(c) the non-officer directors, as a group, and
(d) each significant securityholder individually, specifying name and position with the issuer.
Include compensation paid by any subsidiaries of the issuer, or that was paid to a third party for the services of any of the above individuals (for example, a management company).
 | Most recent year | | Current financial year | |
| Cash compensation (if not salary or bonus, specify) | Non-cash compensation | Cash compensation (if not salary or bonus, specify) | Non-cash compensation |
| Chief executive officer (name) | Salary $_______ Bonus $_______ Other $_______ | | Salary $_______ Bonus $_______ Other $_______ | |
| Chief financial officer (name) | Salary $_______ Bonus $_______ Other $_______ | | Salary $_______ Bonus $_______ Other $_______ | |
| Chief operating officer (name) | Salary $_______ Bonus $_______ Other $_______ | | Salary $_______ Bonus $_______ Other $_______ | |
| Other officers (as a group) | Salary $_______ Bonus $_______ Other $_______ | | Salary $_______ Bonus $_______ Other $_______ | |
| Non-officer directors (as a group) | $__________ | | $__________ | |
| Significant securityholders (for each, name and position) | $__________ | | $__________ | |
(a) for the other officers and non-officer directors, how many persons are in each group and the name and title of each person, and
(b) for each of the chief executive, chief financial and chief operating officers, the percentage received of the total stock options, or other securities-based compensation granted by the issuer to all of its employees and directors.
(b) for each of the chief executive, chief financial and chief operating officers, the percentage received of the total stock options, or other securities-based compensation granted by the issuer to all of its employees and directors.
(3) Explain any significant changes made in information previously disclosed, or likely to be made in the current financial year, to:
(a) the issuer's compensation system for officers, and
(b) the compensation packages of each of the chief executive, chief operating and chief financial officers.
(b) the compensation packages of each of the chief executive, chief operating and chief financial officers.
3.6 Securities held
(1) Using the following table, disclose the securities of the issuer or any of its subsidiaries held by:
(a) the officers, as a group,
(b) the non-officer directors, as a group, and
(c) each significant securityholder, individually (specifying name and position with the issuer).
| Number, type and percentage of issuer's securities held before completion of offering | Number, type and percentage of issuer's securities held on completion of offering |
| Officers (as a group) | | |
| Non-officer directors (as a group) | | |
| Significant securityholders (for each, name and position) | | |
(3) If appropriate, include separate columns for the number of securities that will be held assuming completion of a minimum and maximum offering.
Part 4 General corporate information
4.1 Business and corporate structure
(1) State the issuer's business structure (for example, partnership, corporation or trust).
(2) State the statute, jurisdiction and date of the issuer's incorporation, continuance or organization or, if the issuer is unincorporated, the laws that it is established and exists under.
4.2 Outstanding securities and consolidated capitalization
(1) Describe the issuer’s capital structure and the material terms of each class of the issuer's outstanding securities (for convertible securities, include the exercise price).
(2) If the issuer has offered within the last 12 months, or has committed to offering, securities of the same class as those offered in the offering, provide details.
4.3 Head office
Disclose the following about the issuer:
(a) Head office address
(b) Phone and facsimile numbers
(c) E-mail address
4.4 Transfer agents and registrarsIdentify the transfer agent and registrar for all classes of the issuer's securities.
4.5 Interest of expert
(1) Disclose whether any expert involved in preparing the offering memorandum or any report or valuation relating to the business has an interest in any property, or owns any securities, of the issuer or any of its associatesor affiliates.
(2) Disclose whether any expert described in (1), or any of its directors, officers or employees, is or is expected to be elected, appointed or employed as a director, officer, employee or consultant of the issuer or any of its associates or affiliates.
4.6 Investors' rights
State:
"If you purchase these securities you will have certain rights, some of which are described below.
Two Day Cancellation Right — You can cancel your agreement to purchase these securities. To do so, you must send a notice to us by midnight on the 2nd business day after you sign the agreement to buy the securities.
Statutory Rights of Action in the Event of a Misrepresentation — If there is a misrepresentation in this offering memorandum, you have a statutory right to sue:
(a) [state the name of issuer] to cancel your agreement to buy these securities, or
(b) for damages against [state the name of issuer] and anyone who was a director or involved officer of [state the name of issuer] at the time the misrepresentation was made.
This statutory right to sue is available to you whether or not you relied on the misrepresentation. However, there are various defences available to the persons that you have a right to sue. In particular, they have a defence if you knew of the misrepresentation when you purchased the securities.
If you intend to rely on the rights described in (a) or (b) above, you must do so within strict time limitations under the Act.”
4.7 Resale restrictions
State:
“There are restrictions on your ability to sell these securities.You may never be able to sell them. Until this issuer becomes a public issuer, you can only sell your securities to a select group of people, by relying on exemptions under British Columbia securities law from the prospectus requirement. This issuer may never become a public issuer.
There are additional restrictions on your ability to sell these securities to purchasers outside of British Columbia. The laws of most other Canadian provinces prohibit you from selling these securities to residents of those provinces for a certain period, unless you comply with an exemption from the prospectus and registration requirements under those laws."
4.8 Reporting obligations
(1) Disclose the documents required by corporate law or other requirements that the purchasers will receive on an annual or on-going basis.
(2) If corporate or securities information about the issuer is available from a government or regulatory authority disclose where that information can be located (including website address).
Part 5 The Offering
5.1 The offering
(1) Describe the offering and the securities being offered.
(2) If any person has or will receive any compensation in connection with the offering, give details of that compensation.
5.2 Net proceeds and other available funds
(1) Using the following table, disclose the net proceeds of the offering and the current working capital (or cash needed to fund any working capital deficiency) and the total funds available to be used with the net proceeds to achieve the objectives set out in item 1.1.
| | Assuming min. offering | Assuming max. offering |
| A | Amount to be raised by the offering | $_____________ | $_____________ |
| B | Estimated offering costs: Compensation paid to sellers or finders (for example, commissions, corporate finance fees, finder's fees) Other | $_____________ $_____________ | $_____________ $_____________ |
| C | Net proceeds: C = A - B | $_____________ | $_____________ |
| D | Current working capital (or cash needed to fund working capital deficiency) | $_____________ | $_____________ |
| E | Available funds E = C+D | $_____________ | $_____________ |
(2) If there is no minimum offering, state "$0" as the minimum.
5.3 Use of proceeds and other available funds
(1) Disclose how the net proceeds of the offering and any other available funds will be used.
(2) If any working capital deficiency will not be eliminated by the use of net proceeds, state how you intend to eliminate or manage the deficiency.
5.4 Project financing and limited partnership offering
(1) If the offering is a project financing, limited partnership offering or other similar transaction where the investor will be a party to the transaction agreement, summarize the key terms of the co-tenancy, unitholders', limited partnership or other agreement.
(2) You must give investors a copy of the agreement to review if they request it. State in your offering memorandum that they have this right.
5.5 Income tax consequences
(1) If income tax consequences are a material aspect of the securities being offered (for example, flow-through shares),
(a) summarize the significant income tax consequences to Canadian residents, and
(b) name the person providing the opinion on which the tax disclosure in (a) is based and the professional designation, if any, of that person.
(b) name the person providing the opinion on which the tax disclosure in (a) is based and the professional designation, if any, of that person.
(2) Suggest to investors that they consult a professional adviser to get advice on any possible tax consequences of the offering.
Instructions for Completing
Form 45-907F Offering Memorandum
These instructions will help you complete Form 45-907F Offering Memorandum.
Chapter A contains general points to keep in mind when preparing your offering memorandum. Parts 1 to 5 of Chapter B provide more specific instructions on how to complete the various items of the form. The numbers in those five Parts correspond to those in the form. Chapter C contains supplemental instructions for “special situations” - offerings of real estate securities or mortgages.
A. General instructions
1. Disclose all material information
The offering memorandum must contain all material information about the issuer and the securities being offered. Information is material if it would reasonably be expected to result in a significant change in the value or market price of any or all of the issuer's securities. To disclose all material information about the issuer, you may need to include in your offering memorandum information in addition to that specifically called for in the form.
You cannot make material information immaterial simply by breaking the information into seemingly non-material pieces. You must disclose all information that, when taken together, is material, even though individual pieces on their own may not be material.
You should disclose both positive and negative material information. If you are unsure whether negative information is material and therefore should be disclosed, one approach is to consider whether you would disclose that information if the situation were reversed and it would have a positive effect on the issuer's business. Consider the example of a pharmaceutical company that manufactures one principal drug: the two main markets for that drug are B.C. and Alberta, but the company learns that in B.C. the drug may soon not be covered by medicare. Is this information material? The answer is clearer if you imagine the reverse situation — a company, whose sole market is Alberta, learns that in B.C. medicare may soon begin to cover the drug. Would the company not likely consider this material?
The form also requires you to disclose other information that may not be material, but is important for investors to know. There may be other information that you wish to disclose because you believe it will be meaningful to investors.
We have provided some examples in these instructions of the type of information that may be relevant to some issuers or offerings. However, these examples are not exhaustive. You must consider the specific circumstances carefully, and conclude whether the examples are relevant to the business, and whether there is other information that is material but is not caught by one of the examples. We expect you to use your judgment about what is material information rather than follow a "checklist" of disclosure requirements or adopt a "boilerplate" approach by simply copying language from the offering memoranda of others without tailoring the content to your own circumstances.
2. Information must be current
The information in the offering memorandum must be current when it is delivered to a purchaser and when the issuer accepts the purchaser’s agreement to purchase the security. If at any time while you are still soliciting purchasers using this offering memorandum the information in the offering memorandum ceases to be true or no longer contains all material information, you must disclose this change to the purchaser in writing before completing the purchase.
3. Delivery and receipt of risk acknowledgement
You must deliver the offering memorandum to all potential purchasers before you complete the offering. You must also obtain a signed risk acknowledgment from each purchaser in the form of Form 45-908FRisk Acknowledgement — Non Public Issuers.
4. Misrepresentations and liability
It is an offence to make a misrepresentation. A misrepresentation is an untrue statement of material information or the omission of material information that is required to be stated or necessary to prevent a statement from being false or misleading in the circumstances. The prohibition against misrepresentations applies both to information that is required by the form and to additional information that is provided in the form or otherwise.
Investors also have various rights of action for misrepresentations. Item 4.6 Investors’ rights of the form requires a description of some of these rights.
The securities laws of other Canadian jurisdictions require that certain directors and officers of an issuer certify in writing that the offering memorandum contains no misrepresentations. British Columbia law does not mandate similar certificates. This is because an issuer and its directors, officers and experts can be liable for misrepresentations in an offering memorandum, whether or not they sign that document. In other words, the absence of a certificate from the offering memorandum does not affect potential liability in any way. Remember that the legislation takes a functional approach to defining director and officer; that is, any person who performs the functions of a director or officer is subject to liability for misrepresentations in a disclosure document, regardless of the person’s actual title.
If you are offering real estate securities, you must still comply with any certification or declaration requirements imposed by the Real Estate Act.
5. Plain language
The Rules require that you prepare your offering memorandum in plain language. This means that you must write your offering memorandum so that it is easy to read and understand, using concise, clear language. See Part VI, Section A of the Issuers Guide for specific suggestions on how to write your offering memorandum in plain language.
6. Presentation of information
This form is designed to be flexible, both as to the level of detail presented and the presentation itself.
You should present the information required in a way that you think will help investors make their investment decision. You may wish to include a table of contents as well as an executive summary of some of the key information in the document, since these can help readers find the information that most interests them.
You do not need to discuss the items required in exactly the order they appear in the form if you think a different presentation will be easier for investors to follow. However, we encourage you to organize the information into the following main Parts:
- The business
- Risk factors
- Management and others
- General corporate information
- The offering
You do not need to provide disclosure about, or refer to, any item that does not apply.
7. Financial statements
You must include in your offering memorandum comparative annual and interim financial statements. See Part 4, Division D of the Rules for details.
8. Duplicate information
If more than one item of the form requires disclosure of the same information, you need disclose the information only once.
B. Specific instructions
Part 1 The business
Several items of the form require disclosure about “the business”. Your disclosure under these items will depend on the nature of the issuer and the offering.
Most issuers will provide disclosure about the issuer’s business; however, in some situations, for example offerings of real estate or mortgage securities, you would provide disclosure about the business or project that the offering is financing. (Chapter C of these instructions contain additional instructions for real estate and mortgage offerings.)
In all cases, the relevant disclosure is that relating to the business that investors are investing in.
1.1 The business
Products and services
You should describe the products or services the issuer sells or will be selling. Generally, a description of the activities the issuer engages in and will engage in over the next 12 months will be sufficient. You should include enough information to allow a person who knows nothing about the issuer's business to understand what the issuer does and will do.
In describing the issuer's products and services, consider:
- how the products or services are produced or provided — for example, does the issuer make the final product or does it manufacture components and sell them to others who produce the final product?
- how the products or services are distributed — for example, is the business retail or wholesale?
- the principal markets — for example, who is the issuer selling to?
- the stage of development — for example, if the issuer plans to offer a new product, what amount of resources will it need to complete development of the product?
- any research and development — for example, how will the issuer benefit from the knowledge gained through R&D?
You should discuss how production or any services will change when the issuer has access to the proceeds from the offering. This disclosure should be consistent with your discussion under item 5.3 Use of proceedsand other available funds.
Operations
In describing the issuer's operations, you should discuss things like the issuer's properties, suppliers, customers, sales and employees. Of course, other factors may be material, depending on the nature of the issuer's business. If the issuer has any material subsidiaries, you should discuss them here.
In preparing your description, you should consider questions like:
- If the issuer has any mineral projects, what are the issuer's material projects and who are the issuer’s “qualified persons”, as that term is defined in National Instrument 43-101 Standards of Disclosure for Mineral Projects? What is the work plan and the estimated costs of that plan? Normally, this information will be incomplete without the summary from the current technical report, as that term is used in NI 43-101, prepared and filed under NI 43-101.
- If the issuer has any oil and gas activities, what are those activities and who are the issuer's “qualified reserves evaluators or auditors”, as that term is defined in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. Normally, this information will be incomplete without the summary from the statement of reserves data and other oil and gas information prepared in accordance with Form 51-101F1.
- Does the issuer rely on any significant intangible assets, such as patents, trademarks, trade secrets or royalty agreements?
- Who are the issuer's major suppliers? Does the issuer depend on a limited number of suppliers for essential raw materials or other supplies? What impact will renegotiation of any supply contracts have on the issuer's business?
- Do any of the issuer’s customers account for a major portion of the issuer's sales? What will the issuer do if it loses any of those customers?
- What impact will renegotiation of any major sales contracts have on the issuer's business?
- Is the business cyclical or seasonal?
- How many people work for the issuer currently? Does the issuer expect this to change significantly over the next 12 months?
- Does the issuer depend on the specialized skill or knowledge of any individual or firm?
Marketing plan
You should describe how it intends to make its products or services known to potential customers (a description of major target markets is likely material; tactical details may or may not be).
You should also disclose how the issuer intends to fund its marketing activities. If you intend to use offering proceeds to fund these activities, your disclosure here should be consistent with item 5.3 Use of proceeds and other available funds.
Competition
In describing the issuer's competitive position, you should describe the market area that the issuer competes in or will compete in. An issuer's market area may be larger than its geographic area (if, for example, it does business mainly over the internet). You should also discuss the issuer's main competitors (including their relative size and financial and market strengths) and how the issuer competes or expects to compete with them (including, in general terms, its strategy for doing so).
Short term objectives
You should consider these questions:
- What do you intend to accomplish in the next 12 months?
- What steps must you undertake to complete these goals?
- How much will it cost to meet each goal?
- When will each task begin and be completed?
For example, if you have listed a production target as an objective, to achieve that objective, you might have to hire skilled employees, expand your plant or buy new equipment. There may also be regulatory approvals involved.
You may want to organize the information in a table similar to the following:
| What we must do and how we will do it | Target completion date or, if not known, number of months to complete | Our cost to complete |
| | $_____________ |
We also suggest that you discuss the objectives in chronological order, since some may be dependent on others.
You should give sufficient information so that an investor can assess whether your resources will be adequate to meet your goals. Indicate whether completing any or all of the objectives will exhaust the offering proceeds and, if so, discuss whether you have access to other sources of funds.
You should also discuss the consequences if there are delays in achieving any of the objectives. For example, how would a delay affect the available funds?
Objectives will differ depending on the nature of the business and your resources. We have provided below some examples of short term objectives, but you should keep in mind that these are examples only:
- Registering a trademark
- Acquiring a specific contract
- Achieving a level of net sales
- Reaching a specific number of new markets
- Reaching a specific level of production
- Reaching specific natural resource exploration or development milestones.
Long term objectives
Disclosure of these types of objectives will likely be less detailed than disclosure about short term objectives. Specific dates and costs for long term objectives may not be relevant, or even known.
Material agreements
You should disclose all material agreements relating to the business and the issuer’s affairs. For example, if you have only one supplier, the supply agreement is likely crucial to the business and you should disclose it.
You should discuss these agreements when you describe the business under item 1.1 or in other appropriate Parts of the form.
When disclosing material agreements, you should discuss the aspects of those agreements that make the agreements material information.
Use of available funds
You should discuss the issuer's working capital and available funds (including the net proceeds of the offering) and how it will use those funds.
You may want to disclose this information in a table, similar to the one required under item 5.3 Use of proceeds and other available funds. Or, as with your discussion of material contracts, it may be more appropriate to include your use of funds discussion under the other headings set out above. For example, what portion of the available funds will you use to satisfy the short term objectives? However, if you intend to use any of the available funds in a manner not contemplated by any of the categories discussed earlier, you should still disclose this use in item 1.1.
Your discussion here should be consistent with item 5.3 Use of proceeds and other available funds.
Use of statistics
If you include statistical information under Part 1 or any other part of the form, you should indicate the sources for that information.
1.2 Our history and development
You should summarize the material events relating to the issuer and the business that have occurred over the two most recent financial years and any subsequent period. If the issuer's history includes a merger, spin-off, recapitalization or other similar corporate transaction, you should disclose that event. You should also disclose any important acquisition or disposition, and any bankruptcy, receivership or similar proceedings involving the issuer or any of its subsidiaries. You can disclose the history and development in item 1.1 The business if it is more convenient to do so.
Part 2 Risk factors
Every offering memorandum should contain risk factor disclosure. Every business and investment has risks. The risk factors should appear in order of importance with the most important factors appearing first. You may find it helpful to write your risk factors and determine their priority after you have completed the rest of your offering memorandum.
Specific, sufficient and non-boilerplate
You should avoid generalized statements and include only risk factors that are specific to the issuer, the business and the offering. You should not use language that tends to trivialize the risks you are disclosing.
We list below some examples of risk factors. Not all of these risks will exist for all issuers and businesses. The list is not intended to be exhaustive as risks vary according to the nature of the business and the type of security offered. Therefore, there may be risks relating to the issuer, the business or the securities that are not listed. There is no specific number of risk factors that you should identify.
Categories of risk factors
There are three general categories of risk factors.
Issuer/business risks — risks that are specific to the issuer or business, such as:
- Sensitivity to interest rate fluctuations
- Exposure to foreign currency fluctuations
- Labour relations
- Regulatory actions and approvals
- Legal or administrative proceedings
- Political risk factors
- Insufficient funds to accomplish the issuer's business objectives
- No history or a limited history of sales or profits
- Lack of specific management or technical expertise
- Management's regulatory and business track record
- Dependence on key employees, suppliers or agreements.
Industry risks — risks that the issuer or business faces because of the industry it operates in, such as:
- Commodity prices
- Competition
- Environmental and industry regulation
- Product obsolescence
- Industry-wide product pricing
- Industry-wide collective bargaining.
Investment risks — risks relating to the securities being offered, such as:
- Arbitrary determination of price
- No market or an illiquid market for the securities
- Resale restrictions
- Subordination of debt securities
- The absence of any guarantee or other credit support for the payments to be made under the securities
- If the issuer is a foreign issuer, the potential difficulty investors may face when attempting to enforce judgments of Canadian courts in foreign jurisdictions.
Part 3 Management and others
Several items of the form require disclosure about directors, officers, and other key persons. When preparing your disclosure under these items, you should consider who is involved in running the business that purchasers are investing in.
Where the person issuing the securities is an operating entity, you should provide disclosure about the issuer’s directors, officers, and other key persons. An offering memorandum for real estate, mortgage securities or other project financing should include disclosure for other persons involved in the business or transaction — such as the property developer, property manager, mortgage broker, or other similar party, and their management — to the extent that information is material. (Chapter C of these instructions contain additional instructions for real estate and mortgage offerings.)
For any offering, if the issuer is a limited partnership or trust, where the offering memorandum form requires disclosure about directors, provide disclosure about the general partner(s) or trustee(s) and manager(s). If a general partner, trustee or manager is a corporation, state the names of the directors of that general partner, trustee or manager.
If the business is managed by someone other than the issuer, you must disclose all material information about that person.
3.1 Our management
When providing the disclosure required under item 3.1, remember that director and officer include persons who perform these functions, regardless of their titles.
You should disclose sufficient information under this item to help investors understand the value of the directors' and officers' skills and experience to the issuer and the business, including relevant experience in a similar business.
3.2 Arrangements with senior management and key persons
Some issuers make arrangements to ensure that their officers and key persons stay with them for a certain period of time to help carry out the issuer's business plan. These arrangements are often made in connection with an issuer's initial public offering but can also be made in other contexts. Here are some examples of these types of arrangements:
- Escrow agreements
- Employment, non-competition or non-disclosure agreements
- Vesting periods for options
- Bonus systems.
A key person is any person who performs a function that is of material importance to the issuer. Key persons could include the original inventors of the issuer's product, members of the issuer's research and development team and the issuer's sales personnel.
3.3 Interest of management and others
Conflicts of interest
Consider whether there are any situations in which any of the persons listed in item 3.3 could benefit at the expense of the issuer or the business.
Transactions
When deciding whether to disclose a particular transaction, you should consider questions like:
- How important is it to the person with the interest?
- How important is it to the issuer or the business?
- What is the relationship between the parties to the transaction?
When describing the transaction, you should include the name of each person whose interest you are disclosing and that person's relationship to the issuer or business. You should also disclose the business purpose of the arrangement, any ongoing commitments resulting from the arrangement, and the transaction price and how it was determined. If you are representing that the transaction was evaluated for fairness, disclose how the evaluation was made and by whom.
An example of the type of transaction you should disclose is one in which the issuer (or any of its subsidiaries) bought or sold assets of any significance from the person. You do not need to disclose transactions whose nature, terms and conditions are in the ordinary course of the issuer’s business.
3.4 Legal, administrative and bankruptcy proceedings
You should disclose under item 3.4 any penalty, sanction, settlement agreement, cease trade or similar order, or order denying access to a statutory exemption (including the reason for it and whether it is currently in effect) imposed by a securities regulatory authority (including self-regulatory organizations), any other financial regulatory body (such as the B.C. Financial Institutions Commission) or a court relating to a claim involving securities or other relevant legislation.
If there is a securities or financial regulatory proceeding pending and the relevant regulatory body has issued a notice of hearing for that proceeding, you should also disclose that.
3.5 Compensation
What does compensation include?
Disclose all compensation the issuer paid in its most recent financial year to its officers, non-officer directors and significant securityholders. This includes all forms of compensation, both cash and non-cash. When deciding whether something constitutes compensation, ask yourself whether the item directly or indirectly benefits the person in any way.
You may want to describe significant components of compensation in narrative form, or in footnotes to the table.
If the issuer had more than one chief executive, chief financial or chief operating officer during the year, you should disclose the compensation paid to each individual separately for acting in that capacity. If an individual served in any of those capacities for only part of the year, you should indicate the period of time that the compensation covers.
The test for who is an issuer's chief executive, chief financial or chief operating officer is based on function. You should disclose compensation for the individuals who perform the functions normally associated with those positions, regardless of their official titles. If the same person performed more than one function, you need only disclose the compensation paid to the person once.
You should include any compensation that was payable, but not paid, during the year because the officer chose to defer payment.
Cash compensation
The table asks you to separate salary and bonus and to specifically identify other types of cash compensation. When disclosing any bonuses, include bonuses that accrued in the most recent financial year that have not been paid.
You should distinguish between bonus payments, usually determined based on performance in the most recent financial year, and payments under a long-term incentive plan which are based on performance over a period longer than one financial year.
Other examples of cash compensation you should identify and separately disclose are directors' fees paid to a key executive, the amounts of any outstanding loans or reimbursed taxes.
You should also disclose, as other cash compensation, the amounts received on the exercise of company stock options during the year. Although this is not necessarily compensation paid directly by the issuer, it is the realization of a benefit that was awarded in a prior year.
Non-cash compensation
This would include grants of stock options, and other securities-based compensation. You may wish to disclose stock options in a table that is separate from the one required in paragraph (1). Extension or replacement grants should be included.
Waived interest charges or assumed debts are other examples of non-cash compensation.
You should also include personal benefits that are not generally available to employees. Examples would be club memberships, company cars, insurance benefits, use of recreational property owned or leased by the company, discounts on company stock, products or services or subsidized tax advice. You may wish to express this compensation in monetary terms if it makes the information more meaningful.
Management services agreements
You must disclose compensation paid to the issuer's "de facto" chief executive officer and other senior management. This may include fees paid under a management services contract. Where management functions are performed by a party other than the issuer's directors or officers, you should disclose the amounts paid under the management contract and its key terms. You should also disclose any other compensation or benefits the issuer has provided to the contracted party or any person with an interest in the contracted party.
3.6 Securities held
You should disclose both the number of outstanding securities each person holds before the offering, and the anticipated number of securities each will hold on completion of the offering, assuming completion of both a minimum and maximum offering.
“Outstanding securities” includes convertible securities such as options and warrants. For convertible securities, provide details about both the convertible and underlying securities.
Part 4 General corporate information
4.1 Business and corporate structure
Where the issuer’s business or corporate structure is complex, you may wish to describe that structure, separately or together with the information required by item 4.3 Head office, under Part 1.
4.2 Outstanding securities and consolidated capitalization
Material terms
When you are describing the material terms of the issuer's capital structure, you may want to present the information in the form of a capitalization table.
Material terms could include:
- Shares or other equity interests which are subject to rights, options or warrants
- Restrictions on voting or rights to participate in earnings, assets or a takeover bid
- Information relating to dividends paid or payable by the issuer
- For debt securities, information about interest rates, maturity dates and repayment terms
- Constraints on ownership of the issuer's securities to ensure a certain percentage of Canadian securityholders and the issuer's plans for monitoring and maintaining that percentage
Other sales of securities of same class
You may want to use a table similar to the following when discussing other sales under paragraph (2) of this item. If the issuer has issued, or has committed to issue, securities for assets or services, you should describe in a note to the table the assets or services that were provided.
| Date of issuance | Type of security issued | Number of securities issued | Price per security | Total funds received |
| | | $_____________ | |
You may wish to include this information on the cover page of the offering memorandum. If you do so, you need not repeat that information in the body of the offering memorandum.
4.6 Investors' rights
An “involved officer” is any officer of the issuer that authorized, permitted or acquiesced in the making of the misrepresentation.
Part 5 The Offering
5.1 The offering
All offerings
What you disclose in item 5.1 will differ depending on the type of securities you are offering. However, there is some information you should disclose regardless of the type of offering. For example:
- The type of securities offered
- The price per security and how the price was determined
- The maximum and minimum number of securities offered
- The subscription process, including the method of payment, the trust arrangements for consideration received, any conditions to closing, and details regarding the return of consideration to purchasers if any minimum is not met
- The material terms of any transaction agreement or other agreement the purchaser must enter into with the issuer
Compensation paid to sellers and finders
Examples of the types of compensation you should disclose under this item are commissions, corporate finance fees and finder's fees. Here are some examples of the types of things you should disclose when you describe such compensation:
- Who is receiving the compensation
- The type of compensation and the estimated amount to be paid for each type
- The percentage that the commission will represent of the gross proceeds of the offering (assuming both the minimum and maximum offering)
- If any portion of the compensation will be paid in securities, details of the securities (including number, type and, if options or warrants, the exercise price and expiry date).
Material acquisitions
If the transaction involves an acquisition that is material information, you should disclose sufficient information to enable an investor to appreciate the impact of the acquisition on the issuer and the business. In some cases, disclosing the financial statements of an acquired business may be the most meaningful way to disclose material information about the acquisition.
Shares
State if the issuer is offering common shares.
For shares other than common shares, here are the types of things you should disclose:
- Voting rights or restrictions
- Dividend rights, restrictions and policies
- Rights on dissolution or winding-up
- Pre-emptive rights
- Conversion or exchange rights
- Redemption, retraction or similar rights
- Sinking or purchase fund provisions
- Material restrictions
- Provisions requiring a shareholder to contribute capital
- Provisions as to modification, amendment or variation of any rights
- Information about any other securities of the issuer that limit or qualify the rights of the shares or that rank ahead of or equally with them.
Debt securities
If the issuer is offering debt securities, here are the types of things you should disclose:
- Interest rates
- Maturity date
- Effective yield if securities held to maturity (if applicable)
- Conversion or exchange rights
- Redemption, retraction or similar rights
- Sinking or purchase fund provisions
- Any security for payments under the securities
- The issuer's financial arrangements that could affect any security for payments under the securities
- Material restrictions
- Provisions as to modification, amendment or variation of any rights
- The identity of and any arrangements with a trustee.
Guarantor
If a guarantor has guaranteed all or substantially all of the payments to be made under the securities being offered, you should disclose material information about the guarantor, its role in the offering and any security provided for the guarantee. In some cases, for instance when the guarantee is unsecured, it may be appropriate to include in the prospectus financial statements of the guarantor.
Other securities
If the issuer is offering any other type of securities, you should disclose the material terms and conditions of those securities.
5.2 Net proceeds and other available funds
You should include in row B of the table under "Other" all direct, indirect and miscellaneous costs of the offering. Some examples of these costs are:
- Legal, accounting and audit fees
- Consulting fees
- Advertising and filing costs.
5.3 Use of proceeds and other available funds
Disclose the principal purposes for the use of the net proceeds of the offering and other available funds, in order of priority, and the amount to be used for each purpose. You may want to disclose this information in a table similar to the following:
| Description of intended use of net proceeds listed in order of priority | Assuming min. offering | Assuming max. offering |
| $_____________ | $_____________ |
You should be specific about when and how you will use the proceeds (or total available funds) and how the cost of each material item was determined. Stating that the issuer will use the funds for "general corporate purposes" will not help investors make their investment decision.
You may want to use categories like the following: leases, rent, payroll, purchase or lease of equipment or inventory, repayment of debt, property payments, exploration costs. Of course, the categories you use will depend on the nature of the issuer's business and its business plan. Therefore, these categories are examples only and are not exhaustive.
If the issuer has a working capital deficiency, you should disclose any portion of the net proceeds that will be applied to that deficiency. If any of the net proceeds will be paid to a related party, you should disclose the name of the related party, the party’s relationship to the issuer, and the amount.
Your disclosure here should be consistent with item 1.1 The business.
Insufficient funds
You should disclose what you will do if you do not raise enough money in the offering to carry out the business plan. For example, do you have access to alternate sources of funding? Are these sources firm or contingent?
Remember that insufficiency of funds to accomplish business objectives should also be disclosed under Part 2 Risk Factors if this constitutes a risk that is material to the issuer, the business or the securities.
Reallocation
You should also consider how you will reallocate the proceeds (funds) if circumstances change and the originally intended use of proceeds (funds) no longer applies. For example, if you intend to use the proceeds (funds) from the offering to fund a new business, you should discuss how you will use the proceeds (funds) if you are unable to obtain the necessary approvals for that business.
Keep in mind that the issue of reallocation would likely not arise in the context of a real estate offering, a syndicated mortgage offering or a project financing.
5.4 Project financing and limited partnership offering
The disclosure required by this item is required only for certain types of offerings, such as project financings, limited partnership offerings, and similar transactions. The term “transaction agreement” does not include subscription agreements.
C. Supplemental instructions for special situations
The information required in this form is not specific to any particular industry or type of business. The form sets out general disclosure requirements that apply to all issuers and offerings. Because it will not always be clear from the form itself how a particular item applies in a given situation, we have included these supplemental instructions for certain "unique" issuers / offerings to help them complete the form.These supplemental instructions should be read together with Chapters A and B of the “Instructions for Completing Form 45-907F Offering Memorandum”.
Real estate offerings
Disclosure required byReal Estate Act
Issuers of real estate securities must comply with the Real Estate Act (REA). This statute requires that purchasers receive specific disclosure about the property and the investment.
There may be some overlap between securities and real estate law requirements. However, you should not have to repeat in your offering memorandum information you have had to disclose under the REA. Therefore, you may attach the disclosure document required by the REA to your offering memorandum, essentially “wrapping” your offering memorandum around that other document. If one of the items in the offering memorandum form repeats an REA requirement, you may complete that item by referring the reader to the place in the real estate disclosure document where the relevant information can be found.
Part 1 The business
Forreal estate offerings, you will need to provide disclosure about “the business”, including any project being financed. Here are examples of projects that may be financed by these offerings:
- The offering requires the property to be used as part of a business such as a hotel, resort or other commercial enterprise and prohibits or materially restricts the holder of the securities from occupying or otherwise using the property as the holder sees fit.
- The money raised by the offering is intended to finance a specific development project.
Part 2 Risk Factors
In addition to the risks listed in Part 2 of the form, there are special risks associated with investments in real estate securities. These include:
- reliance on the property developer / manager's efforts
- cash flow and liquidity risks
- encumbrances, conditions or covenants affecting the real estate
- potential liability to make additional contributions beyond initial investments
- potential liability for environmental damage or unpaid obligations to builders, contractors or trades
- restricted rights of a holder in the management and control of the strata corporation or business
- inability to change the property manager.
Part 5 The Offering
5.4 Project financing and limited partnership offering
Investing in real estate securities will often involve rental or expense pool arrangements. As explained in item 5.4, you must give purchasers a copy of any pooling agreement if they ask for one. However, the offering memorandum must also include a description of these agreements (see the instruction to item 1.1 The business above). Key terms of a rental and/or expense pool agreement include whether the agreement is mandatory or optional, the process for opting out of the agreement, the sharing of revenues and losses and any management fees.
Financial statements
Offerings of real estate securities are exempt from the financial statement requirements applicable to other offering memoranda. The exemption is only available if the prospective purchaser receives financial information about the project necessary to make an informed investment decision. This will generally require financial statement disclosure about the property or entity that will be the source of the investors’ returns, or have a major impact on them.
What is necessary to satisfy the requirement will depend on the type of securities offered and the stage of development of the project. For projects that are fully constructed and operational, financial statements relating to the operations of the project would be relevant.
Similarly, for real estate projects that involve a rental pool, financial statements showing the performance of the rental pool would be relevant.
Those offering these types of securities need to consider carefully the information an investor needs and ensure that they include that information in the offering memorandum.
Syndicated mortgage offerings
Disclosure required by Mortgage Brokers Act
Issuers of syndicated mortgage securities must comply with the Mortgage Brokers Act (MBA). This statute requires that purchasers receive specific disclosure about the property and the investment.
There may be some overlap between securities and the MBA requirements. However, issuers should not have to repeat in their offering memorandum information they have had to disclose under the MBA. Therefore, you may attach the disclosure required by the MBA to your offering memorandum, essentially “wrapping” your offering memorandum around that other document. If one of the items in the offering memorandum form repeats an MBA requirement, you may complete that item by referring the reader to the place in the mortgage disclosure document where the relevant information can be found.
Part 1 The Business
For syndicated mortgage offerings, you will need to provide disclosure about “the business”, including the project being financed.
Part 2 Risk Factors
In addition to the risks listed in item 2.1 of the form, there are special risks associated with investments in syndicated mortgages. These include:
- reliance on the borrower to make payments under the mortgage
- ability to raise further funds as progress in development or construction occurs
- changes in land value
- ability to recover in the event of foreclosure
- prior encumbrances on the mortgaged property
- ranking of the mortgage in relation to others.
Part 5 The Offering
5.1 The offering
Item 5.1 requires a description of the securities offered, including their material terms and attributes. In a syndicated mortgage offering, you should include disclosure about the mortgage itself as well as the property, including any other encumbrances affecting it, the loan to value ratio, and any appraisals, to the extent that information is material.
5.4 Project financing and limited partnership offering
There are certain agreements specific to mortgage offerings that should be disclosed under item 5.4 or 1.1 (see instructions to item 1.1 The business above). These include administration agreements (where the purchaser will be charged fees for administrative services provided by the mortgage broker) and trust agreements (where funds paid by or payable to purchasers will be held in trust before being advanced to the borrower or distributed to the purchasers).
Financial statements
Offerings of syndicated mortgages are exempt from the financial statement requirements applicable to other offering memoranda. The exemption is only available if the prospective purchaser receives financial information about the project necessary to make an informed investment decision. This will generally require financial statement disclosure about the property or entity that will be the source of the investors’ returns, or have a major impact on them.
What is necessary to satisfy the requirement will depend on the type of securities offered and the stage of development of the project. For projects that are fully constructed and operational, financial statements relating to the operations of the project would be relevant.
Similarly, in a syndicated mortgage offering, information such as loan-to-value ratio, source of payout, method of valuation and source of cash flow may well be relevant.
Those offering these types of securities need to consider carefully the information an investor needs and ensure that they include that information in the offering memorandum.