As filed with the Securities and Exchange Commission
on August 7, 2018
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Registration No. 333-225962
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 1 TO FORM F-10
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Form F-10
Titan Medical Inc.
(Exact
name of registrant as specified in its charter)
Ontario, Canada
(Province or other jurisdiction
of incorporation or organization)
3841
(Primary Standard Industrial
Classification Code Number, if applicable)
98-0663504
(I.R.S. Employer Identification
No., if applicable)
170 University Avenue, Suite 1000
Toronto, Ontario M5H
3B3
Canada
Tel: (416) 548-7522
(Address and telephone
number of Registrant's principal executive offices)
CT Corporation System
1015 15
th
Street N.W., Suite 1000
Washington, DC 20005
(202) 572-3100
(Name, address (including zip code) and telephone number (including
area code) of agent for service in the United States)
Copies to:
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Stephen Randall
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Richard Raymer
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Manoj Pundit
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Titan Medical Inc.
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James Guttman
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Borden Ladner Gervais LLP
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170 University Avenue, Suite 1000
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Dorsey & Whitney LLP
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Bay Adelaide Centre, East Tower
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Toronto, Ontario M5H 3B3
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TD Canada Trust Tower
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22 Adelaide St W
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Canada
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Brookfield Place, 161 Bay Street, Suite
4310
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Toronto, Ontario M5H 4E3
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Tel: (416) 548-7522
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Toronto, Ontario M5J 2S1
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Canada
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Canada
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Tel: (416) 367-6577
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Tel: (416)
367-7376
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this Registration Statement becomes
effective.
Province of Ontario, Canada
(Principal jurisdiction
regulating this offering)
It is proposed that this filing shall
become effective (check appropriate box below):
A.
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[X]
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upon filing with the Commission
pursuant to Rule 467(a) (if in connection with an offering being made
contemporaneously in the United States and Canada).
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B.
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[ ]
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at some future date (check the
appropriate box below):
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1.
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[ ]
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pursuant to Rule 467(b) on
( ) at
( ) (designate a
time not sooner than 7 calendar days after filing).
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2.
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[ ]
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pursuant to Rule 467(b) on
( ) at
( ) (designate a
time 7 calendar days or sooner after filing) because the securities
regulatory authority in the review jurisdiction has issued a receipt or
notification of clearance on
( ).
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3.
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[ ]
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pursuant to Rule 467(b) as soon as practicable after
notification of the Commission by the Registrant or the Canadian
securities regulatory authority of the review jurisdiction that a receipt
or notification of clearance has been issued with respect hereto.
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4.
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[ ]
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after the filing of the next amendment to this
Form (if preliminary material is being filed).
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to the home jurisdiction's
shelf prospectus offering procedures, check the following box. [
]
CALCULATION OF REGISTRATION FEE
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Proposed
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Proposed
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Maximum
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Maximum
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Aggregate
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Amount of
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Title of Each Class of Securities
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Amount to be
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Offering Price
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Offering
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Registration
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to be
Registered
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Registered
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per Security
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Price(1)
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Fee(2)
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Units, each unit consisting of one Common Share and a
Warrant to purchase a Common Share at $3.20 per Common Share
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8,000,000
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$2.50
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$20,000,000
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*
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Common Share included as part of the
Unit
(3)(4)
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8,000,000
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-
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-
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-
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Warrant included as part of the
Unit
(3)(4)
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8,000,000
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-
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-
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-
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Common Shares underlying Warrant
(3)
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8,000,000
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$3.20
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$25,600,000
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*
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Broker Warrants
(3)(4)
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560,000
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-
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-
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*
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Common Shares
underlying Broker Warrants
(3)
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560,000
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$2.50
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$1,400,000
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*
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Total
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$47,000,000
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$5,851.50
(5)
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(1)
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Estimated solely for the purpose of computing the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended (the Act). Also includes the offering price of additional
securities that the agents have the option to purchase or receive as
compensation.
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(2)
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Calculated pursuant to Rule 457(o) based on an estimate
of the proposed maximum aggregate offering price of all securities being
registered.
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(3)
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Pursuant to Rule 416 under the Act, the securities being
registered hereunder include such indeterminate number of additional
shares of common stock as may be issued after the date hereof as a result
of stock splits, stock dividends or similar transactions.
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(4)
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No separate fee is required pursuant to Rule 457(g) under
the Act.
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(5)
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$3,112.50 previously paid in connection with the filing of the
Registrants Form F-10 filed on June 28, 2018.
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The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registration Statement
shall become effective as provided in Rule 467 under the Securities Act of 1933,
as amended (the "Act") or on such date as the Commission, acting pursuant to
Section 8(a) of the Act, may determine.
PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR
PURCHASERS
SHORT FORM PROSPECTUS
TITAN MEDICAL INC.
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Minimum: US $16,000,000 (6,400,000 Units)
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Maximum: US $20,000,000 (8,000,000 Units)
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Price: US $2.50 per Unit
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Titan Medical Inc. (the Company or Titan or we or our)
is hereby qualifying for distribution a minimum (the Minimum Offering) of
6,400,000 units of the Company (the Units) and a maximum (the Maximum
Offering) of 8,000,000 Units, at a price of US $2.50 per Unit (the Offering
Price). Each Unit consists of one common share of the Company (an Offered
Share) and one common share purchase warrant of the Company (a Warrant). Each
Warrant entitles the holder thereof to purchase one common share of the Company
(a Warrant Share) at an exercise price of US $3.20 per Warrant Share, subject
to adjustment, at any time until 5:00 p.m. (Toronto time) on the date that is 60 months after the first
Closing Date (as defined herein) of the Offering (as defined herein) (the
Warrant Expiry Time). The Units will immediately separate into Offered Shares
and Warrants upon issuance. The distribution of the Units and the Broker
Warrants (as defined herein) qualified by this short form prospectus is referred
to herein as the Offering. See
Description of Offered Securities
.
The outstanding common shares of Titan (Common Shares) are
listed and posted for trading on the Toronto Stock Exchange (the TSX) under
the symbol TMD and on the NASDAQ Capital Market (NASDAQ) under the symbol
TMDI. On August 3, 2018, the last trading day on the TSX prior to the date of this short
form prospectus, the closing price of the Common Shares on the TSX was CDN $3.68. On August 6, 2018, the last trading day on the NASDAQ prior to the date of this short form prospectus, the closing price of the Common Shares on NASDAQ was US $2.85. The
Company has applied and has received the conditional approval of the TSX to list
the Offered Shares, the Warrant Shares and the Broker Warrant Shares (as defined
herein) distributed under this short form prospectus on the TSX. The Company has
notified NASDAQ of the listing of the Offered Shares, the Warrant Shares and the
Broker Warrant Shares distributed under this short form prospectus on the NASDAQ. Listing will be subject to the Company
fulfilling all of the listing requirements of the TSX on or before October 31, 2018. There can be no assurance that the securities offered
pursuant to this short form prospectus will be accepted for listing on the TSX
or the NASDAQ. The Company has not applied and does not intend to apply to list
the Warrants on any securities exchange.
There will be no market through
which the Warrants may be sold and purchasers may not be able to resell the
Warrants purchased in the Offering. This may affect the pricing of the Warrants
in the secondary market, the transparency and availability of trading prices,
the liquidity of the Warrants, and the extent of issuer regulation
. See
Risk Factors
.
The Offering Price was determined by negotiation between the
Company and Bloom Burton Securities Inc. (the Agent). Pursuant to the terms of
an agency agreement (the Agency Agreement) entered into between the Company
and the Agent, the Units will be issued and sold in the provinces of British
Columbia, Alberta and Ontario by the Agent. The Units will also be offered for
sale in the United States, by or through one or more United States registered
broker-dealers appointed by the Agent as sub-agents, pursuant to the
Multijurisdictional Disclosure System (MJDS) implemented by securities
regulatory authorities in the United States and Canada. See
Plan of
Distribution
.
____________________________________
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1
Note
: Applications to the TSX and
NASDAQ are in process now that pricing details for the Offering have been
finalized.
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An investment in the securities offered hereunder is
speculative and involves a high degree of risk. The risk factors identified in
this short form prospectus and the documents incorporated by reference herein
should be carefully reviewed and evaluated by prospective investors before
purchasing the securities being offered hereunder. See
Risk
Factors
in this short form prospectus and the documents incorporated
by reference herein.
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Price: US $2.50 per Unit
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Price to the Public
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Agents
Commission
(1)
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Net Proceeds to the
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Company
(2)
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Per Unit
(3)
....
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US
$2.50
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US $0.175
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US
$2.325
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Minimum Offering..
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US
$16,000,000
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US $1,120,000
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US
$14,880,000
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Maximum Offering
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US
$25,000,000
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US $1,400,000
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US
$18,600,000
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Notes:
(1)
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The Company has agreed to pay the Agent, on each Closing
Date, a commission (the Agents Commission) equal to 7% of the aggregate
gross proceeds of the Offering (or US $0.175 per Unit). In addition to the
Agents Commission, the Company will issue to the Agent, on each Closing
Date, compensation warrants (Broker Warrants) to purchase such number of
Common Shares (the Broker Warrant Shares) as is equal to 7% of the
aggregate number of Units issued pursuant to the Offering on such Closing
Date. Each Broker Warrant, whether issued on the first Closing Date or on
a subsequent Closing Date, shall entitle the Agent to acquire one Broker
Warrant Share at an exercise price equal to the Offering Price, subject to
adjustment, for a period of 24 months following the first Closing Date.
See
Plan of Distribution
. This short form prospectus also
qualifies the distribution of the Broker Warrants.
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(2)
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After deducting the Agents Commission, but before
deducting expenses of the Offering (including listing fees) estimated to
be approximately US $480,000 in the event of the Minimum Offering, and US
$600,000
in the event of the Maximum Offering, which will be paid from the gross
proceeds of the Offering.
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(3)
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From the Offering Price, the Company will allocate US
$1.27 to each Offered Share and US $1.23 to each
Warrant.
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The following table sets out the number of Broker Warrants that
may be issued by the Company to the Agent:
Agents
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Minimum Offering
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Maximum Offering
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Exercise Period
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Exercise Price
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Position
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Broker
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448,000
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560,000
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24 months
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US $2.50
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Warrants
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Broker Warrants
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Broker Warrants
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following the first
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per
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Closing Date
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Broker Warrant Share
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Subscriptions for Units will be received by the Agent 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 anticipated that
the Offered Shares and Warrants will be issued in book-entry only form and
represented by a global certificate or certificates, or be represented by
uncertificated securities, registered in the name of CDS Clearing and Depositary
Services Inc. (CDS) or its nominee or The Depository Trust Company (DTC), as
directed by the Agent, and will be deposited with CDS or DTC, as the case may
be. Except in limited circumstances, no beneficial holder of Offered Shares or
Warrants will receive definitive certificates representing their interest in the
Offered Shares or Warrants. Beneficial holders of Offered Shares or Warrants
will receive only a customer confirmation from the Agent or another registered
dealer who is a CDS or DTC participant and from or through whom a beneficial
interest in the Offered Shares or Warrants is acquired. Certain other holders
may receive definitive certificates representing their interests in the Offered
Shares or Warrants.
The completion of the Offering may occur in one or more
separate closings on one or more dates (each, a Closing Date) as the Company
and the Agent may agree. Provided that the Minimum Offering is subscribed for,
it is expected that the first Closing Date will occur on or about August 10,
2018, or such other date as the Company and the Agent may agree.
If subscriptions for the Minimum Offering have not been
received within 10 days following the date of issuance of a receipt for the
final short form prospectus, the Offering will not continue and the subscription
proceeds will be returned to subscribers, without interest or deduction. In any
event, the total period of the distribution will not end more than 45 days from
the date of issuance of a receipt for this short form prospectus. Should a
closing occur in respect of the Minimum Offering, one or more additional
closings, if necessary, may occur until the earlier of the Maximum Offering
being subscribed and the expiry of the 45-day period.
2
There can be no assurance that any or all of the Units being
offered will be sold. Please see
Plan of Distribution
.
The Offering is not underwritten or guaranteed by any person.
The Agent conditionally offers the Units pursuant to the securities legislation
of the provinces of British Columbia, Alberta and Ontario on a best efforts
basis and, subject to prior sale, if, as and when issued by the Company and
delivered and accepted by the Agent in accordance with the conditions contained
in the Agency Agreement referred to under
Plan of Distribution
and
subject to approval of certain legal matters on behalf of the Company by Borden
Ladner Gervais LLP, with respect to Canadian legal matters, and by Dorsey &
Whitney LLP, with respect to U.S. legal matters, and on behalf of the Agent by
Baker & McKenzie LLP. The United States registered broker-dealers that may
be appointed by the Agent as sub-agents will not be registered as dealers in any
Canadian jurisdiction and, accordingly, they will not, directly or indirectly,
solicit offers to purchase or sell the Units in Canada.
You should rely only on the information contained or
incorporated by reference in this short form prospectus and the documents
incorporated by reference herein. The Company and the Agent have not authorized
anyone to provide purchasers with information different from that contained or
incorporated by reference in this short form prospectus and the documents
incorporated by reference herein. Information contained on the website of the
Company shall not be deemed to be a part of this short form prospectus or
incorporated herein by reference and should not be relied upon by prospective
investors for the purpose of determining whether to invest under the Offering.
The Company is offering to sell, and seeking offers to buy, the Units only in
jurisdictions where, and to persons to whom, offers and sales are lawfully
permitted. The Company does not undertake to update information contained or
incorporated by reference in this short form prospectus, except as required by
applicable securities laws.
This offering is made by a foreign issuer under U.S.
securities laws that is permitted, under the MJDS, to prepare this short form
prospectus in accordance with Canadian disclosure requirements. Prospective
investors should be aware that such requirements are different from those of the
United States. Except as otherwise disclosed, financial statements included or
incorporated by reference herein have been prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board, and are subject to Canadian auditing
and auditor independence standards, and thus may not be comparable to financial
statements of United States companies.
Prospective investors should be aware that the acquisition
of the Units described herein may have tax consequences both in the United
States and Canada. Such consequences for investors who are resident in, or
citizens of, the United States may not be fully described herein. See
Certain Canadian Federal Income Tax Considerations
and
Certain United States Federal Income Tax Considerations
in this short form prospectus.
The enforcement by investors of civil liabilities under the
United States federal securities laws may be affected adversely because the
Company is organized under the laws of Canada, a number of its officers and
directors and some or all of the experts named in this short form prospectus are
Canadian residents or otherwise reside outside of the United States, and a
substantial portion of the Companys assets and the assets of such persons are
located outside the United States. See
Enforceability of Civil
Liabilities
in this short form prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE SEC) OR THE
SECURITIES COMMISSION OF ANY STATE OF THE UNITED STATES, NOR HAVE THE FOREGOING
PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Each of David McNally, President, Chief Executive Officer and a
director of the Company and John Schellhorn and Dr. Bruce Wolff, directors of
the Company, resides outside of Canada (the Non-Resident Directors). The
Non-Resident Directors have appointed the following agent for service of process:
Name of the
Person or Company
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Name and Address of Agent
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David McNally
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Titan Medical Inc.
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John Schellhorn
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170 University Avenue
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Dr. Bruce Wolff
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Toronto, Ontario, Canada
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M5H 3B3
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3
Purchasers are advised that it may not be possible for
investors to enforce judgements 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, even if the party has
appointed an agent for service of process. See
Risk Factors
.
Prospective investors should be aware that the acquisition
or disposition of the securities described herein may have tax consequences in
Canada. This short form prospectus may not describe these tax consequences
fully. You should consult and rely on your own tax advisor with respect to your
own particular circumstances. See
Certain Canadian Federal Income Tax
Considerations
.
In this short form prospectus, unless otherwise specified or
the context otherwise requires, all dollar amounts are expressed in United
States dollars. All references to dollar, $ or US $ are to United States
dollars. All references to CDN $ are to Canadian dollars. Potential purchasers
should be aware that foreign exchange fluctuations are likely to occur from time
to time and that the Company does not make any representation with respect to
currency values from time to time. Investors should consult their own advisors
with respect to the potential risk of currency fluctuations. See
Currency Presentation and Exchange Rate Information
in this short form
prospectus.
The Companys head and registered office is located at Suite
1000, 170 University Avenue, Toronto, Ontario, M5H 3B3 and its telephone number
is (416) 548-7522.
4
TABLE OF CONTENTS
IMPORTANT NOTICE ABOUT THE INFORMATION IN THIS SHORT FORM
PROSPECTUS
General Advisory
You should rely only on the information contained in or
incorporated by reference in this short form prospectus. Neither the Company nor
the Agent has authorized anyone to provide you with different or additional
information. Neither the Company nor the Agent is making an offer of the Units
in any jurisdiction where the offer is not permitted by law. If anyone provides
you with any different or inconsistent information, you should not rely on it.
You should not assume that the information contained in or incorporated by
reference in this short form prospectus is accurate as of any date other than
the date on the front of this short form prospectus with respect to information
contained herein and, with respect to information incorporated by reference, the
date of such document so incorporated. The Companys business, financial
condition, results of operations and prospects may have changed since those
dates.
The Company is subject to the information requirements of the
United States Securities Exchange Act of 1934, as amended (the U.S. Exchange
Act), and applicable Canadian securities legislation, and in accordance
therewith files reports and other information with the SEC and with the
securities regulators in Canada. Under a MJDS adopted by the United States and
Canada, documents and other information that the Company files with the SEC may
be prepared in accordance with the disclosure requirements of Canada, which are
different from those of the United States. As a foreign private issuer, the
Company is exempt from the rules under the U.S. Exchange Act prescribing the
filing, delivery and content of proxy statements, and its officers, directors
and principal shareholders are exempt from the insider reporting and short-swing
profit recovery provisions contained in Section 16 of the U.S. Exchange Act. In
addition, the Company may not be required to publish financial statements as
promptly as a comparable U.S. company.
Additional Information
You may read any document that the Company has filed with or
furnished to the SEC at the SECs public reference room located at 100 F Street,
N.E., Washington, D.C. 20549. You may also obtain copies of any such document
from the SECs public reference room by paying a fee. You should call the SEC at
1-800-SEC-0330 or access its website at
www.sec.gov
for further
information about the public reference room. You may read and download any of
the documents the Company has filed with or furnished to the SEC through its
Electronic Data Gathering and Retrieval system (EDGAR) at
www.sec.gov
.
You may read and download any public document that the Company has filed with
the Canadian securities regulatory authorities at
www.sedar.com
.
The Company has concurrently filed with the SEC under the
United States Securities Act of 1933, as amended (the U.S. Securities Act), a
registration statement on Form F-10, relating to the Offered Shares and Warrants
being offered hereunder and of which this short form prospectus forms a part.
This short form prospectus does not contain all of the information set forth in
such registration statement, certain items of which are contained in the
exhibits to the registration statement as permitted or required by the rules and
regulations of the SEC. Items of information omitted from this short form
prospectus but contained in the registration statement will be available on the
SECs website at
www.sec.gov
. Statements included in this short form
prospectus or the documents incorporated by reference herein about the contents
of any contract, agreement or other document referred to are not necessarily
complete, and in each instance, prospective investors should refer to the
exhibits for a complete description of the matter involved. Each such statement
is qualified in its entirety by such reference.
Market and Industry Data
Unless otherwise indicated, information contained in this short
form prospectus concerning the Companys industry and the markets in which it
plans to operate or seeks to operate, including its general expectations and
market position, market opportunities and market share, is based on management
studies and estimates, information from independent industry organizations and
consultants, and other third-party sources (including industry publications,
surveys and forecasts), such as Grand View Research Inc.s 2015 report titled
Medical Robotic Systems Market Analysis by Product (Surgical, Orthopedic,
Laparoscopy, Neurological, Rehabilitation, Assistive, Prosthetics, Orthotics,
Steerable, Therapeutic, Exoskeleton, Non-Invasive, Hospital/Pharmacy,
Telemedicine, I.V, Pharmacy, Emergency Response Robotic Systems) and Segment
Forecasts to 2022, and Life Science Intelligences Meddevicetracker October 2017 report titled Global
Robotically-Assisted Surgical Devices Market, number MDT 17015. These market
research reports are subjective and speak as of their original publication dates
(and not as of the date of this short form prospectus) and the opinions and
market data expressed in those reports are subject to change without notice.
The Company believes that these sources are generally reliable,
but the accuracy and completeness of this information is not guaranteed. The
information presented in the reports noted above and any underlying assumptions
for the market estimate and projections contained therein have not been
independently verified.
While management believes the market position, market
opportunity and market share information included in this short form prospectus
is generally reliable, such information is inherently imprecise. In addition,
projections, assumptions and estimates of future performance and the future
performance of the industry and markets in which the Company plans to operate
are necessarily subject to a high degree of uncertainty and risk due to a
variety of factors, including those described under the headings
Special
Note Regarding Forward-Looking Statements
and
Risk Factors
.
Trade-marks, Trade Names and Service Marks
This short form prospectus includes references to the Companys
trade-marks and trade names, such as SPORT, SPORT Surgical System, Titan and
Titan Medical, some of which may be protected under applicable intellectual
property laws of one or more countries and which the Company believes is its
property. Solely for convenience, the Companys trade-marks referred to in this
short form prospectus may appear without the
TM
symbol, but such
references are not intended to indicate, in any way, its rights in such marks or
that the Company will not assert, to the fullest extent under applicable law,
its rights to these trade-marks and trade names. All other trade-marks and trade
names referenced in this short form prospectus are the property of their
respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This short form prospectus and the documents incorporated by
reference in this short form prospectus contain forward-looking information
and forward-looking statements, within the meaning of applicable Canadian and
United States securities laws. (collectively herein referred to as
forward-looking statements). These statements relate to future events or
future performance and reflect the Companys expectations and assumptions
regarding the growth, results of operations, performance and business prospects
and opportunities of the Company. These forward-looking statements are made as
of the date of this short form prospectus or, in the case of documents
incorporated by reference herein, as of the date of such documents.
Forward-looking statements are frequently, but not always, identified by words
such as expects, expectation, anticipates, believes, intends,
estimates, predicts, continues, potential, targeted, plans,
possible and similar expressions, or statements that events, conditions or
results will, may, could, would or should occur or be achieved. Any
forward-looking statements or statements of belief, including the statements
made under
Risk Factors
, represent the Companys estimates only as of
the date of this short form prospectus and the documents incorporated by
reference herein, respectively, and should not be relied upon as representing
the Companys estimates as of any subsequent date. These forward-looking
statements may concern anticipated developments in the Companys operations in
future periods, the adequacy of the Companys financial resources and other
events or conditions that may occur in the future, and include, without
limitation, statements regarding:
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the Companys technology and research and
development objectives, including development milestones, estimated costs,
schedules for completion and probability of success;
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the Companys intention with respect to
updating any forward-looking statement after the date on which such
statement is made or to reflect the occurrence of unanticipated events;
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the Companys expectation with respect to
continuing animal study feasibility and commencing human cadaver studies;
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the Companys expectation that it can in a
timely manner produce the appropriate preclinical, and if necessary,
clinical data required;
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the Companys expectation with respect to
launching a commercial product in certain jurisdictions;
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the Companys intentions to develop a robust
training curriculum and post-training assessment tools;
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2
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the Companys plans to develop and
commercialize the SPORT Surgical System and the estimated incremental
costs (including the status, cost and timing of achieving the development
milestones disclosed herein);
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the Companys plans to design, create and refine software
for production system functionality of the SPORT Surgical System and the
estimated incremental costs (including the status, cost and timing of
achieving the development milestones disclosed herein);
|
|
the Companys intentions to complete heuristic
and formative usability modules and human factors studies, formalize user
requirements, stabilize the design and development of the system and
initiate preclinical studies;
|
|
the Companys intentions with respect to
initiating marketing activities following receipt of the applicable
regulatory approvals;
|
|
the surgical indications for, and the benefits
of, the SPORT Surgical System;
|
|
the Companys intention to continue to assess
specialized skill and knowledge requirements and recruitment of qualified
personnel and partners;
|
|
the Companys belief that the materials and
parts necessary for the manufacture of a clinical-grade SPORT Surgical
System will be available in the marketplace;
|
|
the Companys belief that its existing and
planned prototype units will be suitable to support human factors studies
and preclinical testing activities for the remainder of 2018 and in 2019;
|
|
the Companys filing and prosecution of patent
applications to expand its intellectual property portfolio as technologies
are developed or refined;
|
|
the Companys seeking of licensing
opportunities to expand its intellectual property portfolio;
|
|
the Companys intended use of proceeds of any
offering of its securities;
|
|
the Companys intention with respect to not
paying any cash dividends on Common Shares in the foreseeable future;
|
|
the Companys intention to retain future
earnings, if any, to finance expansion and growth;
|
|
projected competitive conditions with respect
to the Companys products;
|
|
the estimated size of the market for robotic
surgical systems; and
|
|
the potential market for the securities
issuable under the Offering.
|
Forward-looking statements are statements about the future and
are inherently uncertain, and actual results of the Company or other future
events or conditions may differ materially from those reflected in the
forward-looking statements due to a variety of risks, uncertainties and other
factors, including those referred to in this short form prospectus, including
but not limited to those described in the section titled,
Risk Factors
,
in this short form prospectus, in any document incorporated by reference herein.
These risks include, but are not limited to:
|
Additional Financing
|
|
History of Losses
|
|
Going Concern
|
|
Strategic Alliances
|
|
Dependence on Key Personnel
|
|
Ability to Attract Qualified Employees to
Maintain and Grow Business
|
|
Disclosure of Trade Secrets and Other
Proprietary Information
|
|
Dependence on Third Parties
|
|
Competition
|
|
Infringement of Intellectual Property Rights
|
|
Intellectual Property
|
|
Current Global Financial Conditions
|
|
Trade-marks
|
|
Conflicts of Interest
|
|
Results of Operations
|
|
Rapidly Changing Markets Make it Difficult to
Forecast Future Operating Results
|
|
Uncertain Market/Uncertain Acceptance of the
Companys Technology/Target Market
|
|
Technological Advancements
|
|
Insurance and Uninsured Risks
|
3
|
Ability to License Other Intellectual Property
Rights
|
|
Government Regulation
|
|
Profitability
|
|
Changes in Government Policy
|
|
Changes in Accounting and Tax Rules
|
|
Contingent Liabilities
|
|
Uncertainty as to Product Development and
Commercialization Milestones
|
|
Product and Services Not Completely Developed
|
|
Manufacturing Risks
|
|
Reliance on External Suppliers and Development
Firms
|
|
Product Defect Risk
|
|
Suppliers
|
|
Stock Price Volatility
|
|
Future Share Sales
|
|
Limited Operating History
|
|
Fluctuating Financial Results
|
|
Effect of Estimates Regarding Milestones
|
|
Currency Fluctuations
|
Forward-looking statements are based on a number of assumptions
which may prove to be incorrect, including but not limited to assumptions about:
|
general business and current global economic
conditions;
|
|
future success of current research and
development activities;
|
|
achieving development and commercial
milestones;
|
|
inability to achieve produce cost targets;
|
|
competition;
|
|
changes to tax rates and benefits;
|
|
the availability of financing;
|
|
the Companys and competitors costs of
production and operations;
|
|
the Companys ability to attract and retain
skilled employees;
|
|
the Companys ongoing relations with its
third-party service providers;
|
|
the design of the SPORT Surgical System and
related platforms and equipment;
|
|
the progress and timing of the development of
the SPORT Surgical System;
|
|
costs related to the development, completion
and potential commercialization of the SPORT Surgical System;
|
|
receipt of all applicable regulatory approvals;
|
|
estimates and projections regarding the robotic
surgery equipment industry;
|
|
protection of the Companys intellectual
property rights;
|
|
market acceptance of the Companys systems
under development;
|
|
the Companys ability to meet the continued
listing standards of NASDAQ and the TSX; and
|
|
the type of specialized skill and knowledge
required to develop the SPORT Surgical System and the Companys access to
such specialized skill and knowledge.
|
The Company cautions that the foregoing list of important
factors and assumptions is not exhaustive. Although the Company has attempted to
identify on a reasonable basis important factors and assumptions related to
forward-looking statements, there can be no assurance that forward-looking
statements will prove to be accurate, as events or circumstances or other
factors could cause actual results to differ materially from those estimated or
projected and expressed in, or implied by, these forward-looking statements.
Other than as specifically required by law, the Company undertakes no obligation
to update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made, or to reflect the occurrence of
unanticipated events, whether as a result of new information, future events or
results or otherwise. Accordingly, readers should not place undue reliance on
forward-looking statements.
4
CURRENCY PRESENTATION AND EXCHANGE RATE INFORMATION
All currency amounts in this short form prospectus are
expressed in United States dollars (US $ or $), unless otherwise indicated.
The following table sets out the daily exchange rate of US $1.00 in terms of
Canadian dollars (CDN $).
|
|
High (CDN)
|
|
|
Low (CDN)
|
|
|
Average (CDN)
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
$
|
1.3743
|
|
$
|
1.2128
|
|
$
|
1.2986
|
|
December 31, 2016
|
$
|
1.4589
|
|
$
|
1.2544
|
|
$
|
1.3248
|
|
On August 3, 2018, the daily exchange rate for US $ in terms of CDN $, as quoted by the Bank of Canada, was US $1.00 = CDN $1.2983.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short
form prospectus from documents filed with securities commissions or similar
regulatory authorities in Canada and with the SEC in the United States. Copies
of the documents incorporated by reference herein may be obtained on request
without charge from the Chief Financial Officer of the Company at Suite 1000,
170 University Avenue, Toronto, Ontario, M5H 3B3, Telephone: (416) 548-7522.
These documents are also available through the internet under the Companys
profile on the System for Electronic Document Analysis and Retrieval (SEDAR)
which can be accessed at www.sedar.com. Documents filed with, or furnished to,
the SEC are available through EDGAR at
www.sec.gov
, as well as from
commercial document retrieval services. You may also read (and by paying a fee,
copy) any document the Company files with or furnishes to the SEC at the SEC's
public reference room in Washington, D.C. (100 F Street N.E., Washington, D.C.
20549). Please call the SEC at 1-800-SEC-0330 for more information on the public
reference room. The following documents, filed with the various securities
commissions or similar authorities in each of the provinces of British Columbia,
Alberta and Ontario, are specifically incorporated by reference into and form an
integral part of this short form prospectus:
1.
|
the annual information form of the Company dated March
31, 2018 for the financial year ended December 31, 2017 (the
AIF);
|
|
|
2.
|
the audited financial statements of the Company as at,
and for the financial years ended December 31, 2017 and 2016, together
with the notes thereto and the independent auditors report thereon (the
Annual Financial Statements);
|
|
|
3.
|
the managements discussion and analysis of financial
condition and results of operations for the financial year ended December
31, 2017 (the Annual MD&A);
|
|
|
4.
|
the unaudited condensed interim financial statements of
the Company as at, and for the three months ended, March 31, 2018,
consisting of the unaudited condensed interim balance sheet of the Company
as at March 31, 2018 and the unaudited condensed interim statement of
shareholders equity and deficit, net and comprehensive loss and cash
flows for the three months ended March 31, 2018 and 2017, together with
the notes thereto (the Interim Financial Statements);
|
|
|
5.
|
the managements discussion and analysis of financial
condition and results of operations for the three months ended March 31,
2018 (the Interim MD&A);
|
|
|
6.
|
the management information circular dated May 11, 2018
relating to Titans annual and special meeting of shareholders on June 14,
2018;
|
|
|
7.
|
the material change report of the Company dated April 2,
2018 in respect of the filing of a preliminary short form prospectus and
the announcement of pricing details for a previous public offering (the
April Offering);
|
5
8.
|
the material change report of the Company dated April 10,
2018 in respect of the filing of a final short form prospectus (the April
Prospectus) and the closing of the April Offering;
|
|
|
9.
|
the material change report of the Company dated May 22,
2018 in respect of the closing of the over- allotment option for the April
Offering; and
|
|
|
10.
|
the material change report of the Company dated June 5,
2018 in respect of the NASDAQ Listing (as defined herein) and the Share
Consolidation (as defined herein).
|
Material change reports (other than confidential reports),
business acquisition reports, interim financial statements, annual financial
statements, annual information forms and all other documents of the type
required by National Instrument 44-101
Short Form Prospectus Distributions
to be incorporated by reference in a short form prospectus, filed by the
Company with a securities commission or similar regulatory authority in Canada
after the date of this short form prospectus and before completion or withdrawal
of the Offering, will be deemed to be incorporated by reference into this short
form prospectus.
In addition, to the extent that any document or information
incorporated by reference into this short form prospectus pursuant to the
foregoing paragraph is also included in any report filed with or furnished to
the SEC by the Company on Form 6-K or on Form 40-F (or any respective successor
form) after the date of this short form prospectus, it shall be deemed to be
incorporated by reference as an exhibit to the registration statement of which
this short form prospectus forms a part. Further, the Company may incorporate by
reference into the registration statement of which this short form prospectus
forms a part, any report on Form 6-K furnished to the SEC, including the
exhibits thereto, if and to the extent provided in such report.
Upon a new annual information form and annual financial
statements being filed by the Company with the applicable Canadian securities
commissions or similar regulatory authorities in Canada during the period that
this short form prospectus is effective, the previous annual information form,
the previous annual financial statements and all interim financial statements,
and in each case the accompanying managements discussion and analysis of
financial condition and results of operations, and material change reports,
filed prior to the commencement of the financial year of the Company in which
the new annual information form is filed shall be deemed to no longer be
incorporated into the short form prospectus for purposes of offers and sales of
Units under this short form prospectus. Upon interim financial statements and
the accompanying managements discussion and analysis of financial condition and
results of operations being filed by the Company with the applicable Canadian
securities commissions or similar regulatory authorities during the period that
this short form prospectus is effective, all interim financial statements and
the accompanying managements discussion and analysis of financial condition and
results of operations filed prior to such new interim financial statements and
managements discussion and analysis of financial condition and results of
operations shall be deemed to no longer be incorporated into this short form
prospectus for purposes of offers and sales of Units under this short form
prospectus. In addition, upon a new management information circular for an
annual meeting of shareholders being filed by the Company with the applicable
Canadian securities commissions or similar regulatory authorities during the
period that this short form prospectus is effective, the previous management
information circular filed in respect of the prior annual meeting of
shareholders shall no longer be deemed to be incorporated into this short form
prospectus for offers and sales of Units under this short form prospectus.
Any statement contained in a document incorporated or deemed to
be incorporated by reference in this short form prospectus shall be deemed to be
modified or superseded for the purposes of this short form prospectus to the
extent that a statement contained in this short form prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in this short form prospectus modifies or supersedes that 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 or statement that it modifies or supersedes. The making of a modifying
or superseding statement shall not be deemed an admission for any purpose 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.
6
MARKETING MATERIALS
Any template version of any marketing materials (as such
terms are defined under applicable Canadian securities laws) that are used by
the Agent in connection with the Offering are not part of this short form
prospectus to the extent that the contents of the template version of the
marketing materials have been modified or superseded by a statement contained in
this short form prospectus. Any template version of any marketing materials that
has been, or will be, filed on SEDAR before the termination of the distribution
under the Offering (including any amendments to, or an amended version of, any
template version of any marketing materials) is deemed to be incorporated by
reference into this short form prospectus.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been or will be filed with the SEC
as part of the registration statement of which this short form prospectus forms
a part: (i) the documents referred to under the heading
Documents
Incorporated by Reference
; (ii) the Agency Agreement; (iii) the consent of
BDO Canada; (iv) the consent of
Borden Ladner Gervais LLP; (v) the consent of Baker & McKenzie LLP and
(vi) the powers of attorney from certain directors and officers of the Company.
THE BUSINESS
Product Development
The Companys business is focused on research and development
through to the planned commercialization of computer-assisted robotic surgical
technologies for application in minimally invasive surgery (MIS). The Company
is currently developing the SPORT Surgical System, a single-port robotic
surgical system. The SPORT Surgical System is comprised of a surgeon-controlled
patient cart that includes a 3D high definition vision system and
multi-articulating instruments for performing MIS procedures, and a surgeon
workstation that provides the surgeon with an advanced ergonomic interface to
the patient cart and a 3D endoscopic view inside the patients body during MIS
procedures. The Company intends to initially pursue focused surgical indications
for the SPORT Surgical System, which may include one or more of gynecologic,
urologic, colorectal or general abdominal procedures.
Development of the SPORT Surgical System has proceeded in
response to voice of customer feedback and, consultation with medical
technology development firms and input from the Companys Surgeon Advisory Board
(the Surgeon Advisory Board) comprised of key opinion leaders in targeted
fields. This approach has allowed the Company to design a robotic surgical
system that is intended to include the traditional advantages of robotic surgery
including 3D stereoscopic imaging and restoration of instinctive control, as
well as new and enhanced features, including an advanced surgeon workstation
incorporating a 3D high definition display providing a more ergonomically
friendly user interface and a patient cart with improved instrument dexterity.
Overall, the surgical system is designed to be adapted to the needs of the
surgeon, rather than the surgeon having to adapt to the system.
The SPORT Surgical System patient cart is being developed to
deliver interactive multi-articulating instruments and a 3D high definition
vision system into a patients abdominal body cavity through a single access
port. The design of the patient cart includes an insertion tube of approximately
25 millimeters (mm) in diameter. The insertion tube includes a distal end
incorporating a 3D high definition camera module that once inserted, is
configured to deploy into a working configuration wherein the camera module and
multi-articulating instruments can be controlled by a surgeon via the
workstation. The reusable multi-articulating, snake-like instruments are
designed to couple with sterile detachable single patient use robotic end
effectors that would provide first use quality in every case and eliminate the
reprocessing of the complete instrument. The use of reposable (re-usable for a
specific number of uses) robotic instruments and single patient use end
effectors is intended to minimize the cost per procedure. The patient cart is
also designed to include a mast, a boom and wheels for optimal configurability
for a variety of surgical indications and the ability to be maneuvered within
the operating room, or redeployed within hospitals and surgical centers, where
applicable.
As part of the development of the SPORT Surgical System, the
Company plans to develop a robust training curriculum and post-training
assessment tools for surgeons and surgical teams. The proposed training
curriculum will likely include cognitive pre-training, psychomotor skills
training, surgery simulations, live animal and human cadaver lab training,
surgical team training, troubleshooting and an overview of safety. Post-training
assessment will include validation of the effectiveness of those assessment
tools.
7
The Company continuously evaluates its technologies under
development for intellectual property protection. As of August 3, 2018, the
Company has ownership of 24 patents and 59 patent applications. The Company
anticipates expanding its intellectual property portfolio by filing additional
patent applications as it progresses in the development of robotic surgical
technologies, acquiring and/or by licensing suitable technologies.
As part of its development and commercialization efforts, the
Company has established certain milestones that it uses to assess its progress
towards developing commercially viable robotic surgical technologies. These
milestones relate to technology and design advancements as well as to targeted
dates for preclinical studies and completion of regulatory submissions. To
assess progress, the Company regularly tests and evaluates its technology. If
such evaluations indicate technical defects or failure to meet cost or
performance goals, the Companys commercialization schedule could be delayed and
potential purchasers of its initial commercial systems may decline to purchase
them or may choose to purchase alternative technologies. See
Risk
Factors
.
Development Objectives
The Company employs a combination of internal resources and
external development firms to execute the research, development and
commercialization plan for the Companys robotic surgical system.
The Company estimates that it has sufficient capital on hand,
including cash and deposits at subcontractors, to meet its development
milestones for the remainder of 2018. A complete estimate of the timing and
costs for development milestones beyond 2018 is speculative. The Company does
however estimate that a minimum of an additional US $52 million will be required
beyond 2018 in order to submit its 510(k) application to the Food and Drug
Administration of the United States Department of Health and Human Services (the
FDA), apply for the CE Mark, and if successful with those efforts, proceed
with early commercialization activities. Given the uncertainty of, among other
things, product development timelines, regulatory processes and requirements
(such as live animal and human cadaver studies and human confirmatory studies),
as well as the availability of required capital to fund development and
operating costs, the actual costs and development times may exceed managements
current expectations and an accurate estimate of the future costs of the
regulatory phases and development milestones beyond 2018 is not possible at this
time.
In addition to being capital intensive, research and
development activities relating to the Companys robotically-assisted SPORT
Surgical System, which is a highly complex medical device, are inherently
uncertain as to future success and the achievement of desired results. If delays
or problems occur during the Companys ongoing research and development
activities, financial and human resources may need to be diverted toward
resolving such delays or problems. Further, there is material risk that the
Companys research and development activities may not result in a functional,
commercially viable product or one that is approved by regulatory authorities.
Please see
Risk Factors
.
Current Development Plan
The Companys current plan is to raise sufficient financing and
to continue the development and commercialization of the SPORT Surgical System
at estimated incremental costs, and according to the timeline, as set forth in
the table below. The Company anticipates development costs through the remainder
of 2018 and the second quarter of 2019 to be as set out in the table below (the
Current Development Plan).
8
Milestone Number
|
Development Milestones
|
Estimated Cost
(in US
million $)
|
Schedule for
Milestone
Completion
|
Comments
|
Milestone 1
|
Prototype, test and procure surgeon
feedback on revised workstation controls
Complete software and
hardware change
requirements and finalize computer and
software
architecture for production
systems
Complete revisions to
instrument and lens
wash system and demonstrate
performance
|
8.1
(2)
|
Q2 2018
|
Completed
|
Milestone 2
|
Complete Camera Insertion Tube (CIT)
engineering confidence build based on
improved design
Complete design of SPORT surgeon
workstation and patient cart
for
engineering confidence build
Complete and demonstrate full
suite of
simulation software for beta test
|
12.4
(3)
|
Q3 2018
|
|
Milestone 3
|
Complete SPORT capital equipment
engineering confidence build based on
improved design
|
12.5
(4)
|
Q4 2018
|
|
Milestone 4
|
Document results of confidence
build unit
testing, implement
subsystem design improvements
and schedule
preliminary audit
of quality system by European
Notified Body
|
14.9
(5)
|
Q1 2019
|
|
Milestone 5
|
Update system design and
related hardware
and software
documentation
Submit draft protocols to FDA
in Q-submission(s) for comment
|
12.3
(6)
|
Q2 2019
|
|
Milestone 6
|
Initiate SPORT Surgical System
Design
Freeze
Verify production system operation with
clinical
experts under rigorous formal
(summative) human factors evaluation
under simulated robotic manipulation
exercises and through
exercises of the
completed surgeon simulation software
and
training program
Complete and document preclinical live
animal
(swine), cadaver surgery and
human confirmatory studies according to
final protocols for FDA submittal
Obtain 13485 Certification
Submit technical file to European
Notified Body for review for
CE Mark
Submit 510(k) application to FDA
|
TBD
(1)
|
Q3 2019
Q4 2019
|
|
|
TOTAL
|
TBD
|
|
|
9
Notes:
(1)
|
A specific cost for individual milestone completion
cannot be estimated at this time.
|
(2)
|
Includes research and development costs estimated at
approximately US $6.9 million, and general and administrative costs
estimated at approximately US $1.2 million.
|
(3)
|
Includes research and development costs estimated at
approximately US $11.0 million, and general and administrative costs
estimated at approximately US $1.3 million.
|
(4)
|
Includes research and development costs estimated at
approximately US $11.3 million, and general and administrative costs
estimated at approximately US $1.2 million.
|
(5)
|
Includes research and development costs estimated at
approximately US $13.8 million, and general and administrative costs
estimated at approximately US $1.1 million.
|
(6)
|
Includes research and development costs estimated at
approximately US $11.2 million, and general and administrative costs
estimated at approximately US $1.1 million.
|
The development plan disclosed in the April Prospectus did not
include Milestone 5. The Company has included Milestone 5 in the Current
Development Plan based on information now available with respect to the system
design and related hardware and software documentation involved in the
confidence build.
Upon completion of the development of the SPORT Surgical System
and following receipt of all applicable regulatory approvals in the United
States and Europe, the Company intends to utilize a direct sales force and/or
distribution partner(s) to initiate marketing the SPORT Surgical System to
hospitals.
Due to the nature of technology research and development, there
is no assurance that these objectives will be achieved, and there can be no
assurance with respect to the time or resources that may be required. The
Company expects that additional specific milestones could be identified as the
development of its SPORT Surgical System progresses, or existing milestones,
budgets and the schedule for completion of each milestone may change depending
on a number of factors including the results of the Current Development Plan,
the availability of financing and the ability of development firms engaged by
the Company to complete work assigned to them. The costs to complete the
development of the Companys SPORT Surgical System as referenced above are only
estimates based on current information available to the Company and cannot yet
be determined with a high degree of certainty, and the costs may be
substantially higher than estimated. Please see
Special Note Regarding
Forward-Looking Statements
and
Risk Factors
.
Market Opportunity
The Companys robotic surgical system is being designed to
address the growing multi-billion-dollar, global robotically-assisted surgical
devices market.
The size of the market for medical robotic systems is estimated
to grow to $17.9 billion by 2022, according to Grand View Research Inc.s 2015
report titled Medical Robotic Systems Market Analysis by Product (Surgical,
Orthopedic, Laparoscopy, Neurological, Rehabilitation, Assistive, Prosthetics,
Orthotics, Steerable, Therapeutic, Exoskeleton, Non-Invasive, Hospital/Pharmacy,
Telemedicine, I.V, Pharmacy, Emergency Response Robotic Systems) and Segment
Forecasts to 2022 (the Grand View Report). However, the Grand View Report
covers
medical robotic systems
which is a broad range of robotic
systems used in healthcare (including non-invasive radiosurgery, prosthetics,
exoskeletons, hospital/pharmacy, etc.), as opposed to surgical robots, which can
also be referred to as
robotically-assisted surgical devices
. The Grand
View Report uses a baseline of $7.47 billion for a broad range of
medical
robotic systems
for the year 2014 and then applies a compound annual growth
rate (CAGR) of 12.8% for growth to project revenue through 2022. According to
the Grand View Report, the Surgical Robot (
robotically-assisted surgical
devices)
market segment comprises about 62% of the total revenue projection.
In 2022 by that calculation, the projection for the surgical robotics market
would be $11.1 billion (62% of 17.9 billion).
Another source also arrives at a multi-billion-dollar market in
robotically-assisted surgical devices
by different methodology. The size
of the global market for
robotically-assisted surgical devices
is
projected by Life Science Intelligence Inc.s Meddevicetracker to be $5.3
billion by 2021, based on an October 2017 report titled Global Robotically-Assisted Surgical Devices Market, number MDT 17015
(the Meddevicetracker Report). The Meddevicetracker Report focuses only on
robotically-assisted surgical devices
and uses actual 2016 data of $3.04
billion in global revenue as the baseline. The Meddevicetracker Report then
applies a CAGR of 11.7% to project global revenue for the next five years.
Management considers this data to be more relevant to its target market than
that estimated by the Grand View Report, as it focuses on the
robotically-assisted surgical devices
market segment that the Company
expects to enter.
10
Both of the above-referenced market research reports are
subjective and speak as of their original publication dates, (and not as of the
date of this short form prospectus), and the opinions and market data expressed
in those reports are subject to change without notice. Management believes that
these sources are generally reliable, but the accuracy and completeness of this
information is not guaranteed. The information presented in the reports noted
above and any underlying assumptions for the markets estimate and the
projections contained therein have not been independently verified.
According to a press release issued by robotic surgery industry
leader Intuitive Surgical on January 10, 2018, approximately 877,000 surgical
procedures were performed with the da Vinci Surgical System in 2017, an increase
of approximately 16% compared with approximately 753,000 procedures performed in
2016, with further procedure growth of 11% to 15% projected for 2018. Intuitive
Surgical reported that it shipped 684
da Vinci
Surgical Systems in 2017,
compared with 537 systems in 2016.
Robotic Surgery
Surgery has traditionally been performed through large, open
incisions. Over the past 25 years, minimally invasive techniques and devices
have been employed to minimize the size of incisions, reduce trauma to patients,
and in turn, reduce associated pain, accelerate healing, shorten recovery times
and produce smaller scars. Some of these benefits, such as shorter recovery
times and reduced pain leading to shorter hospital stays, are directly
associated with lower costs of care. However, MIS requires special tools to
operate through small ports in the body, and advanced training for surgeons to
manipulate those tools while viewing a two-dimensional image of the patients
internal anatomy on a monitor. As a result, consistent outcomes improvements are
demonstrated by the most skilled and experienced surgeons, and less reliably by
those less experienced. For these reasons, the acceptance of MIS has not broadly
increased in more complex surgeries.
The shortcomings of both open surgery and MIS have led to the
introduction of robotics within the surgical environment. Robotic or
computer-assisted surgical technologies represent the next generation in the
evolution of advanced surgical care. The objectives of robotic systems are to
provide surgeons with tools to allow complex procedures to be performed
repeatedly with greater precision and dexterity, while offering improved vision
and control. The use of robotics is intended to empower surgeons to employ
improved techniques for MIS, and assist in reducing the risks associated with
complex MIS surgeries.
Market Acceptance
To date, robotic surgical technologies have been employed in
urology, gynecology, colon and rectal surgery, cardiothoracic surgery, general
surgery, head and neck surgery, orthopedic surgery, neurosurgery, and
catheter-based interventional cardiology and radiology.
The success of robotic technologies in these applications has
led to the growing adoption and commercialization of these technologies in the
medical industry. Although robotic surgical procedures have been gaining
substantial acceptance, the industry is still in its infancy. The available
technology is evolving along with advancements in imaging and computer-machine
controls to overcome technical challenges. Current objectives include overcoming
the limitations of multi-port access, limited dexterity and visualization.
Competitive Conditions
The entrenched industry leader within the robotic surgical
market is Intuitive Surgical, Inc., manufacturer of several models of the da
Vinci® Surgical System. Having entered the market in 2000, Intuitive Surgicals
product line now includes multiple generations of da Vinci multi-port robotic
systems, as well as a new single-port da Vinci SP® model cleared by the FDA for urologic applications,
with customer shipments projected to begin in the third quarter of 2018.
Specifically related to abdominal surgery, a new competitor in multi-port
robotic surgery recently emerged, with TransEnterix Inc. receiving FDA clearance
for its Senhance Surgical Robotic System in October of 2017. In addition,
Medrobotics Corporation recently received FDA clearance for abdominal
indications for its Flex® Robotic System with manual endoscopic instruments,
which had previously been cleared for natural orifice (ENT) surgery. Further,
there are a number of companies reported to be developing robotically-assisted
surgical systems, including Medtronic, Inc., Verb Surgical Inc. (a collaboration
between Alphabet Inc.s Verily division (formerly, Google Life Sciences) and
Ethicon, a division of Johnson & Johnson), CMR Surgical Ltd. from the United
Kingdom (Versius® surgical robotic system) and South Koreas Meere Company Inc.
(Eterne robotic system).
11
Any company with substantial experience in robotics or complex
medical devices could potentially expand into the field of surgical robotics and
become a future competitor.
Regulation
United States Regulatory Process
In the United States, the Companys surgical system will be
subject to regulation by the FDA. Management expects that under the FDA
guidelines, the surgical system will be classified as a Class II medical device.
Class II devices are those which are subject to the general controls and require
premarket demonstration of adherence to certain performance standards or other
special controls, as specified by the FDA, and clearance by the FDA. Premarket
review and clearance by the FDA for these devices is accomplished through the
510(k) premarket notification process. For most Class II devices, the
manufacturer must submit to the FDA a premarket notification submission,
demonstrating that the device is substantially equivalent in intended use and
technology to a predicate device that is either:
(1)
|
a device that has grandfather marketing status because it
was legally marketed prior to May 28, 1976, the date upon which the
Medical Device Amendments of 1976 were enacted, or
|
|
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(2)
|
a Class I or II device that has been cleared through the
510(k) process.
|
The FDA may require further information, including clinical
data, to make a determination regarding substantial equivalence. If the FDA
determines that the device, or its intended use, is not substantially
equivalent (as such term is defined by the FDA), the FDA may place the device,
or the particular use of the device, into Class III, and the device sponsor must
then fulfill much more rigorous pre-marketing requirements.
After a device receives 510(k) clearance, any modification that
could significantly affect its safety or effectiveness, or that would constitute
a major change in its intended use, would require a new 510(k) clearance or
could require a pre-market approval application. The FDA requires each
manufacturer to make this determination in the first instance, but the FDA can
review any such decision. If the FDA disagrees with a manufacturers decision
not to seek a new 510(k) clearance, the agency may retroactively require the
manufacturer to seek 510(k) clearance or pre-market approval. The FDA may also
require the manufacturer to cease marketing and/or recall the modified device
until 510(k) clearance or pre-market approval is obtained.
European Union and Canada Regulatory
Process
Medical devices in the European Union (EU) are regulated
under EU Council Directive 93/42/EEC as amended by 2007/47/EC, also referred to
as Medical Device Directive or MDD, and must bear the CE Mark prior to being
placed on the market. In order to affix the CE Mark on products, a recognized
European Notified Body must certify a manufacturers quality management system
for compliance with international and European requirements. Any modifications
of existing products or development of new products in the future will require
permission to affix the CE Mark to such products.
In order to commercialize products in Canada, regulatory
approval from Health Canada (Therapeutic Products Directorate, Medical Devices
Bureau) is required. Medical device licence applications must contain a valid
ISO 13485:2003 certificate issued by a Health Canada recognized
registrar under the Canadian Medical Devices Conformity Assessment System
(CMDCAS). Evaluation of product safety and effectiveness is completed by Health
Canada.
12
Specialized Skill and Knowledge
The research and development of the Companys surgical system
requires specialized skill and knowledge. The Company believes the required
skill and knowledge to carry out the current stage of research and development
is available to the Company, through its current officers, employees and
external medical technology development firms. The Company will continue to
assess its requirements and recruit and engage required qualified personnel and
development firms as needed, subject to budget limitations. If the final
research and development stage is successfully completed and the clinical-grade
SPORT Surgical System is developed, it is believed that the materials and parts
necessary for the manufacture of the product will be available in the
marketplace. However, there is no assurance in this regard as the research and
development program may, in the future, reveal requirements for new materials
and parts that have not been identified to date.
Intellectual Property Protection
The Company continuously evaluates its technologies under
development for intellectual property protection. In accordance with industry
practice, the Companys proprietary rights are currently protected through a
combination of copyright, trade-mark, patents, trade secret laws and contractual
provisions.
Patent applications are filed in various jurisdictions
internationally, which are selectively chosen having regard to the likely value
and enforceability of intellectual property rights in those jurisdictions, and
to strategically reflect the Companys anticipated principal markets. Patents
provide the Company with a potential right to exclude others from incorporating
the Companys technical innovations into their own products and processes. Where
appropriate, the Company may license third party technologies to provide the
Company with the flexibility to adopt preferred technologies.
As of August 3, 2018, the Company has ownership of 24 patents
and 59 patent applications. The Company anticipates expanding its intellectual
property portfolio by filing additional patent applications as it progresses in
the development of robotic surgical technologies, acquiring and/or by licensing
suitable technologies.
The scope of protection obtained, if any, from the Companys
current or future patent applications may not be known for several years.
Moreover, there is no assurance that any patents will be issued with respect to
any such patent applications, and if patents are issued, they may not provide
the Company with the expected competitive advantages, or they may not be issued
in a manner that gives the Company the protection that it seeks, or they may be
successfully challenged by third parties.
The Company also seeks to avoid disclosure of its intellectual
property and proprietary information by requiring employees and consultants to
execute non-disclosure and assignment of intellectual property agreements. Such
agreements also require the Companys employees and consultants to assign to the
Company all intellectual property developed in the course of their employment or
engagement. The Company also utilizes non-disclosure agreements to govern
interaction with business partners and prospective business partners and other
relationships where disclosure of proprietary information may be necessary, and
the Company takes measures to carefully protect its intellectual property rights
in its supplier agreements with external development firms.
While the Company believes that its technology being developed
or utilized does not infringe upon the proprietary rights of third parties, its
commercial success depends, in part, upon the Company not infringing
intellectual property rights of others. A number of medical device and robotic
surgery companies and other third parties have been issued patents or may have
filed patent applications or may obtain additional patents and proprietary
rights for technologies similar to those being developed or utilized by the
Company. Accordingly, there may exist third party patents, patent applications
or other proprietary rights that require the Company to alter its technology,
obtain licenses or cease certain activities. The Company may become subject to
claims by third parties that its technology infringes their intellectual
property rights due to the growth of products in its target markets, the overlap
in functionality of those products and the prevalence of products. The Company
may become subject to these claims either directly or through indemnities against
these claims that it may provide to end users, manufacturers representatives,
distributors, value added resellers, system integrators and original equipment
manufacturers.
13
Although the Company has registrations and pending applications
for certain trade-marks, it may be unable to obtain or maintain trade-mark
registrations for the marks and names it uses in one or more countries. It is
also possible that the use of SPORT, SPORT Surgical System, Titan, Titan
Medical or variations thereof may infringe or contravene the rights, including
trade-mark rights, of other parties in one or more countries. In the event of
actual or alleged infringement or contravention of rights, the Company may be
forced to cease using these marks and names.
Operations
The Company develops its core technologies through a
combination of in-house personnel and selected external engineering and medical
technology development and manufacturing firms. Certain components of the
Company`s robotic surgical system are being developed to the Companys
specifications by various third party suppliers, medical technology development
and manufacturing firms through purchase orders and it does not have long-term
contracts with any third parties.
The Company maintains its head office at subleased premises in
Toronto, Ontario.
Employees
As of August 3, 2018, the Company had a total of nine full-time
employees and one full-time consultant.
RECENT DEVELOPMENTS
Going Concern
As at March 31, 2018, management believed that the Company had
sufficient funds to meet its obligations for the ensuing 12 months. In assessing
whether the going concern assumption is appropriate, management takes into
account all available information about the future, which is at least, but not
limited to 12 months from the end of the reporting period. Based on the
Companys present cash position, the Company expects that approximately US $14.9
million
in incremental funding will be required for the 12 months ending
March 31, 2019, to maintain the currently anticipated pace of development.
Additional disclosure related to the going concern assumption would have been
required if the Company continued on this planned pace of development in the
absence of additional funding. However, based on internal forecasts, management
believes that the Company has sufficient funds to meet its obligations under a
reduced development plan, if necessary, for the ensuing 12 months.
Evolution of Costs and Timelines
The results achieved by surgeons in operating prototypes in
animal and cadaver studies during 2017 validated the potential for single
incision surgeries to be performed with the SPORT Surgical System. However, the
studies also confirmed that improvements to the system would be necessary before
proceeding toward regulatory clearance and commercialization. The planning for
engineering activities has already commenced, but the execution of those
activities will increase the cost of product development and extend the timeline
to commercialization. Furthermore, pursuant to communications with the FDA, the
Company has determined that human clinical data will be required in submissions
to the FDA. Whereas the Company previously anticipated submitting its 510(k)
application to the FDA in the fourth quarter of 2018, it currently plans to do
so late in the second half of 2019. These changes necessitated updates to the
Companys development plan. The Company anticipates that 2018 will be a year of
intense product development in preparation for manufacturing, including hardware
and software at all levels, involving the workstation, patient cart, camera and
light source, instruments, and disposable components that facilitate successful
surgery. This work must be completed before design freeze and proceeding with
summative evaluation usability tests with the final product and validation
studies required for regulatory filings. Based on the scope of product
development ahead, the Company expects these tests and studies to take place in
2019, with the system in its final configuration and with training programs in
place for new surgeon users.
14
The amounts and timing of the Companys actual expenditures
will depend upon numerous factors, including the status of its development and
commercialization efforts and the amount of capital raised through equity
financings and warrant and option exercises.
The April Prospectus set out the anticipated use of certain
proceeds raised pursuant to the Companys short form prospectus dated November
30, 2017 (the
November Offering
) in the first and second quarter of
2018. The Company confirms that the actual use of such proceeds was in
accordance with the anticipated use set out in the April Prospectus.
The rapidly evolving competitive market in surgical robotics
requires a higher-performance product than originally envisioned by the Company
at its inception. This has required the re-assessment of user requirements in
consideration of competitors and in turn, driven further design changes.
Specifically, the market leader, Intuitive Surgical, has since made available
for commercial use its da Vinci SP Surgical System, a single port robotic
surgical system. In addition, competitor Medrobotics has announced the expansion
of applications for its Flex Robotic System beyond ENT surgery, and into
abdominal surgery. Resulting design changes to the Companys product include
instrument control mechanisms and software, as well as the visualization system,
including 3D camera and optics, and light source.
The Company has experienced technical challenges associated
with design engineering of a product that would be less likely to infringe on
the patented technology of others, in a field in which patent infringement
claims and litigation prosecution have been prolific. There are now over 1,000
issued patents associated with surgical robots. Resulting design changes involve
hardware, electrical control systems, and software. Further, an exhaustive
review of the entire existing field of patents, as well as ongoing review of all
newly issued intellectual property is critical to the viability of the Company,
as infringement of the intellectual property of others could require the Company
to incur licensing or royalty expenses, or worse yet, force the Company to
redesign, or scrap altogether, its robotic surgical system. The Company
continues to study the evolving competitive surgical products patent landscape,
in order to ensure that its product would not likely infringe the intellectual
property of others. Proactively, the Company also seeks to establish a pathway
for meaningful patentability of the companys technology. Protection of the
Companys novel technology is critical for preserving the value of its products,
and can significantly reduce the ability of competitors to copy its ideas. The
Company has accelerated its prosecution of patents that it believes will
validate the novelty of the Companys unique technology, and in turn, will
support the value of the entire franchise, on behalf of its stockholders. Early
evidence of success with this initiative has been the rapid growth of the
Companys patent portfolio from 12 issued patents at December 31, 2016 to 24
issued patents as of August 3, 2018, with recent issuances including Canadian
Patent No. 2,913,943 titled Articulated Tool Positioner and System Employing
Same and U.S. Patent No. 9,925,014 titled Actuator and Drive For Manipulating
a Tool.
Early Results of First Preclinical Studies
The Company has selected three Centers of Excellence (strategic
facilities) for preclinical studies in the U.S. and Europe, which are:
|
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Florida Hospital Nicholson Center in
Celebration, Florida;
|
|
|
|
|
|
Columbia University Medical Center in New York,
New York; and
|
|
|
|
|
|
Institut Hospitalo-Universitaire de Strasbourg
(IHU Strasbourg) in Strasbourg, France.
|
Ahead of its published milestone, on September 25, 2017, the
Company announced the completion of the worlds first gynecologic, colorectal
and urologic single port robotic procedures using its advanced prototype SPORT
Surgical System at the Florida Hospital Nicholson Center in Celebration,
Florida. Since that time, the Company has announced that surgeons had completed
critical surgical tasks integral to gynecologic procedures using the Companys
advanced prototype SPORT Surgical System at Columbia University Medical Centers
surgical simulation center in New York, New York, and then, the use of its SPORT
Surgical System at the Institute of Image-Guided Surgery at IHU Strasbourg.
15
To date, 12 experienced robotic surgeons from three continents
have performed 43 live animal studies and two human cadaver studies. The studies
performed include a broad array of procedures commonly performed by urologic,
gynecologic, colorectal, bariatric, and general surgeons. The surgeons who
performed these studies have begun to prepare and submit related abstracts for
peer review and presentation at clinical education meetings, including:
|
|
Multi-disciplinary applications of a new robotic
platform by Barbara Seeliger, MD and Lee Swanstrom, MD (IHU Strasbourg),
accepted and presented as a poster at the Society of American
Gastrointestinal and Endoscopic Surgeons Meeting, Seattle, WA, April 2018;
|
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|
|
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|
Single-port prostatectomy using SPORT Surgical
System by Eric Barret, MD (IMM, France), accepted and presented as a
poster at the EAU Section of Urology Technology Meeting, Modena, Italy,
May 2018;
|
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Multispecialty single port robotic technology applied in
the live animal model: proof of concept by Travis Rogers, MD, Eduardo
Parra Davila, MD, Vipul Patel, MD (all from Florida Hospital), Ricardo
Estape, MD (South Miami GOG) and Armando Melani, MD (IRCAD Brazil),
accepted and presented as a poster at the Society of Robotic Surgery
Meeting, Stockholm, Sweden, June 2018; and
|
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Feasibility of single-port partial nephrectomy using
SPORT surgical system by Eric Barret, MD (IMM, France), accepted and
presented as a poster at the Society of Robotic Surgery Meeting,
Stockholm, Sweden, June 2018.
|
Regulatory
In preparation for the Companys planned regulatory filings,
management has initiated communications with the FDA, as well as a reputable
European Notified Body. The FDA has indicated that in addition to preclinical
human factors, bench, animal, and human cadaver studies, it expects that
confirmatory human clinical performance testing will be necessary for
demonstrating substantial equivalence. However, the FDA also indicated that
preclinical evaluations using acute and chronic
in vivo
models and
cadaver testing may be used to help establish substantial equivalence and reduce
the extent of confirmatory clinical testing necessary.
Share Consolidation
On June 19, 2018, the Company consolidated its issued and
outstanding Common Shares on the basis of one post-consolidation Common Share
for 30 pre-consolidation Common Shares (the Share Consolidation). The Share
Consolidation was undertaken in connection with the Companys application for a
supplemental listing (the NASDAQ Listing) of the Companys securities on the
NASDAQ.
NASDAQ Listing
On June 27, 2018, the Common Shares began trading on NASDAQ.
Appointment of Director
On June 28, 2018, Domenic Serafino was appointed as a director
of the Company. Mr. Serafino is the Chief Executive Officer of Venus Concept
Ltd.
PRICE RANGE AND TRADING VOLUME OF LISTED SECURITIES
The Common Shares are listed for trading in Canada on the TSX
under the symbol TMD. The Common Shares are also traded on the NASDAQ in the
United States under the symbol TMDI. In addition, the Company has four classes
of warrants which were, over the last 12 months, listed on the TSX under the
symbols TMD.WT.F, TMD.WT.G, TMD.WT.H and TMD.WT.I.
The Share Consolidation was effective June 19, 2018. Details
regarding price and volume before this date are on a pre-Share Consolidation
basis and details regarding price and volume after this date are on a post-Share
Consolidation basis.
16
Summary of Monthly Trading Common Shares
The following table shows the high and low trading prices and
the aggregate volume of Common Shares traded on the TSX for each of the last 12
months (as reported by the TSX).
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
2017
|
August
|
0.15
|
0.125
|
7,259,834
|
September
|
0.36
|
0.14
|
56,349,079
|
October
|
0.63
|
0.27
|
48,535,559
|
November
|
0.68
|
0.395
|
40,486,628
|
December
|
0.42
|
0.34
|
13,106,330
|
2018
|
January
|
0.485
|
0.36
|
12,448,520
|
February
|
0.445
|
0.26
|
9,372,417
|
March
|
0.415
|
0.23
|
30,994,621
|
April
|
0.285
|
0.225
|
7,009,860
|
May
|
0.27
|
0.225
|
3,172,320
|
June
|
9.60
|
0.23
|
7,437,840
|
July
|
7.79
|
3.67
|
797,520
|
August 1-3
|
3.98
|
3.50
|
274,230
|
Summary of Monthly Trading November 2020 Warrants
On November 16, 2015, the Company issued 7,012,195 warrants
expiring November 16, 2020, each exercisable for one Common Share at an exercise
price of CDN $1.60 (the November 2020 Warrants). The November 2020 Warrants
are listed for trading on the TSX under the symbol TMD.WT.F. The following
table shows the high and low trading prices and the volume of the November 2020
Warrants traded on the TSX for each of the last 12 months (as reported by the
TSX).
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
2017
|
August
|
0.01
|
0.005
|
4,500
|
September
|
0.02
|
0.005
|
11,000
|
October
|
-
|
-
|
-
|
November
|
0.03
|
0.01
|
13,400
|
December
|
0.065
|
0.02
|
304,870
|
2018
|
January
|
0.13
|
0.04
|
490,413
|
February
|
0.13
|
0.055
|
479,000
|
March
|
0.10
|
0.03
|
331,333
|
17
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
April
|
0.07
|
0.02
|
54,300
|
May
|
0.05
|
0.02
|
15,000
|
June
|
0.05
|
0.015
|
179,350
|
July
|
0.025
|
0.015
|
255,350
|
August 1-3
|
0.025
|
0.025
|
5,000
|
Summary of Monthly Trading February 2021 Warrants
Titan issued 11,670,818 warrants on February 12, 2016 and
1,746,789 warrants on February 23, 2016, each exercisable for one Common Share
at an exercise price of CDN $1.00 until February 12, 2021 and February 23, 2021,
respectively, (the February 2021 Warrants). The February 2021 Warrants are
listed for trading on the TSX under the symbol TMD.WT.G. The following table
shows the high and low trading prices and the volume of the February 2021
Warrants traded on the TSX for each of the last 12 months (as reported by the
TSX).
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
2017
|
August
|
-
|
-
|
-
|
September
|
0.065
|
0.01
|
1,099,257
|
October
|
0.095
|
0.045
|
283,383
|
November
|
0.095
|
0.04
|
67,250
|
December
|
0.115
|
0.04
|
105,800
|
2018
|
January
|
0.18
|
0.04
|
211,400
|
February
|
0.165
|
0.07
|
393,400
|
March
|
0.165
|
0.07
|
212,222
|
April
|
0.08
|
0.04
|
173,650
|
May
|
0.05
|
0.045
|
102,500
|
June
|
0.06
|
0.04
|
85,000
|
July
|
0.055
|
0.02
|
242,800
|
August 1-3
|
0.045
|
0.045
|
4,750
|
Summary of Monthly Trading March 2021 Warrants
Titan issued 15,054,940 warrants on March 31, 2016 and
2,258,241 warrants on April 14, 2016, each exercisable for one Common Share at
an exercise price of CDN $1.20 per warrant until March 31, 2021 and April 14,
2016, respectively (the March 2021 Warrants). The March 2021 Warrants are
listed for trading on the TSX under the symbol TMD.WT.H. The following table
shows the high and low trading prices and the volume of the March 2021 Warrants
traded on the TSX for each of the last 12 months (as reported by the TSX).
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
2017
|
August
|
-
|
-
|
-
|
September
|
0.04
|
0.01
|
262,500
|
October
|
0.05
|
0.015
|
349,307
|
18
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
November
|
0.06
|
0.00
|
114,645
|
December
|
0.095
|
0.05
|
466,109
|
2018
|
January
|
0.12
|
0.03
|
297,500
|
February
|
0.16
|
0.06
|
831,700
|
March
|
0.11
|
0.05
|
173,000
|
April
|
0.07
|
0.035
|
42,000
|
May
|
0.07
|
0.025
|
45,000
|
June
|
0.065
|
0.025
|
67,860
|
July
|
0.04
|
0.015
|
172,140
|
August 1-3
|
0.035
|
0.035
|
5,000
|
Summary of Monthly Trading September 2021 Warrants
Titan issued 17,083,333 warrants on September 20, 2016 and
2,030,000 warrants on October 27, 2016, each exercisable for one Common Share at
an exercise price of CDN $0.75 per warrant until September 20, 2021 and October
27, 2021 respectively (the September 2021 Warrants). The September 2021
Warrants are listed for trading on the TSX under the symbol TMD.WT.I. The
following table shows the high and low trading prices and the volume of the
September 2021 Warrants traded on the TSX for each of the last 12 months (as
reported by the TSX).
Month
|
High (CDN $)
|
Low (CDN $)
|
Volume
|
2017
|
July
|
0.025
|
0.02
|
24,500
|
August
|
0.02
|
0.015
|
40,000
|
September
|
0.065
|
0.015
|
397,480
|
October
|
0.14
|
0.03
|
752,500
|
November
|
0.155
|
0.055
|
565,700
|
December
|
0.12
|
0.10
|
50,000
|
2018
|
January
|
0.48
|
0.11
|
404,200
|
February
|
0.175
|
0.07
|
113,400
|
March
|
0.195
|
0.10
|
239,900
|
April
|
0.10
|
0.10
|
500
|
May
|
0.10
|
0.075
|
13,400
|
June
|
0.105
|
0.07
|
142,100
|
July
|
0.11
|
0.06
|
64,800
|
August 1-3
|
0.04
|
0.03
|
3,000
|
PRIOR SALES
The following tables summarize the Common Shares or securities
convertible into, or exercisable to acquire, Common Shares that have been issued
by the Company during the 12 months prior to the date of this short form
prospectus.
The Share Consolidation was effective June 19, 2018. Details
regarding price and number of securities granted and issued before this date are on a pre-Share Consolidation
basis.
19
Common Shares issued:
|
Price Per Common Share
|
|
Date
|
(CDN $)
|
Number of Common Shares
Issued
|
August 24, 2017
|
$0.14
|
16,892,000
(1)
|
October 20, 2017
|
$0.25
|
11,500,100
(2)
|
October 25, 2017
|
$0.30
|
75,000
(3)
|
October 31, 2017
|
$0.25
|
1,885,800
(2)
|
September 26, 2017 November
29, 2017
|
$0.20
|
45,619,332
(4)
|
October 16, 2017 November 6, 2017
|
$0.15
|
778,190
(5)
|
October 16, 2017 November
17, 2017
|
$0.15
|
3,182,087
(6)
|
May 3, 2017 November 16, 2017
|
$0.40
|
6,658,892
(7)
|
November 16, 2017
|
$0.50
|
76,000
(8)
|
November 17, 2017
|
$0.48
|
75,000
(3)
|
December 5, 2017
|
$0.36
|
46,000,000
(9)
|
December 8, 2017
|
$0.38
|
75,000
(3)
|
January 3, 2018
|
$0.20
|
125,000
(4)
|
January 8, 2018
|
$0.20
|
5,000
(4)
|
January 8, 2018
|
$0.42
|
75,000
(3)
|
January 10, 2018
|
$0.20
|
15,000
(4)
|
January 18, 2018
|
$0.20
|
5,000
(4)
|
February 5, 2018
|
$0.42
|
75,000
(3)
|
February 9, 2018
|
$0.20
|
5,000
(4)
|
February 26, 2018
|
$0.20
|
10,000
(4)
|
March 2, 2018
|
$0.20
|
10,000
(4)
|
March 7, 2018
|
$0.20
|
10,000
(4)
|
March 7, 2018
|
$0.27
|
75,000
(3)
|
March 29, 2018
|
$0.20
|
10,000
(4)
|
April 10, 2018
|
$0.13
|
33,799,961
(10)
|
May 10, 2018
|
$0.13
|
5,066,666
(10)
|
Notes:
(1)
|
Issued pursuant to conversion of Longtai Medical Inc.s
US$ 2.0 million distributorship deposit (the Distributorship
Deposit).
|
(2)
|
Issued pursuant to first and second closing of a private
placement.
|
(3)
|
Issued pursuant to a consulting agreement.
|
(4)
|
Issued pursuant to the exercise of warrants originally
issued June 29, 2017.
|
(5)
|
Issued pursuant to the exercise of broker warrants
originally issued July 21, 2017.
|
(6)
|
Issued pursuant to the exercise of broker warrants
originally issued June 29, 2017.
|
(7)
|
Issued pursuant to the exercise of warrants originally
issued March 16, 2017.
|
(8)
|
Issued pursuant to the exercise of warrants originally
issued March 16, 2017.
|
(9)
|
Issued pursuant to a short form prospectus of the Company
dated November 30, 2017.
|
(10)
|
Issued pursuant to a short form prospectus of the Company
dated April 3, 2018.
|
Warrants issued:
Date
|
Exercise Price (CDN $)
|
Number of Warrants Issued
|
August 24, 2017
|
$0.20
|
16,892,000
(1)
|
December 5, 2017
|
$0.60
|
46,000,000
(2)
|
April 10, 2018
|
$0.35
|
33,799,961
(3)
|
May 10, 2018
|
$0.35
|
5,066,666
(3)
|
Notes:
(1)
|
Issued pursuant to conversion of the Distributorship
Deposit.
|
(2)
|
Issued pursuant to a short form prospectus of the Company
dated November 30, 2017.
|
(3)
|
Issued pursuant to a short form prospectus of the Company
dated April 3, 2018.
|
20
Stock options issued:
|
|
|
Number of Stock Options
|
|
Date
|
Exercise Price (CDN $)
|
Granted
|
|
September 7, 2017
|
$0.15
|
568,059
|
|
September 15, 2017
|
$0.16
|
91,206
|
|
October 7, 2017
|
$0.32
|
33,150
|
|
November 8, 2017
|
$0.48
|
568,493
|
|
December 4, 2017
|
$0.40
|
58,429
|
|
December 4, 2017
|
$0.39
|
200,000
|
|
January 19, 2018
|
$0.50
|
8,218,451
|
DESCRIPTION OF OFFERED SECURITIES
The Offering consists of a minimum of 6,400,000 Units and a
maximum of 8,000,000 Units, each Unit consisting of one Offered Share and one
Warrant, each Warrant entitling the holder thereof to purchase one Warrant Share
at an exercise price of US $3.20 per Warrant Share, subject to adjustment, at
any time until 5:00 p.m. (Toronto time) on the date that is 60 months after the first
Closing Date. The Units will immediately separate into Offered Shares and
Warrants upon issuance.
Offered Shares
The authorized capital of the Company consists of an unlimited
number of Common Shares.
The holders of Common Shares are entitled to receive notice of
and to attend all annual and special meetings of the Companys shareholders and
to one vote in respect of each Common Share held at the record date for each
such meeting. The holders of Common Shares are entitled, at the discretion of
the Board of Directors, to receive out of any or all of the Companys profits or
surplus properly available for the payment of dividends, any dividend declared
by the Board of Directors and payable by the Company on the Common Shares. The
holders of the Common Shares will participate
pro rata
in any
distribution of the assets of the Company upon liquidation, dissolution or
winding-up or other distribution of the assets of the Company. Such
participation will be subject to the rights, privileges, restrictions and
conditions attached to any of the Companys securities issued and outstanding at
such time ranking in priority to the Common Shares upon the liquidation,
dissolution or winding-up of the Company. Common Shares are issued only as fully
paid and are non-assessable. Common Shares will only be issued through the
book-based system administered by CDS in Canada and by DTC in the United States,
except in limited circumstances. See
Description of Offered Securities -
Book-Based System
.
As at August 3, 2018, the Company had 13,996,275 Common Shares issued
and outstanding. As at August 3, 2018 after giving effect to the Minimum
Offering, the Company would have 20,396,275 Common Shares issued and
outstanding. As at August 3, 2018 after giving effect to the Maximum Offering,
the Company would have 21,996,275 Common Shares issued and outstanding.
Warrants
The Warrants will be governed by the terms of a warrant
indenture (the Warrant Indenture) to be entered into between the Company and
Computershare Trust Company of Canada, as warrant agent thereunder (the Warrant
Agent). The Company will appoint the principal transfer offices of the Warrant
Agent in Toronto, Ontario as the location at which Warrants may be surrendered
for exercise or transfer. The following summary of certain provisions of the
Warrant Indenture contains all of the material attributes and characteristics of
the Warrants but does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Warrant Indenture.
Each Warrant will entitle the holder to purchase one Warrant
Share at an exercise price of US $3.20 per Warrant Share, subject to adjustment,
at any time until 5:00 p.m. (Toronto time) on the Warrant Expiry Time.
The exercise price for the Warrants will be payable in U.S.
dollars.
21
The Warrant Indenture will provide for adjustment in the number
of Warrant Shares issuable upon the exercise of the Warrants and/or the exercise
price per Warrant Share upon the occurrence of certain events, including:
(i)
|
the issuance of Common Shares or securities exchangeable
for or convertible into Common Shares to holders of all or substantially
all of the Companys Common Shares by way of stock dividend or other
distribution (other than a dividend paid in the ordinary course, as
defined in the Warrant Indenture, or a distribution of Common Shares upon
the exercise of the Warrants or pursuant to the exercise of director,
officer or employee stock options granted under the Companys stock option
plan);
|
|
|
(ii)
|
the subdivision, redivision or change of the Common
Shares into a greater number of shares;
|
|
|
(iii)
|
the reduction, combination or consolidation of the Common
Shares into a lesser number of shares;
|
|
|
(iv)
|
the fixing of a record date for the issue of rights,
options or warrants to all or substantially all of the holders of the
Common Shares under which such holders are entitled, during a period
expiring not more than 45 days after the record date for such issuance, to
subscribe for or purchase Common Shares, or securities exchangeable for or
convertible into Common Shares, at a price per share to the holder (or
having an exchange or conversion price per share) of less than 95% of the
current market price, as defined in the Warrant Indenture, for the
Common Shares on such record date; and
|
|
|
(v)
|
the issuance or distribution to all or substantially all
of the holders of the securities of the Company including shares, rights,
options or warrants to acquire shares of any class or securities
exchangeable or convertible into any such shares or cash, property or
assets and including evidences of indebtedness, or any cash, property or
other assets.
|
The Warrant Indenture will also provide for adjustment in the
class and/or number of securities issuable upon the exercise of the Warrants
and/or exercise price per security in the event of the following additional
events: (i) reclassifications of the Common Shares; (ii) consolidations,
amalgamations, plans of arrangement or mergers of the Company with or into
another entity (other than consolidations, amalgamations, plans of arrangement
or mergers which do not result in any reclassification of the Common Shares or a
change or exchange of the Common Shares into other shares); or (iii) the
transfer of the undertaking or assets of the Company as an entirety or
substantially as an entirety to another Company or other entity.
In addition, the Warrant Indenture will provide for ratchet
anti-dilution protection upon the issuance of Common Shares, securities
convertible into Common Shares or certain other issuances at a price below the
then-existing exercise price of the Warrants, with certain exceptions and
subject to a floor of US $2.92, being the five-day volume weighted average price
of Common Shares on the TSX on August 3, 2018.
No adjustment in the exercise price or the number of Warrant
Shares purchasable upon the exercise of the Warrants will be required to be made
unless the cumulative effect of such adjustment or adjustments would change the
exercise price by at least 1% or the number of Warrant Shares purchasable upon
exercise by at least one one-hundredth of a Warrant Share. Further, no
adjustment will be made for Common Shares issued: (i) upon exercise of the
Warrants; (ii) pursuant to any dividend reinvestment or similar plan adopted by
the Company; (iii) pursuant to stock option or purchase plans, as payment of
interest on outstanding notes, in connection with strategic license agreements
or other partnering arrangements; or (iv) in connection with a strategic merger,
consolidation or purchase of substantially all of the securities or assets of a
corporation or other entity.
The Company will also covenant in the Warrant Indenture that,
during the period in which the Warrants are exercisable, it will give notice to
holders of Warrants of certain stated events, including events that would result
in an adjustment to the exercise price for the Warrants or the number of Warrant
Shares issuable upon exercise of the Warrants, at least 10 days prior to the
record date or effective date, as the case may be, of such event.
If, at any time while the Warrants are outstanding, the Company
undergoes a Fundamental Transaction (as defined in the Warrant Indenture) then
the holder is entitled to receive, upon exercise of the Warrant, the same amount
andkind of securities, cash or property as it would have been entitled to
receive upon the occurrence of such kind of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Common Shares then issuable upon exercise of the
Warrant, and any additional consideration payable as part of the Fundamental
Transaction. Any successor to the Company or surviving entity is obligated to
assume the obligations under the Warrant Indenture.
Holders of the Warrants are entitled to a cashless exercise option if, at any
time of exercise, there is no effective registration statement registering, or
no current prospectus available for, the issuance or resale of the Warrant Shares. The cashless exercise option entitles the holders of
the Warrants to elect to receive fewer Warrant Shares without paying the cash
exercise price. The number of Warrant Shares to be issued would be determined by a
formula based on the total number of Warrant Shares with respect to which the Warrant is
being exercised, the market price per Common Share at the time of exercise and
the applicable exercise price of the Warrants issued in the Offering.
The Company will provide certain compensation to a holder if it fails to deliver
the Warrant Shares by the first trading day after the
date on which delivery of the share certificate is required by the Warrant
Indenture. Compensation may be available in certain circumstances if after the
first trading day on which delivery of the Warrant Shares is required by the
Warrant Indenture, the holder purchases (in an open market transaction or otherwise)
Common Shares to deliver in satisfaction of a sale by the holder of the Warrant
Shares that the holder anticipated receiving upon exercise of the Warrant.
If a Warrant holder is entitled to a fraction of a Warrant, the
number of Warrants issued to that Warrant holder shall be rounded down to the
nearest whole Warrant. No fractional Warrant Shares will be issuable upon the
exercise of any Warrants; instead cash will be paid in lieu of fractional
shares. Holders of Warrants will not have any voting rights or any other rights
which a holder of Common Shares would have.
From time to time, the Company (when properly authorized) and
the Warrant Agent, subject to the provisions of the Warrant Indenture, may amend
or supplement the Warrant Indenture for certain purposes. Certain amendments or
supplements to the Warrant Indenture may only be made by extraordinary
resolution, which is defined in the Warrant Indenture as a resolution either:
(i) passed at a meeting of the holders of Warrants at which there are holders of Warrants present in person or represented by proxy
representing at least 25% of the aggregate number of the then outstanding
Warrants and passed by the affirmative vote of holders of Warrants representing
not less than 66 % of the aggregate number of all the then outstanding Warrants
represented at the meeting and voted on such resolution; or (ii) adopted by an
instrument in writing signed by the holders of Warrants representing not less
than 66 % of the aggregate number of all of the then outstanding Warrants.
22
The Company has not applied and does not intend to apply to
list the Warrants on any securities exchange. There will be no market through
which the Warrants may be sold and purchasers may not be able to resell the
Warrants purchased in the Offering. This may affect the pricing of the Warrants
in the secondary market, the transparency and availability of trading prices,
the liquidity of the Warrants, and the extent of issuer regulation.
Book-Based System
Registration of interests in, and transfers of, the Offered
Shares and Warrants will be made only through the book-based system of CDS.
Offered Shares and Warrants must be purchased and transferred only through a CDS
participant. All rights of an owner of Offered Shares must be exercised through,
and all payments or other property to which such owner is entitled will be made
or delivered by, CDS or the CDS participant through which the owner holds such
Offered Shares or Warrants. Upon purchase of any Offered Shares or Warrants, the
owner will receive only the customary confirmation. References in this short
form prospectus to a holder of Offered Shares or Warrants means, unless the
context otherwise requires, the owner of the beneficial interest in such Offered
Shares or Warrants. Physical certificates evidencing Offered Shares and Warrants
will not be issued unless specifically requested or required.
The Company and the Agent will not have any liability for: (i)
records maintained by CDS relating to the beneficial interests in the Offered
Shares, Warrants or the book-based accounts maintained by CDS; (ii) maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests; or (iii) any advice or representation made or given by CDS and made
or given with respect to the rules and regulations of CDS or any action taken by
CDS or at the direction of the CDS participants.
The ability of a beneficial owner of Offered Shares or Warrants
to pledge such Offered Shares or Warrants or otherwise take action with respect
to such owners interest in such Offered Shares or Warrants (other than through
a CDS participant) may be limited due to the lack of a physical certificate to
the extent that such owner has not requested a physical certificate from the
Company. The Company has the option to terminate registration of the Offered
Shares and Warrants through the book-based system in which case certificates for
Offered Shares or Warrants in fully registered form may be issued to beneficial
owners of such Offered Shares or Warrants or to their nominees.
CAPITALIZATION
The following summarizes the changes in the Companys
capitalization as at March 31, 2018, the last day of the Companys most recently
completed fiscal period in respect of which financial statements have been
filed, as well as after giving effect to the April Offering, the Share
Consolidation, the Minimum Offering and the Maximum Offering. The following
table should be read in conjunction with the Interim Financial Statements and
the Interim MD&A incorporated by reference in this short form prospectus.
23
Description of
Capital
|
Outstanding as at
March 31, 2018
(US $)
|
Outstanding as at
March 31,
2018
after giving effect
to the April Offering
and the Share
Consolidation
(US $)
(1)
|
Outstanding as at
March 31, 2018
after giving effect
to the April Offering,
the Share Consolidation
and the Minimum Offering
(US $)
(1)
|
Outstanding as at
March 31, 2018
after giving effect
to the April Offering,
the Share Consolidation
and the Maximum Offering
(US $)
(1)
|
Share Capital
|
$154,883,118
(381,021,684
Common Shares)
|
$158,465,067
(13,996,275
Common
Shares)
|
$165,780,276
(3)
(20,396,275
Common Shares
(2)
)
|
$167,609,067
(3)
(21,996,275
Common Shares
(2)
)
|
Warrants
|
$13,663,582
(147,801,929 Warrants
(4)
)
|
$17,210,103
(6,222,285 Warrants
(4)
)
|
$24,294,903
(3)
(12,622,285 Warrants
(4)
)
|
$26,066,103
(3)
(14,222,285
Warrants
(4)
)
|
Contributed
Surplus
|
$5,513,841
|
$5,513,841
|
$5,513,841
|
$5,513,841
|
Common Shares
Underlying Stock
Options
|
25,917,130
Common Shares
|
863,904
Common Shares
|
863,904
Common Shares
|
863,904
Common Shares
|
Notes
:
(1)
|
Does not include the exercise of any options, warrants
and broker warrants since March 31, 2018. For details of the share
issuances in connection with such exercises, please see
Prior
Sales
in this short form prospectus.
|
(2)
|
Assuming no exercise of the Broker Warrants to be issued
in connection with the Offering. Upon the exercise of all of the Broker
Warrants issuable under the Minimum Offering into Broker Warrant Shares,
there would be issued and outstanding 20,844,275 Common Shares. Upon the
exercise of all of the Broker Warrants issuable under the Maximum Offering
into Broker Warrant Shares, there would be issued and outstanding
22,556,275 Common Shares.
|
(3)
|
Figures are based on the daily exchange rate as quoted by
the Bank of Canada on August 3, 2018 of US $1.00 = CDN $1.2983.
|
(4)
|
Excludes broker warrants issued by the Company. As at
August 3, 2018, the Company had issued and outstanding 292,200 broker
warrants and it will have 740,200 broker warrants issued and outstanding
in the event of the Minimum Offering and 852,200 broker warrants issued
and outstanding in the event of the Maximum Offering. This assumes no
current holder of a broker warrant exercises any or all of such
securities.
|
USE OF PROCEEDS
Proceeds and Funds Available
The Company intends to use the net proceeds from the Offering
to continue development of the SPORT Surgical System.
For the three months ended March 31, 2018, cash used in
operating activities by the Company was US $5.6 million, and the Company had a
net loss of US $0.8 million. For the three months ended March 31, 2017, cash
used in operating activities by the Company was US $4.2 million and the Company
had a net loss of US $5.0 million. During the six months ended June 30, 2018,
cash used in operating activities by the Company is estimated at US $12,524,075
and the Company estimates a net loss of US $6,694,114. At June 30, 2018, the
Company had an estimated US $26,404,682 in cash and cash deposits with suppliers
and estimated working capital of approximately US $22,759,891.
The Company estimates that the costs to complete Milestones 2
and 3 in the third and fourth quarters of 2018 will total approximately
US$24,900,000. All of these estimated capital requirements, being approximately
US$24,900,000, will be satisfied using the funds raised pursuant to the November
Offering and the April Offering. The Company has not yet used any of the funds
raised in the April Offering. The net proceeds of the Minimum Offering will be used to complete Milestone 4. If the Maximum
Offering is completed, the net proceeds will be used to complete Milestone 4 and
advance Milestone 5.
24
The Company will invest the net proceeds of the Offering in
short-term interest bearing investment grade securities until required for use.
Any additional proceeds received from the exercise of the Companys outstanding
warrants will be used for research and development and for general corporate and
working capital purposes.
The Company intends to use the net proceeds of the Offering as
follows:
|
|
Approximate Proceeds from the
|
Approximate Proceeds from the
|
|
Minimum Offering
|
Maximum Offering
|
|
|
|
Milestone 4
|
US $14.40 million
|
US $14.40 million
|
|
|
|
Milestone 5
|
-
|
US $1.80 million
|
|
|
|
Working capital
|
-
|
US $1.80 million
|
|
|
|
Total Net Proceeds
|
US $14.40 million
|
US $18.00 million
|
To the extent that the net proceeds from the Minimum Offering are not
sufficient to complete Milestone 4, the Company will draw upon available cash resources, including
supplier deposits, to fund any such shortfall.
Please see
Summary of Description of Business Development
Objectives
for a description of the development milestones of the Company
and the estimated costs associated therewith.
The Company intends to use the funds available to it as stated
in this short form prospectus; however, there may be circumstances where, for
sound business reasons, a reallocation of funds may be deemed prudent or
necessary.
Additional funding will be required, despite completion of the
Offering, for the development and commercialization of the SPORT Surgical
System, the estimated costs for which are discussed under
Summary of
Description of Business Development Objectives
of this short form
prospectus.
The Company anticipates that it will be able to continue to
operate for approximately five months from the date of this short form
prospectus based on its estimated cash on hand, deposits with subcontractors and
short-term securities and its projected expenditures. This five months estimate
assumes continued work on the SPORT Surgical System by the Companys contract
manufacturer engaged by the Company at the current pace.
If the full proceeds of the Minimum Offering are received by
the Company, it is expected that the Company would be able to continue to
operate for approximately 8 months from the date of this short form prospectus
and to complete Milestone 4 in the first quarter of 2019, as set forth in the
milestone table under
Summary of Description of Business Development
Objectives Current Development Plan
. If the full proceeds of the Maximum
Offering are received by the Company, it is expected that the Company would be
able to continue to operate for approximately 10 months from the date of this
short form prospectus and to complete Milestone 4 in the first quarter of 2019
and advance Milestone 5 in the second quarter of 2019, as set forth in the
milestone table under
Summary of Description of Business Development
Objectives Current Development Plan
.
The Company has not generated any revenue from product sales to
date and it is possible that it will never have sufficient product sales revenue
to achieve profitability and positive cash flow. Management expects that the
Company will continue to incur losses for at least the next several years as it
pursues further development of the SPORT Surgical System, preclinical studies
and preparation for regulatory submittal. To become profitable, the Company must
successfully develop, manufacture, market and sell the SPORT Surgical System, as
well as related consumable products and accessories. Based on the highly
competitive medical device market, it is possible that the Company will never
achieve significant product sales revenue. If funding is insufficient at any
time in the future, the Company may not be able to develop or commercialize its
products, take advantage of business opportunities or respond to competitive
pressures. It is expected that some of the proceeds from the Offering will be
used to fund anticipated negative cash flow from operating activities, as
described above and detailed below. See
Risk Factors
.
25
PLAN OF DISTRIBUTION
Pursuant to the Agency Agreement entered into between the
Company and the Agent, the Company has agreed to sell and the Agent has agreed
to arrange, on a best efforts basis, for purchasers of a minimum of 6,400,000
Units and a maximum of 8,000,000 Units at a price of US $2.50 per Unit payable in cash to the
Company against delivery of the Units. The Units will immediately separate into
Offered Shares and Warrants upon issuance. The Offering Price was determined by
negotiation between the Company and the Agent.
The completion of the Offering may occur in one or more
separate closings on one or more Closing Dates, as the Company and the Agent may
agree. Provided that the Minimum Offering is subscribed for, it is expected that
the first Closing Date will occur on or about August 10, 2018, or such other date
as the Company and the Agent may agree.
If subscriptions for the Minimum Offering have not been
received within 10 days following the date of issuance of a receipt for this
short form prospectus, the Offering will not continue and the subscription
proceeds will be returned to subscribers, without interest or deduction. In any
event, the total period of the distribution will not end more than 45 days from
the date of issuance of a receipt for this short form prospectus. Should a
closing occur in respect of the Minimum Offering, one or more additional
closings, if necessary, may occur until the earlier of the Maximum Offering
being subscribed and the expiry of the 45-day period.
There can be no assurance that any or all of the Units being
offered will be sold.
The Offering will be subject to subscriptions being received
for the Minimum Offering. All funds received by the Agent will be held in trust
until the Minimum Offering has been attained. All subscription funds received by
the Agent will be returned, without any deductions, to investors if the Minimum
Offering is not attained by the Closing Date.
Pending receipt of the Minimum Offering amount by the Agent,
all subscription proceeds from United States investors will be placed in an
escrow account established by the United States sub-agent for this purpose, in
accordance with U.S. SEC Rule 10b-9 and applicable FINRA rules, with Signature
Bank, New York, as escrow agent, to be released to the Agent (and then to the
Company) at the first Closing Date.
The Warrants will be created and issued pursuant to the terms
of the Warrant Indenture. Each Warrant will entitle the holder thereof to
purchase one Warrant Share at an exercise price of US $3.20 per Warrant Share,
subject to adjustment, at any time until 5:00 p.m. (Toronto time) on the date
that is 60 months after the first Closing Date, after which time the Warrants
will expire and be void and of no value. The Warrant Indenture will contain
provisions designed to protect the holders of Warrants against dilution upon the
happening of certain events. No fractional Common Shares will be issued upon the
exercise of any Warrants.
The obligations of the Agent under the Agency Agreement may be
terminated by the Agent at any time in its sole discretion on the basis of its
assessment of the state of the financial markets and on the occurrence of
certain stated events. While the Agent has agreed to use its best efforts to
sell the Units offered hereby, the Agent is not obligated to purchase Units that
are not sold.
Subscriptions for the Units 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. Pursuant to the Agency
Agreement, the Company will appoint the Agent to offer the Units to the public
pursuant to the securities legislation of each of the provinces of British
Columbia, Alberta and Ontario. The Agent will also offer for sale the Units in
the United States, by or through United States registered broker-dealers that
may be appointed by the Agent as sub-agents, pursuant to the MJDS implemented by
securities regulatory authorities in the United States and Canada. In addition,
the Agent is entitled to offer the Units outside of Canada and the United States
to non-U.S. persons provided that the Agent shall not take any action in
connection with the distribution of the Units that would result in the Company
being obligated to comply with the prospectus, registration, reporting or other
similar requirements of the securities laws of any jurisdiction.
In consideration of such services, the Company has agreed to
pay, on each Closing Date, the Agents Commission of 7% of the gross proceeds of the Offering (or US $0.175 per
Unit).
26
The Company has also agreed to grant, on each Closing Date, a
number of Broker Warrants to the Agent and its designees equal to 7% of the aggregate number of
Units issued pursuant to the Offering on such Closing Date. Each Broker Warrant,
whether issued on the first Closing Date or a subsequent Closing Date, shall be
exercisable for a period of 24 months following the first Closing Date for one
Broker Warrant Share at an exercise price equal to the Offering Price. This
short form prospectus qualifies the grant of the Broker Warrants.
Pursuant to FINRA Rule 5110(g), any Broker Warrants and any
Broker Warrant Shares received by United
States registered broker-dealers that are appointed by the Agent as sub-agents,
shall not be sold, transferred, assigned, pledged, or hypothecated, or be the
subject of any hedging, short sale, derivative, put or call transaction that
would result in the effective economic disposition of the securities by any
person for a period of 180 days immediately following the date of effectiveness
or commencement of sales of this offering, except the transfer of any security:
(i) by operation of law or by reason of our reorganization; (ii) to any FINRA
member firm participating in the offering and the officers or partners thereof,
if all securities so transferred remain subject to the lock-up restriction set
forth above for the remainder of the time period; (iii) if the aggregate amount
of our securities held by the underwriter or related persons do not exceed 1% of
the securities being offered; (iv) that is beneficially owned on a pro rata
basis by all equity owners of an investment fund, provided that no participating
member manages or otherwise directs investments by the fund and the
participating members in the aggregate do not own more than 10% of the equity in
the fund; or (v) the exercise or conversion of any security, if all securities
remain subject to the lock-up restriction set forth above for the remainder of
the time period.
The Company has agreed to reimburse the legal fees and expenses of any United
States registered broker-dealers that are appointed by the Agent as sub-agents
in an amount not to exceed $15,000 in the aggregate.
Certificates evidencing the Offered Shares and the Warrants
will not be issued unless a request for a certificate is made to the
Company.
The Company has applied and has received the conditional
approval of the TSX to list the Offered Shares, the Warrant Shares and the
Broker Warrant Shares distributed under this short form prospectus on the TSX.
The Company has notified NASDAQ of the listing of the Offered Shares, the
Warrant Shares and the Broker Warrant Shares distributed under this short form
prospectus on the NASDAQ. Listing will be subject to the Company fulfilling all
of the listing requirements of the TSX on or before
October 31, 2018.
The Company has not applied and does not intend to
apply to list the Warrants on any securities exchange. There will be no market
through which the Warrants may be sold and purchasers may not be able to resell
the Warrants purchased in the Offering. This may affect the pricing of the
Warrants in the secondary market, the transparency and availability of trading
prices, the liquidity of the Warrants and the extent of issuer regulation. See
Description of Offered Securities Warrants
.
The Company has agreed to indemnify the Agent and its
directors, officers, employees, shareholders and agents against any and all
fees, costs, expenses, losses, claims, actions, damages, fines, penalties, or
liabilities of any nature whatsoever, joint or several, that arise out of or are
based, directly or indirectly, upon the performance of the professional services
rendered to the Company by the Agent or its directors, officers, employees,
shareholders or agents pursuant to the Agency Agreement. This indemnity does not
apply to the extent such fees, costs, expenses, losses, claims, actions,
damages, fines, penalties, or liabilities as to which indemnification is claimed
arise solely out of gross negligence or wilful misconduct in the performance of
such professional services.
Pursuant to policy statements of certain Canadian provincial
securities commissions and similar authorities, the Agent may not, throughout
the period of distribution, bid for or purchase Common Shares. The foregoing
restriction is subject to certain exceptions, on the conditions that the bid or
purchase not be 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) a bid or purchase permitted under the Universal Market Integrity
Rules for Canadian Marketplaces administered by the Investment Industry
Regulatory Organization of Canada relating to market stabilization and passive
market making activities, (b) a bid or purchase made for and on behalf of a
customer where the order was not solicited during the period of the
distribution, provided that the bid or purchase was for the purpose of
maintaining a fair and orderly market and not engaged in for the purpose of
creating actual or apparent active trading in, or raising the price of, such
securities, or (c) a bid or purchase to cover a short position entered into
prior to the commencement of a prescribed restricted period. Consistent with
these requirements, and in connection with this distribution, the Agent may
over-allot or effect transactions that stabilize or maintain the market price of
the Common Shares at levels other than those which otherwise might prevail on
the open market. If these activities are commenced, they may be discontinued by
the Agent at any time. The Agent may carry out these transactions on the TSX, in
the over the-counter market or otherwise.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a corporation existing under and governed by the
Business Corporations Act
(Ontario). A number of the directors and
officers of the Company, and some of the experts named in this short form
prospectus, are residents of Canada or otherwise reside outside the United
States and a substantial portion of the Companys assets and the assets of such
persons are located outside the United States. The Company has appointed an
agent for service of process in the United States, but it may be difficult for
holders of Offered Shares and Warrants who reside in the United States to effect
service within the United States upon those directors, officers and experts who
are not residents of the United States. It may also be difficult for holders of
Offered Shares and Warrants who reside in the United States to realize in the
United States upon judgments of courts of the United States predicated upon the Companys civil liability and the civil liability of
the directors and officers of the Company and experts under U.S. federal
securities laws.
27
The Company has been advised by its Canadian counsel, Borden
Ladner Gervais LLP, that, subject to certain limitations, a judgment of a U.S.
court predicated solely upon civil liability under U.S. federal securities laws
may be enforceable in Canada if the U.S. court in which the judgment was
obtained has a basis for jurisdiction in the matter that would be recognized by
a Canadian court for the same purposes. The Company has also been advised by
Borden Ladner Gervais LLP, however, that there is substantial doubt whether an
action could be brought in Canada in the first instance on the basis of
liability predicated solely upon U.S. federal securities laws without further
substantial connection to Canada or its residents.
Concurrently with filing its registration statement on Form
F-10 of which this short form prospectus forms a part, the Company filed a Form
F-X, pursuant to which the Company appointed CT Corporation System as its agent
for service of process in the United States in connection with any investigation
or administrative proceeding conducted by the SEC, and any civil suit or action
brought against or involving the Company in a U.S. court arising out of or
related to or concerning the Offering.
RISK FACTORS
Investing in the Companys securities is speculative and
involves a high degree of risk.
You should carefully consider the risks set
out below and under the heading
Risk Factors
beginning on page 16 of
the AIF, and the other documents incorporated by reference in this short form
prospectus that summarize the risks that may materially affect the Companys
business before making an investment in the Companys securities. Please see
Documents Incorporated by Reference
. If any of these risks occur, the
Companys business, results of operations or financial condition could be
materially adversely affected. In that case, the trading price of the securities
could decline, and you may lose all or part of your investment. The risks set
out in the documents indicated above are not the only risks the Company faces.
You should also refer to the other information set forth in this short form
prospectus as well as those incorporated by reference herein and therein,
including financial statements and the related notes.
Risk Factors Related to the Company
History of Losses
The Company has a history of losses, and there is no assurance
that any of its contemplated products will generate sustainable earnings, be
profitable or provide a return on investment in the future. The Company has not
paid dividends in the past. Its directors will determine the future dividend
policy of the Company if the Company generates earnings in the future, based on
operational circumstances at that time. The Company had negative cash flow from
operating activities for its fiscal year ended December 31, 2017 and this
negative cash flow is expected to continue.
Profitability
There is no assurance that the Company will earn profits in the
future, or that profitability will be sustained. The medical device industry
requires significant financial resources, and there is no assurance that future
revenues will be sufficient to generate the funds required to continue the
Companys business development and marketing activities. If the Company does not
have sufficient capital to fund its operations, it may be required to reduce its
research and development efforts or in the future reduce its marketing efforts
or forego certain business opportunities.
Going Concern
The Company will require additional financing in order to
continue its research and development program through to completion and take
advantage of future opportunities. The ability of the Company to arrange such
financing in the future will depend in part upon prevailing capital market
conditions, as well as upon the business success of the Company. There can be no
assurance that the Company will be successful in its efforts to arrange
additional financing on terms satisfactory to the Company. If additional
financing is raised by the issuance of shares or convertible securities from
treasury, control of the Company may change and shareholders may suffer
additional dilution. If adequate funds are not available, or are not available
on acceptable terms, the Company may not be able to take advantage of
opportunities or otherwise respond to competitive pressures and the Company will
need to reduce its development plan in order to continue as a going concern.
28
Reliance on External Suppliers and Development
Firms
The Company is dependent on external suppliers and development
firms to conduct its technology research and development and manufacturing of
evaluation units of the SPORT Surgical System. If these external firms seek to
impose conditions on their obligations to conduct their work for the Company in
addition to or different from the terms set forth in their engagement agreements
and the Company is unable to satisfy those conditions or they do not otherwise
perform as contractually required or expected, the Company may not be able to
complete the development of the SPORT Surgical System, or may be delayed in
doing so, and the costs for developing the Companys products may significantly
increase beyond those forecasted. In the event that the external development
firms do not resume, or they do not otherwise carry on, the development work on
the SPORT Surgical System on conditions and in a manner that is agreeable to the
Company, it may engage other firms to take on the development work and in that
case, the estimated costs of the development milestones set forth in this short
form prospectus may increase and the schedule for completion of each milestone
may be delayed.
The Company relies heavily on external parties for successful
execution of the SPORT Surgical System development program, but do not control
many aspects of their activities. As a result, many important aspects (including
costs and timing) of product development are outside the Companys direct
control.
The Company is responsible for ensuring that the SPORT Surgical
System is being developed to meet the guidelines and requirements of the FDA and
other regulatory authorities, applicable laws and regulations and industry
standards. The Companys reliance on third parties does not relieve it of these
responsibilities.
Additionally, if the external firms conducting preclinical
studies do not perform their contractual duties or obligations, do not meet
expected deadlines, fail to comply with the good laboratory practice
regulations, do not adhere to specified study protocols or otherwise fail to
generate reliable clinical data, development, approval and commercialization of
the Companys products, may be extended, delayed or terminated or may need to be
repeated, costs may significantly increase and the Company may not be able to
obtain regulatory approval within the time frames forecasted, if at all.
Regulatory
In order to legally market and sell its products in the United
States and Europe, the Company must successfully achieve premarket clearance
from the FDA and the CE Mark from European authorities, respectively. In
preliminary correspondence, based on the limited data submitted to date
regarding the SPORT Surgical System, and depending on its intended indications
for use, and the selected predicate device, the FDA has indicated that in
addition to preclinical human factors, bench, animal, and human cadaver studies,
it expects that confirmatory human clinical performance testing will be
necessary for demonstrating substantial equivalence. However, the FDA also
indicated that preclinical evaluations using acute and chronic in vivo models
and cadaver testing may be used to help establish substantial equivalence and
reduce the extent of confirmatory clinical testing necessary. Given the
uncertainty of, among other things, product development timelines, regulatory
requirements, the timing and number of future animal studies, human cadaver and
clinical studies that may be required, and the availability of required capital
to fund development and operating costs, the actual costs and timing of
completion of development and commercialization of the SPORT Surgical System
including the obtaining of required regulatory approvals may exceed managements
current expectations.
Trade-marks
Although the Company has registrations and pending applications
for certain trade-marks, it may not own or license trade-mark registrations for
the marks and names that it is currently using in connection with products under
development, or for the Companys name, in any jurisdiction including the
proposed principal markets where the Company plans to market and sell the SPORT Surgical
System following regulatory clearance and commercialization of its surgical
system. The Company may be unable to obtain or maintain trade-mark registrations
for the marks and names it uses in one or more countries. It is possible that
the use of SPORT, SPORT Surgical System, Titan, Titan Medical or
variations thereof may infringe or contravene the rights, including trade-mark
rights, of other parties in one or more countries. In the event of actual or
alleged infringement or contravention of rights, the Company may be forced to
cease using these marks and names. There may be a substantial risk of litigation
or other legal proceedings in one or more countries relating to the alleged
infringement or contravention of another partys trade-mark rights. These
proceedings may occur even if the Company ceases using these marks and names.
The Company may incur substantial costs to defend and/or enforce its rights, if
any, in these marks and names in such legal proceedings. The Company may not be
successful in such legal proceedings, and may be required or agree to cease
using these marks and names and pay other parties significant amounts of money.
The Company may incur substantial costs to change the names and marks used by
it, including the names and marks used in association with its products. In any
such events, the business and operations of the Company could be materially
adversely affected.
29
Share Consolidation
Potential for Adverse Effect on the Liquidity of the
Common Shares
As a result of the implementation of the Share Consolidation,
if the market price of the Common Shares declines, the percentage decline may be
greater than would have occurred in the absence of the Share Consolidation. The
market price of the Common Shares will, however, also be based on the Companys
performance and other factors, which are unrelated to the number of Common
Shares outstanding. Furthermore, the liquidity of Common Shares could be
adversely affected by the reduced number of consolidated Common Shares that are
currently outstanding.
There is no assurance the Company will continue to meet
the listing requirements of the TSX and the NASDAQ.
The Company must meet continuing listing requirements to
maintain the listing of the Common Shares on the TSX and the NASDAQ. The
inability to meet the continuing listing requirements could adversely affect the
Companys results of operations or financial condition.
The Company may lose its status as a foreign private
issuer.
In order to maintain its status as a foreign private issuer, a
majority of the Common Shares must be either directly or indirectly owned by
non-residents of the U.S. unless we also satisfy one of the additional
requirements necessary to preserve this status. The Company may in the future
lose its foreign private issuer status if a majority of its Common Shares are
held in the United States and if it fails to meet the additional requirements
necessary to avoid loss of its foreign private issuer status. The regulatory and
compliance costs under U.S. federal securities laws as a U.S. domestic issuer
may be significantly more than the costs incurred as a Canadian foreign private
issuer eligible to use the MJDS. If the Company is not a foreign private issuer,
it would not be eligible to use the MJDS or other foreign issuer forms and would
be required to file periodic and current reports and registration statements on
U.S. domestic issuer forms with the SEC, which are more detailed and extensive
than the forms available to a foreign private issuer. In addition, the Company
may lose the ability to rely upon exemptions from NYSE corporate governance
requirements that are available to foreign private issuers.
The Company is an emerging growth company and cannot be
certain if the reduced disclosure requirements applicable to emerging growth
companies will make it less attractive to investors.
The Company is an emerging growth company as defined in the
JOBS Act. The Company will continue to qualify as an emerging growth company
until the earliest to occur of: (a) the last day of the fiscal year during which
we had total annual gross revenues of US$1,070,000,000 or more; (b) the last day
of its fiscal year following the fifth anniversary of the date of the first sale
of our common equity securities pursuant to an effective registration statement
under the U.S. Securities Act, such as the Form F-10 registration statement that
is being filed concurrently with this short form prospectus; (c) the date on
which the Company, during the previous 3-year period, issued more than
US$1,000,000,000 in non-convertible debt; or (d) the date on which the Company
is deemed to be a large accelerated filer.
30
For so long as the Company continues to qualify as an emerging
growth company, it will be exempt from the requirement to include an auditor
attestation report relating to internal control over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act in its annual reports filed
under the U.S. Exchange Act, as amended, even if it does not qualify as a
smaller reporting company, as well as certain other exemptions from various
reporting requirements that are applicable to other public companies.
Risk Factors Related to the Offering and the Units
There can be no assurance that the Offering will be
completed
The completion of the Offering is subject to the completion of
definitive binding documentation and satisfaction of a number of conditions.
There can be no certainty that the Offering will be completed.
There will be no market for the Warrants
The Company has not applied and does not intend to apply to
list the Warrants on any securities exchange. There will be no market through
which the Warrants may be sold and purchasers may not be able to resell the
Warrants purchased in the Offering. This may affect the pricing of the Warrants
in the secondary market, the transparency and availability of trading prices,
the liquidity of the Warrants, and the extent of issuer regulation. The Offering
Price has been determined by negotiations between the Company and the Agent. The
allocation of the Offering Price between the Offered Shares and the Warrants
comprising the Units has been determined by the Company.
Enforcement of judgments against foreign persons may not
be possible
Canadian investors should be aware that each of the
Non-Resident Directors resides outside of Canada; as a result, it may not be
possible for purchasers of the Units to effect service of process within Canada
upon the NonResident Directors. All or a substantial portion of the assets of
each of the Non-Resident Directors are likely to be located outside of Canada
and, as a result, it may not be possible to satisfy a judgment against the
Non-Resident Directors in Canada or to enforce a judgment obtained in Canadian
courts against the Non-Resident Directors outside of Canada.
The Company is subject to risks related to additional
regulatory burden and controls over financial reporting
The Company is subject to the continuous and timely disclosure
requirements of Canadian securities laws and the rules, regulations and policies
of the TSX, the NASDAQ and the SEC. These rules, regulations and policies relate
to, among other things, corporate governance, corporate controls, internal
audit, disclosure controls and procedures and financial reporting and accounting
systems. The Company has made, and will continue to make, changes in these and
other areas, including the Companys internal controls over financial reporting.
However, there is no assurance that these and other measures that it may take
will be sufficient to allow the Company to satisfy its obligations as a public
company on a timely basis. In addition, compliance with reporting and other
requirements applicable to public companies create additional costs for the
Company and require the time and attention of management of the Company. The
Company cannot predict the amount of the additional costs that the Company may
incur, the timing of such costs or the impact that managements attention to
these matters will have on the Companys business. In addition, the Companys
inability to maintain effective internal controls over financial reporting could
increase the risk of an error in its financial statements. The Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting. The Companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting
objectives due to its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is
therefore subject to error, improper override or improper application of the
internal controls. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis, and although
it is possible to incorporate safeguards into the financial reporting process to
reduce this risk, they cannot be guaranteed to entirely eliminate it. If the Company fails to
maintain effective internal control over financial reporting, then there is an
increased risk of an error in the Companys financial statements that could
result in the Company being required to restate previously issued financial
statements at a later date.
31
The Company is also subject to corporate governance standards
that apply to us as a foreign issuer listed on the NASDAQ and registered with
the SEC in the United States. Although the Company substantially complies with
the NASDAQs corporate governance guidelines, it is exempt from certain NASDAQ
requirements because the Company is subject to Canadian corporate governance
requirements. The Company may from time to time seek other relief from corporate
governance and exchange requirements and securities laws from the NASDAQ and
other regulators.
The Company is likely a passive foreign investment
company, which may have adverse U.S. federal income tax consequences for U.S.
investors.
Potential investors in the Units who are U.S. taxpayers should
be aware that the Company believes it was classified as a passive foreign
investment company or PFIC during the tax year ended December 31, 2017,
and based on current business plans and financial expectations, the Company
expects that it may be a PFIC for the current tax year and future tax years. If
the Company is a PFIC for any year during a U.S. taxpayers holding period of
Common Shares, Warrants or Warrant Shares, then such U.S. taxpayer generally
will be required to treat any gain realized upon a disposition of the Common
Shares, Warrants or Warrant Shares or any so-called excess distribution
received on its Common Shares and Warrant Shares, as ordinary income, and to pay
an interest charge on a portion of such gain or distribution. In certain
circumstances, the sum of the tax and the interest charge may exceed the total
amount of proceeds realized on the disposition, or the amount of excess
distribution received, by the U.S. taxpayer. Subject to certain limitations,
these tax consequences may be mitigated if a U.S. taxpayer makes a timely and
effective QEF Election or a Mark-to-Market Election. Subject to certain
limitations, such elections may be made with respect to the Common Shares and
Warrant Shares. A U.S. taxpayer may not make a QEF Election or Mark-to-Market
Election with respect to the Warrants. A U.S. taxpayer who makes a timely and
effective QEF Election generally must report on a current basis its share of the
Companys net capital gain and ordinary earnings for any year in which the
Company is a PFIC, whether or not the Company distributes any amounts to its
shareholders. However, U.S. taxpayers should be aware that there can be no
assurance that the Company will satisfy the record keeping requirements that
apply to a qualified electing fund, or that the Company will supply U.S.
taxpayers with information that such U.S. taxpayers require to report under the
QEF Election rules, in the event that the Company is a PFIC and a U.S. taxpayer
wishes to make a QEF Election. Thus, U.S. taxpayers may not be able to make a
QEF Election with respect to their Common Shares. A U.S. taxpayer who makes the
Mark-to-Market Election generally must include as ordinary income each year the
excess of the fair market value of the Common Shares or Warrant Shares over the
taxpayers basis therein. This paragraph is qualified in its entirety by the
discussion below under the heading Certain United States Federal Income Tax
Considerations Passive Foreign Investment Company Rules. Each potential
investor who is a U.S. taxpayer should consult its own tax advisor regarding the
tax consequences of the PFIC rules and the acquisition, ownership, and
disposition of the Common Shares, Warrants and the Warrant Shares.
ELIGIBILITY FOR INVESTMENT
In the opinion of Borden Ladner Gervais LLP, counsel for the
Company, and Baker & McKenzie LLP, counsel to the Agent, based on the
provisions of the
Income Tax Act
(Canada) (the Tax Act) and the
regulations thereunder (the Regulations) in force as of the date hereof,
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the Offered Shares and Warrant Shares will, on the date
of issue, be qualified investments for trusts governed by registered
retirement savings plans (each a RRSP), registered education savings
plans (each a RESP), registered retirement income funds (each a RRIF),
registered disability savings plans (each a RDSP), deferred profit
sharing plans and tax-free savings accounts (each a TFSA), all within
the meaning of the Tax Act (collectively, Plans) provided that the
Offered Shares and Warrant Shares are listed on a designated stock
exchange as defined in the Tax Act (which includes the TSX); and
|
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the Warrants will, on the date of
issue, be qualified investments for Plans provided that either (i) the
Warrants are listed on a designated stock exchange as defined in the Tax
Act (which includes the TSX), or (ii) the Warrant Shares are listed on a
designated stock exchange as defined in the Tax Act (which
includes the TSX) and the Company is not, and deals at arms
length with each person who is, an annuitant, a beneficiary, an employer or a
subscriber under or a holder of such Plan.
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32
Notwithstanding the foregoing, if the Offered Shares, Warrant
Shares or Warrants held by a TFSA, RRSP, RRIF, RDSP or RESP are prohibited
investments for purposes of the Tax Act, the holder of the TFSA or RDSP, the
annuitant of the RRSP or RRIF or the subscriber of the RESP will be subject to a
penalty tax as set out in the Tax Act. The Offered Shares, Warrant Shares and
Warrants will be a prohibited investment if the holder of a TFSA or RDSP, the
annuitant of a RRSP or RRIF or the subscriber of the RESP, as the case may be:
(i) does not deal at arms length with the Company for purposes of the Tax Act;
or (ii) has a significant interest (within the meaning of the Tax Act) in the
Company. In addition, the Offered Shares, Warrant Shares and Warrants will not
be a prohibited investment if the Offered Shares, Warrant Shares and Warrants
are excluded property, as defined in the Tax Act, for a TFSA, RRSP, RRIF, RDSP
or RESP. Holders who intend to hold Offered Shares, Warrant Shares or Warrants
in a TFSA, RRSP, RRIF, RDSP or RESP should consult their own tax advisors in
this regard.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Borden Ladner Gervais LLP, counsel to the
Company, and Baker & McKenzie LLP, counsel to the Agent, the following is,
as of the date hereof, a summary of the principal Canadian federal income tax
considerations generally applicable under the Tax Act and Regulations thereunder
to the acquisition, holding and disposition of Offered Shares, Warrant Shares or
Warrants by a holder (Holder and collectively, the Holders) who acquires
Units pursuant to this short form prospectus. For the purposes of this summary,
the term Common Shares shall also include the Offered Shares and any Warrant
Shares acquired upon the exercise of the Warrants, unless the context otherwise
requires. This summary is applicable to a Holder who, for the purposes of the
Tax Act and at all relevant times, deals at arms length with, and is not
affiliated with the Company and holds Common Shares and Warrants as capital
property. Generally, the Common Shares or Warrants will be considered to be
capital property to a Holder provided that the Holder does not hold such Common
Shares or Warrants in the course of carrying on a business of trading or dealing
in securities and has not acquired them in one or more transactions considered
to be an adventure or concern in the nature of trade.
This summary is not applicable to a Holder: (i) that is a
financial institution for purposes of the mark-to-market rules in the Tax
Act; (ii) that is a specified financial institution within the meaning of the
Tax Act; (iii) that reports its Canadian tax results within the meaning of the
Tax Act in a currency other than Canadian currency; (iv) an interest in which
is, a tax shelter investment within the meaning of the Tax Act; (v) that has
entered or will enter into a derivative forward agreement or synthetic
disposition agreement, each within the meaning of the Tax Act, in respect of
Common Shares and/or Warrants; or (vi) that receives dividends on Common Shares
under or as part of a dividend rental arrangement within the meaning of the
Tax Act.
This summary is based upon the current provisions of the Tax
Act and the Regulations thereunder in force as of the date hereof, all specific
proposals to amend the Tax Act and Regulations thereunder (the Tax Proposals)
which have been announced by or on behalf of the Minister of Finance (Canada)
prior to the date hereof, and counsels understanding of the current
administrative policies and assessing practices of the Canada Revenue Agency
(the CRA) which have been made publicly available prior to the date hereof.
This summary assumes that the Tax Proposals will be enacted in the form proposed
and does not take into account or anticipate any other changes in law or in the
administrative policies or assessing practices of the CRA, whether by way of
judicial, legislative or governmental decision or action, nor does it take into
account provincial, territorial or foreign income tax legislation or
considerations, which may differ from the Canadian federal income tax
considerations discussed herein. No assurances can be given that the Tax
Proposals will be enacted as proposed or at all, or that legislative, judicial
or administrative changes will not modify or change the statements expressed
herein.
This summary is not exhaustive of all possible Canadian
federal income tax considerations applicable to an investment in Common Shares
or Warrants. Accordingly, 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
investor. Investors should consult their own tax advisors for advice with
respect to the tax consequences of an investment in Common Shares and Warrants,
based on their particular circumstances.
33
Currency Conversion
For purposes of the Tax Act, all amounts relating to the
acquisition, holding or disposition of Common Shares and Warrants (including
dividends, adjusted cost base and proceeds of disposition) must generally be
expressed in Canadian Dollars. Amounts denominated in any other currency must be
converted into Canadian Dollars generally based on the exchange rate quoted by
the Bank of Canada on the date such amounts arise or such other rate of exchange
as is acceptable to the Minister of National Revenue (Canada).
Acquisition of Common Shares and Warrants
A reasonable allocation of the Offering Price between the
Offered Share and the Warrant that comprise each Unit will be required to
determine the cost of each to the Holder for purposes of the Tax Act. The
Company has advised its counsel that, of the US $2.50 Offering Price, the Company intends to allocate US $1.27 to the Offered Share and US $1.23 to the Warrant.
Although the Company believes that such allocation is reasonable, it is not
binding on the CRA or any Holder and the CRA may not agree with such allocation.
Counsel expresses no opinion with respect to such allocation.
When Common Shares (including an Offered Share) or Warrants are
acquired by a Holder who already owns Common Shares or Warrants, the cost of
newly acquired Common Shares or Warrants will be averaged with the adjusted cost
base of all Common Shares or Warrants, respectively, owned by the Holder as
capital property before that time for the purpose of determining the Holders
adjusted cost base of all Common Shares and Warrants, as the case may be, held
by such person.
Exercise of Warrants
The exercise of a Warrant to acquire a Warrant Share will be
deemed not to constitute a disposition of property for purposes of the Tax Act
and consequently no gain or loss will be realized by a Holder upon such an
exercise. When a Warrant is exercised, the Holders cost of the Warrant Share
acquired thereby will be equal to the aggregate of the Holders adjusted cost
base of such Warrant and the exercise price paid for the Warrant Share. The
Holders adjusted cost base of the Warrant Share so acquired will be determined
by averaging such cost with the adjusted cost base to the Holder of all other
Common Shares owned by the Holder and held as capital property immediately prior
to such acquisition.
Holders Resident in Canada
The following section of this summary is generally applicable
to a Holder who, for purposes of the Tax Act and any applicable tax treaty or
convention, is or is deemed to be resident of Canada at all relevant times (a
Resident Holder). Certain Resident Holders who might not otherwise be
considered to hold Common Shares as capital property may, in certain
circumstances, be entitled to have such Common Shares (but, for avoidance of
doubt, not Warrants) and all other Canadian securities as defined in the Tax
Act owned by them in the year in which the election is made and all subsequent
taxation years treated as capital property by making an irrevocable election
under subsection 39(4) of the Tax Act.
Resident Holders contemplating such an
election should consult their own advisors.
Expiry of Warrants
In the event of the expiry of an unexercised Warrant, the
Resident Holder will realize a capital loss equal to the Resident Holders
adjusted cost base of such Warrant. The tax treatment of capital gains and
losses is discussed in greater detail below under the subheading
Capital
Gains and Losses
.
Dividends
Dividends received or deemed to be received on the Common
Shares will be included in computing the Resident Holders income. In the case
of a Resident Holder that is an individual (other than certain trusts) such
dividends will be subject to the gross-up and dividend tax credit rules
applicable in respect of taxable dividends received from taxable Canadian
corporations (as defined in the Tax Act). An enhanced dividend tax credit will
generally be available to a Resident Holder that is an individual in respect of
dividends designated by the Company as eligible dividends. There may be
limitations on the ability of the Company to designate dividends as eligible
dividends. Resident Holders who are individuals (other than
certain trusts) may be subject to alternative minimum tax in respect of taxable
dividends.
34
In the case of a Resident Holder that is a corporation, the
amount of any such taxable dividends that is included in its income for a
taxation year received or deemed to be received on the Common Shares will
generally be deductible in computing its taxable income for that taxation year.
In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable
dividend received by a Resident Holder that is a corporation as proceeds of
disposition or a capital gain. Resident Holders that are corporations should
consult their own tax advisors having regard to their own circumstances.
Resident Holders that are private corporations (as defined in
the Tax Act) or subject corporations (as defined in the Tax Act) may be
subject to a refundable tax under Part IV of the Tax Act on dividends received
(or deemed to be received) on the Common Shares to the extent such dividends are
deductible in computing the Resident Holders taxable income for the year. This
refundable tax generally will be refunded to a Resident Holder that is a
corporation when sufficient taxable dividends are paid to its shareholders while
it is a private corporation or subject corporation.
Disposition of Common Shares and Warrants
A disposition or deemed disposition by a Resident Holder of
Common Shares (other than on a purchase for cancellation by the Company) or
Warrants (which, as discussed above, does not include an exercise of Warrants to
acquire such Warrant Shares) will generally give rise to a capital gain (or
capital loss) equal to the amount by which the proceeds of disposition, net of
reasonable costs of disposition, are greater (or less) than such Resident
Holders adjusted cost base of such Common Shares or Warrants, as the case may
be, immediately before the disposition or deemed disposition.
The tax treatment of capital gains and losses is discussed in
greater detail below under the subheading
Capital Gains and Losses
.
Capital Gains and Losses
Generally, one-half of any capital gain will be included in the
Resident Holders income as a taxable capital gain and one-half of any capital
loss must normally be deducted as an allowable capital loss against taxable
capital gains realized in the taxation year of disposition or deemed disposition
to the extent and under the circumstances described in the Tax Act. Any unused
allowable capital losses may be applied to reduce net taxable capital gains
realized in the three preceding taxation years or any subsequent taxation year
to the extent and in the circumstances prescribed in the Tax Act.
If the Resident Holder is a corporation, any capital loss
arising on the disposition or deemed disposition of a Common Share may, in
certain circumstances be reduced by the amount of any dividends previously
received or deemed to have been previously received on the Common Share. Similar
rules may apply to reduce any capital loss in respect of the disposition or
deemed disposition of Common Shares held by a trust or partnership of which a
corporation, partnership or trust is a member or beneficiary. Resident Holders
to whom these rules may be relevant should consult their own tax advisors.
A Resident Holder that is a Canadian-controlled private
corporation (as defined in the Tax Act) may be required to pay an additional
refundable tax on certain investment income, including taxable capital gains.
Resident Holders who are individuals (other than certain trusts) may be subject
to alternative minimum tax in respect of capital gains.
Resident Holders should consult and rely on their own tax
advisors with respect to the application of these additional taxes based on
their own particular circumstances.
Holders Not Resident in Canada
The following section of this summary is generally applicable
to Holders who for the purposes of the Tax Act and any applicable tax treaty or convention and at all relevant
times (i) have not been and will not be deemed to be resident in Canada at any
time while they hold the Common Shares or Warrants; and (ii) do not use or hold
the Common Shares or Warrants in carrying on a business in Canada (Non-Resident
Holders).
35
Special rules, which are not discussed in this summary, may
apply to a Non-Resident Holder that is an insurer carrying on business in Canada
and elsewhere. Such Non-Resident Holders should consult their own tax advisors.
Dividends
Dividends paid or credited or deemed to be paid or credited to
a Non-Resident Holder by the Company will be subject to Canadian withholding tax
at the rate of 25% on the gross amount of the dividend unless such rate is
reduced by the terms of an applicable tax treaty. Under the
Canada-United
States Tax Convention (1980)
, as amended (the
Treaty
), the rate of
withholding tax on dividends paid or credited to a Non-Resident Holder who is
resident in the U.S. for purposes of the Treaty and fully entitled to benefits
under the Treaty (a U.S. Holder) is generally limited to 15% of the gross
amount of the dividend (or 5% in the case of a U.S. Holder that is a company
beneficially owning at least 10% of the Companys voting shares).
Dispositions of Common Shares and Warrants
A Non-Resident Holder generally will not be subject to tax
under the Tax Act in respect of a capital gain realized on the disposition or
deemed disposition of a Common Share or a Warrant, nor will capital losses
arising therefrom be recognized under the Tax Act, unless the Common Share or
Warrant constitutes taxable Canadian property to the Non-Resident Holder for
purposes of the Tax Act, and the gain is not exempt from tax pursuant to the
terms of an applicable tax treaty.
Provided the Common Shares are listed on a designated stock
exchange, as defined in the Tax Act (which includes the TSX and NASDAQ), at the
time of disposition, the Common Shares and Warrants generally will not
constitute taxable Canadian property of a Non-Resident Holder at that time,
unless at any time during the 60 month period immediately preceding the
disposition the following two conditions are met concurrently: (i) the
Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at
arms length, partnerships in which the Non-Resident Holder or such non-arms
length person holds a membership interest (either directly or indirectly through
one or more partnerships), or the Non-Resident Holder together with all such
persons, owned 25% or more of the issued shares of any class or series of shares
of the Company; and (ii) more than 50% of the fair market value of the Common
Shares of the Company was derived directly or indirectly from one or any
combination of real or immovable property situated in Canada, Canadian resource
properties (as defined in the Tax Act), timber resource properties (as
defined in the Tax Act) or an option, an interest or right in such property,
whether or not such property exists. Notwithstanding the foregoing, a Common
Share or Warrant may otherwise be deemed to be taxable Canadian property to a
Non-Resident Holder for purposes of the Tax Act in certain circumstances. A
Non-Resident Holders capital gain (or capital loss) in respect of a disposition
of Common Shares or Warrants that constitute or are deemed to constitute taxable
Canadian property to a NonResident Holder (and are not treaty-protected
property as defined in the Tax Act) will generally be computed in the manner
described above under the subheading Holders Resident in Canada Disposition
of Common Shares and Warrants. Non-Resident Holders whose Common Shares or
Warrants are taxable Canadian property should consult their own tax advisors
regarding the tax and compliance considerations that may be relevant to them.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. federal
income tax considerations applicable to a U.S. Holder (as defined below) arising
from and relating to the acquisition, ownership and disposition of Units
acquired pursuant to this short form prospectus
,
the acquisition,
ownership, and disposition of Common Shares acquired as part of the Units, the
exercise, disposition, and lapse of Warrants acquired as part of the Units, and
the acquisition, ownership, and disposition of Warrant Shares received upon
exercise of the Warrants.
This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a U.S. Holder as a result of the
acquisition of Units pursuant to this Offering. In addition, this summary does
not take into account the individual facts and circumstances of any particular U.S. Holder that may
affect the U.S. federal income tax consequences to such U.S. Holder, including
specific tax consequences to a U.S. Holder under an applicable tax treaty.
Accordingly, this summary is not intended to be, and should not be construed as,
legal or U.S. federal income tax advice with respect to any particular U.S.
Holder. This summary does not address the U.S. federal alternative minimum, U.S.
federal estate and gift, U.S. state and local, and non-U.S. tax consequences to
U.S. Holders of the acquisition, ownership, and disposition of Units, Common
Shares, Warrants and Warrant Shares. In addition, except as specifically set
forth below, this summary does not discuss applicable tax reporting
requirements. Each U.S. Holder should consult its own tax advisor regarding the
U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift,
U.S. state and local, and non-U.S. tax consequences relating to the acquisition,
ownership and disposition of Units, Common Shares, Warrants, and Warrant Shares.
36
No opinion from legal counsel or ruling from the Internal
Revenue Service (the IRS) has been requested, or will be obtained, regarding
the U.S. federal income tax considerations applicable to U.S. Holders as
discussed in this summary. This summary is not binding on the IRS, and the IRS
is not precluded from taking a position that is different from, and contrary to,
the positions taken in this summary. In addition, because the authorities on
which this summary is based are subject to various interpretations, the IRS and
the U.S. courts could disagree with one or more of the positions taken in this
summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as
amended (the Code), Treasury Regulations (whether final, temporary, or
proposed) promulgated under the Code, published rulings of the IRS, published
administrative positions of the IRS and U.S. court decisions, that are in effect
and available, as of the date of this document. Any of the authorities on which
this summary is based could be changed in a material and adverse manner at any
time, and any such change could be applied retroactively. This summary does not
discuss the potential effects, whether adverse or beneficial, of any proposed
legislation that, if enacted, could be applied on a retroactive or prospective
basis.
U.S. Holders
For purposes of this summary, the term U.S. Holder means a
beneficial owner of Units, Common Shares, Warrants or Warrant Shares acquired
pursuant to this U.S. Placement Memorandum that is for U.S. federal income tax
purposes:
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a citizen or individual resident of the United
States;
|
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a corporation (or other entity treated as a
corporation for U.S. federal income tax purposes) organized under the laws
of the United States, any state thereof or the District of Columbia;
|
|
an estate whose income is subject to U.S.
federal income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of
a court within the United States and the control of one or more U.S.
persons for all substantial decisions or (2) has a valid election in
effect under applicable Treasury Regulations to be treated as a U.S.
person.
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U.S. Holders Subject to Special U.S. Federal Income Tax
Rules Not Addressed
This summary does not address the U.S. federal income tax
considerations applicable to U.S. Holders that are subject to special provisions
under the Code, including U.S. Holders that: (a) are tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or other
tax-deferred accounts; (b) are financial institutions, underwriters, insurance
companies, real estate investment trusts, or regulated investment companies; (c)
are brokers or dealers in securities or currencies or U.S. Holders that are
traders in securities that elect to apply a mark-to-market accounting method;
(d) have a functional currency other than the U.S. dollar; (e) own Units,
Common Shares, Warrants or Warrant Shares as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other arrangement
involving more than one position; (f) acquired Units, Common Shares, Warrants or
Warrant Shares in connection with the exercise of employee stock options or
otherwise as compensation for services; (g) hold Units, Common Shares, Warrants
or Warrant Shares other than as a capital asset within the meaning of Section 1221 of the
Code (generally, property held for investment purposes); (h) are partnerships
and other pass-through entities (and investors in such partnerships and
entities); (i) are required to accelerate the recognition of any item of gross
income with respect to Common Shares, Warrants or Warrant Shares as a result of
such income being recognized on an applicable financial statement; or (j) own,
have owned or will own (directly, indirectly, or by attribution) 10% or more of
the total combined voting power or value of the Companys outstanding shares.
This summary also does not address the U.S. federal income tax considerations
applicable to U.S. Holders who are (a) U.S. expatriates or former long-term
residents of the U.S., or (b) subject to taxing jurisdictions other than, or in
addition to, the United States. U.S. Holders that are subject to special
provisions under the Code, including U.S. Holders described immediately above,
should consult their own tax advisors regarding the U.S. federal, U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and
non-U.S. tax consequences relating to the acquisition, ownership and disposition
of Units, Common Shares, Warrants or Warrant Shares.
37
If an entity or arrangement that is classified as a partnership
for U.S. federal income tax purposes holds Units, Common Shares, Warrants or
Warrant Shares, the U.S. federal income tax consequences to such entity or
arrangement and the owners of such entity or arrangement generally will depend
on the activities of such entity or arrangement and the status of such owners.
This summary does not address the tax consequences to any such entity or
arrangement or owner. Owners of entities or arrangements that are classified as
partnerships for U.S. federal income tax purposes should consult their own tax
advisor regarding the U.S. federal income tax consequences arising from and
relating to the acquisition, ownership, and disposition of Units, Common Shares,
Warrants and Warrant Shares.
U.S. Federal Income Tax Consequences of the Acquisition of
Units
For U.S. federal income tax purposes, the acquisition by a U.S.
Holder of a Unit will be treated as the acquisition of one Common Share and one
Warrant. The purchase price for each Unit will be allocated between these two
components in proportion to their relative fair market values at the time the
Unit is purchased by the U.S. Holder. This allocation of the purchase price for
each Unit will establish a U.S. Holders initial tax basis for U.S. federal
income tax purposes in the Common Share and Warrant that comprise each Unit.
For this purpose, the Company will allocate US $1.27 of the
purchase price for the Unit to the Common Share and US $1.23 of the purchase
price for each Unit to the Warrant. However, the IRS will not be bound by such
allocation of the purchase price for the Units, and therefore, the IRS or a U.S.
court may not respect the allocation set forth above. Each U.S. Holder should
consult its own tax advisor regarding the allocation of the purchase price for
the Units.
Passive Foreign Investment Company Rules
If the Company is considered a passive foreign investment
company within the meaning of Section 1297 of the Code (a
PFIC
) at any
time during a U.S. Holders holding period, the following sections will
generally describe the potentially adverse U.S. federal income tax consequences
to U.S. Holders of the acquisition, ownership, and disposition of Units, Common
Shares, Warrants or Warrant Shares.
The Company believes that it was classified as a PFIC for the
tax year ended December 31, 2017, and based on current business plans and
financial expectations, the Company expects that it may be a PFIC for the tax
year ended December 31, 2018 and may be a PFIC in future tax years. No opinion
of legal counsel or ruling from the IRS concerning the status of the Company as
a PFIC has been obtained or is currently planned to be requested. The
determination of whether any corporation was, or will be, a PFIC for a tax year
depends, in part, on the application of complex U.S. federal income tax rules,
which are subject to differing interpretations. In addition, whether any
corporation will be a PFIC for any tax year depends on the assets and income of
such corporation over the course of each such tax year and, as a result, the
Companys PFIC status for the current year and future years cannot be predicted
with certainty as of the date of this document. Accordingly, there can be no
assurance that the IRS will not challenge any PFIC determination made by the
Company (or by one of the Companys subsidiaries). Each U.S. Holder should
consult its own tax advisor regarding the Companys status as a PFIC and the
PFIC status of each non-U.S. subsidiary of the Company.
38
In any year in which the Company is classified as a PFIC, a
U.S. Holder will be required to file an annual report with the IRS containing
such information as Treasury Regulations and/or other IRS guidance may require.
In addition to penalties, a failure to satisfy such reporting requirements may
result in an extension of the time period during which the IRS can assess a tax.
U.S. Holders should consult their own tax advisors regarding the requirements of
filing such information returns under these rules, including the requirement to
file an IRS Form 8621.
The Company generally will be a PFIC for any tax year in which
(a) 75% or more of the gross income of the Company for such tax year is passive
income (the PFIC income test) or (b) 50% or more of the value of the assets of
the Company either produce passive income or are held for the production of
passive income, based on the quarterly average of the fair market value of such
assets (the PFIC asset test). Gross income generally includes sales revenues
less the cost of goods sold, plus income from investments and from incidental or
outside operations or sources, and passive income generally includes, for
example, dividends, interest, certain rents and royalties, certain gains from
the sale of stock and securities, and certain gains from commodities
transactions. Active business gains arising from the sale of commodities
generally are excluded from passive income if substantially all of a foreign
corporations commodities are stock in trade or inventory, depreciable property
used in a trade or business, or supplies regularly used or consumed in the
ordinary course of its trade or business, and certain other requirements are
satisfied.
For purposes of the PFIC income test and PFIC asset test
described above, if the Company owns, directly or indirectly, 25% or more of the
total value of the outstanding shares of another corporation, the Company will
be treated as if it (a) held a proportionate share of the assets of such other
corporation and (b) received directly a proportionate share of the income of
such other corporation. In addition, for purposes of the PFIC income test and
PFIC asset test described above, passive income does not include any interest,
dividends, rents, or royalties that are received or accrued by the Company from
a related person (as defined in Section 954(d)(3) of the Code), to the extent
such items are properly allocable to the income of such related person that is
not passive income.
Under certain attribution rules, if the Company is a PFIC, U.S.
Holders will be deemed to own their proportionate share of any of the Companys
subsidiaries which is also a PFIC (a Subsidiary PFIC), and will generally be
subject to U.S. federal income tax under the Default PFIC Rules Under Section
1291 of the Code discussed below on their proportionate share of any (i)
distribution on the shares of a Subsidiary PFIC and (ii) disposition or deemed
disposition of shares of a Subsidiary PFIC, both as if such U.S. Holders
directly held the shares of such Subsidiary PFIC. Accordingly, U.S. Holders
should be aware that they could be subject to tax under the PFIC rules even if
no distributions are received and no redemptions or other dispositions of Units,
Common Shares, Warrants or Warrant Shares are made. In addition, U.S. Holders
may be subject to U.S. federal income tax on any indirect gain realized on the
stock of a Subsidiary PFIC on the sale or disposition of Units, Common Shares,
Warrants or Warrant Shares.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax
consequences to a U.S. Holder of the purchase of Units and the acquisition,
ownership, and disposition of Common Shares, Warrants and Warrant Shares will
depend on whether such U.S. Holder makes a qualified electing fund or QEF
election (a QEF Election) or makes a mark-to-market election under Section
1296 of the Code (a Mark-to-Market Election) with respect to Common Shares or
Warrant Shares. A U.S. Holder that does not make either a QEF Election or a
Mark-to-Market Election (a Non-Electing U.S. Holder) will be taxable as
described below.
A Non-Electing U.S. Holder will be subject to the rules of
Section 1291 of the Code with respect to (a) any gain recognized on the sale or
other taxable disposition of Common Shares, Warrants and Warrant Shares and (b)
any excess distribution received on the Common Shares and Warrant Shares. A
distribution generally will be an excess distribution to the extent that such
distribution (together with all other distributions received in the current tax
year) exceeds 125% of the average distributions received during the three
preceding tax years (or during a U.S. Holders holding period for the Common
Shares and Warrant Shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale
or other taxable disposition of Common Shares, Warrants and Warrant Shares of a PFIC (including an indirect
disposition of shares of a Subsidiary PFIC), and any excess distribution
received on such Common Shares and Warrant Shares (or a distribution by a
Subsidiary PFIC to its shareholder that is deemed to be received by a U.S.
Holder) must be rateably allocated to each day in a Non-Electing U.S. Holders
holding period for the Common Shares or Warrant Shares. The amount of any such
gain or excess distribution allocated to the tax year of disposition or
distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain
preferential tax rates, as discussed below). The amounts allocated to any other
tax year would be subject to U.S. federal income tax at the highest tax rate
applicable to ordinary income in each such year, and an interest charge would be
imposed on the tax liability for each such year, calculated as if such tax
liability had been due in each such year. A Non-Electing U.S. Holder that is not
a corporation must treat any such interest paid as personal interest, which is
not deductible.
39
If the Company is a PFIC for any tax year during which a
Non-Electing U.S. Holder holds Common Shares, Warrant Shares or Warrants, it
will continue to be treated as a PFIC with respect to such Non-Electing U.S.
Holder, regardless of whether it ceases to be a PFIC in one or more subsequent
tax years. If the Company ceases to be a PFIC, a Non-Electing U.S. Holder may
terminate this deemed PFIC status with respect to Common Shares and Warrant
Shares by electing to recognize gain (which will be taxed under the rules of
Section 1291 of the Code as discussed above) as if such Common Shares and
Warrant Shares were sold on the last day of the last tax year for which the
Company was a PFIC. No such election, however, may be made with respect to the
Warrants.
Under proposed Treasury Regulations, if a U.S. holder has an
option, warrant, or other right to acquire stock of a PFIC (such as the
Warrants), such option, warrant or right is considered to be PFIC stock subject
to the default rules of Section 1291 of the Code. Under rules described below,
the holding period for the Warrant Shares will begin on the date a U.S. Holder
acquires the Units. This will impact the availability of the QEF Election and
Mark-to-Market Election with respect to the Warrant Shares. Thus, a U.S. Holder
will have to account for Warrant Shares and Common Shares under the PFIC rules
and the applicable elections differently.
QEF Election
A U.S. Holder that makes a QEF Election for the first tax year
in which its holding period of its Common Shares begins generally will not be
subject to the rules of Section 1291 of the Code discussed above with respect to
its Common Shares. However, a U.S. Holder that makes a QEF Election will be
subject to U.S. federal income tax on such U.S. Holders pro rata share of (a)
the Companys net capital gain, which will be taxed as long-term capital gain to
such U.S. Holder, and (b) the Companys ordinary earnings, which will be taxed
as ordinary income to such U.S. Holder. Generally, net capital gain is the
excess of (a) net long-term capital gain over (b) net short-term capital loss,
and ordinary earnings are the excess of (a) earnings and profits over (b)
net capital gain. A U.S. Holder that makes a QEF Election will be subject to
U.S. federal income tax on such amounts for each tax year in which the Company
is a PFIC, regardless of whether such amounts are actually distributed to such
U.S. Holder by the Company. However, for any tax year in which the Company is a
PFIC and has no net income or gain, U.S. Holders that have made a QEF Election
would not have any income inclusions as a result of the QEF Election. If a U.S.
Holder that made a QEF Election has an income inclusion, such a U.S. Holder may,
subject to certain limitations, elect to defer payment of current U.S. federal
income tax on such amounts, subject to an interest charge. If such U.S. Holder
is not a corporation, any such interest paid will be treated as personal
interest, which is not deductible.
A U.S. Holder that makes a timely QEF Election generally (a)
may receive a tax-free distribution from the Company to the extent that such
distribution represents earnings and profits that were previously included in
income by the U.S. Holder because of such QEF Election and (b) will adjust such
U.S. Holders tax basis in the Common Shares to reflect the amount included in
income or allowed as a tax-free distribution because of such QEF Election. In
addition, a U.S. Holder that makes a QEF Election generally will recognize
capital gain or loss on the sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal
income tax consequences of making a QEF Election, will depend on whether such
QEF Election is timely. A QEF Election will be treated as timely for purposes
of avoiding the default PFIC rules discussed above if such QEF Election is made
for the first year in the U.S. Holders holding period for the Common Shares in which the
Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the
appropriate QEF Election documents at the time such U.S. Holder files a U.S.
federal income tax return for such year.
40
A QEF Election will apply to the tax year for which such QEF
Election is made and to all subsequent tax years, unless such QEF Election is
invalidated or terminated or the IRS consents to revocation of such QEF
Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year,
the Company ceases to be a PFIC, the QEF Election will remain in effect
(although it will not be applicable) during those tax years in which the Company
is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent
tax year, the QEF Election will be effective and the U.S. Holder will be subject
to the QEF rules described above during any subsequent tax year in which the
Company qualifies as a PFIC.
As discussed above, under proposed Treasury Regulations, if a
U.S. holder has an option, warrant or other right to acquire stock of a PFIC
(such as the Warrants), such option, warrant or right is considered to be PFIC
stock subject to the default rules of Section 1291 of the Code. However, a U.S.
Holder of an option, warrant or other right to acquire stock of a PFIC may not
make a QEF Election that will apply to the option, warrant or other right to
acquire PFIC stock. In addition, under proposed Treasury Regulations, if a U.S.
Holder holds an option, warrant or other right to acquire stock of a PFIC, the
holding period with respect to shares of stock of the PFIC acquired upon
exercise of such option, warrant or other right will include the period that the
option, warrant or other right was held.
Consequently, under the proposed Treasury Regulations, if a
U.S. Holder of Common Shares makes a QEF Election, such election generally will
not be treated as a timely QEF Election with respect to Warrant Shares and the
rules of Section 1291 of the Code discussed above will continue to apply with
respect to such U.S. Holders Warrant Shares. However, a U.S. Holder of Warrant
Shares should be eligible to make a timely QEF Election if such U.S. Holder
elects in the tax year in which such Warrant Shares are received to recognize
gain (which will be taxed under the rules of Section 1291 of the Code discussed
above) as if such Warrant Shares were sold for fair market value on the date
such U.S. Holder acquired them by exercising the corresponding Warrant. In
addition, gain recognized on the sale or other taxable disposition (other than
by exercise) of the Warrants by a U.S. Holder will be subject to the rules of
Section 1291 of the Code discussed above. Each U.S. Holder should consult its
own tax advisor regarding the application of the PFIC rules to the Units, Common
Shares, Warrants, and Warrant Shares.
U.S. Holders should be aware that there can be no assurances
that the Company will satisfy the record keeping requirements that apply to a
QEF, or that the Company will supply U.S. Holders with a PFIC Annual Information
Statement or other information that such U.S. Holders are required to report
under the QEF rules, in the event that the Company is a PFIC. Thus, U.S. Holders
may not be able to make a QEF Election with respect to their Common Shares or,
assuming the election to recognize gain upon exercise described above is made,
Warrant Shares. Each U.S. Holder should consult its own tax advisors regarding
the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS
Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S.
federal income tax return. However, if the Company does not provide the required
information with regard to the Company or any of its Subsidiary PFICs, U.S.
Holders will not be able to make a QEF Election for such entity and will
continue to be subject to the rules of Section 1291 of the Code discussed above
that apply to Non-Electing U.S. Holders with respect to the taxation of gains
and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election with respect
to Common Shares and Warrant Shares only if the Common Shares and Warrant Shares
are marketable stock. The Common Shares and Warrant Shares generally will be
marketable stock if the Common Shares and Warrant Shares are regularly traded
on (a) a national securities exchange that is registered with the SEC, (b) the
national market system established pursuant to Section 11A of the U.S. Exchange
Act or (c) a foreign securities exchange that is regulated or supervised by a
governmental authority of the country in which the market is located, provided
that (i) such foreign exchange has trading volume, listing, financial disclosure, and other
requirements and the laws of the country in which such foreign exchange is
located, together with the rules of such foreign exchange, ensure that such
requirements are actually enforced and (ii) the rules of such foreign exchange
ensure active trading of listed stocks. If such stock is traded on such a
qualified exchange or other market, such stock generally will be considered
regularly traded for any calendar year during which such stock is traded,
other than in
de minimis
quantities, on at least 15 days during each
calendar quarter. Provided that the Common Shares and Warrant Shares are
regularly traded as described in the preceding sentence, the Common Shares and
Warrant Shares are expected to be marketable stock. The Company believes that
its Common Shares were regularly traded in the fourth calendar quarter of 2017
and expects that the Common Shares should be regularly traded in the first
calendar quarter of 2018. However, there can be no assurance that the Common
Shares will be regularly traded in subsequent calendar quarters. U.S. Holders
should consult their own tax advisors regarding the marketable stock rules.
41
A U.S. Holder that makes a Mark-to-Market Election with respect
to its Common Shares generally will not be subject to the rules of Section 1291
of the Code discussed above with respect to such Common Shares. However, if a
U.S. Holder does not make a Mark-to-Market Election beginning in the first tax
year of such U.S. Holders holding period for the Common Shares and such U.S.
Holder has not made a timely QEF Election, the rules of Section 1291 of the Code
discussed above will apply to certain dispositions of, and distributions on, the
Common Shares.
Any Mark-to-Market Election made by a U.S. Holder for the
Common Shares will also apply to such U.S. Holders Warrant Shares. As a result,
if a Mark-to-Market Election has been made by a U.S. Holder with respect to
Common Shares, any Warrant Shares received will automatically be
marked-to-market in the year of exercise. Because, under the proposed Treasury
Regulations, a U.S. Holders holding period for Warrant Shares includes the
period during which such U.S. Holder held the Warrants, a U.S. Holder will be
treated as making a Mark-to-Market Election with respect to its Warrant Shares
after the beginning of such U.S. Holders holding period for the Warrant Shares
unless the Warrant Shares are acquired in the same tax year as the year in which
the U.S. Holder acquired its Units. Consequently, the default rules under
Section 1291 described above generally will apply to the mark-to-market gain
realized in the tax year in which Warrant Shares are received. However, the
general mark-to-market rules will apply to subsequent tax years.
A U.S. Holder that makes a Mark-to-Market Election will include
in ordinary income, for each tax year in which the Company is a PFIC, an amount
equal to the excess, if any, of (a) the fair market value of the Common Shares
and any Warrant Shares, as of the close of such tax year over (b) such U.S.
Holders tax basis in the Common Shares and any Warrant Shares. A U.S. Holder
that makes a Mark-to-Market Election will be allowed a deduction in an amount
equal to the excess, if any, of (i) such U.S. Holders adjusted tax basis in the
Common Shares and any Warrant Shares, over (ii) the fair market value of such
Common Shares and any Warrant Shares (but only to the extent of the net amount
of previously included income as a result of the Mark-to-Market Election for
prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally
also will adjust such U.S. Holders tax basis in the Common Shares and Warrant
Shares to reflect the amount included in gross income or allowed as a deduction
because of such Mark-to-Market Election. In addition, upon a sale or other
taxable disposition of Common Shares and Warrant Shares, a U.S. Holder that
makes a Mark-to-Market Election will recognize ordinary income or ordinary loss
(not to exceed the excess, if any, of (a) the amount included in ordinary income
because of such Mark-to-Market Election for prior tax years over (b) the amount
allowed as a deduction because of such Mark-to-Market Election for prior tax
years).
A U.S. Holder makes a Mark-to-Market Election by attaching a
completed IRS Form 8621 to a timely filed U.S. federal income tax return. A
timely Mark-to-Market Election applies to the tax year in which such
Mark-to-Market Election is made and to each subsequent tax year, unless the
Common Shares and Warrant Shares cease to be marketable stock or the IRS
consents to revocation of such election. Each U.S. Holder should consult its own
tax advisor regarding the availability of, and procedure for making, a
Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market
Election with respect to the Common Shares and Warrant Shares, no such election
may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder
is treated as owning because such stock is not marketable. Hence, the
Mark-to-Market Election will not be effective to eliminate the interest charge and other income
inclusion rules described above with respect to deemed dispositions of
Subsidiary PFIC stock or distributions from a Subsidiary PFIC to its
shareholder.
42
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed
Treasury Regulations that, subject to certain exceptions, would cause a U.S.
Holder that had not made a timely QEF Election to recognize gain (but not loss)
upon certain transfers of Common Shares and Warrant Shares that would otherwise
be tax-deferred (e.g., gifts and exchanges pursuant to corporate
reorganizations). However, the specific U.S. federal income tax consequences to
a U.S. Holder may vary based on the manner in which Common Shares, Warrants, or
Warrant Shares are transferred.
If finalized in their current form, the proposed Treasury
Regulations applicable to PFICs would be effective for transactions occurring on
or after April 1, 1992. Because the proposed Treasury Regulations have not yet
been adopted in final form, they are not currently effective, and there is no
assurance that they will be adopted in the form and with the effective date
proposed. Nevertheless, the IRS has announced that, in the absence of final
Treasury Regulations, taxpayers may apply reasonable interpretations of the Code
provisions applicable to PFICs and that it considers the rules set forth in the
proposed Treasury Regulations to be reasonable interpretations of those Code
provisions. The PFIC rules are complex, and the implementation of certain
aspects of the PFIC rules requires the issuance of Treasury Regulations which in
many instances have not been promulgated and which, when promulgated, may have
retroactive effect. U.S. Holders should consult their own tax advisors about the
potential applicability of the proposed Treasury Regulations.
Certain additional adverse rules will apply with respect to a
U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder
makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S.
Holder that uses Common Shares, Warrants or Warrant Shares as security for a
loan will, except as may be provided in Treasury Regulations, be treated as
having made a taxable disposition of such Common Shares, Warrants or Warrant
Shares.
In addition, a U.S. Holder who acquires Common Shares, Warrants
or Warrant Shares from a decedent will not receive a step up in tax basis of
such Common Shares, Warrants or Warrant Shares to fair market value.
Special rules also apply to the amount of foreign tax credit
that a U.S. Holder may claim on a distribution from a PFIC. Subject to such
special rules, foreign taxes paid with respect to any distribution in respect of
stock in a PFIC are generally eligible for the foreign tax credit. The rules
relating to distributions by a PFIC and their eligibility for the foreign tax
credit are complicated, and a U.S. Holder should consult with their own tax
advisor regarding the availability of the foreign tax credit with respect to
distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult
its own tax advisor regarding the PFIC rules (including the applicability and
advisability of a QEF Election and Mark-to-Market Election) and how the PFIC
rules may affect the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares, Warrants and Warrant Shares.
U.S. Federal Income Tax Consequences of the Exercise and
Disposition of Warrants
The following discussion describes the general rules applicable
to the ownership and disposition of the Warrants but is subject in its entirety
to the special rules described above under the heading Passive Foreign
Investment Company Rules.
Exercise of Warrants
A U.S. Holder should not recognize gain or loss on the exercise
of a Warrant and related receipt of a Warrant Share (unless cash is received in
lieu of the issuance of a fractional Warrant Share). A U.S. Holders initial tax
basis in the Warrant Share received on the exercise of a Warrant should be equal
to the sum of (a) such U.S. Holders tax basis in such Warrant plus (b) the
exercise price paid by such U.S. Holder on the exercise of such Warrant. If, as
anticipated, the Company is a PFIC, a U.S. Holders holding period for the
Warrant Share will begin on the date on which such U.S. Holder acquired its Units.
43
Disposition of Warrants
A U.S. Holder will recognize gain or loss on the sale or other
taxable disposition of a Warrant in an amount equal to the difference, if any,
between (a) the amount of cash plus the fair market value of any property
received and (b) such U.S. Holders tax basis in the Warrant sold or otherwise
disposed of. Subject to the PFIC rules discussed above, any such gain or loss
generally will be a capital gain or loss, which will be long-term capital gain
or loss if the Warrant is held for more than one year. Deductions for capital
losses are subject to complex limitations under the Code.
Expiration of Warrants Without Exercise
Upon the lapse or expiration of a Warrant, a U.S. Holder will
recognize a loss in an amount equal to such U.S. Holders tax basis in the
Warrant. Any such loss generally will be a capital loss and will be long-term
capital loss if the Warrants are held for more than one year. Deductions for
capital losses are subject to complex limitations under the Code.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment to the number of
Warrant Shares that will be issued on the exercise of the Warrants, or an
adjustment to the exercise price of the Warrants, may be treated as a
constructive distribution to a U.S. Holder of the Warrants if, and to the extent
that, such adjustment has the effect of increasing such U.S. Holders
proportionate interest in the earnings and profits or the Companys assets,
depending on the circumstances of such adjustment (for example, if such
adjustment is to compensate for a distribution of cash or other property to the
shareholders). Adjustments to the exercise price of Warrants made pursuant to a
bona fide reasonable adjustment formula that has the effect of preventing
dilution of the interest of the holders of the Warrants should generally not be
considered to result in a constructive distribution. Any such constructive
distribution would be taxable whether or not there is an actual distribution of
cash or other property. (See more detailed discussion of the rules applicable to
distributions made by the Company at Distributions on Common Shares and Warrant
Shares below).
General Rules Applicable to U.S. Federal Income Tax
Consequences of the Acquisition, Ownership, and Disposition of Common Shares and
Warrant Shares
The following discussion describes the general rules applicable
to the ownership and disposition of the Common Shares and Warrant Shares but is
subject in its entirety to the special rules described above under the heading
Passive Foreign Investment Company Rules.
Distributions on Common Shares and Warrant Shares
A U.S. Holder that receives a distribution, including a
constructive distribution, with respect to a Common Share or Warrant Share (as
well as any constructive distribution on a Warrant as described above) will be
required to include the amount of such distribution in gross income as a
dividend (without reduction for any Canadian income tax withheld from such
distribution) to the extent of the Companys current and accumulated earnings
and profits, as computed under U.S. federal income tax principles. A dividend
generally will be taxed to a U.S. Holder at ordinary income tax rates if the
Company is a PFIC for the tax year of such distribution or the preceding tax
year. To the extent that a distribution exceeds the current and accumulated
earnings and profits of the Company, such distribution will be treated first
as a tax-free return of capital to the extent of a U.S. Holders tax basis in
the Common Shares or Warrant Shares and thereafter as gain from the sale or
exchange of such Common Shares or Warrant Shares (see Sale or Other Taxable
Disposition of Common Shares and/or Warrant Shares below). However, the Company
may not maintain the calculations of earnings and profits in accordance with
U.S. federal income tax principles, and each U.S. Holder may be required to
assume that any distribution by the Company with respect to the Common Shares or
Warrant Shares will constitute ordinary dividend income. Dividends received on
Common Shares or Warrant Shares generally will not be eligible for the
dividends received deduction generally applicable to corporations. Subject to
applicable limitations and provided the Company is eligible for the benefits of the
Convention Between Canada and the United States of America with Respect to Taxes
on Income and on Capital, signed September 26, 1980, as amended, or the Common
Shares are readily tradable on a United States securities market, dividends paid
by the Company to non-corporate U.S. Holders, including individuals, generally
will be eligible for the preferential tax rates applicable to long-term capital
gains for dividends, provided certain holding period and other conditions are
satisfied, including that the Company not be classified as a PFIC in the tax
year of distribution or in the preceding tax year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisor regarding the
application of such rules.
44
Sale or Other Taxable Disposition of Common Shares and/or
Warrant Shares
Upon the sale or other taxable disposition of Common Shares or
Warrant Shares, a U.S. Holder generally will recognize capital gain or loss in
an amount equal to the difference between (a) the amount of cash plus the fair
market value of any property received and (b) such U.S. Holders tax basis in
such Common Shares or Warrant Shares sold or otherwise disposed of. Gain or loss
recognized on such sale or other taxable disposition generally will be long-term
capital gain or loss if, at the time of the sale or other taxable disposition,
the Common Shares or Warrant Shares have been held for more than one year.
Preferential tax rates may apply to long-term capital gain of a U.S. Holder that
is an individual, estate, or trust. There are no preferential tax rates for
long-term capital gain of a U.S. Holder that is a corporation. Deductions for
capital losses are subject to significant limitations under the Code.
Additional Tax Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign
currency or on the sale, exchange or other taxable disposition of Common Shares,
Warrants or Warrant Shares generally will be equal to the U.S. dollar value of
such foreign currency based on the exchange rate applicable on the date of
receipt (regardless of whether such foreign currency is converted into U.S.
dollars at that time). If the foreign currency received is not converted into
U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the
foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S.
Holder who receives payment in foreign currency and engages in a subsequent
conversion or other disposition of the foreign currency may have a foreign
currency exchange gain or loss that would be treated as ordinary income or loss,
and generally will be U.S. source income or loss for foreign tax credit
purposes. Different rules apply to U.S. Holders who use the accrual method of
tax accounting. Each U.S. Holder should consult its own U.S. tax advisor
regarding the U.S. federal income tax consequences of receiving, owning, and
disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that
pays (whether directly or through withholding) Canadian income tax with respect
to dividends paid on the Common Shares or Warrant Shares (or with respect to any
constructive dividend on the Warrants) generally will be entitled, at the
election of such U.S. Holder, to receive either a deduction or a credit for such
Canadian income tax paid. Generally, a credit will reduce a U.S. Holders U.S.
federal income tax liability on a dollar-for-dollar basis, whereas a deduction
will reduce a U.S. Holders income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all foreign taxes paid
or accrued (whether directly or through withholding) by a U.S. Holder during a
year.
Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of
a U.S. Holders U.S. federal income tax liability that such U.S. Holders
foreign source taxable income bears to such U.S. Holders worldwide taxable
income. In applying this limitation, a U.S. Holders various items of income and
deduction must be classified, under complex rules, as either foreign source or
U.S. source. Generally, dividends paid by a foreign corporation (including
constructive dividends) should be treated as foreign source for this purpose,
and gains recognized on the sale of stock of a foreign corporation by a U.S.
Holder should be treated as U.S. source for this purpose, except as otherwise
provided in an applicable income tax treaty, and if an election is properly made
under the Code. However, the amount of a distribution with respect to the Common
Shares, Warrant Shares or Warrants that is treated as a dividend may be lower for U.S. federal income tax purposes than it is for
Canadian federal income tax purposes, resulting in a reduced foreign tax credit
allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit
rules are complex, and each U.S. Holder should consult its own tax advisor
regarding the foreign tax credit rules.
45
Additional Tax on Passive Income
Certain U.S. Holders that are individuals, estates or trusts
(other than trusts that are exempt from tax) will be subject to a 3.8% tax on
all or a portion of their net investment income, which includes dividends on
the Common Shares and Warrant Shares and net gains from the disposition of the
Common Shares, Warrants and Warrant Shares. Further, excess distributions
treated as dividends, gains treated as excess distributions, and mark-to-market
inclusions and deductions under the PFIC rules discussed above are all included
in the calculation of net investment income.
Treasury Regulations provide, subject to the election described
in the following paragraph, that solely for purposes of this additional tax,
distributions of previously taxed income will be treated as dividends and
included in net investment income subject to the additional 3.8% tax.
Additionally, to determine the amount of any capital gain from the sale or other
taxable disposition of Common Shares or Warrant Shares that will be subject to
the additional tax on net investment income, a U.S. Holder who has made a QEF
Election will be required to recalculate its basis in the Common Shares or
Warrant Shares by excluding QEF basis adjustments.
Alternatively, a U.S. Holder may make an election which will be
effective with respect to all interests in PFIC for which a QEF Election has
been made and which is held in that year or acquired in future years. Under this
election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions
and on gains calculated after giving effect to related tax basis adjustments.
U.S. Holders that are individuals, estates or such trusts should consult their
own tax advisors regarding the applicability of this tax to any of their income
or gains in respect of the Common Shares, Warrants and Warrant Shares and the
advisability of making this election.
Information Reporting; Backup Withholding Tax
Under U.S. federal income tax laws certain categories of U.S.
Holders must file information returns with respect to their investment in, or
involvement in, a foreign corporation. For example, U.S. return disclosure
obligations (and related penalties) are imposed on U.S. Holders that hold
certain specified foreign financial assets in excess of certain threshold
amounts. The definition of specified foreign financial assets includes not only
financial accounts maintained in foreign financial institutions, but also,
unless held in accounts maintained by a financial institution, any stock or
security issued by a non-U.S. person. U. S. Holders may be subject to these
reporting requirements unless their Common Shares, Warrants, and Warrant Shares
are held in an account at certain financial institutions. Penalties for failure
to file certain of these information returns are substantial. U.S. Holders
should consult their own tax advisors regarding the requirements of filing
information returns, including the requirement to file IRS Form 8938.
Payments made within the U.S., or by a U.S. payor or U.S.
middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of the Common Shares, Warrants and Warrant Shares generally may be
subject to information reporting and backup withholding tax, currently at the
rate of 24%, if a U.S. Holder (a) fails to furnish its correct U.S. taxpayer
identification number (generally on Form W-9), (b) furnishes an incorrect U.S.
taxpayer identification number, (c) is notified by the IRS that such U.S. Holder
has previously failed to properly report items subject to backup withholding
tax, or (d) fails to certify, under penalty of perjury, that it has furnished
its correct U.S. taxpayer identification number and that the IRS has not
notified such U.S. Holder that it is subject to backup withholding tax. However,
certain exempt persons, such as U.S. Holders that are corporations, generally
are excluded from these information reporting and backup withholding tax rules.
Any amounts withheld under the U.S. backup withholding tax rules will be allowed
as a credit against a U.S. Holders U.S. federal income tax liability, if any,
or will be refunded, if such U.S. Holder furnishes required information to the
IRS in a timely manner.
46
The discussion of reporting requirements set forth above is not
intended to constitute a complete description of all reporting requirements that
may apply to a U.S. Holder. A failure to satisfy certain reporting requirements
may result in an extension of the time period during which the IRS can assess a
tax and, under certain circumstances, such an extension may apply to assessments
of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder
should consult its own tax advisors regarding the information reporting and
backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE
ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO
THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES, WARRANTS AND
WARRANT SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares in
Canada is Computershare Investor Services Inc., at its principal office in
Toronto, Ontario, Canada. The transfer agent and registrar for the Common Shares
in the United States is Computershare Trust Company, N.A., at its principal
office in Louisville, Kentucky.
EXPERTS
The Companys financial statements as at December 31, 2017
incorporated by reference in this short form prospectus have been audited by BDO
Canada LLP, independent auditors, as set forth in their report incorporated by
reference in this short form prospectus. BDO Canada LLP is independent with
respect to the Company within the meaning of the Rules of Professional Conduct
of the Institute of Chartered Professional Accountants of Ontario.
LEGAL MATTERS
Certain legal matters relating to the Offering and the validity
of the securities offered by this short form prospectus are being passed upon
for us by Borden Ladner Gervais LLP, Toronto, Ontario, the Companys Canadian
counsel, and Dorsey & Whitney LLP, the Companys U.S. counsel, and on behalf
of the Agent by Baker & McKenzie LLP.
As of the date hereof, the designated professionals (as such
term is defined in Form 51-102F2
Annual Information Form
) of each of
Borden Ladner Gervais LLP and Baker & McKenzie LLP, respectively,
beneficially own, directly or indirectly, less than 1% of the Companys issued
and outstanding securities.
47
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED
TO OFFEREES OR
PURCHASERS
Indemnification of Directors and Officers
Under the
Business Corporations Act
(Ontario), the Registrant
may indemnify a director or officer of the Registrant, a former director or
officer of the Registrant or another individual who acts or acted at the
Registrant's request as a director or officer, or an individual acting in a
similar capacity, of another entity (each of the foregoing, an "individual"),
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, reasonably incurred by the individual in respect
of any civil, criminal, administrative, investigative or other proceeding in
which the individual is involved because of that association with the Registrant
or other entity, on the condition that (i) such individual acted honestly and in
good faith with a view to the best interests of the Registrant or, as the case
may be, to the best interests of the other entity for which the individual acted
as a director or officer or in a similar capacity at the Registrant's request;
and (ii) if the matter is a criminal or administrative action or proceeding that
is enforced by a monetary penalty, the Registrant shall not indemnify the
individual unless the individual had reasonable grounds for believing that his
or her conduct was lawful.
Further, the Registrant may, with the approval of a court, indemnify an
individual in respect of an action by or on behalf of the Registrant or other
entity to obtain a judgment in its favor, to which the individual is made a
party because of the individual's association with the Registrant or other
entity as a director or officer, a former director or officer, an individual who
acts or acted at the Registrant's request as a director or officer, or an
individual acting in a similar capacity, against all costs, charges and expenses
reasonably incurred by the individual in connection with such action, if the
individual fulfills the conditions in (i) and (ii) above. Such individuals are
entitled to indemnification from the Registrant in respect of all costs, charges
and expenses reasonably incurred by the individual in connection with the
defense of any civil, criminal, administrative, investigative or other
proceeding to which the individual is subject because of the individual's
association with the Registrant or other entity as described above, provided the
individual seeking an indemnity: (A) was not judged by a court or other
competent authority to have committed any fault or omitted to do anything that
the individual ought to have done; and (B) fulfills the conditions in (i) and
(ii) above.
The by-laws of the Registrant provide that, Subject to the
Business
Corporations Act
(Ontario), the Registrant shall indemnify a director or
officer of the Registrant, a former director or officer of the Registrant or
another individual who acts or acted at the Registrant's request as a director
or officer, or an individual acting in a similar capacity, of another entity,
and such person's heirs and legal representatives, against all costs, charges
and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by the individual in respect of any civil,
criminal, administrative, investigative or other proceeding in which the
individual is involved because of that association with the Registrant or other
entity, if: (i) the individual acted honestly and in good faith with a view to
the best interests of the Registrant or, as the case may be, to the best
interest of the other entity for which the individual acted as a director or
officer or in a similar capacity at the Registrant's request and (ii) in the
case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, the person had reasonable grounds for believing that the
individual's conduct was lawful.
The Registrant maintains directors' and officers' liability insurance
which insures directors and officers for losses as a result of claims against
the directors and officers of the Registrant in their capacity as directors and
officers and also reimburses the Registrant for payments made pursuant to the
indemnity provisions under the bylaws of the Registrant and the
Business
Corporations Act
(Ontario).
* * *
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the U.S. Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is therefore unenforceable.
II 1
The exhibits listed in the exhibit index, appearing elsewhere
in this Registration Statement, have been filed as part of this Registration
Statement.
II 2
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to the securities registered pursuant to Form F-10 or to transactions
in said securities.
Item 2.
|
Consent to Service of Process
|
A written Appointment of Agent for
Service of Process and Undertaking on Form F-X for the Registrant and its agent
for service of process was filed concurrently with the initial filing of this
Registration Statement.
Any change to the name or address of the agent for service of process
of the Registrant shall be communicated promptly to the Commission by amendment
to Form F-X referencing the file number of this Registration Statement on Form
F-10.
III 1
EXHIBIT INDEX
Exhibit
Number
|
Description
|
3.1
|
Agency
Agreement.
|
|
|
4.1
|
Annual information form of the Registrant dated March 31,
2018 for the fiscal year ended December 31, 2017 (incorporated by
reference from Exhibit No. 99.3 to the Registrant's Form 40-F, filed with
the Commission on June 11, 2018)
|
|
|
4.2
|
Audited consolidated financial statements of the
Registrant, as at and for the years ended December 31, 2017 and 2016,
together with the notes thereto and the independent auditors' report
thereon (incorporated by reference from Exhibit No. 99.1 to the
Registrant's Form 40-F, filed with the Commission on June 11, 2018).
|
|
|
4.3
|
Management's discussion and analysis of financial
condition and results of operations for the year ended December 31, 2017
(incorporated by reference from Exhibit No. 99.2 to the Registrant's Form
40-F, filed with the Commission on June 11, 2018).
|
|
|
4.4
|
Unaudited condensed interim financial statements of the
Registrant as at, and for the three months ended March 31, 2018,
consisting of the unaudited condensed interim balance sheet of the
Registrant as at March 31, 2018 and the unaudited condensed interim
statement of shareholders equity and deficit, net and comprehensive loss
and cash flows for the three months ended March 31, 2018 and 2017,
together with the notes thereto (incorporated by reference from Exhibit
No. 99.120 to the Registrant's Form 40-F, filed with the Commission on
June 11, 2018).
|
|
|
4.5
|
Management's discussion and analysis of financial
condition and results of operations for the three months ended March 31,
2018 (incorporated by reference from Exhibit No. 99.121 to the
Registrant's Form 40-F, filed with the Commission on June 11, 2018).
|
|
|
4.6
|
Management information circular of the Registrant dated
May 11, 2018 relating to the Registrants annual and special meeting of
shareholders on June 14, 2018 (incorporated by reference from Exhibit
99.125 to the Registrants Form 40-F, filed with the Commission on June
11, 2018).
|
|
|
4.9
|
Material change report of the Registrant dated April 2,
2018 in respect of the filing of a preliminary short form prospectus and
the announcement of pricing details for a previous public offering
(incorporated by reference from Exhibit No. 99.109 to the Registrant's
Form 40-F, filed with the Commission on June 11, 2018).
|
|
|
4.10
|
Material change report of the Registrant dated April 10,
2018 in respect of the filing of a final short form prospectus and the
closing of a previous public offering (incorporated by reference from
Exhibit No. 99.116 to the Registrant's Form 40-F, filed with the
Commission on June 11, 2018).
|
|
|
4.11
|
Material change report of the Registrant dated May 22,
2018 in respect of the closing of the over- allotment option on a previous
public offering (incorporated by reference from Exhibit No. 99.127 to the
Registrant's Form 40-F, filed with the Commission on June 11, 2018).
|
|
|
4.12
|
Material
change report of the Registrant dated June 5, 2018 in respect of the
NASDAQ Listing (incorporated by reference from Exhibit No. 99.130 to the
Registrant's Form 40-F, filed with the Commission on June 11, 2018).
|
|
|
5.1
|
Consent
of BDO Canada LLP.
|
|
|
5.2
|
Consent
of Borden Ladner Gervais LLP
|
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-10 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Toronto, Country of
Canada on August 7, 2018.
TITAN MEDICAL INC.
|
|
|
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By:
|
/s/ Stephen Randall
|
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Name: Stephen Randall
|
|
Title:
Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated and on the dates indicated.
Signature
|
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Capacity
|
Date
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
President, Chief Executive Officer (Principal
Executive Officer) and Director
|
August 7, 2018
|
David McNally
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen Randall
|
|
Chief Financial Officer (Principal Financial
and Accounting Officer) and Director
|
August 7, 2018
|
Stephen Randall
|
|
|
|
|
|
|
*
|
|
|
|
|
|
Director and Chairman
|
August 7, 2018
|
John E. Barker
|
|
|
|
|
|
|
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*
|
|
|
|
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Director
|
August 7, 2018
|
John E. Schellborn
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|
|
|
|
|
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*
|
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Director
|
August 7, 2018
|
Bruce G. Wolff
|
|
|
|
|
|
|
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*
|
|
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Director
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August 7, 2018
|
Domenic Serafino
|
|
|
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*By:
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/s/
Stephen Randall
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Name:
|
Stephen Randall
|
|
Attorney-in-fact
|
AUTHORIZED REPRESENTATIVE
Pursuant
to the requirements of Section 6(a) of the Securities Act of 1933, as amended,
the undersigned has signed this Amendment No. 1 to the Registration Statement,
in the capacity of the duly authorized representative of the Registrant in the
United States, on August 7, 2018.
/s/ David McNally
|
Name: David McNally
|
Title: Chief Executive Officer
|
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