No securities regulatory authority or regulator has assessed the merits of the Trust Units or this offering or reviewed this offering memorandum. Any representation to the contrary is an offence. This is a risky investment. You could lose all the money you invest. See Item 8 - Risk Factors. This offering memorandum does not constitute an offer to sell or the solicitation of an offer to buy securities within the United States or by residents of the United States. There shall be no sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. This offering memorandum is for the confidential use of only those persons to whom it is transmitted in connection with the Offering for the purpose of evaluating the securities offered hereby. Prospective Investors should only rely on the information in this offering memorandum. No person has been authorized to give any information or make any representation in respect of the Trust or the securities offered herein and any such information or representation must not be relied upon. Any such information or representation that is given or received must not be relied upon. By accepting this offering memorandum, recipients agree that they will not transmit, reproduce or make available to anyone, other than their professional advisors, this offering memorandum or any information contained herein.
Private Placement of Trust Units March 1, 2017 CONFIDENTIAL OFFERING MEMORANDUM PRIME INCOME TRUST Suite 1206, 734 - 7th Ave SW, Calgary, Alberta T2P 3P8 Phone: 1-877-577-4634 Fax: (403) 452-7855 Email: [email protected] Website: www.theprimegroup.ca
Glossary: See Glossary (page 5) for meaning of capitalized words and phrases. Currently listed or quoted: No. These securities do not trade on any exchange or market. Reporting Trust: No. SEDAR filer: No THE OFFERING Securities Offered: Trust Units, which are trust units of the Trust. Price Per Security: $100 per Trust Unit. Maximum Offering: $100,000,000 (an aggregate of 1,000,000 Trust Units). The Trust may, without notice to Investors, increase the Maximum Offering. Minimum Offering: There is no minimum offering. You may be the only Investor. Funds available under the Offering may not be sufficient to accomplish our proposed objectives. See Item 8 - Risk Factors. Minimum Subscription: $1,000 (10 Trust Units). Payment Terms: Investors must pay the subscription price in full by certified cheque, bank draft or such other manner as may be accepted by the Trust at the time of delivering fully completed and signed Subscription Agreements. See Item 5.3 - Subscription Procedure. Closing Dates: Closings may be held from time to time in the Trustees’ discretion until the Maximum Offering is reached. Resale Restrictions: You will be restricted from selling your Trust Units for an indefinite period. See Item 10 - Resale Restrictions. Tax Consequences: There are important tax consequences relating to the ownership of these securities. See Item 6 - Income Tax Consequences and Eligibility for Exempt Plans. Selling Agents: Trust Units will be sold by exempt market dealers.
RESALE RESTRICTIONS You will be restricted from selling your securities for an indefinite period. You will not be able to sell these securities except in very limited circumstances. You may never be able to resell these securities. See Item 10 - Resale Restrictions. INVESTORS’ RIGHTS You have two business days to cancel your agreement to purchase these securities. If there is a misrepresentation in this offering memorandum, you have the right to sue either for damages or to cancel the agreement. See Item 11 - Investors’ Rights.
CAL01: 1951970: v8 TABLE OF CONTENTS
EXECUTIVE SUMMARY ...... 3 Distributions ...... 45
FORWARD-LOOKING INFORMATION ...... 3 Item 5 - SECURITIES OFFERED ...... 45 Trust Units ...... 45 DOCUMENTS ...... 5 Cash Distributions to Trust Unitholders ...... 47 Subscription Procedure ...... 49 INCORPORATED BY REFERENCE ...... 5 Auditors, Transfer Agent and Registrar ...... 50
GLOSSARY ...... 5 Item 6 - INCOME TAX CONSEQUENCES AND ELIGIBILITY FOR EXEMPT PLANS ...... 50 Item 1 - USE OF AVAILABLE FUNDS ...... 10 Tax Advice ...... 50 Funds ...... 10 Certain Canadian Federal Income Tax Use of Available Funds ...... 11 Considerations ...... 50 Reallocation ...... 12 Working Capital Deficiency ...... 12 Item 7 - COMPENSATION PAID TO SELLERS AND FINDERS ...... 54 Item 2 - BUSINESS OF THE TRUST ...... 12 Structure ...... 12 Item 8 - RISK FACTORS ...... 55 Our Business ...... 14 Development of the Business ...... 20 Item 9 - REPORTING OBLIGATIONS ...... 66 Long-term Objectives ...... 20 Short-term Objectives ...... 21 Item 10 - RESALE RESTRICTIONS ...... 67 Insufficient Proceeds ...... 22 General ...... 67 Material Agreements ...... 22 Transfer Restrictions in the Trust Declaration.. 67
Item 3 - INTERESTS OF TRUSTEES, Item 11 - INVESTORS’ RIGHTS ...... 68 MANAGEMENT, PROMOTERS AND Two-day Cancellation Right ...... 68 PRINCIPAL HOLDERS ...... 41 Statutory Rights of Action ...... 68 Compensation and Securities Held ...... 41 Management’s Experience ...... 42 Item 12 - FINANCIAL STATEMENTS……. F-1 Penalties, Sanctions and Bankruptcy ...... 42 Loans ...... 43 Item 13 - DATE AND CERTIFICATE C-1
Item 4 - CAPITAL STRUCTURE ...... 44 Schedule A – SUBSCRIPTION AGREEMENT. A-1 Equity Capital ...... 44 Long-Term Debt Securities ...... 44 Schedule B – BROCHURE…………………….... B-1 Prior Sales ...... 44
2 EXECUTIVE SUMMARY
• The Trust is an open-ended, unincorporated investment trust formed and existing under the laws of Alberta. The Trustees are Moiz Bhamani and Harwinder Kang who will manage the affairs of the Trust. The Trust is governed by the Trust Declaration.
• The Trust will not carry on active business. Rather, the Trust is the sole limited partner of the Partnership, which will advance funds as Loan principal to Affiliated Operators, which will be engaged in acquiring, developing, leasing and selling Properties. The Affiliated Operators will exercise control over each Property and Moiz Bhamani and Harwinder Kang will be actively involved in the management of each Affiliated Operator and Property. Without limiting the generality of the foregoing, the Trust’s use of Available Funds will be for investment through the Affiliated Operators for the purposes of exercising or seeking to exercise control over each Property and for the purposes of being actively involved in the management of each Affiliated Operator and, ultimately, each Property.
• The Trust intends to distribute all or any part of the Distributable Cash of the Trust (if any) that the Trustees prudently determine as being available for distributions to Trust Unitholders of record on the last day of each calendar year. The Trust may also distribute Distributable Cash (if any) that the Trustees prudently determine as being available for distributions to Trust Unitholders for other distribution periods, as the Trustees determine, in their discretion, from time to time. The Trust intends to distribute Distributable Cash monthly to Trust Unitholders. Where a distribution of Distributable Cash is declared by the Trust for a calendar month, such distribution will be made by the end of the next calendar month. Where a distribution of Distributable Cash is declared by the Trust in respect of a period that is not a calendar month, then the distribution will be payable on the date determined by the Trustees from time to time.
• The ability of the Trust to make cash distributions and the actual amount distributed depends on the operations of the Properties acquired by the Affiliated Operators, and will be subject to various factors including those referenced in Item 8 - Risk Factors.
• The Trust Units are intended to represent an income product for the Trust Unitholder. The primary purpose of investing in the Trust Units is for investors to earn a return on their investment through monthly cash distributions. Consequently, Trust Units should be intended to be held for a period of approximately 10 years and are unlikely to be liquidated until the Trust exits the Trust Unitholders. See Item 2.2.7 – Exit Event for Trust Unitholders.
• The Trust has established an Independent Review Committee to provide advice and assistance to the Trustees and directors of the General Partner regarding actual and potential conflicts of interest as defined in NI 81-107, including with respect to the commercial reasonableness of the terms of the loans to the Affiliated Operators. See Item 2.2.3 – Governance Matters and Independent Review Committee.
FORWARD-LOOKING INFORMATION
This offering memorandum contains certain statements or disclosures that may constitute forward-looking information under applicable securities laws. All statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that the Trust or anticipates or expects may or will occur in the future (in whole or in part) should be considered forward-looking information. In some cases, forward-looking information can be identified by terms such as “future”, “may”, “will”, “intend”, “expect”, “anticipate”, “believe”, “potential”, “enable”, “plan”, “continue”, “contemplate” or other comparable terminology. Forward-looking information presented in this offering memorandum includes the following:
(a) the Trust’s intentions or expectations about its ability to raise capital under the Offering (including the issue and sale of Trust Units) or otherwise, including the ability of the Trust to complete any Offering
(b) the Partnership’s intentions or expectations about advancing Available Funds under one or more Loans to Affiliated Operators;
(c) intentions or expectations about Affiliated Operators’ acquisition, development, leasing or selling of Properties;
3 (d) intentions or expectations about arm’s length financing available to Affiliated Operators;
(e) the nature of the operations and business outlook of the Affiliated Operators as more particularly described under Item 2 – Business of the Trust, including intentions and strategies for their businesses, sources of funds, forecasts of capital expenditures;
(f) forecast business results and anticipated financial performance;
(g) long-term or short-term plans and objectives of the Affiliated Operators for future operations, forecast business results and anticipated financial performance; and
(h) long-term or short-term plans and objectives of the Trust, including those described under Item 2.3 – Long- Term Objectives and Item 2.4 – Short-Term Objectives.
Various assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward- looking information. Those assumptions are based on information currently available to the Trust, including information obtained by the Trust from third-party industry analysts and other arm’s length sources. In some instances, material assumptions are presented or discussed elsewhere in this offering memorandum in connection with the forward-looking information. We caution you that the following list of material assumptions is not exhaustive. The assumptions include, but are not limited to:
(a) expectations about general economic conditions and conditions in the real estate markets where the Properties are located or in which the Affiliated Operators operate or will operate and the ability to deploy capital in those markets and generate a profit therefrom;
(b) risks associated with real estate development, including cost overruns due to delay, shortages of labour and materials, permits or unforeseen circumstances;
(c) intentions or expectations about the Affiliated Operators’ management and operation of the Properties, including the ability or opportunity to stabilize cash flows from the Properties through renovating, upgrading, and repositioning, including tenant changes, improved vacancy rates or otherwise;
(d) intentions or expectations about the Affiliated Operators’ abilities or opportunity to dispose of or refinance any Property; and
(e) expectations about policies of the municipal and local governments in respect to the development and use of the Properties.
The forward-looking information in this offering memorandum is based (in whole or in part) upon factors which may cause actual results, performance or achievements of the Affiliated Operators, and, consequently, those of the Trust, to differ materially from those contemplated (whether expressly or by implication) in the forward-looking information. Those factors are based on information currently available to the Trust including information obtained from third-party industry analysts and other third party sources. Actual results or outcomes may differ materially from those predicted by such forward-looking information. While we do not know what impact any of those differences may have, the Affiliated Operators’ business, results of operations, financial condition and credit stability, and, consequently, those of the Trust, may be materially adversely affected.
Other factors which could cause actual results, performance, achievements or outcomes of the Trust to differ materially from those contemplated (whether expressly or by implication) in the forward-looking information are disclosed under Item 8 - Risk Factors. We are not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable laws. Because of the risks, uncertainties and assumptions contained herein, prospective Investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forward-looking information contained in this offering memorandum.
4 DOCUMENTS
INCORPORATED BY REFERENCE
Any documents of the type referred to in National Instrument 45-106 – Prospectus Exemptions to be incorporated by reference in an offering memorandum, including any marketing materials that are effective after the date of this offering memorandum and before the termination of the Offering, are deemed to be incorporated by reference in this offering memorandum. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Trust at Suite 1206, 734 - 7th Ave SW, Calgary, Alberta T2P 3P8.
Any statement contained in this offering memorandum or in a document incorporated or deemed to be incorporated by reference herein is deemed to be modified or superseded for the purposes of this offering memorandum to the extent that a statement contained herein or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein, modifies or supersedes such 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 that it modifies or supersedes. The making of a modifying or superseding statement is not deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded is not deemed, except as so modified or superseded, to constitute a part of this offering memorandum.
Information contained or otherwise accessed through the Trust’s website or any website does not form part of this offering memorandum or the Offering.
GLOSSARY
In this offering memorandum (including in the face pages hereof), unless the context otherwise requires, the following words and terms have the indicated meanings and grammatical variations of such words and terms have corresponding meanings:
“ABCA” Business Corporations Act (Alberta), R.S.A. 2000, c. B-9, as amended, including the regulations promulgated thereunder.
“affiliate” Has the meaning given in national instrument 45-106 – Prospectus and Registration Exemptions, without limiting that definition, an issuer is an affiliate of another issuer if: (a) one issuer is controlled, directly or indirectly, by the other issuer; or (b) two or more issuers are controlled, directly or indirectly, by the same other person(s) or issuer, and in respect of such relationship, a person or issuer (first person) is considered to “control” another issuer (second person) if: (c) the first person, directly or indirectly, beneficially owns or exercises direction or control over securities of the issuer carrying votes which, if exercised, entitle the first person to elect a majority of the directors (or other similar fiduciaries) of the issuer, unless the first person holds the voting securities only to secure an obligation; or (d) the issuer is a partnership (other than a limited partnership) and the first person holds more than 50% of the interests of the partnership; or (e) the issuer is a limited partnership, whose general partner is the first person.
“Affiliated Operator” Any affiliate of the Trust or Partnership, which acquires, develops, rents or sells, a Property utilizing funds from Loans. The Trust intends to be actively involved in managing the Affiliated Operators by ensuring that Moiz Bhamani and Harwinder Kang are directors, trustees and/or officers of the Affiliated Operators or its general partner (as applicable). As of March 1, 2017, the Affiliated Operators are Prime St. Albert, Prime Cochrane, Royal Oak II Prime Funds Inc., Lethbridge Prime Funds Inc., and Royal Oak LP.
“Available Funds” The Gross Offering Proceeds less the aggregate of the estimated Offering costs and Selling Commissions.
“Business Day” A day, other than a Saturday, Sunday or statutory holiday, when banks are generally open in Calgary, Alberta, for the transaction of banking business.
5 “CRA” Canada Revenue Agency.
“Canada T-Bill Rate” The rate (expressed as a percentage) equal to the average of the mid-market yields to maturity calculated from the applicable redemption date, of a Government of Canada treasury bill with a term to maturity that is approximately 10 years from the first issuance of Trust Units, as determined by a major Canadian investment dealer selected by the Trustee on the business day preceding the day on which the notice of redemption of a Trust Unit is given.
“Cash Flow of the (a) there are to be included in the sum: Trust” (i) all amounts which are earned or receivable by the Trust in the Distribution Period and received on or before the Distribution Payment Date in respect of the Distribution Period, including income from interest, distributions, dividends, proceeds from the disposition (other than by way of security interest) of securities, returns of capital and repayments of indebtedness as well as all such amounts received by the Trust in any prior Distribution Period to the extent not previously distributed or expended; and
(ii) the proceeds of any issuance of Trust Units or any other securities of the Trust, net of the expenses of distribution, and, if applicable, the use of proceeds of any such issuance for the intended purpose;
(b) the following amounts are to be deducted without duplication in the calculation:
(i) all costs and expenses (including administrative expenses) of the Trust which, in the opinion of the Trustees, may reasonably be considered to have accrued and become owing in respect of, or which relate to, such Distribution Period or a prior Distribution Period if not accrued in such prior period;
(ii) all amounts which relate to the redemption or repurchase of Trust Units and which have become payable in cash by the Trust in such Distribution Period;
(iii) any other interest expenses or other costs, expenses and disbursements relating to the borrowing of funds incurred by the Trust between distributions;
(iv) all amounts that relate to the repayment of the principal amount of any indebtedness incurred by the Trust during such Distribution Period (net of any amounts that have been refinanced during such Distribution Period); and
(v) any amount that the Trustees may reasonably consider to be necessary to provide for the payment of any costs that have been or are reasonably expected to be incurred by the Trust, including any tax liabilities of the Trust; and
(c) any funds borrowed by the Trust or received as the proceeds of the Offering or any other issuance of Trust Units or other securities of the Trust and the Offering Expenses, if any, are not to be included in the calculation of Cash Flow of the Trust in respect of any Distribution Period except to the extent such funds are used in a refinancing described in paragraph (b)(iv).
“Close of Business” 5:00 p.m. (Calgary time) on a Business Day.
“Closing” The completion of the issue and sale to Investors of Trust Units under the Offering.
“Closing Date” The date of a Closing. Closings may be held (as determined by the Trust in its sole discretion) until the Maximum Offering is achieved or the Offering is terminated.
“Dissolution” The liquidation, dissolution or winding up of the Trust, whether voluntary or otherwise, or other distribution of assets or property of the trust or repayment of capital among the securityholders of the Trust for the purpose of liquidation, dissolution or winding up its affairs
6 “Distributable Cash” In respect of any Distribution Period, the Cash Flow of the Trust for such Distribution Period less any amounts (to the extent not otherwise having been taken into account in the calculation of Cash Flow of the Trust for such Distribution Period or a prior Distribution Period) which the Trustees may reasonably consider to be necessary to provide for: (i) the payment of any and all costs, expenses or liabilities, which have been or may be incurred in the undertaking and activities of the Trust; (ii) the payment of any income tax liability of the Trust; or (iii) any allowances for contingencies or for working capital, investments or acquisitions, and such reserves as are, in the opinion of the Trustees, necessary or desirable.
“Distribution Period” A period for which Cash Flow of the Trust and Distributable Cash are to be calculated as:
(a) commencing immediately after the preceding Distribution Record Date (or, for the first Distribution Record Date, commencing on the first Closing Date after the Effective Date) and, in all cases, the Distribution Period runs from and includes the first day thereof; and
(b) ending on a particular Distribution Record Date and, in all cases, the Distribution Period runs through and includes the last day thereof;
and, subject to the Trustees otherwise determining another Distribution Period at any time and from time to time in respect of a particular class or series of Trust Units, the Distribution Period for Trust Units is hereby established as being each calendar month.
“Distribution Record For any Distribution Period, the last calendar day of each Distribution Period, or, if that day is not Date” a Business Day, the next following Business Day, or such other date determined from time to time by the Trustees, provided that December 31 and any other taxation year-end is in all cases a Distribution Record Date
“DRIP” The Trust’s distribution reinvestment plan. See also Item 2.7.6 – Distribution Reinvestment Plan.
“DRIP Enrollment The enrollment form indicating that the Trust Unitholder elects to participate in the DRIP (which Form” may be included in the Trust Unitholder’s subscription agreement in respect of a subscription for Trust Units).
“DRIP Unit Price” A price per Trust Unit equal to the most recent subscription price per Trust Unit that the Trust Units were offered to investors for purchase.
“Eligible Holders” Trust Unitholders who are Canadian residents.
“Eligible Trust Units” Trust Units held by Eligible Holders.
“Exempt Plans” A trust governed by a registered retirement savings plan, a registered education savings plan, a registered retirement income fund, a deferred profit sharing plan, a tax-free savings account or a registered disability savings plan.
“General Partner” Prime Income GP Inc., a corporation incorporated under the ABCA, which is the general partner of the Partnership and which is controlled by Moiz Bhamani and Harwinder Kang.
“Gross Offering At any time, the aggregate gross proceeds realized by the Trust from the issue and sale of Trust Proceeds” Units under the Offering.
“Independent Review The current members of the Independent Review Committee are Jefferey Wang and Naveen Committee” Ahuja. The Trust and the General Partner, on behalf of the Limited Partnership, have formed an Independent Review Committee comprised of the independent directors and independent trustees of the General Partner. At all times two (2) members of the board of the directors of the General Partner shall be “independent” as such term is defined in NI 81-107. For clarity, NI 81-107 does not apply to the Trust or the Limited Partnership but is being used as a reference for “independence”. See Item 2.2.3 –Independent Review Committee
“Investor” A person subscribing for and purchasing Trust Units pursuant to the Offering.
7 “Lethbridge Prime An affiliated Operator and borrower of the Partnership. Funds Inc.” The principal indebtedness of an Affiliated Operator, as borrower, pursuant to a Loan Agreement “Loan” between such Affiliated Operator, as borrower and the Partnership, as lender.
“Loan Agreement” An agreement between the Partnership, as lender, and an Affiliated Operator, as borrower, that is entered into in connection with the advance of any portion of Available Funds to the Affiliated Operator in accordance with the Loan Guidelines, whereby the Affiliated Operator will agree, as borrower, to certain covenants regarding use of funds from the Loan in accordance with the Property Guidelines.
“Loan Guidelines” The Loan Guidelines established for the Partnership in respect of lending Available Funds to Affiliated Operators, as described in Item 2.2.6 - Loan Guidelines.
“Maximum Offering” Gross Offering Proceeds of $100,000,000, to be achieved through the issue and sale of up to 1,000,000 Trust Units under the Offering.
“NI 81-107” National Instrument 81-107 Independent Review Committee for Investment Funds
“Non-Registered A Participant who holds Trust Units through an intermediary such as a financial institution, broker Participant” or nominee and has enrolled in the Plan through the intermediary.
“Non-Registered Trust Beneficial holders of Trust Units who hold their Trust Units through an intermediary such as a Unitholders” financial institution, broker or nominee.
“Non-Resident” Persons that are not resident in Canada or that are deemed to be not resident in Canada for the purposes of the Tax Act.
“Offering” The Trust’s offering, issue and sale of Trust Units at a price of $100 per Trust Unit, on a private placement basis, as more particularly described in this offering memorandum.
“offering This confidential offering memorandum pertaining to the Offering, including any amendment, memorandum” restatement or update to this offering memorandum.
“Participant” An Eligible Holder who has elected, in accordance with the terms of the DRIP, to participate in the DRIP and includes both Registered Participants and Non-Registered Participants.
“Partnership” Prime Income Limited Partnership, an Alberta limited partnership governed by the Partnership Agreement, whose partners are the General Partner (general partner) and the Trust (sole limited partner). See also Item 2.1.3 – Partnership and General Partner.
“Partnership Act” Partnership Act (Alberta), R.S.A. 2000, c. P-3, as amended.
“Partnership The limited partnership agreement dated as of July 8, 2014, as amended or restated from time to Agreement” time, between the General Partner, as general partner, and the Trust as sole limited partner, which agreement governs Partnership. See also Item 2.7.3 – Partnership Agreement.
“Prime Cochrane” Prime Cochrane Development Inc., an Affiliated Operator and borrower of the Partnership.
“Prime REDI” Prime Real Estate Development Inc., a corporation organized and existing under the ABCA. Moiz Bhamani and Harwinder Kang, Trustees, collectively, indirectly control or beneficially own all of the outstanding securities of Prime REDI.
“Prime REDI Loan Fees payable by the Partnership to Prime REDI, which will be 0.5% of each Loan, pursuant to the Fees” Prime REDI Loan Fee Agreement, as more particularly described in Item 2.7.5 – Prime REDI Loan Fee Agreement.
“Prime St. Albert” Prime St. Albert Development Inc., an Affiliated Operator and borrower of the Partnership.
“Property” Any commercial real estate asset, whether for development, rent, or sale, which is actively managed by an Affiliated Operator or its general partner (as applicable).
“Property Guidelines” The property guidelines established for the Affiliated Operators that receive Loan proceeds, as
8 described in Item 2.2.5 - Property Guidelines.
“Redemption Price” The redemption price payable by the Trust upon the redemption of a Trust Unit, calculated as described under Item 2.7.2 – Trust Declaration – Redemption of Trust Units.
“Redemption Notes” Debt securities of the Trust or any subsidiary of the Trust that may be created and issued from time to time that are unsecured, have a maturity of 10 years or less, are pre-payable at any time at the option of the issuer prior to maturity, without notice, bonus or penalty and pay an annual rate of interest equal to the Canada T-Bill Rate, which interest is payable monthly in arrears.
“Registered A Participant who is a registered holder of Trust Units at any time and from time to time, as shown Participant” on the register maintained by or on behalf of the Trust for outstanding Trust Units and who has enrolled in the DRIP.
“Royal Oak LP” Royal Oak Investment Limited Partnership, an Affiliated Operator and borrower of the Partnership.
“Royal Oak II Prime An affiliated Operator and borrower of the Partnership. Funds Inc.”
“RRIF” A trust governed by a registered retirement income fund.
“RRSP” A trust governed by a registered retirement savings plan.
“Redemption Notice” A notice, in writing, from the Trust to a Trust Unitholder of the intention of the Trust to redeem Trust Units at the option of the Trust.
“Selling Commissions” The commissions, dealer fees, marketing fees and other compensation payable to agents or sub- agents who sell or assist in selling Trust Units under the Offering and who are not precluded from receiving such commissions, dealer fees, marketing fees or other compensation under applicable securities law. See Item 7 – Compensation Paid to Sellers and Finders.
“SIFT Rules” Has the meaning given thereto in Item 6.2.2 – Status of the Trust.
“SIFT Trust” Has the meaning given thereto in Item 6.2.2 – Status of the Trust.
“Special Resolution” (a) a resolution proposed to be passed as a special resolution at a meeting of Trust Unitholders (including an adjourned meeting) duly convened for that purpose and held in accordance with the Trust Declaration and passed by more than 66⅔% of the votes cast on such resolution by Trust Unitholders present or represented by proxy at the meeting; or
(b) notwithstanding any other provision of the Trust Declaration, a resolution in writing executed by Trust Unitholders holding more than 66⅔% votes attached to outstanding Trust Units at any time.
“Subscription A subscription agreement to be executed by each Investor providing for the purchase of Trust Agreement” Units in the form provided by the Trust. The current form of Subscription Agreement for Trust Units is attached as Schedule A to this offering memorandum.
“Subscription Price” Has the meaning given thereto in Item 2.7.2 – Trust Declaration – Redemption of Trust Units.
“subsidiary” Has the meaning given in National Instrument 45-106 – Prospectus and Registration Exemptions. Without limiting that definition, an issuer is a subsidiary of another issuer if it is controlled, directly or indirectly, by that other issuer, and in respect of such relationship, a person or issuer (first person) is considered to “control” another issuer (second person) if: (a) the first person, directly or indirectly, beneficially owns or exercises direction or control over securities of the issuers carrying votes which, if exercised, entitle the first person to elect a majority of the directors (or other similar fiduciaries) of the issuer, unless the first person holds the voting securities only to secure an obligation; or (b) the issuer is a partnership (other than a limited partnership) and the first person holds more than 50% of the interests of the partnership; or
9 (c) the issuer is a limited partnership, whose general partner is the first person.
“Tax Act” The Income Tax Act (Canada) RSC 1985, c.1 (5th Supp.) and the regulations thereunder, as amended from time to time.
“TFSA” A trust governed by a tax-free savings account.
“Trust” Prime Income Trust, a trust formed under the laws of Alberta pursuant to the Trust Declaration. See also Item 2.1.2 – The Trust.
“Trust Declaration” The declaration of trust dated as of June 30, 2014, as amended or restated from time to time, between the Trustees, as trustees, and the Trust Unitholders, as beneficiaries, governing the Trust, as more particularly described under Item 2.7.2 – Trust Declaration.
“Trustees” At any time, the trustees of the Trust, who are, currently, Moiz Bhamani and Harwinder Kang. See Item 3 – Trustees and Management.
“Trust Unit” A trust unit of the Trust, as more particularly described under Item 5.1 – Trust Units.
“Trust Unitholder” A registered holder of Trust Units at any time and from time to time, as shown on the register maintained by or on behalf of the Trust for outstanding Trust Units.
“Trust Unit In respect of each Trust Unitholder at any particular time, the amount of all capital previously Subscription Amount” paid to the Trust on account of the purchase price for Trust Units less any capital repaid in respect of redemptions of Trust Units.
In this offering memorandum, unless the context otherwise requires, grammatical variations of the words and terms in this Glossary have meanings corresponding to the meanings given in this Glossary. Without limiting the generality of the foregoing, words and terms in the Glossary that give the singular number only include the plural and vice versa, and words and terms importing the masculine, feminine or neuter gender include the other genders.
In this offering memorandum, unless expressly modified by the words “only” or “solely”, the words “include”, “includes” or “including”, when following any general term or statement, are not to be construed as limiting the general term or statement to the specific items or matters set forth or to similar items or matters but rather are to be construed as meaning “include(s) without limitation” or “including without limitation” (as the context requires) and permitting such general term or statement to refer to all other items or matters that could reasonably fall within its broadest possible scope.
In this offering memorandum, unless the context otherwise requires, terms such as “we”, “us” and “our” - are meant to refer to the Trust and the Partnership and terms such as “you” are meant to refer to Investors who purchase Trust Units under the Offering, thereupon becoming Trust Unitholders.
ITEM 1 - USE OF AVAILABLE FUNDS
Funds
The table below represents the estimated Available Funds under the Offering (being Gross Offering Proceeds less Selling Commissions and estimated Offering costs). As of March 1, 2017, the Trust has realized Gross Offering Proceeds of $8,415,900 and has paid Selling Commissions of $657,766.00 in connection with the Offering.
Assuming Minimum Assuming Maximum Offering Offering
A Total amount to be raised by the Offering(1) – $100,000,000
(2) B Selling Commissions – $10,000,000
C Estimated Offering Costs(3) – $125,000 D Available Funds: D = A – (B + C) – $89,875,000 E Additional sources of funding required – Note 4 F Working capital deficiency – Note 5 G Total: G = (D+E)-F – $89,875,000
10 Notes: (1) The Trust may complete the issue and sale of the Trust Units at any time and from time to time at one or more Closings until the Maximum Offering is reached, extended or the Offering is otherwise terminated. Under the Maximum Offering, the Trust will issue and sell the Trust Units for aggregate gross proceeds of up to $100,000,000. The Trust may, without notice to Investors, increase the Maximum Offering. There is no assurance that the Maximum Offering will be completed. See Item 8 – Risk Factors. See Item 1.2 – Use of Available Funds and Item 2.2 – Our Business.
(2) There are two Selling Commission plans available to the sellers of Trust Units. Each plan has different initial Selling Commissions and different trailer fees. See Item 7 – Compensation Paid to Sellers and Finders for the full details of the two plans. Assumes the maximum possible 10.0% of the Gross Offering Proceeds will be paid as Selling Commissions.
(3) The estimated costs of up to $125,000 include costs incurred in connection with the establishment of the Trust and Partnership and legal, advertising, marketing and accounting costs associated with the Offering. (4) The Available Funds may not be sufficient to accomplish the Trust’s objectives. There is no assurance that the Trust will have adequate working capital to meet the anticipated requirements described in this offering memorandum. See Item 8 – Risk Factors. (5) As at March 1, 2017, the Trust does not have a working capital deficiency. The Trust anticipates funding its working capital requirements through a combination of Available Funds, distributions from the Partnership, if any, and its future financing efforts. In the future and going forward, there is no assurance that the Trust will have adequate working capital to meet the anticipated requirements described in this offering memorandum. See Item 1.4 – Working Capital Deficiency. Use of Available Funds
The table below represents the estimated use of the Available Funds by the Trust, based on its present plans and present business conditions.
Assuming Minimum Assuming Maximum Description of intended use of Available Funds listed in order of priority Offering Offering
Loan to Prime St. Albert(1) – $7,000,000 Loan to Prime Cochrane(2) – $4,500,000 Loan to Royal Oak LP (3) – $500,000 Loan to Lethbridge Prime Funds Inc.(4) - $4,500,000 Loan to Royal Oak II Prime Funds Inc.(5) - $4,500,000 Loans to other Affiliated Operators(6)(7), which will use Available Funds to – $80,375,000 acquire, develop, lease or sell Properties. See Item 2.2.5 - Property Guidelines TOTAL – $89,875,000
Notes: (1) The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Prime St. Albert for a principal amount up to $7,000,000 at an interest rate of 8.5% calculated daily and payable monthly. See Item 3.4 – Loans. As of March 1, 2017, $5,964,000 of principal amount has been advanced under this loan and the Partnership was paid a Loan fee of $328,020 (5.5% of the principal amount advanced under this loan) and Prime REDI was paid Prime REDI Loan Fees of $29,820 in connection with the funds advanced. See Item 3.1 – Compensation and Securities Held.
(2) The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Prime Cochrane for a principal amount up to $4,500,000 at an interest rate of 8.5% calculated daily and payable monthly. See Item 3.4 – Loans. As of March 1, 2017, $1,580,800 of principal amount has been advanced under this loan and the Partnership was paid a Loan fee of $86,944 (5.5% of the principal amount advanced under this loan) and Prime REDI was paid Prime REDI Loan Fees of $7,904 in connection with the funds advanced. See Item 3.1 – Compensation and Securities Held.
(3) The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Royal Oak LP for a principal amount up to $500,000 at an interest rate of 8.5% calculated daily and payable monthly. See Item 3.4 – Loans. As of March 1, 2017, $445,000 of principal amount has been advanced under this loan and the Partnership was paid a Loan fee of $24,475 (5.5% of the principal amount advanced under this loan) and Prime REDI was paid Prime REDI Loan Fees of $2,225 in connection with the funds advanced. See Item 3.1 – Compensation and Securities Held.
(4) The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Lethbridge Prime Funds Inc. for a principal amount up to $4,500,000 at an interest rate of 8.5% calculated daily and payable monthly. See Item 3.4 – Loans. As of March 1, 2017, $230,000 of principal amount has been advanced under this loan and the Partnership was paid a Loan fee of $12,650 (5.5% of the principal amount advanced under this loan) and Prime REDI was paid Prime REDI Loan Fees of $1,150 in connection with the funds advanced. See Item 3.1 – Compensation and Securities Held.
(5) The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Royal Oak II Prime Funds Inc. for a principal amount up to $4,500,000 at an interest rate of 8.5% calculated daily and payable monthly. See Item 3.4 – Loans. As of March 1, 2017, $110,000 of principal amount has been advanced under this loan and the Partnership was paid a Loan fee of $6050 (5.5% of the principal amount advanced under this loan) and Prime REDI was paid Prime REDI Loan Fees of $550 in connection with the funds advanced. See Item 3.1 – Compensation and Securities Held.
(6) Some of the specific Affiliated Operators that will receive Loans from the Partnership have not been determined as of the date of this offering memorandum and consequently some of the specific Properties that the Available Funds will be used for have not been determined as of the date of this offering memorandum. See Item 8 – Risk Factors.
(7) The Loans will be made by the Partnership to each Affiliated Operator. The Trust will advance Available Funds to the Partnership by purchasing limited partnership units of the Partnership.
CAL01: 1951970: v8 11 Reallocation
The Trust will spend the Available Funds as stated. The Trust has no intention of reallocating Available Funds and intends to spend them as stated. If for some reason the Trust determines it should reallocate the Available Funds, the Trust will reallocate the funds only for sound business reasons and provided that such reallocation provides a benefit to Trust Unitholders and is approved by the Independent Review Committee. See Item 2.6 – Insufficient Proceeds and Item 2.2.3 – Governance and Independent Review Committee.
Working Capital Deficiency
As at March 1, 2017, the Trust does not have a working capital deficiency. The Trust anticipates funding its working capital requirements through a combination of Available Funds, distributions from the Partnership, if any, and its future financing efforts. There is no assurance that the Trust will have adequate working capital to meet the anticipated requirements described in this offering memorandum. See Item 8 – Risk Factors.
ITEM 2 - BUSINESS OF THE TRUST
Structure
Under the Offering, Investors will purchase Trust Units of the Trust. The Trust will purchase limited partnership units in the Partnership, which will enter into Loans with Affiliated Operators, which will carry on the business of acquiring, developing, leasing and selling real estate properties primarily in Canada and possibly the United States.
2.1.1 Organizational Chart
The structure of the Trust and its subsidiary entities that are or may be involved in the Offering and use of the Available Funds is outlined below.
Notes: (1) Trust Unitholders hold Trust Units, each of which represents a holder’s proportionate undivided beneficial interest in the Trust. See Item 2.1.2 – The Trust. (2) The Trust will own limited partnership units in the Partnership and will be the sole limited partner of the Partnership. The sole general partner of the Partnership is the General Partner. All of the outstanding shares of General Partner will be controlled by Moiz Bhamani and Harwinder Kang. See Item 2.1.3 – Partnership and General Partner. (3) The Partnership will enter into Loan Agreements with Affiliated Operators from time to time that adhere to the Loan Guidelines. See Item 2.2.6 – Loan Guidelines, Item 2.7.4 –Loan Agreements, and Item 3.4 – Loans. The Partnership has agreed to increase the Loan Agreement with Prime St. Albert to a principal amount of up to $7,000,000, and has entered into separate Loan Agreements with Prime Cochrane, Lethbridge Prime Funds Inc., and Royal Oak II Prime Funds Inc. for a principal amount of up to 4,500,000 for each of them in accordance with the Loan Guidelines. The Partnership has entered into a Loan Agreement with Royal Oak LP for a principal amount of up to $500,000.00 in accordance with the Loan Guidelines. The Partnership intends to advance funds in tranches to Prime Cochrane, Prime St. Albert, Royal Oak LP, Lethbridge Prime Funds Inc. and Royal Oak II Prime Funds Inc. and potentially other Affiliated Operators from time to time. As of March 1, 2017: (a) Prime St. Albert has received aggregate advances of $5,964,000 (out of $7,000,000); (b) Prime Cochrane has received aggregate advances of $1,580,800 (out of $4,500,000); (c) Royal Oak LP has received aggregate advances of $445,000 (out of $500,000), (d) Lethbridge Prime Funds Inc. has received aggregate advances of $230,000 (out of $4,500,000) and Royal Oak II Prime Funds Inc. has received aggregate advances of $110,000 (out of $4,500,000). See Item 2.2.6 – Loan Guidelines, Item 2.7.4 –Loan Agreements, and Item 3.4 – Loans. (4) As of March 1, 2017, the Affiliated Operators consist of Prime St. Albert, Prime Cochrane, Lethbridge Prime Funds Inc., Royal Oak II Prime Funds Inc. and Royal Oak LP. The Affiliated Operators, or their general partner(s) are entities which own Property(ies) that are actively managed by the Trustees. Both Moiz Bhamani and Harwinder Kang, will be directors, trustees and/or officers of the Affiliated Operators or its general partner (as applicable). The Affiliated Operators will exercise control over each Property and Moiz Bhamani and Harwinder Kang will be actively involved in the management of each Affiliated Operator and Property. See Item 2.1.4 – Affiliated Operators. (5) The Trust (indirectly through the Partnership) intends to advance Loans to Affiliated Operators that will acquire, develop, lease or sell Properties that comply with the Property Guidelines. See Item 2.2.5 - Property Guidelines. Other than the Properties owned by Prime St. Albert, Prime Cochrane, Lethbridge Prime Funds Inc., Royal Oak II Prime Funds Inc.,and Royal Oak LP (see Item 2.2.4 - Business of the Affiliated Operators), the specific Affiliated Operators that will receive Loans from the Partnership have not been determined as of the date of this offering memorandum and consequently some of the specific Properties that the Available Funds will be used for have not been determined as of the date of this offering memorandum. See Item 8 – Risk Factors. 2.1.2 The Trust
The Trust is an open-ended, unincorporated investment trust formed under the laws of Alberta. The trustees for the Trust are Moiz Bhamani and Harwinder Kang. See Item 3 - Trustees and Management. The Trust is governed by the Trust Declaration between the Trustees, as trustees, and the Trust Unitholders, as beneficiaries, which establishes the rights and obligations of the Trust Unitholders and the Trustees.
CAL01: 1951970: v8 12 The Trust will not carry on active business and will not directly or indirectly own any Properties. Rather, the Trust owns limited partnership units in the Partnership, which will enter into Loans with Affiliated Operators, which will carry on the business of acquiring, developing, leasing and selling real estate properties primarily in Canada and possibly the United States.
The Trust qualifies as a “mutual fund trust” as defined by the Tax Act and qualifies to have Trust Units that are eligible for purchase by registered retirement savings plan and other Exempt Plans. See Item 6.2.1- Eligibility for Investment by Exempt Plans and Item 6.2.2 – Status of the Trust. However, the Trust is not, and will not become, a “mutual fund” or “non-redeemable investment fund” as defined by applicable Canadian securities legislation and the Trust does not operate in accordance with the requirements of the Canadian securities regulations applicable to mutual funds or non-redeemable investment funds. Accordingly, certain investor protections contained in those regulations are not available to purchasers of Trust Units. In addition, the Trust is not a trust company and is not registered under applicable legislation governing trust companies.
For descriptions of the Trust Declaration and the Trust Units, see Item 2.7.2 – Trust Declaration, Item 5.1 – Trust Units and Item 5.2 – Cash Distributions to Trust Unitholders.
2.1.3 Partnership and General Partner
Partnership is a limited partnership formed pursuant to the Partnership Act (Alberta) on July 8, 2014 and is governed by the Partnership Agreement, a partnership agreement dated as of July 8, 2014. The fiscal year end of the Partnership is December 31. The head and registered office of the Partnership is located at Suite 1206, 734 - 7th Ave SW, Calgary, AB T2P 3P8. The partners of the Partnership are the Trust (sole limited partner) and General Partner (sole general partner).
The General Partner was incorporated pursuant to the Business Corporations Act (Alberta) on July 8, 2014. All of the outstanding shares of the General Partner are beneficially owned or controlled, directly or indirectly by Moiz Bhamani and Harwinder Kang. The head and registered office of General Partner is located at Suite 1206, 734 - 7th Ave SW, Calgary, AB T2P 3P8.
The mutual rights and obligations of the Trust (sole limited partner) and General Partner (sole general partner) as the partners of the Partnership are governed by Partnership Agreement. See Item 2.7 – Material Agreements.
2.1.4 Affiliated Operators
The Affiliated Operators or their general partner(s) are entities which own Property(ies) that are actively managed by Moiz Bhamani and Harwinder Kang. Both Moiz Bhamani and Harwinder Kang, will be directors, trustees and/or officers of each Affiliated Operator or its general partner (as applicable). Each Affiliated Operator is to acquire, develop, lease or sell Properties, with a view to making a profit, and may exercise powers in furtherance thereof. The Affiliated Operators will exercise control over each Property and Moiz Bhamani and Harwinder Kang will be actively involved in the management of each Affiliated Operator and Property.
The Partnership will only advance Loans to Affiliated Operators that will acquire, develop, lease or sell Properties that comply with the Property Guidelines. See Item 2.2.5 - Property Guidelines. The specific Affiliated Operators that will receive Loans from the Partnership have not been determined as of the date of this offering memorandum and consequently the specific Properties that the Available Funds will be used for have not been determined as of the date of this offering memorandum. See Item 8 – Risk Factors.
Prime St. Albert owns a three-storey Class A suburban office building in a premium location within the City of St. Albert and is in the final stages of completion. The building has a gross area of 69,253 sq. ft. and a net leasable area of 37,780 sq. ft. Moiz Bhamani and Harwinder Kang are the beneficial owners of, and have direct control over, the project. There is first position secured debt in place with a conventional lender, therefore the Loan(s) from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Prime Cochrane has purchased a 2.07 acre parcel of land in downtown Cochrane. The development is expected to be a mix of office and retail space, with final size and layout to be determined. Moiz Bhamani and Harwinder Kang are the beneficial owners of, and have direct control over the project. Currently there is financing in place for the land acquisition, but not for the construction project, therefore the Loan from the Issuer is be subordinated to the current financing in place.
Royal Oak LP owns a three-storey Class A suburban office building within the City of Calgary’s Royal Vista Business Park. The building has a gross area of approximately 65,000 sq. ft. and the building is fully leased. Moiz Bhamani and Harwinder Kang have indirect control over the project through ownership of Royal Oak LP’s general partner. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Prime Funds Lethbridge Inc. has developed and now operates South Centre Common, a shopping centre consisting of 47,393 square feet that is part of the south Lethbridge Power Centre District. The centre continues to attract tenants and is almost fully CAL01: 1951970: v8 13 leased. Moiz Bhamani and Harwinder Kang have direct control over the property. There is a first position secured debt in place with a conventional lender, therefore the Loan(s) from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Royal Oak II Prime Funds Inc. has purchased for development, a parcel of land in the Royal Oak commercial business park in North West Calgary, Alberta. Moiz Bhamani and Harwinder Kang have indirect control over the project through ownership of this company. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Our Business
2.2.1 Our Experience
The Trust will benefit from the Trustees’ real estate development experience. The Trustees have direct experience related to the provision of project planning, development, construction, leasing and asset management services to internal and external projects throughout North America. The Trustees have direct experience with the development of over 500,000 square feet of commercial real estate projects and are currently developing and managing projects over 2,000,000 square feet. These projects include business park sub-divisions, retail shopping centers, suburban office buildings, mixed-use commercial centers and industrial bays. The Trustees are currently involved in projects, both owned and under construction, with a current retail value of over $250,000,000. These projects are located in Western Canada and the Greater Houston Area, Texas (USA). 2.2.2 Activities of the Trust
The Trust will not carry on active business. Rather, the Trust is the sole limited partner of the Partnership, which will advance funds as Loan principal to Affiliated Operators, which will own and develop Property(ies). The Partnership, as lender, will hold a portfolio of Loans with Affiliated Operators, as borrowers, and, accordingly, will be indirectly invested as a subordinated creditor in a portfolio of Properties that are owned by the Affiliated Operators. In the event an Affiliated Operator defaults on its obligations under a Loan Agreement, the Partnership will have the same rights, remedies and recourse as would be available to an arm’s length lender in a similar agreement. See also Item 2.1.1 – Organizational Chart.
Currently, the Trust (indirectly through the Partnership) is lending or intends to lend to three separate projects being Prime St. Albert, Prime Cochrane and Royal Oak LP. See Item 2.2.4 - Business of the Affiliated Operators.
2.2.3 Governance Matters and Independent Review Committee
Moiz Bhamani and Harwinder Kang are the Trustees of the Trust and both of them will be a director/trustee and/or officer of each Affiliated Operator or its general partner (as applicable). The Trust (through the Partnership) will take an active role in originating any Loans to the Affiliated Operators. Consequently, each of the Loans from the Partnership to the Affiliated Operator is a related-party transaction. While there is an inherent conflict of interest in related-party transactions, the Partnership will only enter into Loans with Affiliated Operators upon commercially reasonable terms which are consistent with lending rates for comparable loans with comparable risk profiles and which otherwise adhere to the Loan Guidelines. See Item 2.2.6 – Loan Guidelines. Further, as Moiz Bhamani and Harwinder Kang will manage each Affiliated Operator and Property, the Trustees will be able to accurately monitor the performance of the Loan portfolio as the Moiz Bhamani and Harwinder Kang will be intimately familiar with the operations of each Affiliated Operator and each Property. However, in the event of default under the Loan, Moiz Bhamani and Harwinder Kang would be faced with a conflict of interest as they would be required to act in the best interests of the Trust and Partnership on one hand, and on the other hand, for the Affiliated Operator. See Item 8 – Risk Factors.
In the event of such a conflict of interest arising, the matter will be referred to the Independent Review Committee.
Independent Review Committee
Mr. Jefferey Wang, and Mr. Naveen Ahuja, will form the independent review committee (the “Independent Review Committee” or “IRC”) to the General Partner, on behalf of the Limited Partnership and to the Trust and Manager/Administrator. At all times they shall be “independent” directors of the General Partner and trustees of the Trust as such term is defined in NI 81- 107. For clarity, NI 81-107 does not apply to the Trust or the Limited Partnership but is being used as a reference for “independence”.
The Independent Review Committee shall meet at least once annually and as otherwise required to properly undertake their duties. Their decisions will be in writing.
CAL01: 1951970: v8 14 IRC members, in exercising their powers and duties, shall at all times act honestly and in good faith, with a view to the best interests of the Trust and the Limited Partnership and shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Duties of the Independent Review Committee
The approval of both IRC members shall be required to consent to or approve the following matters:
(a) to approve any “conflict of interest matter” (as defined below) regarding the business of the Trust, Limited Partnership or Manager, including but not limited to any related-party transactions or contracts involving the Trust, the Limited Partnership, the General Partner or the Manager or related-party transactions or contracts involving their directors, officers, shareholders or affiliates;
(b) to approve allocations of expenses, fees or costs as between the Limited Partnership and the General Partner;
(c) to formally approve the Contribution Agreement, and acquisition of Future Properties;
(d) to review and approve a detailed annual operating and capital budget of the Limited Partnership and Manager, with any items not contained in the approved budget or deviations or reallocations from such approved budget greater than $50,000 requiring further review and approval; and
(e) to approve the content of all reporting to Unitholders.
A “conflict of interest matter” means a situation where a reasonable person would consider the person or entity in question, or an entity related to such person or entity, to have an interest which may conflict with their ability act in good faith and in the best interests of the Trust and Limited Partnership.
The IRC may, upon a request of any director of the General Partner or Manager, or by its own initiative or that of any member, review applicable valuations required or conducted from time to time and, if it disagrees with such valuation(s) or conclusions it may refer the issue to the auditor (business valuations group) of the Limited Partnership and Trust or such other independent professional as deemed appropriate by the IRC in such circumstances.
In addition to the above, the IRC shall meet as requested by directors of the General Partner, Manager / Administrator or any of its members to monitor and assess the performance of the Limited Partnership and Trust relative to the business objectives stated herein.
The General Partner and Manager / Administrator, and their directors and officers, in addition to individual members of the IRC, shall have an obligation to report any “conflict of interest matters” that they may become aware of to the IRC as soon as possible to allow the IRC to consider and make such decisions as they deem necessary.
Before taking any action permitted under this Agreement, the IRC may obtain legal or other advice, as to the effect of its proposed action and the reasonable expenses of such advisors shall be borne by the Limited Partnership as an operating expense. The Independent Review Committee is not subject to NI 81-107, accordingly is not subject to the same regulations as the independent review committee of an investment fund that is a reporting issuer, however, the Independent Review Committee may look to the provisions of NI 81-107 as guidance from time to time.
2.2.4 Business of the Affiliated Operators
Loan proceeds are to be used by Affiliated Operators in their operations. It is intended that the Affiliated Operators acquire, develop, lease or sell a portfolio of Properties located primarily in urban or metropolitan areas throughout Canada and possibly the United States, as determined by the Affiliated Operators from time to time. The Affiliated Operators will primarily focus on commercial Property(ies) in Canada and possibly the United States. Affiliated Operators that are advanced Available Funds from the Partnership will be required to adhere to the Property Guidelines. See Item 2.25 Property Guidelines. As of March 1, 2017, the Affiliated Operators are Prime St. Albert, Prime Cochrane and Royal Oak LP. Prime St. Albert - St. Albert Crossing Project
Prime St. Albert’s project is a building located on St. Albert Trail which is a major corridor in the City of St. Albert located north of Edmonton. Its civic address is 214 St. Albert Trail, St. Albert, Alberta and consists of a three-storey Class A office on 906 acres (39,451 sq. ft ) St. Albert is a bedroom community to Edmonton which has seen significant growth over the last few years with a significant base in oil and gas, agriculture, manufacturing hospitality, business services and municipal government. A strong retail base is situated in the commercial corridor of St. Albert Trail. Manufacturing, agri-business and industrial businesses are located in the City’s industrial parks.
CAL01: 1951970: v8 15 The City of St. Albert was established as a non-fortified community in 1861 by Father Albert Lacombe. By 1870, it was the largest agricultural settlement west of Winnipeg. It was eventually granted city status in 1970 and has a current population of approximately 65,000. The St. Albert trade area has grown consistently and has become a shopping destination for most people living in the towns and villages north, east and west of St. Albert. Major retail outlets include Walmart, Winners, London Drugs and Chapters.
The Trustees believe that the City of St. Albert offers an attractive alternative to living in Edmonton as it offers all the basic community services such as an RCMP detachment, fire department, hospitals, clinics, schools and a university college.
The St. Albert Property is in an excellent location along the west side of St. Albert Trail and is adjacent and in proximity to complementary commercial uses which provides high exposure and excellent access. The office building was completed in 2009 as a high quality Class A office building with a superior parking ratio.
The investment market for high quality office space is strong. There are a limited number of high quality office buildings available for sale in the area at the present time.
The St. Albert project was acquired in 2014 as part of a judicial sale for $8.6 million and the plan is to continue to improve the exterior of the building as well as to redevelop the interior space for potential tenants. The goal is to make this building income producing to provide cash flow to its investors.
The work planned was a significant construction project which was expected to take from two to three years to complete. The planned budget was approximately $6 million, with $1.5 million of equity with the balance of $4.5 million in the form of mezzanine financing from the Trust indirectly pursuant to a Loan from the Partnership, as lender. The conventional lender in this project has been Alberta-based bank which was responsible for funding approximately $6 million of the original purchase price. The Alberta-based bank has a first secured position on the St. Albert project and has committed to convert its construction loan into a long term mortgage once income from the building has stabilized.
As of March 1, 2017, Prime St. Albert has received aggregate advances of $5,964,000. (out of $7,000,000) from the Trust (indirectly through the Partnership). The interior renovation has been completed and Prime St. Albert is actively leasing the building and expects that it will be fully leased by mid 2017.
It the intention that once the Prime St. Albert project is more fully leased, it will be refinanced and the Loan from the Partnership will be repaid, however, there is no assurance the project will be completed within this timeline and/or refinanced. See Item 8 – Risk Factors.
An appraisal of the St. Albert project was commissioned and prepared by Acumen Real Estate Valuations Inc. with an effective date of March 27, 2014. It was the opinion of the appraiser that using the hypothetical current market value of the project as of the effective date thereof was $18,400,000. However, there can be no assurance that Prime St. Albert would realise this value upon the disposition of the project.
Prime Cochrane -Grand Plaza Project
Prime Cochrane has purchased approximately 2.04 acres of land in the Town of Cochrane which is located approximately 20 kilometers west of the City of Calgary. Highway 1A connects Cochrane to Kananaskis Country and the Town of Canmore to the west Highway 22 extends south from the Town connecting it to the Trans-Canada Highway (Highway 1). Prime Cochrane’s project is located on the northwest corner of Grand Boulevard and Grande Avenue in the Cochrane City Centre. It is bordered by various established commercial properties including the Grande Professional Building to the south and Walmart to the east. In addition, the Cochrane Movie House is located to the north and the No Frills grocery store as well as a two storey office building are located to the west.
It was acquired in 2015 as a raw retail commercial land acquisition for approximately $2 million and has been rezoned as commercial retail. Approximately $1 million of the purchase price was in the form of a loan from an arm’s length lending company with the balance financed through the Trust (indirectly through the Partnership).
The Property is rectangular in shape and generally level and at grade with adjoining roadways and properties in all directions. The Property is fully serviced with gas, storm and sanitary sewer, water, electricity and communications.
Prime Cochrane intends to construct a new, two-building, strip retail centre on the Property. Building One will be constructed in an “L” shape and will extend along the south and east property lines. Building Two will be a smaller, single storey multi-tenant building situated along the southwest corner of the site. The plan is to develop approximately 35,000 sq. ft. of retail shopping centre with national brands taking most of the space and providing amenities to the people living in or around Cochrane. The proposed retail centre is expected to be of modern design and appeal. Prime Cochrane’s current plans project a pre- and post- construction budget of $4.5 million to be used towards development of the Property. Construction is expected to take 18-24 CAL01: 1951970: v8 16 months following which it is expected that the project will be refinanced and the Loan from the Partnership will be repaid at that time.
The Trustees believe that the investment market for quality retail and office assets remain good notwithstanding the negative effect on the economy due to lower oil prices. In addition, there is a limited number of high quality retail and office properties available for sale. The Trustees believe that yield rates remain low for good quality retail and office product. There continues to be upward pressure on retail rents due to persistently low vacancy rates.
A credit union has been involved in providing much of the construction financing necessary to develop the project.
In the current year, Prime Cochrane is borrowing funds to meet its development budget. Prime Cochrane has already obtained a development permit for the project and is currently in the process of pre-leasing.
It the intention that once the Prime Cochrane project is completed as contemplated within a 12-18 month period, it will be refinanced and the Loan from the Partnership will be repaid, however, there is no assurance the project will be completed within this timeline and/or refinanced. See Item 8 – Risk Factors.
An appraisal was commissioned and prepared by Acumen Real Estate Valuations Inc. with an effective date of January 12, 2016. Two valuation techniques were included with one being the income approach and the other being a direct comparison approach. Upon reconciling both approaches, it was the opinion of the appraiser that the hypothetical current market value of the Cochrane Property assuming it is 100% completed in a workmanship manner with tenants in occupancy and paying rent was $15,850,000. However, there can be no assurance that Prime Cochrane would realise this value upon the disposition of the project.
Royal Oak LP – Royal Oak Office Project
Royal Oak LP’s project consists of an office building located in Northwest Calgary. It has been developed over the last several years and is owned by the Royal Oak LP and managed by Prime REDI or its affiliates. Royal Oak LP has been active and distributing rental income on to its investors. It borrowed $250,000 indirectly from the Trust in 2015 to pay for capital expenditures not covered by warranty and for pre-development work necessary to develop a retail pad in the parking lot which is intended to increase the value of the project to its investors. Royal Oak LP will continue to borrow funds from the Partnership should it decide to complete its plans to build the retail pad as planned.
The Royal Oak office building is fully leased and collecting rents. It is expected that this project can repay the Loan from the Partnership within a 12-month period (anticipated July 20, 2017), however, there is no assurance the Loan will be repaid within this timeline. See Item 8 – Risk Factors.
Lethbridge Prime Funds Inc. – South Centre Common
This commercial property is located at Mayor Magrath Drive and Southgate Blvd. in Lethbridge, Alberta, Lethbridge is central to the commercial, distribution, financial and industrial sectors of the southern Alberta economy. Lethbridge’s regional prominence as a service provider has resulted in the establishment of the city as a retail and hospitality centre. Traditionally, Lethbridge’s economy has been agriculture based, however, as the city has grown in recent years, its economy has become more diversified. As such, since the beginning of the global economic crisis Lethbridge gained 8,800 jobs, which is more than Red Deer, Grande Prairie, or Medicine Hat during this period. At the same time, total GDP in Lethbridge grew by $487 million with a relatively stable trend throughout that period. With a fast growing economy, less traffic, and reasonable housing market, many people from all over Alberta are moving to this new hotspot.
Leasing activity continues as the centre approaches full occupancy with a mix of uses including medical and retail. National tenants include Menchie’s, Party City and Cob’s Bread. The centre benefits from a strong location with neighbours including Costco, Walmart and Superstore. It borrowed $230,000.00 from the Trust indirectly in 2016 for development completion and when fully leased is expected to repay the Loan within by December 1, 2018, however, there is no assurance the Loan will be repaid within this timeline. See Item 8 – Risk Factors.
Royal Oak II Prime Funds Inc. – Royal Oak Office Project
This project compliments the existing and fully leased property located immediately to the north east by Royal Oak LP. Also part of the City of Calgary’s Royal Vista Business Park in the northwest community of Royal Oak, it is located in one of the most prosperous, populated, and developing communities in the city. Planned by the City of Calgary, this business park is designed to be an employment node with commercial and light industrial uses.
CAL01: 1951970: v8 17 This land was purchased from the City in 2015 and construction is expected to begin in 2017, with pre-leasing activity in place. The project borrowed from the Trust to cover costs associated with having the property in a development-ready state as soon as pre-leasing activity warrants groundbreaking. The project will continue to borrow as construction starts and continues.
2.2.5 Property Guidelines
The Partnership will take commercially reasonable steps to ensure that Affiliated Operators adhere to the following Property Guidelines for the acquisition, development, renting and sale of Properties:
(a) generally target Properties with 5.0% or higher unlevered Cap Rates;
(b) seek acquisition opportunities below replacement cost where capital appreciation can be realized;
(c) utilize the relationships, experience and capabilities of Prime REDI to create future value;
(d) seek commercial real estate Property(ies), including land for development and new construction opportunities;
(e) focus on suburban, urban and metropolitan markets with strong economic fundamentals and growth potential;
(f) focus on commercial real estate; and
(g) seek Property(ies) that have potential growth in the rental rates, including, without limitation, where vacancy rates can be stabilized or rental rates can be enhanced through value-added enhancements or operating expense efficiencies through strong management.
2.2.6 Loan Guidelines
The Partnership will enter into Loan Agreements with Affiliated Operators that adhere to the following Loan Guidelines:
(a) Loans may only be made to Affiliated Operators and only in circumstances where both Moiz Bhamani and Harwinder Kang are actively involved in the management of the Affiliated Operator.
(b) Once Available Funds are sufficient, it is the intention of the Trust to hold a diversified portfolio of Loans, having Loan Agreements with at least 4 Affiliated Operators at any point in time. There is no minimum offering and Available Funds may be insufficient to achieve this goal. See Item 8 – Risk Factors.
(c) The Partnership will receive a Loan fee of up to 5.5% of the aggregate principal of the Loan, of which 0.5% will be paid to Prime REDI as Prime REDI Loan Fees pursuant to the Prime REDI Loan Fee Agreement. As is common practice in commercial lending, the Loan Fee will be included in, and paid from, the Loan advanced to the Affiliated Operator. See Item 2.7.5 – Prime REDI Loan Fee Agreement.
(d) Loans will bear a simple annual interest rate between 8.0% and 12.0% on the outstanding principal amount of the Loan, depending on the risk-profile of the Loan and corresponding Property.
(e) To provide maximum value to Trust Unitholders, the Partnership will generally target higher interest rate Loans such as construction financing, or subordinated debt.
(f) Interest on the Loans should be similar to comparable loans from arm’s length lenders based upon the risk- profile of the Loan.
(g) Interest should generally be paid at least monthly on each Loan, except in circumstances where the Affiliated Operator has limited cash flow, such as construction financing of a development project.
(h) In circumstances where the Affiliated Operator is not generating cash from operations, the Affiliated Operator may be required to establish a Loan service reserve from the Loan proceeds to be drawn upon to satisfy the Affiliated Operator’s interest obligation under the Loan, to the extent necessary from time to time in an aggregate amount equal to such number of months’ interest obligation under the applicable Loan as determined by the General Partner.
CAL01: 1951970: v8 18 (i) The term of the Loans should be commercially reasonable. The targeted Loan term should generally not exceed 36 months and it is anticipated that the Loans would have terms ranging from 12 – 36 months on average, however, such term shall not exceed 60 months. For clarity, the Partnership may enter into Loans with terms that are shorter than 12 months or greater than 36 months provided that the term is considered commercially reasonable given the risk-profile of the Loan.
(j) The Partnership should seek to lend out the Available Funds as soon as commercially reasonable after such funds are received to ensure, to the extent possible, that the Available Funds are generating interest from Loans.
(k) The security should consist of a security interest in the underlying Property and a personal property registration over the personal property associated with the Property. The security interest may include any additional security that is commercially reasonable in the circumstances.
(l) If Loans are secured with first-position mortgages, then the interest rate under the Loan can be lower than it would be for subordinated mortgages.
(m) The Affiliated Operator may obtain conventional debt financing from arm’s length lenders which may be secured by the Property and rank senior to the Affiliated Operator’s security interests (if any).
(n) Upon default by the Affiliated Operator, the Trust, General Partner and Partnership will not proceed with any restructuring, waiver of default, enforcement of default, realization of securitiy or other action related to the defaulting Affiliated Operator unless and until such action is approved by the Independent Review Committee, which committee may retain professional advice prior to approving such action.
(o) The Loans should generally be repayable upon demand of the Partnership, but only after the Affiliated Operator services and repays loans (if any) owed by the Affiliated Operator to senior secured lenders at arm’s length to the Affiliated Operator.
(p) Notwithstanding the demand nature of any Loan, the occurrence of certain stated events should constitute an “event of default”, whereby the Affiliated Operator is obliged to repay the Loan immediately. An Event of Default includes: (i) the non-payment of any amounts due under the Loan Agreement not otherwise remedied in 15 days; (ii) an order of a court declaring the Affiliated Operator bankrupt or insolvent or approving a petition seeking the reorganization, arrangement or winding-up of the Affiliated Operator; (iii) a resolution approving the winding-up, dissolution or liquidation of the Affiliated Operator; or (iv) if the Affiliated Operator institutes bankruptcy or like proceedings; or (v) if the Affiliated Operator neglects to observe or perform any of its obligations under the Loan Agreement and fails to rectify such default within 60 days after receiving notice.
(q) The Loans must require the Affiliated Operator to covenant that it will comply with the Property Guidelines.
(r) Loan amounts will be supported by reasonable Property value at the time of the Loan. In the event the Affiliated Operator has acquired the Property through a non-arm’s length transaction third party support of the Property value will be required as part of due diligence.
(s) The Loan will be reviewed and approved by the Trustees. Prior to the advance of any portion of the Loan to the Affiliated Operator, the Trustees will obtain a fairness opinion from an experienced real estate firm and/or mortgage broker regarding the reasonable value of the property at the time of the Loan and the financial terms of the Loan. The total loan to value of all loans on the respective property shall not exceed 75% of the as built value as determined in the fairness opinion.
2.2.7 Exit Event for Trust Unitholders
The Trust Units are intended to represent an income product for the Trust Unitholder. The primary purpose of investing in the Trust Units is for investors to earn a return on their investment through monthly cash distributions. Consequently, Trust Units should be intended to be held for a period of approximately 10 years and are unlikely to be liquidated until the Trust exits the Trust Unitholders.
The exit event for Trust Unitholders is contingent on the repayment of the principal advanced by the Trust (indirectly through the Partnership) to the Affiliated Operators under the Loans. The Trust intends to continue to raise funds each year through subsequent offerings of Trust Units until June 30, 2021 (the “Offering Termination Date”). The Trust may extend the Offering Termination Date if the Independent Review Committee approves the extension.
CAL01: 1951970: v8 19 Following the Offering Termination Date, if Loan principal is repaid to the Partnership and not re-invested, such funds will be returned to the Trust and would be available to pay for redemptions of Trust Units or cash distributions as determined by the Trustees.
In order to exit investors, the Trust intends to exercise its right of redemption to redeem Trust Units from Trust Unitholders that have held Trust Units for five years. Once a Trust Unitholder has held any number of Trust Units for five years, then all of the Trust Units held by such Trust Unitholder will be considered to be in a “Sunset Period”. Each year of a Sunset Period is considered to be a “Sunset Year”.
Redemptions Prior to the Sunset Period
At any time (including prior to or during the Sunset Period), Trust Unitholders have the redemption right described under Item 2.7.2 – Trust Declaration – Redemption of Trust Units. However, that redemption right is subject to a reduced price if the Trust Units have been held for less than five years and has various restrictions. In addition, it is anticipated that the Trust will have minimal cash to fund redemptions prior to the Offering Termination Date. Consequently, it is likely that Trust Unitholders that exercise their right of redemption to redeem their Trust Units prior to Offering Termintaion Date would receive the majority or all of their Redemption Price by payment in Redemption Notes rather than cash. See also Item 8 – Risk Factors – Redemption Right.
Redemptions in the Sunset Period
During the Sunset Period, the Trust intends to exercise its right of redemption to redeem Trust Units from Trust Unitholders at the then current Subscription Price plus any distribution declared but not yet paid for the year and subject to available cash. Such redemptions will be based on the following guidelines for the Trust Unitholders that are in a Sunset Period. These guidelines are not listed in any order of priority and the Trustees have the discretion to interpret each guideline and to allocate the relative weighting to the importance of each guideline:
1. Requests from Trust Unitholders to be redeemed or to remain invested for a longer period will be considered and accommodated to the extent possible, however, Trust Unitholders who have held their Trust Units longer may be exited ahead of redemption requests from Investors whose capital has been invested in the Trust for a shorter period.
2. The Trustees shall determine the targeted number of Trust Unit redemptions in a Sunset Year from time to time, with a view to redeeming all Trust Units by June 30, 2026, unless such date is extended by the Trustees and approved by the Independent Review Committee. For example, assuming all Trust Units are in a Sunset Period and the Sunset Period consists of five Sunset Years, it is anticipated that the Trust would redeem an average of 20% of the Trust Units per Sunset Year, subject to the cash available for redemptions.
3. Trust Units generally should be redeemed from Trust Unitholders that have held the units for a longer period. Trust Units should be redeemed from Trust Unitholders that have held their Trust Units for the same or similar periods on a pro rata basis. The Trustees may determine the appropriate period for all purposes concerning this guideline, which may be years, months, days or such other period or periods as determined by the Trustees.
4. The Trustees may consider such other factors as may be required in connection with discharging their fiduciary duties as they relate to Sunset Period redemptions or otherwise.
5. The Trustees may seek the advice of the Independent Review Committee, legal counsel, accountants, financial advisors, investment bankers or other advisors with respect to interpreting these guidelines and are entitled to rely on such advice for the purposes of interpreting these guidelines.
Development of the Business
The Trust was formed on June 30, 2014 pursuant to the Trust Declaration. The Trust is in a start-up phase of development and has not carried out any commercial activities prior to the Offering. Since formation, the Trust has incurred costs in connection with the Offering and has been engaged in activities in preparation for the Offering, which have included, among other things: (a) putting in place a management team; (b) consulting with financial and legal advisors and real estate brokers; and (c) preparing offering documents and the agreements discussed in this offering memorandum.
Long-term Objectives
The Trust’s long term objectives are:
CAL01: 1951970: v8 20 (a) to conduct the Offering, including the issue and sale of Trust Units (for a breakdown of anticipated costs see Item 1.1 – Funds);
(b) to use the Available Funds to subscribe for limited partnership units of the Partnership, and have the Partnership advance funds to one or more Affiliated Operators as Loan principal under Loan Agreements;
(c) Loan up to $7,000,000 to Prime St. Albert;
(d) Loan up to $4,500,000 to Prime Cochrane;
(e) Loan up to $500,000 to Royal Oak LP;
(f) Loan up to $4,500,000 to Lethbridge Prime Funds Inc.; and
(g) Loan up to $4,500,000 to Royal Oak II Prime Funds Inc.
(h) to earn, and allocate and distribute an 8.0% annual return to Trust Unitholders in accordance with the Trust Declaration, income derived from the investment in the Partnership. See Item 5.2 – Cash Distributions to Trust Unitholders.
The time and cost to complete these events cannot be confirmed until the Affiliated Operators identify suitable Properties to acquire or develop. There is no assurance that any of these events will occur. The terms and amounts of the Loans to Prime St. Albert, Prime Cochrane, Lethbridge Prime Funds Inc., Royal Oak II Prime Funds Inc., and Royal Oak LP have been finalized and the Loan Agreements have been entered into in accordance with the Loan Guidelines. See Item 2.2.6 - Loan Guidelines and Item 3.4 - Loans. Other than the Properties owned by Prime St. Albert, Prime Cochrane, Lethbridge Prime Funds Inc., Royal Oak II Prime Funds Inc., and Royal Oak LP (see Item 2.2.4 - Business of the Affiliated Operators), the specific Properties in which the Affiliated Operators intend to acquire have not been identified as of the date of this offering memorandum. See Item 8 – Risk Factors.
Short-term Objectives
The Trust’s objectives for the 12 months following the date of this offering memorandum are discussed below.
Target completion date or, number of What we must do and how we will do it months to complete Our cost to complete
Raise up to $100,000,000 under the Maximum Ongoing $10,125,000 Offering. (in commissions and fees)
The Trust to use Available Funds to subscribe On an ongoing basis as Available Funds are No specific costs for limited partnership units of the available and Properties are acquired or Partnership. The Partnership to lend Available developed Funds to Affiliated Operators under Loan Agreements; and Affiliated Operator(s) to acquire, develop, lease or sell Properties. Loan to Prime St. Albert Loan Agreement executed $7,000,000
Loan to Prime Cochrane Loan Agreement executed $4,500,000
Loan to Royal Oak LP Loan Agreement executed $500,000 Loan to Lethbridge Prime Funds Inc. Loan Agreement executed $4,500,000 Loan to Royal Oak II Prime Funds Inc. $4,500,000 Loan Agreement executed
CAL01: 1951970: v8 21 Target completion date or, number of What we must do and how we will do it months to complete Our cost to complete Pay monthly distributions of Distributable On each distribution date established by the $8,000,000 Cash (if any) up to an 8.0% annual return to Trust Trust Unitholders based upon the distributions of cash received from the Partnership, which will receive such cash from the Affiliated Operators (see Item 5.2 – Distributions to Trust Unitholders).
Insufficient Proceeds
The Available Funds may not be sufficient to accomplish the Trust’s proposed objectives and there is no assurance that alternative financing will be available. There is no assurance that the Trust will have adequate working capital to meet the anticipated requirements described in this offering memorandum. See Item 8 – Risk Factors.
Material Agreements
The following summarizes all formal, written agreements or commercial instruments that can reasonably be regarded as material, to the Trust in connection with the Offering, the use of Available Funds or with a related party:
(a) Subscription Agreements with Investors;
(b) Trust Declaration;
(c) Partnership Agreement;
(d) Loan Agreements;
(e) Prime REDI Loan Fee Agreement; and
(f) Distribution Reinvestment Plan.
Prospective Investors may inspect a copy of each of the material agreements listed above, to the extent any such agreement has been entered into by the parties thereto, during normal business hours at the offices of the Trust, located at Suite 1206, 734 - 7th Ave SW, Calgary, Alberta.
2.7.1 Subscription Agreements
Each Investor must execute and deliver to the Trust the applicable Subscription Agreement for the Offering, attached as Schedule A, whereby the Investor irrevocably subscribes for Trust Units from the Trust to be issued on the terms and conditions contained in the Subscription Agreement and as described in this offering memorandum. See Item 5.3 - Subscription Procedure and the subscription instructions set out in Schedule A.
2.7.2 Trust Declaration
The Trust Declaration, which is dated June 30, 2014, contains the terms and conditions governing the relationship between the Trustees, as trustees, and the Trust Unitholders, as beneficiaries. The following description of the Trust Declaration and the descriptions set out elsewhere in this offering memorandum are a summary only of certain terms of the Trust Declaration, and do not purport to be complete.
The following is a summary only of certain provisions of the Trust Declaration and is qualified in its entirety by the Trust Declaration. Prospective Investors may inspect a copy of the Trust Declaration, during normal business hours at the offices of the Trust, Suite 1206, 734 - 7th Ave SW, Calgary, AB T2P 3P8. In addition, each Trust Unitholder has the right to obtain from the Trust, on request without fee, a copy of the Trust Declaration and any amendments thereto.
Purpose of the Trust
The Trust Declaration provides that the purpose of the Trust is restricted to:
(a) acquiring, investing in, holding, transferring, disposing of and otherwise dealing with securities of whatever nature or kind (other than a general partnership interest) of, or issued by, any other corporation, partnership, CAL01: 1951970: v8 22 trust or other person involved, directly or indirectly, in the business of acquiring, holding, maintaining, developing, improving, leasing, managing or investing in real property, including the Partnership and the General Partner, and such other investments as the Trustees may determine, from time to time, and to borrow funds and issue Redemption Notes, directly or indirectly, for that purpose and enter into hedging arrangements in relation to its own indebtedness;
(b) temporarily holding cash and other short term investments in connection with and for the purposes of the Trust’s activities, including permitted investments, paying administration and trust expenses, paying any amounts required in connection with the redemption of Trust Units or other securities of the Trust and making distributions to Trust Unitholders and borrowing funds and issuing Redemption Notes for those purposes, directly or indirectly;
(c) issuing Trust Units and other securities of the Trust (including warrants, options, subscription receipts or other rights to acquire Trust Units, Redemption Notes or other securities of the Trust), for the purposes of:
(i) obtaining funds to conduct the undertakings and activities described above, including raising funds for further investments, acquisitions or development;
(ii) repaying any indebtedness or borrowings of the Trust;
(iii) establishing and implementing unitholder rights plans, distribution reinvestment plans, Trust Unit purchase plans, incentive option plans or other compensation plans, if any, established by the Trust or an affiliate of the Trust; and
(iv) making non-cash distributions to holders of Trust Units as contemplated by the Trust Declaration, including in specie redemptions and distributions pursuant to distribution reinvestment plans, if any, established by the Trust;
(d) guaranteeing the obligations of its affiliates pursuant to any good faith debt for borrowed money or any other obligation incurred by such entity in good faith for the purpose of carrying on its business, and pledging securities and other property owned by the Trust as security for any obligations of the Trust, including obligations under any such guarantee. The Trust may only provide a guarantee in respect of the indebtedness of another person if the Trust will not, directly or indirectly, receive any fees or other consideration for providing the guarantee and the Trustees have determined that such guarantee forms part of the core investment undertakings of the Trust; provided that the Trust shall not, in any event, provide a guarantee which would result in the Trust not being considered a “unit trust” or a “mutual fund trust” for purposes of the Tax Act;
(e) granting security in any form, over any or all of the Trust assets to secure any or all of the obligations of the Trust or its affiliates;
(f) repurchasing or redeeming securities of the Trust, including Trust Units, subject to the provisions of the Trust Declaration and applicable law;
(g) carrying out any of the transactions, and entering into and performing any of the obligations of the Trust under any agreements contemplated by the Trust Declaration;
(h) engaging in all activities ancillary or incidental to any of those activities set forth in paragraphs (a) through (g) above; and
(i) undertaking such other activities or taking such actions, including investing in securities, as is approved by the Trustees from time to time, provided that the Trust shall not, in any event, undertake any activity, take any action, or make any investment which would result in the Trust not being considered a “unit trust” or a “mutual fund trust” for purposes of the Tax Act.
Trustees
Under the Trust Declaration, the majority of the Trustees must be resident in Canada. The Trust must have not less than one and no more than five Trustees at all times.
The Trust Declaration provides that, subject to its terms and conditions, the Trustees are to supervise the activities of and manage the affairs of the Trust and, as trustees, the Trustees have full, absolute and exclusive power, control, authority and discretion
CAL01: 1951970: v8 23 over the Trust’s assets and over the management of the affairs of the Trust to the same extent as if the Trustees were the sole and absolute legal and beneficial owner of the Trust’s assets. Subject only to express limitations in the Trust Declaration, and provided that the exercise of such powers and authorities do not adversely affect the status of the Trust as a “unit trust” or a “mutual fund trust” for purposes of the Tax Act, the Trustees’ are required to exercise their powers and carry out their functions honestly, in good faith, and in the best interests of the Trust Unitholders and to exercise the care, diligence and skill of a reasonably prudent trustee in comparable circumstances.
Among its other powers, the Trustees may handle and manage the funds of the Trust, manage all Trust Property, determine the amount of Distributable Cash and to invest in and hold securities in any person or corporation necessary or useful to carry out its purpose.
The Trust Declaration sets forth certain actions that the Trustees may not take without the approval of the Trust Unitholders, either by way of Ordinary Resolution or Special Resolution. The Trustees cannot without the approval of the Trust Unitholders:
(a) appoint or change the auditor, if any, except in the event of a voluntary winding-up of the Trust;
(b) amend the Trust Declaration;
(c) authorize the termination or winding-up of the Trust, other than in accordance with the Trust Declaration;
(d) authorize any sale, lease or exchange of all or substantially all of the Trust Property; and
(e) vote the Partnership Units held by the Trust in such a way as to fundamentally change the Partnership investment objectives.
The management of the business and affairs of the Trust resides with the Trustees. The initial Trustees are appointed as the initial Trustees of the Trust for an initial term of office which expires (subject to further appointment, election or resignation) at the close of the first annual meeting (if any) of Trust Unitholders. The Trust may, but is not required to hold annual meetings of Trust Unitholders or any Trust Unitholder meetings on a periodic basis. The Trust does not, at this time, intend to call annual meetings for the election of Trustees or otherwise.
A Trustee may resign upon 30 days’ written notice to the Trust. If a Trustee resigns, is removed as a trustee of the Trust, becomes incapable of acting or otherwise vacates such office, the remaining Trustees may fill the resulting vacancy without the need for a Trust Unitholder’s meeting. Alternatively, in the event there is no remaining Trustee, a successor trustee may be appointed by resolution of the Trust Unitholders.
Standard of Care and Duties
The Trustees, in exercising the powers and authority conferred upon them under the Trust Declaration, are required to act honestly and in good faith with a view to the best interests of the Trust and in connection therewith shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. A Trustee is not liable in carrying out his or her duties under the Trust Declaration except in cases where the Trustee fails to act honestly and in good faith with a view to the best interests of the Trust or to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The duties and standard of care of the Trustees provided as aforesaid are intended to be similar to, and not to be any greater than, those imposed on a director of a corporation governed by the ABCA. Unless otherwise required by law, the Trustees are not required to give surety bond or security in any jurisdiction for the performance of any duties or obligations under the Trust Declaration. The Trustees are not required to devote their entire time to the investments or business or affairs of the Trust.
Meetings and Resolutions of Trust Unitholders
The Trust may, but is not required to hold annual meetings of Trust Unitholders or any Trust Unitholder meetings on a periodic basis. The Trustees may call special meetings of the Trust Unitholders at any time and from time to time and for any purpose. The Trust does not, at this time, intend to call annual meetings for the election of Trustees or otherwise.
Trust Unitholders holding in the aggregate of not less than 40% of the total of the Trust Units then outstanding may requisition the Trustees to call a special meeting of Trust Unitholders for the purposes stated in the requisition. To be valid for the purposes hereof, such requisition must: (i) be in writing; (ii) set forth the name and address of, and number of Trust Units (and votes attached thereto which, in the aggregate, must not be less than 40% of all votes entitled to be voted at a meeting of Trust Unitholders) held by, each person who is supporting the requisition; (iii) state in reasonable detail the business to be transacted at the meeting; and (iv) be sent to the Trustees in accordance with the Trust Declaration.
CAL01: 1951970: v8 24 Upon receiving a valid requisition for a special meeting of Trust Unitholders, the Trustees will call a meeting of Trust Unitholders to transact the business referred to in the requisition, unless, in the Trustees’ sole and absolute discretion: (i) the Trustees have previously called a meeting of Trust Unitholders and given notice thereof in accordance with the Trust Declaration; and (ii) in connection with the business as stated in the requisition: (A) it clearly appears that a matter covered by the requisition is submitted by the Trust Unitholder primarily for the purpose of enforcing a personal claim or redressing a personal grievance against the Trust, the Trustees, the Trust Unitholders or one or more of the Trust’s subsidiaries, or primarily for the purpose of promoting general economic, political, religious, social or similar causes or primarily for a purpose that does not relate in a significant way to the business or affairs of the Trust; (B) the Trust, at the Trust Unitholders’ request, had previously included a matter substantially the same as a matter covered by the requisition in an information circular relating to a meeting of Trust Unitholders held within 30 months preceding the receipt of such requisition and the Trust Unitholder failed to present the matter, in person or by proxy, at the meeting; (C) substantially the same matter covered by the requisition was submitted to Trust Unitholders in an information circular relating to a meeting of Trust Unitholders held within 30 months preceding the receipt of such requisition and the matter covered by the requisition was defeated; or (D) the rights conferred to Trust Unitholders to requisition meetings are being abused to secure publicity. If the Trustees do not, within 21 days after receiving the requisition, call a meeting (except where the grounds for not calling the meeting are one or more of those set forth above), any Trust Unitholder who signed the requisition may call the meeting in accordance with the foregoing procedure.
Trust Unitholders may attend and vote at all meetings of the Trust Unitholders either in person or by proxy and a proxyholder need not be a Trust Unitholder. Any person entitled to attend a meeting of Trust Unitholders may participate in the meeting, subject to and in accordance with applicable securities laws, if any, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the Trust makes available such a communication facility.
At any meeting of the Trust Unitholders, a quorum consists of two or more individuals present in person either holding personally or representing by proxy not less in aggregate than 5% of the votes attached to the total Trust Units then outstanding and entitled to vote at the meeting. If such quorum is not present at the appointed place on the date for which the meeting is called within 30 minutes after the time fixed for the holding of such meeting, the meeting, if called by request of Trust Unitholders, is thereupon terminated or, if otherwise called, the meeting stands adjourned to such day being not less than 14 days later and to such place and time as may be appointed by the chairperson of the meeting. If at such adjourned meeting a quorum as above defined is not present, the Trust Unitholder(s) present either in person or by proxy form a quorum, and any business may be brought before or dealt with at such an adjourned meeting which might have been brought before or dealt with at the original meeting in accordance with the notice calling the same.
Certain Rights of Trustees Subject to Special Resolution
The Trust Declaration provides that the Trustees shall not, on behalf of the Trust or otherwise, without the authorization of the Trust Unitholders by a Special Resolution, take any action with respect to authorizing, or otherwise permitting through action or inaction any amalgamation, arrangement, recapitalization, business combination or other merger of the Partnership or any other subsidiary or affiliate of the Trust with any other person, except:
(a) in conjunction with an internal reorganization as a result of which the Trust has the same interest, whether direct or indirect, in the Trust assets as the interest, whether direct or indirect, it had prior to the reorganization;
(b) in conjunction with a routine acquisition or routine disposition;
(c) in conjunction with an arrangement;
(d) in conjunction with the dissolution or winding up of the Trust.
Creation of Additional Classes or Series of Units
The Trustees may create additional classes or series of units of the Trust at any time, without the prior approval of Trust Unitholders and may fix the limitations, rights, privileges, restrictions and conditions of such class or series, including voting rights, distribution rights and rights to the Trust’s assets.
As set forth in the Trust Declaration, the Trustees cannot create additional classes of Units that have a detrimental effect to the existing Trust Unitholders. The ability to create a new class of unit allows the Trustees to provide additional options to investors, if required, in response to market demands. It also allows for the future potential to raise additional capital and continue the fund under new offerings while providing an exit strategy to current investors.
CAL01: 1951970: v8 25 Issuance of Trust Units
The Trust may issue at any time and from time to time Trust Units in such number and on the terms and conditions of the offering, issue and sale of Trust Units as the Trustees, in their discretion, determine, including accepting payment of consideration therefor in the form of cash, property or past services, or a combination thereof. Trust Unitholders do not have any pre-emptive rights whereby additional Trust Units proposed to be issued are first offered to existing Trust Unitholders. Trust Units may be issued by the Trust at the times, to the persons, for the consideration and on the terms and conditions that the Trustees determine, including pursuant to any Trust Unitholder rights plan, distribution reinvestment plan or any incentive option or other compensation plan established by the Trust. Additional Trust Units or other securities of the Trust may be issued to one or more Trust Unitholders for the consideration and on the terms and conditions that the Trustees determine, at any time and from time to time, including pursuant to the reinvestment of distributions (whether or not a distribution reinvestment plan has been adopted) paid or to be paid to such Trust Unitholders.
Trust Units may only be issued as and when fully paid in money, property, including indebtedness, or past services, and are not to be subject to future calls or assessments, except that Trust Units to be issued under an offering may be issued for a consideration payable in instalments and the Trust may take a security interest over such Trust Units for unpaid instalments. The Trustees, in their sole discretion, will determine the price or the value of the consideration for which Trust Units may be issued. See Item 5.1 – Trust Units.
Transfer of Trust Units
Trust Units may only be transferred in accordance with applicable securities laws and the Trust Declaration. The Trust Declaration provides that no Trust Units are to be transferred except with the prior, written consent of the Trustees, to a person who is an affiliate of a Trust Unitholder or otherwise as expressly provided in the Trust Declaration. See Item 8 – Risk Factors and Item 10.2 – Transfer Restrictions in the Trust Declaration.
Redemption of Trust Units
After the minimum distribution requirements have been satisfied, Trust Units are redeemable at the option of the Trust Unitholders (but subject to certain limitations as described below). A Trust Unitholder who wishes to exercise the redemption right must complete and deliver a redemption notice form (available from the Trustees) to the Trust. Upon receipt of the redemption notice by the Trust, all rights to and under the Trust Units tendered for redemption are surrendered (including the right to receive any distributions thereon that are declared payable to the Trust Unitholders subsequent to the day of receipt by the Trust of the redemption notice) and the former holder thereof is entitled only to receive a price per Trust Unit equal to the Redemption Price.
The aggregate Redemption Price payable by the Trust in respect of Trust Units tendered for redemption is to be satisfied by way of a cash payment (by way of cheque) on the last day of the calendar month following the calendar month in which the Trust Units were tendered for redemption, provided that the entitlement of a Trust Unitholder to receive cash upon the redemption of such holder’s Trust Units is subject to limitations, including that:
(a) the total amount payable by the Trust in respect of such Trust Units and all other Trust Units tendered for redemption in the same calendar month shall not exceed $20,000; provided that the Trustees may, in their sole discretion, waive such limitation in respect of all Trust Units tendered for redemption in any calendar month;
(b) the redemption of the Trust Units tendered for redemption shall not result in a return of capital to the Trust Unitholder or otherwise out of the Trust assets, unless all liabilities of the Trust have been paid or there remains sufficient Trust assets to pay them;
(c) in the Trustees’ opinion (in their sole discretion), the Trust has insufficient liquid assets to fund such redemptions or that the liquidation of assets at such time would be to the detriment of the remaining Trust Unitholders or the Trust generally; or
(d) the redemption of the Trust Units tendered for redemption would result in the Trust no longer qualifying as a “mutual fund trust” for the purposes of the Tax Act.
If, as a result of limitations (a), (b) or (c) above a Trust Unitholder is not entitled to receive cash upon the redemption of some or all of the Trust Units tendered for redemption, then the Redemption Price per Trust Unit to which the Trust Unitholder would otherwise be entitled, is to be paid and satisfied by the delivery to holders of Trust Units tendered for redemption of a distribution in specie. In such circumstances, the Trust will issue a cheque to the Trust Unitholder for the amount (if any) that is not subject to limitation or shall distribute Redemption Notes in satisfaction of the redemption price or portion thereof that is subject to limitation. No fractional Redemption Notes in integral multiples of less than $10 are to be distributed and where the number of
CAL01: 1951970: v8 26 such Redemption Notes to be received by a Trust Unitholder includes a fraction or multiple less than $10, the Trust shall issue a cheque to the Trust Unitholder for such amount.
The Trust Declaration provides that the Trust shall redeem Trust Units according to the order in which redemption notices are received by the Trustees. In addition, Trust Units tendered for redemption in any calendar month in which the total amount payable by the Trust exceeds $20,000 (provided that certain other limitations on cash redemptions do not apply) are to be redeemed for a combination of cash and a distribution of Redemption Notes on a pro rata basis; provided however that, if the $20,000 monthly cash limit has not been exhausted by redemptions which pre-date the redeeming Trust Unitholder’s redemption notice then the minimum cash to be distributed to such redeeming Trust Unitholder is to be not less than $1,000 (unless waived by the Trustees, in their sole discretion, or the entire Redemption Price is paid in cash). For example, if the Trust receives more than 20 redemption requests in a calendar month, then (provided that certain other limitations on cash redemptions do not apply) the first 20 redeeming Trust Unitholders are to receive the first $1,000 of their Redemption Price in cash (provided the other limitations on cash redemptions described above do not apply) and the remainder of the Redemption Price by a Redemption Note. Each redeeming Trust Unitholder beyond the first 20 is to receive the entire Redemption Price through the issue of a Redemption Note.
Redemption Price
The aggregate Redemption Price payable by the Trust in respect of Trust Units tendered for redemption per Trust Unit is determined in accordance with the following provisions:
The Redemption Price will be the lesser of:
(a) The redemption price per Trust Unit calculated as the most recent fair market value of the Trust’s assets less liabilities, such calculations to be determined by the Trustees twice during each fiscal period at approximately six-month intervals (all as determined on a consolidated basis) then divided by the issued and outstanding Trust Units, adjusted for any potentially diluting instruments or securities (including options and warrants), provided that the Trustees may in their discretion calculate the foregoing more frequently than six-month intervals; or
(b) one of the following:
(i) if the Redemption Date is on or before the date that is 365 days from the date such Trust Units were issued to the Trust Unitholder (the “First Redemption Period”), an amount that is 90% of the price for which the Trust Unitholder acquired such Trust Unit (the “Subscription Price”);
(ii) if the Redemption Date is on or before the date that is 365 days from the last day of the First Redemption Period (the “Second Redemption Period”), an amount that is 92% of the Subscription Price;
(iii) if the Redemption Date is on or before the date that is 365 days from the last day of the Second Redemption Period (the “Third Redemption Period”), an amount that is 94% of the Subscription Price;
(iv) if the Redemption Date is on or before the date that is 365 days from the last day of the Third Redemption Period (the “Fourth Redemption Period”), an amount that is 96% of the Subscription Price;
(v) if the Redemption Date is on or before the date that is 365 days from the last day of the Fourth Redemption Period (the “Fifth Redemption Period”), an amount that is 98% of the Subscription Price; and
(vi) if the Redemption Date is any time after the end of the Fifth Redemption Period, an amount that is 100% of the Subscription Price,
plus any declared but unpaid distributions attributable to the Trust Units.
CAL01: 1951970: v8 27 Redemption at the Option of the Trust
The Trust may at any time, upon giving a Retraction Notice, redeem one or more of then outstanding Trust Units as if such Trust Units were tendered by the applicable Trust Unitholders for redemption as at the date of the Retraction Notice. The provisions set out under Item 2.7.2 – Trust Declaration – Redemption of Trust Units apply mutatis mutandis with respect to such deemed redemption, provided that the Trust may pay the Redemption Price by a distribution in specie of any Trust assets and provided that the Trust may redeem Trust Units at the price specified in Item 2.7.2 – Trust Declaration – Redemption of Trust Units or the an amount that is 100% of the Subscription Price plus any declared but unpaid distributions attributable to the Trust Units. The Trust shall, at least 30 days before the date specified for redemption, deliver to each person who at the date of delivery is a registered holder of Trust Units (which are being redeemed at the option of the Trust) a Retraction Notice. The Retraction Notice shall set out the Redemption Price, the date on which the redemption is to take place and the amount payable to the holder of the Trust Units to be redeemed.
Purchases of Outstanding Trust Units
The Trust may from time to time purchase outstanding Trust Units or other securities of the Trust in accordance with applicable securities legislation. Any such purchase may constitute an “issuer bid” under Canadian securities legislation and must be conducted in accordance with the applicable requirements.
Power of Attorney
Pursuant to the Trust Declaration, each Trust Unitholder grants to the Trustees, their successors and assigns, a power of attorney constituting the Trustees, with full power of substitution, as such Trust Unitholder’s true and lawful attorney and agent, to act on the Trust Unitholder’s behalf with full power and authority in the Trust Unitholder’s name, place and stead, and for the Trust Unitholder’s benefit and use, to do the following, namely:
(a) execute, swear to, acknowledge, deliver, make and file when, as and where required (including with any governmental body or instrumentality thereof of the Government of Canada or a province thereof) any and all of the following, under seal or otherwise:
(i) the Trust Declaration, and any and all instruments, declarations, certificates, deeds, agreements or documents, and any amendments thereto or renewals, replacements or restatements thereof, in connection with the affairs of the Trust as authorized in the Trust Declaration, or as necessary to reflect any amendment or restatement of the Trust Declaration or to reflect the admission to the Trust of subscribers for or transferees of Trust Units, including changes to the Trust Unit register any and all conveyances, transfers and other documents required in connection with any subscription for or transfer of Trust Units;
(ii) the Trust Declaration, any amendment, supplement or restatement of the Trust Declaration and any other instruments, declarations, certificates, deeds, agreements or documents, and any amendments thereto or renewals, replacements or restatements thereof, required or desirable to qualify, continue and keep in good standing the Trust as a “mutual fund trust” under the Tax Act;
(iii) any and all elections, determinations or designations whether jointly with third parties or otherwise, under the Tax Act or any other taxation or other legislation or similar laws of Canada or of any other jurisdiction in respect of the affairs of the Trust or of a Trust Unitholder’s interest in the Trust;
(iv) all conveyances, agreements and other instruments or documents deemed necessary or desirable by the Trustees to reflect the dissolution, liquidation or termination of the Trust in accordance with the terms of the Trust Declaration, including cancellation of any certificates or declarations and the execution of any elections or making of any filings under the Tax Act and any analogous legislation, as any of the same may be amended or re-enacted from time to time; and
(v) all transfers, conveyances and other documents required to facilitate the acquisition of Trust Units of dissenting Trust Unitholders;
(vi) all documents necessary to be filed in connection with the property, assets and affairs of the Trust; and
(vii) all other instruments and documents on his, her or its behalf and in his, her or its name or in the name of the Trust as may be deemed necessary by the Trustees to carry out fully the Trust Declaration in accordance with its terms; and
(b) complete, amend or modify any of the foregoing to complete any missing information or correct any clerical or other errors in the completion of any of the foregoing.
CAL01: 1951970: v8 28 In addition to and as evidence of the foregoing, each Trust Unitholder, in subscribing for one or more Trust Units or in taking valid transfer (whether by sale, assignment or otherwise) of one or more Trust Units, is conclusively deemed to have executed and granted a power of attorney on substantially the powers set forth above and to have acknowledged and agreed to be bound by the provisions of the Trust Declaration as a Trust Unitholder. The power of attorney granted is irrevocable, is a power coupled with an interest, continues despite the mental incompetence of the Trust Unitholder, survives the death, disability, incapacity, insolvency or other legal incapacity of the Trust Unitholder, and survives the transfer (whether by sale, assignment or otherwise), to the extent of the obligations of the Trust Unitholder under the Trust Declaration, by the Trust Unitholder of the whole or any part of the interest of the Trust Unitholder in the Trust and extends to the heirs, executors, administrators, successors and assigns of the Trust Unitholder, and may be exercised by one or more of the Trustees in executing by fax, electronically or originally on behalf of the Trust Unitholder any instrument with a single signature as a trustee of the Trust or by listing all the beneficiaries of the Trust and executing such instrument with a single signature or as attorney and agent for all of the Trust Unitholders, or by such other form of execution as the Trustees may determine, and it is not necessary for the Trustees to execute any instrument under seal notwithstanding the manner of execution of the power of attorney by the Trust Unitholder. The power of attorney does not merge on the dissolution of the Trust but continues in full force and effect thereafter for the purposes of concluding any matters pertaining to the Trust or to the dissolution of the Trust and the winding-up of its affairs.
The power of attorney continues in respect of each of the Trustees so long he or she is a trustee of the Trust, and terminates thereafter, but subsequently continues in respect of a new Trustee as if the new Trustee was the original attorney.
A transferee of or subscriber for a Trust Unit upon becoming a Trust Unitholder, is conclusively deemed to have acknowledged and agreed to be bound by the provisions of the Trust Declaration as a Trust Unitholder, and is conclusively deemed to have provided the Trustees with the power of attorney described in the Trust Declaration and in the Trust Declaration.
The power of attorney granted in the Trust Declaration is, to the extent permitted by applicable law, irrevocable and will survive the assignment by the Trust Unitholder of all or part of the Trust Unitholder’s interest in the Trust and will extend to and bind the heirs, executors, administrators and other legal representatives and successors and assigns of the Trust Unitholder.
Takeover Bids
The Trust Declaration contains provisions relating to takeover bids made to acquire Trust Units. Under the Trust Declaration, if a takeover bid is made to acquire Trust Units and at least 90% of the Trust Units on a fully-diluted basis (other than Trust Units beneficially owned, or over which control or direction is exercised, on the date of the takeover bid, by the offeror or affiliates or associates of the offeror or any person or company acting jointly or in concert with the offeror) are taken up and paid for by the offeror then the offeror will be entitled to acquire the Trust Units held by Trust Unitholders who did not accept the takeover bid on the terms offered by the offeror, pursuant to the procedures set out in the Trust Declaration. The Trust Declaration does not provide a mechanism for Trust Unitholders who do not tender their Trust Units to a takeover bid to apply to a court to fix the fair value of their Trust Units.
Notices to Trust Unitholders and Trustees
The Trust Declaration provides that any notice or other document required to be given or sent to Trust Unitholders under the Trust Declaration is to be given or sent through ordinary post addressed to each registered Trust Unitholder at his or her last address appearing on the Trust Unitholder register or in any other manner from time to time permitted by applicable law including internet-based or other electronic communications; provided that if there is a general discontinuance of postal service due to strike, lockout or otherwise, such notice may be given by personal service or by internet-based or other electronic communication (provided it is done in accordance with applicable law) or by publication twice in the Report on Business section of the National Edition of The Globe and Mail or similar section of any other newspaper having national circulation in Canada; provided further that if there is no newspaper having national circulation, then by publishing twice in the business section of a newspaper in each city where the Trust Unitholder register or a branch register is maintained. Any notice so given is deemed to have been given:
(a) on the day following that on which the letter or circular was mailed;
(b) in the case of notice being given by publication, after publishing such notice twice in the designated newspaper or newspapers; or
(c) in the case of notice given by internet-based or other electronic communication, on the later of
(i) the business day following the day on which such notice is sent or made available; and
(ii) the earliest time and date permissible under applicable governing internet-based or other electronic communication.
In proving notice was posted, it is sufficient to prove that such letter or circular was properly addressed, stamped and mailed. CAL01: 1951970: v8 29 In addition, the Trust Declaration provides that any written notice or written communication given to the Trustees is to be given at the head office of the Trust or, if the Trust has appointed and retained a transfer agent, such notice is to be addressed to the Trustees c/o the transfer agent with a copy to the head office of the Trust, and (in any case) is deemed to have been given on the date of delivery or, if mailed, five days from the date of mailing. If any such notice or communication has been mailed and if regular mail service is interrupted by strikes or other irregularities, such notice or communication is deemed to have been received 48 hours after 12:01 a.m. on the day following the resumption of normal mail service, provided that during the period that regular mail service is interrupted any notice or other communication is given by personal delivery or by fax or other prepaid, transmitted or recorded communication.
Further, the Trust Declaration provides that the failure by the Trustees, by accident or omission or otherwise unintentionally, to give any Trust Unitholder any notice provided for Trust Declaration does not affect the validity, effect or taking effect of any action referred to in such notice, and the Trustees are not liable to any Trust Unitholder for any such failure. As well, service of a notice or document on any one of several joint holders of Trust Units is deemed effective service on the other joint holders. Any notice or document sent by post to or left at the address of a Trust Unitholder pursuant to the Trust Declaration is, notwithstanding the death or bankruptcy of such Trust Unitholder, and whether or not the Trustees have notice of such death or bankruptcy, deemed to have been fully served and such service is deemed sufficient service on all persons having an interest in the Trust Units concerned.
Amendments to the Trust Declaration
The Trust Declaration contains provisions that allow it to be amended or altered from time to time by the Trustees with the consent of the Trust Unitholders by a Special Resolution. However, the Trustees, at their discretion and without the approval of the Trust Unitholders, are entitled to make certain amendments to the Trust Declaration, including amendments for the purposes of:
(a) ensuring continuing compliance with applicable law, regulations or policies of any authorized authority having jurisdiction over the Trustees, the Trust or Trust Unitholders;
(b) providing additional protection or added benefits, in the opinion of counsel, for the Trust Unitholders (including a change in the governing law of the Trust);
(c) providing for the creation and issue of additional classes or series of Trust Units provided that such additional classes or services are not or will not be detrimental to the existing Trust Units;
(d) removing any conflicts or inconsistencies in the Trust Declaration or to make minor corrections which are, in the opinion of the Trustees, necessary or desirable and not prejudicial to the Trust Unitholders;
(e) changing the situs of, or the laws governing, the Trust which, in the opinion of the Trustees, is desirable in order to provide Trust Unitholders (if any) with the benefit of any legislation limiting their liability provided that such change does not introduce a material disadvantage to the Trust Unitholders (if any) that did not exist prior to such change;
(f) making amendments that, in the Trustees’ opinion, are necessary or desirable as a result of changes in taxation laws or policies of any authorized authority having jurisdiction over the Trustees, the Trust or the Trust Unitholders; or
(g) ensuring that the Trust qualifies or continues to qualify as a “mutual fund trust” under the Tax Act, but notwithstanding the foregoing, no such amendment, alteration, supplement or restatement is valid under the Trust Declaration or binds the Trustees or any Trust Unitholder to the extent that it purports to:
(a) modify the voting rights in the Trust Declaration without the approval or consent of the Trust Unitholders by resolution passed by the affirmative votes of the holders of more than 90% of the total of the Trust Units then outstanding and represented at a meeting called for such purpose;
(b) reduce the percentage of votes required to be cast at a meeting of the Trust Unitholders for any Trust Unitholder approval or Special Resolution, without the approval or consent of the Trust Unitholders by resolution passed by the affirmative votes of the holders of more than 90% of the total of the Trust Units then outstanding and represented at the meeting called for such purpose;
(c) reduce the equal undivided interest in the Trust’s assets represented by any Trust Unit without the approval or consent of the Trust Unitholders by resolution passed by the affirmative votes of the holders of more than 90% of the total of the Trust Units then outstanding and represented at the meeting called for such purpose; or CAL01: 1951970: v8 30 (d) results in the Trust failing to qualify as a “mutual fund trust” under the Tax Act at any time.
Conflict of Interest Restrictions and Provisions
The Trust Declaration contains “conflict of interest” provisions that require the Trustees and officers of the Trust to disclose to the Trust, any interest in a material contract or transaction or proposed material contract or transaction with the Trust, or the fact that such individual is a director or officer or employee of, or otherwise has a material interest in, any person who is a party to a material contract or transaction or proposed material contract or transaction with the Trust. In any case, a Trustee or officer of the Trust who has made disclosure to the foregoing effect is not entitled to vote on any resolution to approve the contract or transaction unless the contract or transaction is one relating primarily to: (i) his, her or its remuneration as a Trustee, officer, employee or agent of the Trust, as applicable; (ii) insurance or indemnity; or (iii) a contract or transaction with an affiliate of the Trust.
Pursuant to the Trust Declaration, the Trust Unitholders acknowledge that, subject to the Trustees’ obligations under the Trust Declaration:
(a) the Trustees may act as the investment advisor or in a similar capacity for other entities with responsibility for the management of the assets of those other entities at the same time as it is managing the Trust’s portfolios and may use the same or different information and trading strategies obtained, produced or utilized in managing the portfolios and the Trustees may, at any time, engage in the promotion, management or investment management of any other entity;
(b) the Trustees may be and are permitted to be engaged in and continue in the real estate and other businesses in which the Trust may or may not have an interest and which may be competitive with the activities of the Trust and, without limitation, the Trustees may be and are permitted to act as a partner, shareholder, officer, director, joint venture, advisor or in any other capacity or role whatsoever of, with or to other entities, including limited partnerships, which may be engaged in all or some of the aspects of the business of the Trust and may be in competition with the Trust; and
(c) Trust activities may lead to the incidential result of providing additional information with respect to, or augmenting the value of, assets or properties in which the Trustees or other parties not at arm’s length with the Trustees have or subsequently acquire either a direct or indirect interest.
Subject to the Trustees’ obligations under the Trust Declaration, the Trust Unitholders agree that the foregoing activities and facts shall not constitue a conflict of interest or breach of fiduciary duty to the Trust or the Trust Unitholders. Pursuant to the Trust Declaration, the Trust Unitholders consent to such activities and waive, relinquish and renounce any right to participate in, and any other claim whatsoever with respect to, any such activities. The Trust Unitholders further agree that neither the Trustees nor any other party referred to in the foregoing will be required to account to the Trust or any Trust Unitholders for any benefit or profit derived from any such activities or from such similar or competing activity or any transactions relating thereto by reason of any conflict of interest or the fiduciary relationship created by virtue of the position of the Trustees under the Trust Declaration unless such activity is contrary to the express terms of the Trust Declaration.
Fiscal Year End
Each fiscal year and taxation year of the Trust ends on December 31 of each calendar year, unless otherwise deemed by applicable law.
Other
For a description of and other information about the Trust Units, including the terms of the Trust Declaration regarding Trust Unitholder meetings and resolutions, withholding taxes, issue and sale of Trust Units, purchases of Trust Units by the Trust, see Item 5.1 – Trust Units. For information regarding distributions by the Trust on Trust Units, see Item 5.2 – Cash Distributions to Trust Unitholders.
For information about the terms of the Trust Declaration regarding restrictions on any transfer of Trust Units, see Item 10.2 – Transfer Restrictions in the Trust Declaration.
2.7.3 Partnership Agreement
The mutual rights and obligations of the Trust (sole limited partner) and the General Partner as the partners of the Partnership are governed by Partnership Agreement, which is dated as of July 8, 2014.
CAL01: 1951970: v8 31 The following description of the Partnership Agreement and the descriptions set out elsewhere in this offering memorandum are a summary only of certain material terms and conditions of the Partnership Agreement, and do not purport to be complete.
The following is a summary only of certain provisions of the Partnership Agreement and is qualified in its entirety by the Partnership Agreement. Prospective Investors may inspect a copy of the Partnership Agreement, during normal business hours at the offices of the Trust, Suite 1206, 734 - 7th Ave SW, Calgary, AB T2P 3P8. In addition, each Trust Unitholder has the right to obtain from the Trust, on request without fee, a copy of the Partnership Agreement and any amendments thereto.
Capital of the Partnership
The Partnership is authorized to issue an unlimited number of limited partnership units. Upon the first Closing of the Offering, the Trust will hold all of the outstanding Partnership limited partnership units and, accordingly, the Trust will be the sole limited partner of the Partnership. Further, it is intended that the Trust will remain the sole limited partner of the Partnership. A Partnership limited partnership unit has one vote attached to it and is issued as fully paid and non-assessable.
Business of the Partnership
The business of the Partnership is to advance Available Funds as Loan principal to Affiliated Operators which will use Available Funds to acquire, develop, lease or sell Properties. The Partnership will take commercially reasonable steps to ensure the Affiliated Operators adhere to certain property guidelines for the acquisition, development, renting and sale of properties. Likewise, the Partnership will enter into Loan Agreements with the Affiliated Operators from time to time that adhere to certain Loan Guidelines.
Authority and Liability of the General Partner
The General Partner has unlimited liability for the debts, liabilities and obligations of the Partnership and, subject to the terms of the Partnership Agreement and to any applicable limitations set forth in the Partnership Act together with the full and exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of the Partnership. The General Partner also has the full and exclusive right, power and authority to do any act, take any proceeding, make any decision and execute and deliver any instrument, deed, agreement or document necessary for or incidental to carrying out the business of the Partnership. An action taken by the General Partner on behalf of the Partnership is deemed to be the act of the Partnership and binds the Partnership.
Without limiting the generality of the foregoing, the General Partner will have full power and authority for and on behalf of and in the name of the Partnership to:
(a) acquire property, both real and personal, or other interests deemed appropriate by the General Partner;
(b) maintain accounting records for the Partnership;
(c) authorize the payment of operating expenses incurred on behalf of the Partnership;
(d) calculate the amount of distributions by the Partnership;
(e) prepare financial statements, income tax returns, information returns and financial and accounting information as required by the Partnership or by applicable law;
(f) ensure that limited partners are provided with financial statements and other reports as are required from time to time by applicable law;
(g) ensure that the Partnership complies with all applicable regulatory requirements;
(h) prepare the Partnership’s report to limited partners;
(i) negotiate contracts with third-party providers of services, including, but not limited to, transfer agents, auditors and printers;
(j) arrange for office facilities and personnel to carry out these services, together with clerical services;
(k) negotiate, execute and perform all agreements which require execution by or on behalf of the Partnership involving matters or transactions with respect to the Partnership’s business;
CAL01: 1951970: v8 32 (l) open and manage brokerage accounts and bank accounts in the name of the Partnership or the General Partner and spend the capital of the Partnership in the exercise of any right or power exercisable by the General Partner under the Partnership Agreement;
(m) subject to the terms of the Partnership Agreement, incur liabilities in the name of the Partnership from time to time as the General Partner may determine without limitation with regard to amount, cost or conditions of reimbursement of such liabilities;
(n) to borrow money (including purchase of securities on margin) and in either case to mortgage, charge, assign, hypothecate, pledge or otherwise create a security interest in all or any property of the Partnership now owned or hereafter acquired, to secure any present and future liabilities and related expenses of the Partnership and to sell all or any of such property pursuant to a foreclosure or other realization upon the foregoing encumbrances;
(o) to lend money and negotiate, execute and perform all agreements which require execution by or on behalf of the Partnership involving matters or transactions with respect to the lending of such money, including taking security to secure the lending of such money, all on terms and conditions as the General Partner deems reasonable;
(p) establish cash reserves that are determined to be necessary or appropriate for the proper management and operation of the Partnership;
(q) see to the sound management of the Partnership, and to manage, control and develop all the activities of the Partnership and take all measures necessary or appropriate for the business of the Partnership or ancillary thereto;
(r) conduct the business of the Partnership as provided in the Partnership Agreement;
(s) incur all costs and expenses in connection with the Partnership;
(t) subject to the terms of the Partnership Agreement, employ, retain, engage or dismiss from employment, personnel, agents, representatives or professionals or other investment participants with the powers and duties upon the terms and for the compensation as in the discretion of the General Partner may be necessary or advisable in the carrying on of the business of the Partnership;
(u) subject to the terms of the Partnership Agreement, engage agents, including any of its affiliates or associates, to assist the General Partner in carrying out its management obligations to the Partnership or subcontract administrative functions to any of the General Partner’s affiliates or associates;
(v) subject to the terms of the Partnership Agreement, invest cash assets of the Partnership that are not immediately required for the business of the Partnership in investments which the General Partner considers appropriate;
(w) act as attorney in fact or agent of the Partnership in disbursing and collecting monies for the Partnership and fulfilling the obligations of the Partnership and handling and settling any claims of the Partnership;
(x) commence or defend any action or proceeding in connection with the Partnership;
(y) file returns or other documents required by any governmental or like authority;
(z) retain legal counsel, experts, advisers or consultants as the General Partner considers appropriate and rely upon the advice of such Persons;
(aa) do anything that is in furtherance of or incidental to the business of the Partnership or that is provided for in the Partnership Agreement;
(bb) execute, acknowledge and deliver the documents necessary to effectuate any or all of the foregoing or otherwise in connection with the business of the Partnership;
(cc) obtain any insurance coverage;
(dd) appoint the auditor of the Partnership, as applicable, and the custodian, if any;
CAL01: 1951970: v8 33 (ee) establish a distribution reinvestment plan, appoint a distribution reinvestment plan agent and enter into a distribution reinvestment plan agency agreement;
(ff) acquire or dispose of assets of the Partnership; and
(gg) generally carry out the objects, purposes and business of the Partnership.
Limitation of Liability
The General Partner is not personally liable for the return of any capital contribution made by a limited partner to the Partnership. The General Partner may exercise any of the powers or authority granted to it by the Partnership Agreement and perform any of the duties imposed upon it under the Partnership Agreement either directly or by or through its agents and the General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith. Notwithstanding the foregoing, the General Partner will retain a supervisory role of the business of the Partnership and ensure that powers or authority granted to agents or third parties can be re-acquired by the General Partner upon no more than 30 days’ notice to such agent or third party.
Reimbursement of Costs and Expenses
The Partnership will reimburse the General Partner for all out-of-pocket expenses including: fees payable to the auditors, evaluators, valuators, consultants and legal advisers of the Partnership; ongoing regulatory filing fees and other fees; any evaluation report fees or reasonable expenses incurred to acquire assets; and any reasonable out-of-pocket expenses incurred by the General Partner or its agents in connection with their ongoing obligations to the Partnership.
Allocation of Partnership Income or Partnership Loss
See Item 5.2.3 - Allocation of Net Income (Net Loss) and Taxable Income (Tax Loss) for Canadian Tax Purposes.
Distributions
See Item 5.2.2 – Distributions of Cash from the Partnership.
Separate Capital Accounts
The General Partner will maintain a separate capital account for each partner and will, on receipt of an amount in respect of a capital contribution, credit the account of the applicable partner with such capital contribution and will debit the account with the amount of any capital contribution actually returned from time to time by the Partnership to the Partner. Partnership income or Partnership loss allocated to a partner shall be credited or debited to the Partner’s capital account, as applicable, and amounts distributed to a Partner shall be debited to the Partner’s capital account.
The interest of a Partner will not terminate by reason of there being a negative or nil balance in the Partner’s capital account. The Partnership will not pay interest on any credit balance of the capital account of a Partner.
Removal of the General Partner
The General Partner shall continue as general partner of the Partnership unless the General Partner is removed or resigns in accordance with the terms of the Partnership Agreement. The General Partner shall not be removed as general partner of the Partnership, except as follows:
(a) Upon: (i) the passing of any resolution of the directors or shareholders of the General Partner requiring or relating to the bankruptcy, dissolution, liquidation or winding-up of the General Partner; (ii) the making of any assignment by the General Partner for the benefit of creditors of the General Partner; (iii) the appointment of a receiver of the assets and undertaking of the General Partner; or (iv) the General Partner failing to maintain its corporate status; the General Partner shall cease to be qualified to act as general partner under the Partnership Agreement and shall be deemed to have been removed thereupon as general partner of the Partnership effective upon the appointment of a new general partner. A new general partner shall, in such instances, be appointed by the limited partners by an ordinary resolution after receipt of written notice of such event (which written notice shall be provided by the General Partner forthwith upon the occurrence of such event).
(b) The General Partner may be removed for Cause upon determination of Cause (as defined below) by the limited partners by extraordinary resolution and failure of the General Partner to cure such Cause, if such Cause is CAL01: 1951970: v8 34 curable, within 45 days after such determination is communicated in writing to the General Partner. Any such action by the Limited Partners for removal of the General Partner under this paragraph (b) must also provide for the election and succession of a new general partner. Such removal is effective immediately following the admission of the successor general partner to the Partnership.
For the purpose of this provision, “Cause” means a finding by any court or governmental body of competent jurisdiction in a final judgment or admission by the General Partner in a settlement of any lawsuit, that the General Partner has committed a material breach of its duties under the Partnership Agreement or a material violation of any civil or criminal law or applicable securities laws which has a material adverse effect on the business of the Partnership or any fraud, bad faith or wilful and wanton misconduct by the General Partner in connection with the performance of its duties under the terms of the Partnership Agreement.
Resignation of the General Partner
The General Partner may voluntarily withdraw as general partner by giving 120 days’ notice. Such withdrawal shall be effective immediately following but not until the admission of the successor general partner to the Partnership.
Resolutions of Conflicts of Interest
Unless otherwise expressly provided in the Partnership Agreement, whenever a potential conflict of interest exists or arises between the General Partner or any of its affiliates, on the one hand, and the Partnership, or any limited partner on the other hand, any resolution or course of action in respect of such conflict of interest shall be permitted and deemed approved by all limited partners, and shall not constitute a breach of the Partnership Agreement or of any standard of care or duty stated or implied by law if the resolution or course of action is fair and reasonable to the Partnership. The General Partner shall be authorized in connection with its resolution of any conflict of interest to consider: (a) the relative interests of all parties involved in such conflict or affected by such action; (b) any customary or accepted industry practices; and (c) any applicable generally accepted accounting practices or principles. Nothing contained in the Partnership Agreement, however, is intended to require the General Partner to consider the interests of any person other than Partnership. In the absence of bad faith by the General Partner, the resolutions, actions or terms so made, taken or provided by the General Partner with respect to such matter shall not constitute a breach of the Partnership Agreement or a breach of any standard of care or duty imposed in the Partnership Agreement or stated or implied under the Partnership Act, any law, rule or regulation.
Dissolution
The Partnership shall not come to an end by reason of the death, bankruptcy, assignment of property for the benefit of creditors, insolvency, mental incompetency or other disability of any limited partner or upon transfer of any units of the Partnership.
Procedure on Dissolution
On the date of the approval of the dissolution of the Partnership by an extraordinary resolution, the General Partner (or such other person as may be appointed by ordinary resolution of the limited partners) will act as a receiver and liquidator of the assets of the Partnership and shall:
(a) sell or otherwise dispose of such part of the Partnership’s assets as the receiver shall consider appropriate;
(b) pay or provide for the payment of the debts and liabilities of the Partnership and liquidation expenses;
(c) if there are any assets of the Partnership remaining, distribute such remaining assets to limited partners who hold units of the Partnership on the date of dissolution, proportionate to the number of units held by them and in accordance with the priorities set forth in the Partnership Agreement; and
(d) file the notice of dissolution prescribed by the Partnership Act and satisfy all applicable formalities in such circumstances as may be prescribed by the laws of other jurisdictions where the Partnership is registered. In addition, the General Partner shall give prior notice of the dissolution of the Partnership by mailing to each limited partner and to the Partnership’s registrar and transfer agent, if any, such notice at least 21 days prior to the filing of the certificate of dissolution prescribed by Partnership Act.
Fiscal Year End
Partnership’s financial year-end is December 31.
CAL01: 1951970: v8 35 2.7.4 Loan Agreements
From time to time, the Partnership, as lender, will enter into Loan Agreements with one or more Affiliated Operators, as borrowers. The material terms of the Loan Agreements are expected to vary depending upon the risk profile of the particular Loan and other relevant circumstances. The Partnership will ensure that all Loans comply with the Loan Guidelines and consequently the material terms of the Loans will be consistent with the Loan Guidelines. See Item 2.2.6 - Loan Guidelines.
Loan Agreement with Prime St. Albert
The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Prime St. Albert, as borrower, dated as of January 1, 2015 for a principal amount up to $7,000,000 at an interest rate of 8.5% calculated daily and payable monthly. The loan is secured by a floating charge on the land and building pursuant to a general security agreement registered with Alberta Personal Property Registry and building. As of March 1, 2017, the Partnership has advanced the principal amount of $5,964,800 to Prime St. Albert under this Loan Agreement. See Item 3.4 – Loans.
Prime St. Albert owns a three-storey Class A suburban office building in a premium location within the City of St. Albert and is in the final stages of completion. The building has a gross area of 49,710 sq. ft. and a net leasable area of 37,780 sq. ft. Moiz Bhamani and Harwinder Kang are the beneficial owners of, and have direct control over, the project. There is first position secured debt in place with a conventional lender, therefore the Loan(s) from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Loan Agreement with Prime Cochrane
The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Prime Cochrane, as borrower, dated as of October 1, 2016 for a principal amount up to $4,500,000 at an interest rate of 8.5% calculated daily and payable monthly. The loan is secured by a floating charge on the land pursuant to a general security agreement registered with Alberta Personal Property Registry. As of March 1, 2017, the Partnership has advanced the principal amount of $1,580,800 to Prime Cochrane under this Loan Agreement. See Item 3.4 – Loans.
Prime Cochrane has purchased a 2.07-acre parcel of land in downtown Cochrane. The development is expected to be a mix of office and retail space, with final size and layout to be determined. Moiz Bhamani and Harwinder Kang are the beneficial owners of, and have direct control over the project. Currently there is financing in place for the land acquisition, but not for the construction project, therefore the Loan from the Issuer is be subordinated to the current financing in place.
Loan Agreement with Royal Oak LP
The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Royal Oak LP, as borrower, dated as of October 1, 2016 for a principal amount up to $500,000 at an interest rate of 8.5% calculated daily and payable monthly. The loan is secured by a floating charge on the land and building pursuant to a general security agreement registered with Alberta Personal Property Registry. As of March 1, 2017, the Partnership has advanced the principal amount of $445,000 to Royal Oak LP under this Loan Agreement. See Item 3.4 – Loans.
Royal Oak LP owns a three-storey Class A suburban office building within the City of Calgary’s Royal Vista Business Park. The building has a gross area of approximately 65,000 sq. ft. and the building is fully leased. Moiz Bhamani and Harwinder Kang have indirect control over the project through ownership of Royal Oak LP’s general partner. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Loan Agreement with Royal Oak II Prime Funds Inc.
The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Royal Oak II Prime Funds Inc. as borrower, dated as of January 15, 2015 for a principal amount up to $4,500,000 at an interest rate of 8.5% calculated daily and payable monthly. The loan is secured by a floating charge on the land pursuant to a general security agreement registered with Alberta Personal Property Registry. As of March 1, 2017, the Partnership has advanced the principal amount of $110,000.00 to Royal Oak II Prime Funds Inc. under this Loan Agreement. See Item 3.4 – Loans.
Royal Oak II Prime Funds Inc. owns land to be developed located immediately to the south east of the Royal Oak LP project. Development is expected to begin in 2017 and pre-leasing activity continues. Moiz Bhamani and Harwinder Kang directly control this project through ownership of the company. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
Loan Agreement with Lethbridge Prime Funds Inc.
CAL01: 1951970: v8 36 The Partnership has entered into a Loan Agreement, as per the Loan Guidelines, with Lethbridge Prime Funds Inc., as borrower, dated as of January 15, 2015, for a principal amount up to $4,500,000 at an interest rate of 8.5% calculated daily and payable monthly. The loan is secured by a floating charge on the land and building pursuant to a general security agreement registered with Alberta Personal Property Registry. As of March 1, 2017, the Partnership has advanced the principal amount of $230,000 to Lethbridge Prime Funds Inc. under this Loan Agreement. See Item 3.4 – Loans.
Lethbridge Prime Funds Inc. owns and operates South Centre Common in Lethbridge, Alberta. Leasing activity continues as the centre approaches full occupancy. Moiz Bhamani and Harwinder Kang indirectly control this project through their ownership of the general partner of this project. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
2.7.5 Prime REDI Loan Fee Agreement
Effective as of the date of the first Closing under the Offering, the Trust, the General Partner and Prime REDI have entered into the Prime REDI Loan Fee Agreement, pursuant to which Prime REDI will receive Prime REDI Loan Fees based on each Loan that the Partnership enters into with an Affiliated Operator. The Trustees are the directors and officers of Prime REDI and beneficially own or control, directly or indirectly all of the securities of Prime REDI. The material terms of the Prime REDI Loan Fee Agreement are summarized as follows: (a) The Prime REDI Loan Fees are calculated as 0.5% of the funds advanced under each Loan from the Partnership to an Affiliated Operator. If an Affiliated Operator repays the principal owing under a Loan, then the Partnership may re-lend those proceeds under another Loan Agreement and the Prime REDI Loan Fee would also be payable in respect of the new Loan.
(b) The Prime REDI Loan Fees are payable by the Partnership upon the date that a Loan Agreement is executed. To the extent that the Prime REDI Loan Fees is unpaid, that fee is to be carried forward until payment without interest, penalty or bonus.
(c) The term of the Prime REDI Loan Fee Agreement is for the term of the Trust and Partnership.
(d) In consideration of the Prime REDI Loan Fees. Prime REDI and its employees (including the Trustees) and local support team will complete appropriate due diligence based on the specifics of the project and Loan.
2.7.6 Distribution Reinvestment Plan
The Trust has established the DRIP, which is a distribution reinvestment plan with an effective date of September 19, 2014, for the purposes of offering Eligible Holders a convenient method to reinvest distributions on Trust Units declared and payable to them.
Features
Under the DRIP, a Participant may purchase additional Trust Units with the cash distributions paid on the Eligible Trust Units which are registered in the name of the Registered Participant or held in a Non-Registered Participant’s account maintained pursuant to the DRIP. The price at which Trust Units will be issued from treasury under the DRIP will be calculated by reference to the DRIP Unit Price. No commissions, service charges or brokerage fees are payable by Participants in connection with the DRIP.
Distributions in respect of whole and fractional Trust Units (up to six decimal places) purchased under the DRIP will be credited to a Participant’s account and will be automatically invested under the DRIP in additional Trust Units until such time as the Participant’s participation in the DRIP is terminated.
The Trust shall determine the number of Trust Units available to be issued under the DRIP at any time.
Participation and Enrollment in the DRIP
Provisions of the DRIP apply to all Participants, but are subject to the administrative practices and requirements of intermediaries through whom Trust Units are held by Non-Registered Trust Unitholders. Those administrative practices and requirements may
CAL01: 1951970: v8 37 vary, and Non-Registered Trust Unitholders should contact their intermediary to determine the requirements of such intermediary regarding participation in the DRIP.
In order to be eligible to participate in the DRIP, a holder must be an Eligible Holder. An Eligible Holder who is a registered holder of Trust Units of record may enroll in the DRIP at any time by duly completing and returning a DRIP Enrollment Form to the Trust by Close of Business on the fifth Business Day prior to a Distribution Record Date for it to be effective on such Distribution Payment Date. Any DRIP Enrollment Form received after such time will be applied to the next applicable Distribution Record Date.
Eligible Holders who are Non-Registered Trust Unitholders may request Enrollment in the DRIP through such broker or investment dealer. Once a Participant has enrolled in the DRIP, participation continues automatically unless terminated in accordance with the terms of the DRIP.
Once a Participant is enrolled, on each Distribution Payment Date, the Trust shall promptly pay to the account of the Participants, all cash distributions paid on their Trust Units, which shall be immediately applied to purchase additional Trust Units from treasury (with no action upon the part of the Trust Unitholder) at the then applicable DRIP Unit Price as determined by the Trust. The Trust shall retain such portion of the cash concurrently with the issuance of additional Trust Units from treasury to the Participants.
If any Trust Units are held by a non-resident of Canada, such Trust Unitholder is not eligible to participate in the DRIP. Upon ceasing to be a resident of Canada, a Participant shall forthwith notify the Trust of same and shall automatically be deemed to cease to be a Participant as of the date the Participant ceased to be a resident of Canada.
A DRIP Enrollment Form may be obtained from the Trust any time upon written request addressed to the Trust.
No interest will be paid to Participants on any funds held for investment under the DRIP.
Transfer of Participation Rights
The right to participate in the DRIP may not be transferred by a Participant.
Termination of Participation
Participation in the DRIP may be terminated by a Registered Participant once per calendar year, effective as of the first Distribution Record Date of the following year by notice in writing to the Trust. Non-Registered Participants can terminate their participation in the DRIP by notifying the broker or other investment dealer with whom they hold their Trust Units.
Following such termination, a certificate for the number of whole Trust Units issued to the Registered Participant under the DRIP will be issued to, and in the name of, such Participant, together with a cheque for the value of any remaining fraction of a Trust Unit held for the account of such Participant. The amount of the payment for any such fraction will be determined by the prevailing DRIP Unit Value on the day of termination.
If the notice of termination is received by the Close of Business on the last Business day of the calendar year, termination of the Participant’s participation in the DRIP will be effective in respect of the next Distribution Record Date of the following year. Otherwise, the termination will be effective in respect of the next succeeding year.
For greater certainty, termination by a Participant will not prevent such Trust Unitholder from participating in the DRIP at a later date. No termination requests will be processed between a Distribution Record Date and the related Distribution Payment Date. Normally, a certificate will be sent to a Participant within three weeks of receipt by the Trust of a Participant’s termination request.
After termination of participation in the DRIP, all subsequent distributions will be paid to the former Participant in cash in the usual manner.
Amendment, Suspension or Termination of the DRIP
The Trust reserves the right to amend, suspend or terminate the DRIP at any time, but such action shall have no retroactive effect that would prejudice the interest of the Participants. Participants will be sent written notice of any such amendment, suspension or termination.
CAL01: 1951970: v8 38 In the event of suspension or termination of the DRIP by the Trust, no investment in additional Trust Units on behalf of Participants will be made on the Distribution Payment Date immediately following the effective date of such suspension or termination.
Any Trust Unit distribution subject to the DRIP and paid after the effective date of any such suspension or termination will be remitted by the Trust to the Participants in cash only, in the usual manner.
Rules and Regulations
The Trust may from time to time adopt rules and regulations to facilitate the administration of the DRIP. The Trust also reserves the right to regulate and interpret the DRIP as it deems necessary or desirable to ensure the efficient and equitable operation of the DRIP.
Proration in Certain Events
The Trust reserves the right to determine, promptly following each Distribution Record Date, the amount of new equity, if any, to be made available under the DRIP on the Distribution Payment Date to which such record date relates. No assurances can be made that new Trust Units will be made available under the DRIP on a regular basis, or at all.
If on any Distribution Payment Date the Trust determines not to issue any equity through the DRIP, or the availability of new Trust Units is prorated in accordance with the terms of the DRIP, or for any other reason a Distribution cannot be reinvested under the DRIP, in whole or in part, then Participants will be entitled to receive from the Trust the full amount of the regular Distribution for each Trust Unit in respect of which the Distribution is payable but cannot be reinvested under the DRIP in accordance with the applicable election.
Price of Trust Units
On each Distribution Payment Date, the Trust shall promptly pay to the account of the Participants, all cash distributions paid on their Trust Units, which shall be immediately applied to purchase additional Trust Units from treasury (with no action upon the part of the Trust Unitholder) at the then applicable DRIP Unit Price as determined by the Trust. The Trust shall retain such portion of the cash concurrently with the issuance of additional Trust Units from treasury to the Participants.
Costs
There shall not be any commissions, service charges or brokerage fees payable in connection with the issuance of Trust Units under the DRIP. All administrative costs of the DRIP shall be borne by the Trust.
Reports
Registered Participants:
An account will be maintained by the Trust for each Participant with respect to purchases of Trust Units under the DRIP for the account of such Participant. An unaudited statement of account regarding purchases under the DRIP will be sent on an annual basis to each Participant who is a registered holder of Trust Units. These statements of account are a Participant’s continuing record of purchases of Trust Units made on behalf of such Participant pursuant to the DRIP and should be retained for income tax purposes. Trust Unitholders are responsible for calculating and monitoring their own adjusted cost base in Trust Units for income tax purposes, as certain averaging rules may apply and such calculations may depend on the cost of other Trust Units held by a Trust Unitholder.
Non-Registered Participants:
Non-Registered Trust Unitholders who have enrolled in the DRIP may receive statements of account from their intermediary in accordance with the intermediary’s administrative practices. Such statements will constitute such Non-Registered Trust Unitholder’s continuing record of the date and valuation of the acquisition of DRIP Trust Units issued pursuant to the DRIP and should be retained for income tax purposes. Non-Registered Trust Unitholders should contact their intermediary to determine the procedures for requesting current statements.
No Certificates
No certificates representing Trust Units issued pursuant to the DRIP will be provided to Participants, unless requested by the Participant.
CAL01: 1951970: v8 39 Withdrawals
Registered Participants:
Trust Units purchased under the DRIP will be issued to the Participants by the Trust and evidenced on the Trust’s register of Trust Units. Certificates for such Trust Units will not be issued to Participants unless specifically requested in writing.
A Participant that is a registered holder of Trust Units may request a certificate for any number of Trust Units held by the Participant without terminating participation in the DRIP in writing from the Trust. Normally, a certificate will be sent to a Participant within three weeks of receipt by the Trust of a Participant’s request. Any remaining Trust Units will continue to be held for the Participant’s account under the DRIP.
Non-Registered Trust Unitholders:
Trust Unitholders who have enrolled in the DRIP should contact their intermediary to determine the procedures for withdrawing their participation in the DRIP.
Responsibilities of the Trust
The Trust shall not be liable for any act, or any omission to act, in connection with the operation of the DRIP including, without limitation, any claims for liability:
(a) relating to the prices at which Trust Units are purchased or sold for the Participant’ s account and the times such purchases are made; and
(b) arising in connection with income taxes (together with any applicable interest and/or penalties) payable by Participants in connection with their participation in the DRIP.
Participants should recognize that the Trust cannot assure a profit or protection against a loss on the Trust Units purchased or sold under the DRIP.
Personal Liability
The Trustees are entering into the DRIP solely in their capacities as trustees or as agents, as the case may be, on behalf of the Trust and the obligations of the Trust hereunder are not personally binding upon the Trustees, or any of the registered or beneficial Trust Unitholders or any annuitant or beneficiary under a plan of which a Trust Unitholder is a trustee or carrier (an “annuitant”) and that any recourse against the Trust, the Trustees, or any Trust Unitholder or annuitant in any manner in respect of any indebtedness, obligation or liability of the Trust arising hereunder or arising in connection herewith or from the matters to which the DRIP relates, if any, including without limitation claims based on negligence or otherwise tortious behaviour, is limited to, and is to be satisfied only out of, the Trust Assets as defined in the Trust Declaration.
Compliance with Laws
The operation and implementation of the DRIP is subject to compliance with all applicable legal requirements, including obtaining all appropriate regulatory approvals and exemptions from registration and prospectus requirements. The Trust may limit the Trust Units issuable under the DRIP in connection with discretionary exemptive relief relating to the DRIP granted by any securities regulatory authority.
Notices
All notices required to be given under the DRIP shall be sent to a Participant at the address shown on the records of the Trust or at a more recent address as furnished by the Participant or the Participant’s investment dealer, as the case may be.
Notices to the Trust shall be sent to:
Suite 1206, 734 - 7th Ave SW, Calgary, Alberta T2P 3P8 Fax: (403) 452-7855 Email: [email protected]
CAL01: 1951970: v8 40 ITEM 3 - INTERESTS OF TRUSTEES, MANAGEMENT, PROMOTERS AND PRINCIPAL HOLDERS
Compensation and Securities Held
The following table sets out information about each of the trustees, officers and promoters of the Trust and each person who, directly or indirectly, beneficially owns or controls 10% or more of any class of the Trust’s voting securities, being the Trust Units (a “Principal Holder”):
Compensation paid by the Trust Position held or related party in most recently Number, type and Number, type and Name and and the date of completed financial year and the percentage of securities percentage of securities Municipality of obtaining that compensation anticipated to be held after completion of held after completion of Principal Residence position(1) paid in current financial year the Minimum Offering the Maximum Offering
MOIZ BHAMANI Trustee and Notes 2, 3, 4, 5, and 6 Nil Nil Calgary, Alberta Promoter
HARWINDER KANG Trustee and Notes 2, 3, 4, 5, and 6 Nil Nil Calgary, Alberta Promoter
JEFFEREY WANG Independent Notes 2 and 5 Nil Nil Calgary, Alberta Director and Trustee, Member of Independent Review Committee
NAVEEN AHUJA Independent Notes 2 and 5 Nil Nil Calgary, Alberta Director and Trustee, Member of Independent Review Committee
Notes: (1) Trustees have held office since formation of the Trust on June 30, 2014. Jefferey Wang was appointed as a member of the Independent Review Committee effective March 1, 2017. Naveen Ahuja was appointed as a member of the Independent Review Committee effective June 27, 2016. The The Independent Review Committee was established to provide advice and assistance to the Trustees and directors of the General Partner regarding actual and potential conflicts of interest as defined in NI 81-107, including with respect to the commercial reasonableness of the terms of the loans to the Affiliated Operators. The Trustees or directors of the General Partner may also ask the Independent Review Committee for advice from time to time when interpreting any provision of the Trust Declaration, the Partnership Agreement or otherwise. The current members of the Independent Review Committee are Jefferey Wang and Naveen Ahuja. See Item 2.2.3 – Governance and Independent Review Committee. (2) The Trustees, Moiz Bhamani and Harwinder Kang, beneficially own or control, directly or indirectly all of the securities of Prime REDI which will receive Prime REDI Loan Fees, which are calculated as 0.5% of the Funds advanced under each Loan from the Partnership to an Affiliated Operator. As of March 1, 2017, the Partnership has been paid loan fees of $269,307.50 by the Affiliated Operators that borrowed under the Loans. For the year ended December 31, 2016, the Trust paid Prime REDI $41,649 (2014 $nil) in accordance with the Prime REDI Loan Fee Agreement plus the General Partner paid one time consulting and management fees to Prime REDI of $40,048.50. See Item 2.7.5 – Prime REDI Loan Fee Agreement. In addition, all of the outstanding shares of the General Partner are beneficially owned or controlled, directly or indirectly by Moiz Bhamani and Harwinder Kang. The General Partner is entitled to cash distributions from the Partnership from time to time (see Item 5.2.2 – Distributions of Cash from the Partnership) and consequently, Moiz Bhamani and Harwinder Kang will indirectly share in those distributions to the General Partner. The members of the Independent Review Committee are paid an annual honorarium of $500 payable at the end of each year. (3) The Affiliated Operators may enter into project management agreements and property management agreements with arm’s length parties or with entities affiliated with or related to Moiz Bhamani or Harwinder Kang. In the event, the project manager is a related party (including an entity owned, controlled, directed by or otherwise related to Moiz Bhamani or Harwinder Kang) then such project manager will not be paid any fees that are higher than fair market rates. In the event, the property manager is a related party (including an entity owned, controlled, directed by or otherwise related to Moiz Bhamani or Harwinder Kang) then such property manager will not be paid any fees that are higher than fair market rates. (4) The Affiliated Operators, as part of the normal course of their operations or project development, may be obligated to pay Moiz Bhamani and Harwinder Kang fees or compensation in accordance with the structures of the Affiliated Operators. (5) The Trust will reimburse Moiz Bhamani, Harwinder Kang and their affiliates and the members of the Independent Review Committee for any expenses paid or incurred on behalf of the Trust or Partnership, including all reasonable travel, promotional and other business expenses incurred by them in the performance of their duties. It is estimated that the total of all such costs will not exceed 0.5% of the Offering Proceeds. (6) The Trust intends to enter into indemnity agreements with each of the Trustees that will indemnify each such individual in respect of the discharge of his duties, provided that the Trustee seeking indemnity acted honestly and in good faith with a view to the best interests of the Trust or, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, where the Trustee seeking indemnity had reasonable grounds for believing that his or her conduct was lawful.
CAL01: 1951970: v8 41 Management’s Experience
The principal occupation and business background of each Trustee and officer of the Trust is as follows:
Name Principal Occupations and Related Experience
MOIZ BHAMANI, Moiz Bhamani is the Founder and Chief Executive Officer of Prime Real Estate Group. Mr. Bhamani has over 10 MBA, FCSI years of experience in investment banking and commercial real estate developments. He began his career in finance Trustee, Promoter sector in investment banking with a Canadian chartered bank. He founded Prime Real Estate Group (“Prime”) in and officer and 2007 and since then has led its growth through up and down economic cycles. During this time, Prime has developed director of the approximately 500,000 sq./ft. of projects in and around Alberta and has a development pipeline of over two million General Partner sq./ft. of projects. Some of Prime’s developed-and-owned buildings house tenants such as the Federal Government, Alberta Health Service, branches of a Canadian chartered bank, Dollar Tree and numerous national retailers and professional firms occupying office space.
Mr. Bhamani has completed the Program for Business Development at world-renowned Harvard Business School (Harvard’s alternative to an executive MBA), holds a BBA degree from Mount Royal University, has earned the FCSI (Fellow of Canadian Securities Institute) designation and holds an MBA from Athabasca University, where he received the Queen Elizabeth II Scholarship during his studies. Mr. Bhamani is an active community member and actively volunteers with several NGO groups including the United Way, Aga Khan Development Network and Hybrid Baseball Club of Calgary. Mr. Bhamani has previously served for two elected executive terms on the Athabasca University’s Graduate Council.
Mr. Bhamani has received numerous industry and business awards, notable of which are 2013, Athabasca University’s Rising Star Award given each year to one alumni of its global network of 30,000. More recently, Mr. Bhamani received 2014 Business in Calgary Magazine’s Leader of Tomorrow Award, celebrating his leadership, commitment towards continuous learning, business success, community involvement and his passion to give back to the community.
HARWINDER KANG Harwinder Kang is the President of the Prime Real Estate Group. Mr. Kang has been involved with the company Trustee, Promoter since its inception and has played a key role in developing Prime’s investment business. Mr. Kang has formally and officer and educated as a professional mechanical engineer. Prior to joining Prime, he spent over 10 years in senior management director of the in the oil and gas industry for Alberta based companies such as Suncor, Husky, CNRL and SNC Lavalin. At CNRL General Partner he worked as a Senior Engineering Standards/Information Management Specialist on the Horizon Oil Sands Project. At SNC Lavalin, he served as a Senior Project Specialist involved with many oil sands project developments, which include the Husky Upgrader in Lloydminster, Suncor Millennium Project and Petro-Canada Refinery Project.
Mr. Kang is a true entrepreneur and prior to joining Prime Real Estate Group as a partner (and now president), he owned and operated several successful business ventures in the insurance and financial services sector. Mr. Kang had built a financial services firm with over 200 advisers. He successfully transitioned into Alberta real estate sector in 2007 when he managed the general partner of a large commercial real estate development in Balzac (along with Mr. Bhamani). The project today has a retail developed value of approximately $75 million.
JEFFEREY WANG Mr. Wang is a CGA with Joy Global Inc. in Calgary, Alberta, where he practices primarily in the areas of mining INDEPENDENT operations. Mr. Wang was born and raised in Shanghai, China, and emigrated to Canada in 2001. Prior to joining DIRECTOR AND Joy Global Mr. Wang transferred his accounting credentials to Canada while holding several positions in sales and TRUSTEE, Member management before moving to Calgary in 2007. Mr. Wang specializes in operational accounting and cost of Independent efficiencies, and is responsible for operational accounting for Joy Global’s western Canadian division. Review Committee
INDEPENDENT Mr. Ahuja is a managing partner and director of Swift Accounting Business Solutions, Calgary, AB. Mr. Ahuja has DIRECTOR AND been practising tax accounting for over 10 years and has held positions with large local firms such as MNP, Nexen TRUSTEE, NAVEEN and Suncor. Mr. Ahuja earned his CA designing in 2012. Mr. Ahuja has a Bachelor of Accounting from University AHUJA, CPA, CA of Lethbridge. Mr. Ahuja is appointed on IRC for the year 2016-2017. Member of Independent Review Committee
Penalties, Sanctions and Bankruptcy
To the knowledge of management of the Trust, there has been: (a) no penalty or sanction that has been in effect during the last 10 years against a: (i) a trustee, executive officer or control person of the Trust; or (ii) an issuer of which any of the persons or companies referred to in (i) was a trustee, director, executive officer or control person, at the time; and (b) no declaration of bankruptcy, voluntary assignment in bankruptcy, proposal under any bankruptcy or insolvency legislation, proceedings, arrangement or compromise with creditors or appointment of a receiver, receiver manager or trustee to hold assets, that has been
CAL01: 1951970: v8 42 in effect during the last 10 years with regard to any trustee, executive officer or control person of the Trust or an issuer of which a trustee, executive officer or control person of the Trust was a trustee, director, executive officer or control person at that time.
Loans
Other than as disclosed below, there is no outstanding indebtedness between the Trust and its Trustees, management, promoters or Principal Holders.
The Partnership has entered into Loan Agreements as follows:
Principal Total Amount Principal outstanding Amount as at March Interest Borrower Available 1, 2017 Repayment terms Security Due Date Rate
Prime St. Albert (1) $7,000,000 $5,964,800 Interest is payable Floating Charge on Land and January 26, 8.5% monthly, principal is Buildings pursuant to a 2017 calculated repayable on demand general security agreement daily and registered with the Alberta payable Personal Property Registry monthly
Prime Cochrane (2) $4,500,000 $452,000 Interest is payable Floating Charge on Land October 1, 8.5% monthly, principal is pursuant to a general security 2020 calculated repayable on demand agreement registered with the daily and Alberta Personal Property payable Registry monthly
Royal Oak LP (3) $500,000 $445,000 Interest is payable Floating Charge on Land and October 1, 8.5% monthly, principal is Buildings pursuant to a 2020 calculated repayable on demand general security agreement daily and registered with the Alberta payable Personal Property Registry monthly Floating Charge on Land January 26, 8.5% Royal Oak II Prime $4,500,000 $110,000 pursuant to a general security calculated (4) Interest is payable 2017, or on Funds Inc. monthly, principal is agreement registered with the demand daily and repayable on demand Alberta Personal Property payable Registry monthly Floating Charge on Land January 26, 8.5%
Lethbridge Prime Interest is payable pursuant to a general security 2017 or on calculated $4,500,000 $230,000 Funds Inc.(5) monthly, principal is agreement registered with the demand daily and repayable on demand Alberta Personal Property payable Registry monthly
Notes: (1) Prime St. Albert owns a three-storey Class A suburban office building in a premium location within the City of St. Albert and is in the final stages of completion. The building has a gross area of 49,710 sq. ft. and a net leasable area of 37,780 sq. ft. Moiz Bhamani and Harwinder Kang are the beneficial owners of, and have direct control over, the project. There is first position secured debt in place with a conventional lender, therefore the Loan(s) from the Issuer is secured and subordinated and on terms appropriate to reflect the risk profile. (2) Prime Cochrane has purchased a 2.07 acre parcel of land in downtown Cochrane. The development is expected to be a mix of office and retail space, with final size and layout to be determined. Moiz Bhamani and Harwinder Kang are the beneficial owners of, and have direct control over the project. Currently there is financing in place for the land acquisition, but not for the construction project, therefore the Loan from the Issuer is secured and subordinated to the current financing in place. (3) Royal Oak LP owns a three-storey Class A suburban office building within the City of Calgary’s Royal Vista Business Park. The building has a gross area of approximately 65,000 sq. ft. and the building is fully leased. Moiz Bhamani and Harwinder Kang have indirect control over the project through ownership of Royal Oak LP’s general partner. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is secured and subordinated and on terms appropriate to reflect the risk profile. (4) Royal Oak II Prime Funds Inc. has purchased the parcel immediately south east of Royal Oak LP in Royal Vista Business Park. It is intended to construct a three-storey Class A suburban office building when pre-leasing is achieved. Moiz Bhamani and Harwinder Kang have direct control over the project through ownership of the company. There is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is secured and subordinated and on terms appropriate to reflect the risk profile. (5) Lethbridge Prime Funds Inc. owns and operates South Centre Common in Lethbridge, Alberta. Leasing activity continues as the centre approaches full occupancy. Moiz Bhamani and Harwinder Kang indirectly control this project through their ownership of the general partner of this project. There
CAL01: 1951970: v8 43 is a first position secured debt in place with a conventional lender, therefore the Loan from the Issuer is subordinated and on terms appropriate to reflect the risk profile.
ITEM 4 - CAPITAL STRUCTURE
Equity Capital
The following table sets out the outstanding equity capital of the Trust:
Number outstanding Number authorized Number outstanding Number outstanding after Maximum Description of Security to be issued as at March 1, 2017 after Minimum Offering Offering
Trust Units(1) Unlimited 84,159(2) nil 1,000,000(3)
Additional classes or Unlimited nil nil nil series of units(4)
Notes: (1) See Item 5.1 – Trust Units for a description of the Trust Units. (2) On June 30, 2014, one Trust Unit was issued to constitute the Trust for $100. That Trust Unit was repurchased by the Trust for $100 (being the issue price) and cancelled pursuant to the Trust Declaration following completion of the first Closing under the Offering. To date, the Trust has issued and sold 52,498 Trust Units under the Offering and issued approximately 502 Trust Units under the DRIP. See Item 4.4 – Distributions. (3) Assumes the completion of the Maximum Offering. The Trust may complete the issue and sale of additional Trust Units at any time and from time to time at one or more Closings until the Maximum Offering is reached or the Offering are otherwise terminated. There is no assurance that the Maximum Offering amount will be achieved. Under the Maximum Offering, the Trust will realize aggregate Gross Offering Proceeds of $100,000,000 through the issue and sale of 1,000,000 Trust Units. The Trust may, without notice to Trust Unitholders, increase the Maximum Offering. The Trust determined the pricing under the Offering for the Trust Units. (4) The Trustees may create additional classes or series of units of the Trust at any time, without the prior approval of Trust Unitholders and may fix the limitations, rights, privileges, restrictions and conditions of such class or series, including voting rights, distribution rights and rights to the Trust’s assets. Long-Term Debt Securities
As of the date hereof, the Trust has no outstanding long-term debt and does not anticipate incurring any long-term debt obligations as of the completion of the Maximum Offering, other than as described in this offering memorandum.
Prior Sales
The Trust has issued the following securities:
Type of security Number of securities Price per Date of issuance issued issued security Total funds received
(1) (1) 30-Jun-14 Trust Unit 1(1) $100 $100 31-Oct-14 Trust Unit 1,210 $100 $121,000 31-Jan-15 Trust Unit 450 $100 $45,000 28-Feb-15 Trust Unit 339 $100 $33,900 31-Mar-15 Trust Unit 1,360 $100 $136,000 30-Apr-15 Trust Unit 2,756 $100 $275,600 31-May-15 Trust Unit 881 $100 $88,100 30-Jun-15 Trust Unit 1,262 $100 $126,200 31-Jul-15 Trust Unit 2,024 $100 $202,400 31-Aug-15 Trust Unit 2,060 $100 $206,000 30-Sep-15 Trust Unit 3,298 $100 $329,800 31-Oct-15 Trust Unit 6,539 $100 $653,900 30-Nov-15 Trust Unit 8,362 $100 $836,200 31-Dec-15 Trust Unit 9,470 $100 $947,000 31-Jan-16 Trust Unit 4,871 $100 $487,100 29-Feb-16 Trust Unit 7,616 $100 $761,600 31-Mar-16 Trust Unit 3,470 $100 $347,000 30- April-16 Trust Unit 3,333 $100 $333,000 31-May-16 Trust Unit 2,417 $100 $241,700 30-June-16 Trust Unit 788 $100 $78,800 31-July-16 Trust Unit 1,790 $100 $179,000 31- Aug-16 Trust Unit 985 $100 $98,500
CAL01: 1951970: v8 44 30-Sept-16 Trust Unit 3,636 $100 $244,600 31-Oct-16 Trust Unit 2,685 $100 $218500 30- Nov-16 Trust Unit 6,360 $100 $636,000 31- Dec-16 Trust Unit 2,292 $100 $136,000 31-Jan-17 Trust Unit 2757 $100 $100,000 28-Feb-17 Trust Unit 1148 $100 $39,000
Notes: (1) On June 30, 2014, one Trust Unit was issued to constitute the Trust for $100. That Trust Unit was repurchased by the Trust for $100 (being the issue price) and cancelled pursuant to the Trust Declaration following completion of the first Closing under the Offering.
(2) The Trust Units in the above table do not include the Trust Units that have been issued under the DRIP. To date, the Trust has issued and sold 55,247 Trust Units under the Offering and issued approximately 28,912 Trust Units under the DRIP. See Item 4.4. – Distributions.
Distributions
As of March 1, 2017, the Trust has declared and paid the following distributions on the outstanding Trust Units (subject to applicable pro-rationing for Trust Unitholders who have held their Trust Units for less than the entire distribution period):
Type Total Amount
Cash Distribution $393,030.74 DRIP Distribution $235,549.73 (paid in Trust Units) (1)
Note: (1) Trust Unitholders elected to re-invest $235,549.73 of the distributions into Trust Units pursuant to the Trust’s DRIP in exchange for 2,355.4973 Trust Units. See Item 2.7.6 – Distribution Reinvestment Plan.
ITEM 5 - SECURITIES OFFERED
The Trust is offering Trust Units for issue and sale under the Offering. Investors under the Offering will purchase Trust Units upon the Trust’s acceptance of the Investor’s Subscription Agreement and related documents and payment of the applicable subscription amounts for Trust Units, as the case may be. See Item 5.3 - Subscription Procedure.
The material terms of the Trust Units are summarized below. Other rights, privileges, restrictions, conditions and characteristics attaching to each Trust Unit are contained in the Trust Declaration. See also Item 2.7.2 - Trust Declaration.
Prospective Investors are advised that any description of the Trust Units in this offering memorandum is a summary only of the material terms of those Trust Units and remains subject to the Trust Declaration. Prospective Investors are advised to review the Trust Declaration and the Trust Unit provisions in detail with their own legal, tax and investment advisors.
Trust Units
The Trust is authorized to issue an unlimited number of Trust Units and the Trustees may create additional classes or series of units of the Trust at any time. See Item 2.7.2 – Trust Declaration - Creation of Additional Classes or Series of Units.
Each Trust Unit represents a holder’s proportionate undivided beneficial interest in the Trust and which carry and are entitled to the rights and subject to the limitations, restrictions and conditions set out in the Trust Declaration. Each Trust Unit entitles the Trust Unitholder to the same rights and obligations as any other Trust Unitholder and no Trust Unitholder is entitled to any privilege, priority or preference in relation to any other Trust Unitholders other than resulting from the number of Trust Units held by such Trust Unitholder or with respect to withholding taxes as provided in the Trust Declaration. In particular:
(a) each Trust Unitholder is entitled to participate equally with respect to any and all allocations, advances or distributions made by the Trust to the Trust Unitholders (including distributions of net income and net realized capital gains), subject to an adjustment in a Trust Unitholder’s proportionate share of distributions in the calendar year it was issued as a result of the date such Trust Unit was issued in the calendar year. See Item 5.2.1 – Distribution Policy;
CAL01: 1951970: v8 45 (b) each Trust Unit confers the right to one vote at any meeting of Trust Unitholders. See Item 2.7.2 – Trust Declaration – Meetings and Resolutions of Trust Unitholders; and
(c) in the event of termination of the Trust, each Trust Unitholder will be entitled, on a pro rata basis, with other Trust Unitholders, in respect of each Trust Unit, to share with other Trust Unitholders in the remaining assets and property available for distribution upon termination, after discharge of the Trust’s liabilities and the return of capital.
No Trust Unitholder has or is deemed to have any right of ownership in any of the assets of the Trust.
Trust Units are to be fully paid and non-assessable when issued (unless issued on an instalment receipt basis). Trust Unitholders cannot transfer their Trust Units except in very limited circumstances. See Item 8 – Risk Factors – Trust Units are Not Liquid.
5.1.2 Distributions by the Trust
For information regarding distributions of cash by the Trust to Trust Unitholders, see Item 4.4 – Distributions and Item 5.2 – Cash Distributions to Trust Unitholders.
5.1.3 Redemption of Trust Units
Trust Units are redeemable in certain circumstances. See Item 2.7.2 – Trust Declaration – Redemption of Trust Units.
5.1.4 Withholding Taxes
The Trustees may deduct or withhold from distributions payable to any holder of Trust Units all amounts required by applicable law to be withheld from such distribution, whether those distributions are in the form of cash, additional Trust Units or otherwise. In the event of a distribution in the form of additional Trust Units or property other than cash, the Trustees may sell Trust Units or other property of those Trust Unitholders to pay those withholding taxes and to pay all of the Trustees’ reasonable expenses with regard thereto and the Trustees shall have the power of attorney of the Trust Unitholder to do so. Upon any such sale of Trust Units, the affected Trust Unitholder shall cease to be the holder of those Trust Units. In the event that withholding taxes are exigible on any distribution or redemption amounts distributed under the Trust Declaration and the Trust was unable to withhold taxes from a particular distribution to a Trust Unitholder or has not otherwise withheld taxes on particular distributions to the Trust Unitholders, the Trust is to be permitted to withhold amounts from other distributions to satisfy the withholding tax obligation. In addition, Non-Resident holders of Trust Units will be required to pay all withholding taxes payable in respect of any distributions in the form of additional Trust Units, or otherwise.
5.1.5 Transfers of Trust Units
Trust Unitholders cannot transfer their Trust Units except in very limited circumstances. See Item 2.7.2 – Trust Declaration – Transfer of Units, Item 8 – Risk Factors and Item 10 – Resale Restrictions.
5.1.6 Rights of Trust Unitholders
Trust Unitholders are not shareholders and do not enjoy the rights and privileges generally offered to shareholders of a corporation incorporated under the ABCA. Although the Trust Declaration confers upon a Trust Unitholder some of the same protections, rights and remedies that an investor would have as a voting shareholder of a corporation governed by the ABCA, significant differences do exist.
Many of the provisions of the ABCA respecting the governance and management of a corporation have been incorporated in the Trust Declaration. For example, Trust Unitholders are entitled to exercise voting rights in certain circumstances in respect of their holdings of Trust Units in a manner comparable to voting shareholders of an ABCA corporation. The Trust Declaration also includes provisions modeled after comparable provisions of the ABCA dealing with the calling and holding of meetings of Trust Unitholders and the rights of Trust Unitholders to participate in the decision-making process where certain fundamental actions are proposed to be undertaken. The matters in respect of which Trust Unitholder approval is required under the Trust Declaration are generally less extensive than the rights conferred on the shareholders of an ABCA corporation, but effectively extend to certain fundamental actions that may be undertaken by the Trust’s subsidiary entities, as described under Item 2.7.2 – Trust Declaration – Certain Rights of Trustees Subject to Special Resolution. Certain of those Trust Unitholder approval rights may be supplemented by provisions of applicable securities laws.
However, unlike an ABCA corporation, the Trustees will generally not be elected annually; rather, they will only be elected if a Trust Unitholder meeting is called with respect to electing or replacing Trustees. Further, while the election of Trustees requires majority approval, unlike an ABCA corporation, the removal of the Trustees requires a Special Resolution (66⅔% approval)
CAL01: 1951970: v8 46 rather than majority approval. The Trust may, but is not required to hold annual meetings of Trust Unitholders or any Trust Unitholder meetings on a periodic basis. The Trust does not, at this time, intend to call annual meetings for the election of Trustees or otherwise. Consequently, Trust Unitholders will not vote to appoint the Trustees on an annual or periodic basis. Further, unlike an ABCA corporation, Trust Unitholders do not have the right to appoint the Trust’s auditor; rather such right is held by the Trustees.
The Trust Declaration contains “conflict of interest” provisions, similar to those contained in the ABCA, that require the Trustees and officers of the Trust to disclose to the Trust, any interest in a material contract or transaction or proposed material contract or transaction with the Trust, or the fact that such individual is a director or officer or employee of, or otherwise has a material interest in, any person who is a party to a material contract or transaction or proposed material contract or transaction with the Trust. In any case, a Trustee or officer of the Trust who has made disclosure to the foregoing effect is not entitled to vote on any resolution to approve the contract or transaction unless the contract or transaction is one relating primarily to: (i) his, her or its remuneration as a Trustee, officer, employee or agent of the Trust, as applicable; (ii) insurance or indemnity; or (iii) a contract or transaction with an affiliate of the Trust.
Trust Unitholders do not have recourse to a dissent right under which shareholders of an ABCA corporation are entitled to receive the fair value of their shares where certain fundamental changes affecting the corporation are undertaken, such as an amalgamation, a continuance under the laws of another jurisdiction, the sale of all or substantially all of its property, a going private transaction or the addition, change or removal of provisions restricting: (i) the business or businesses that the corporation can carry on, or (ii) the issue, transfer or ownership of shares. As an alternative, but only following certain events, Trust Unitholders seeking to terminate their investment in the Trust are entitled to receive, subject to certain conditions and limitations, their pro rata share of the Trust’s net assets through the exercise of the redemption rights provided by the Trust Declaration, as described under Item 2.7.2 – Trust Declaration – Redemption of Trust Units. However, Trust Unitholders have a right to dissent in respect of an arrangement (described below).
Unless dissent rights that are comparable or analogous to dissent rights under the applicable corporate legislation are provided to Trust Unitholders in connection with an arrangement, a Trust Unitholder may dissent if a Special Resolution is passed or adopted to approve an arrangement pursuant to which: (a) the Trust Declaration is amended to add, change or remove any provisions restricting or constraining the issue or transfer of Trust Units; (b) the Trust Declaration is amended to add, change or remove any restrictions on the business or businesses that the Trust may carry on; (c) the Trust Declaration is amended to add an express statement establishing the unlimited liability of Trust Unitholders or to add or change any provision whereby the limited liability of Trust Unitholders under applicable legislation is compromised or diminished to a material extent; (d) the Trust Units of each Trust Unitholder are to be exchanged for securities issued by another person; or (e) the Trust sells, leases or exchanges all or substantially all its property.
Trust Unitholders do not have recourse to the statutory oppression remedy that is available to shareholders of an ABCA corporation where the corporation undertakes actions that are oppressive, unfairly prejudicial or disregard the interests of security holders and certain other parties. Shareholders of an ABCA corporation may also apply to a court to order the liquidation and dissolution of the corporation in those circumstances, whereas Trust Unitholders could rely only on the general provisions of the Trust Declaration, which permit the termination and dissolution of the Trust with the approval of a Special Resolution of the Trust Unitholders. Shareholders of an ABCA corporation may also apply to a court for the appointment of an inspector to investigate the manner in which the business of the corporation and its affiliates is being carried on where there is reason to believe that fraudulent, dishonest or oppressive conduct has occurred. The ABCA also permits shareholders to bring or intervene in derivative actions in the name of the corporation or any of its subsidiaries, with the leave of a court. The Trust Declaration does not include a comparable right of Trust Unitholders to commence or participate in legal proceedings with respect to the Trust.
For further information on terms contained in the Trust Declaration which affect the rights of Trust Unitholders, including provisions regarding activities of the Trust, the Trustees, certain rights of Trustees subject to Special Resolution and amendments to the Trust Declaration, see Item 2.7.2 –Trust Declaration. For information with respect to the terms of the Trust Declaration regarding transfer of Trust Units, see Item 2.7.2 – Trust Declaration – Transfer of Trust Units. For information regarding distributions by the Trust on Trust Units, see Item 5.2 – Cash Distributions to Trust Unitholders.
Cash Distributions to Trust Unitholders
5.2.1 Distribution Policy
The Trust intends to distribute all or any part of the Distributable Cash of the Trust (if any) that the Trustees prudently determine as being available for distributions to Trust Unitholders of record on the last day of each calendar year. The Trust may also distribute Distributable Cash (if any) that the Trustees prudently determine as being available for distributions to Trust Unitholders for other distribution periods, as the Trustees determine, in their discretion, from time to time. The Trust intends to distribute Distributable Cash monthly to Trust Unitholders.
CAL01: 1951970: v8 47 Where a distribution of Distributable Cash is declared by the Trust in respect of a calendar month, such distribution will be made by the end of the next calendar month. Where a distribution of Distributable Cash is declared by the Trust in respect of a period that is not a calendar month, then the distribution will be payable on the date determined by the Trustees from time to time.
The amount of Distributable Cash distributed by the Trust will generally equal the amount earned or receivable by the Trust in the distribution period and received on or before the payment date in respect of the distribution period less amounts the Trust estimates will be required for expenses and obligations of the Trust, cash redemptions (if any) or repurchases of Trust Units, repayment of indebtedness, any tax liability and any reserves established by the Trustees, in their sole discretion. For information regarding the distributions of cash from the Partnership to the Trust, see Item 5.2.2. – Distributions of Cash from the Partnership.
The composition of Distributable Cash for tax purposes may change over time and may affect after-tax return for Trust Unitholders. See Item 6.2.5 – Taxation of Trust Unitholders.
The Trust Declaration provides that there will be payable to Trust Unitholders in respect of each fiscal year (generally a year ending December 31 unless a deemed year-end occurs under applicable law) not less than such amount (in respect of the taxable income and net realized capital gains, if any, of the Trust for such year) as is necessary to ensure that the Trust will not be liable for ordinary income taxes under the Tax Act in such year. Any income of the Trust which is applied to any repurchase or cash redemptions of Trust Units or is otherwise unavailable for cash distribution will, to the extent necessary to ensure that the Trust does not have an income tax liability under Part I of the Tax Act, be distributed to Trust Unitholders in the form of additional Trust Units. Those additional Trust Units will be issued under exemptions provided for by applicable securities laws, discretionary exemptions granted by applicable securities regulatory authorities or a prospectus or similar filing. Unless the Trustees determine otherwise, immediately after any pro rata distribution of these additional Trust Units, the number of outstanding Trust Units will be consolidated such that each Trust Unitholder will hold after the consolidation the same number of Trust Units as the Trust Unitholder held before the non-cash distribution, except where tax was required to be withheld in respect of the Trust Unitholder’s share of the distribution.
The Trust Declaration provides that to the extent distributions are calculated in respect of a distribution period and payable at the end of such distribution period, if for any reason, including the termination of the Trust, such distribution period is not completed or such amounts are no longer payable, then the distribution will be pro-rated to the end of the shortened distribution period and be payable at the end of such shortened distribution period. In addition, in the event that a Trust Unitholder has held its Trust Unit for less than the entire distribution period for which a distribution is payable, the Trust Unitholder is only entitled to a proportionate share of the distributions based on the proportion that the number of days between the date of first issue of its Trust Unit and the last day of the distribution period bears to the aggregate total number of days in such distribution period.
The Trustees have the right but not the obligation to distribute and allocate Distributable Cash, income, capital gains and any other applicable amounts among Trust Unitholders in such a manner so as to ensure where possible that they are treated equitably taking into account differences that may arise as a result of the acquisition of Trust Units at different times in a fiscal year or in different fiscal calendar years.
The Trust has established the DRIP, which is a distribution reinvestment plan for the purposes of offering Eligible Holders a convenient method to reinvest distributions on Trust Units declared and payable to them. See Item 2.7.6 – Distribution Reinvestment Plan.
The Trustees review the Trust’s distribution policy from time to time. The actual amount of Distributable Cash distributed is dependent on various economic factors and distributions are declared at the discretion of the Trustees. The actual cash flow available for distribution to Trust Unitholders is a function of numerous factors, including the Trust’s and Affiliated Operators’ financial performance and the number and classes of Trust Units issued and outstanding. The Trust or Affiliated Operators may also borrow funds in order to fund distributions, but such borrowing may be limited by the financial covenants in any credit facilities that are entered into. As a result of the aforementioned factors, distributions may be increased, reduced or suspended entirely. See Item 8 – Risk Factors.
5.2.2 Distributions of Cash from the Partnership
In particular period, the Partnership will first pay or reserve all amounts necessary for all expenses and fees of the Partnership (including the Prime REDI Loan Fees) and any reserves that are necessary in the opinion of the General Partner. Thereafter, the Partnership will distribute cash, if any, to its partners, less any tax required to be withheld, as at the applicable distribution date.
Where a distribution is declared by the Partnership in respect of a calendar month, such distribution will be made by the end of the next calendar month. Where a distribution is declared by the Partnership in respect of a period that is not a calendar month, then the distribution will be payable on the date determined by the General Partner from time to time.
CAL01: 1951970: v8 48 The priority allocation of cash distributions from the Partnership will be calculated for each fiscal year independently of all other fiscal years such that each amount calculated is non-cumulative and non-compounding. Distributions of cash from the Partnership to its partners will be paid in the following order of priority:
(a) firstly, the Trust (as sole limited partner) will receive 100% of the distributable cash up until the Trust has received enough cash to pay distributions to Trust Unitholders equal to 8.0% per annum of their Trust Unit Subscription Amount; and
(b) secondly, the General Partner will receive 100% of the distributable cash, if any, in excess of the distribution allocated in paragraph (a) above.
The Trust will distribute the cash that it receives from the Partnership in accordance with the Trust Declaration, subject to any reserves or other deductions permitted under the Trust Declaration. Distributions will depend upon, among other things, the operating results and financial condition of the Partnership, its present and future capital requirements and general business conditions and there is no assurance that any such distributions from the Partnership or the Trust will occur. In addition, on an annual basis, the Partnership will allocate net income (net loss) and taxable income (tax loss) for Canadian tax purposes to its partners, which is summarized in Item 5.2.3 – Allocation of Net Income (Net Loss) and Taxable Income (Tax Loss) for Canadian Tax Purposes.
Cash distributions to Trust Unitholders are not guaranteed and are not fixed obligations of the Trust. See Item 8 – Risk Factors.
5.2.3 Allocation of Net Income (Net Loss) and Taxable Income (Tax Loss) for Canadian Tax Purposes
The net income, gain, loss and deduction of the Partnership for each fiscal year shall be allocated between the General Partner and the Trust (as sole limited partner) by the General Partner. In so allocating such income, gain, loss and deduction, the General Partner shall act reasonably and fairly in a manner generally consistent with the distribution procedures outlined in Item 5.2.2 – Distributions of Cash from the Partnership, but subject to the overriding objective of achieving an equitable allocation of income, gain, loss and deduction over the term of the Partnership, provided that no income, gain, loss or deduction shall be allocated to the General Partner in respect of cash received as a reimbursement of costs, expenses or fees. The income or loss of the Partnership for Canadian tax purposes for a fiscal year shall be allocated to the partners of the Partnership in the same proportions as the net income or loss is allocated to the partners as described in the preceding sentence.
Subscription Procedure
The securities being offered pursuant to the Offering are Trust Units.
Each Investor must subscribe for a minimum of 10 Trust Units ($1,000). There is no maximum number of Trust Units allocated to any subscriber, subject to the limits under the Maximum Offering and the investment limits prescribed under securities laws, which are described in the Subscription Agreement. The Maximum Offering will be reached upon the Trust realizing Gross Offering Proceeds of $100,000,000 through the issue and sale of up to 1,000,000 Trust Units under the Offering. The Trust may, without notice to Investors, increase the Maximum Offering. There is no minimum offering. You may be the only Investor. See Item 8 – Risk Factors.
Investors wishing to subscribe for Trust Units are required to enter into a Subscription Agreement with the Trust in the form attached as Schedule A to this offering memorandum, containing, among other things, representations, warranties, certifications, acknowledgments and covenants by you, as the Investor. The procedure for your Trust Unit subscription is set out in the Subscription Agreement attached as Schedule A. Please read the instructions on page SA-2, closely. You may subscribe for Trust Units by delivering the completed and signed subscription documents set out in Schedule A together with payment for the Trust Units to the Trust at the address set out in the instructions on page SA-2.
The Trust has established a DRIP that provides for the automatic reinvestment of distributions into Trust Units. If you want to register in the DRIP you may do so at the time of your subscription for Trust Units or at a later time. See Item 2.7.6 – Distribution Reinvestment Plan for further information.
Subject to the rights of rescission described in Item 11 – Investors’ Rights, your subscription, as evidenced by your completed and signed Subscription Agreement delivered to the Trust, is irrevocable. No prospective Investor has any right to withdraw his subscription for Trust Units unless the Trust terminates the offering or does not accept the subscription.
The Trust will hold your aggregate subscription price in trust until at least midnight on the second business day after the day on which you signed your Subscription Agreement, after which time those funds will be held in trust until the Trust has accepted or rejected such subscription, in whole or in part, in connection with a Closing of the Offering. Holding your aggregate subscription price in this manner does not constitute acceptance of your subscription for Trust Units.
CAL01: 1951970: v8 49 At any Closing of the Offering:
• proceeds from subscriptions for Trust Units will be available to the Trust for its use, as described in this offering memorandum; and
• the Trust will arrange for delivery to or as directed by you (as the Investor), one or more certificates representing fully paid Trust Units, provided the aggregate subscription price has been paid in full. It is expected that certificates representing the Trust Units will be available for delivery within a reasonable period of time after the relevant Closing Date(s).
No interest will be paid to or accrued for the benefit of the subscriber for Trust Units on any portion of your aggregate subscription price held prior to closing. Any interest earned on such funds belongs to the Trust irrespective of its acceptance or rejection of your subscription for Trust Units. The Trust may close the subscription books at any time without notice. Any subscription funds for subscriptions that the Trust does not accept will be returned promptly after the Trust has determined not to accept such subscription.
By purchasing Trust Units pursuant to the Offering, you have consented to and requested that all documents evidencing or relating in any way to the sale of the Trust Units be drawn up in the English language only. En souscrivant à des titres en vertu de ce placement, chaque souscripteur reconnaît et convient par les présentes qu’il ou elle a consenti et exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à ce placement d’unités agrafées (se composant d’actions ordinaires de catégorie B et d’actions privilégiés de catégorie C du capital-actions de la société), soient rédigés en anglais seulement.
This offering memorandum does not constitute an offer to sell or the solicitation of an offer to buy securities within the United States or by residents of the United States. There shall be no sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
Auditors, Transfer Agent and Registrar
The auditors of the Trust are MNP LLP, Chartered Accountants.
The Trust has not currently appointed a transfer agent or registrar.
ITEM 6 - INCOME TAX CONSEQUENCES AND ELIGIBILITY FOR EXEMPT PLANS
Tax Advice
You should consult your own professional advisors to obtain advice on the income tax consequences that apply to you.
Certain Canadian Federal Income Tax Considerations
The following summary is provided by Buchanan Barry LLP, as tax advisors to the Trust, and describes the principal Canadian federal income tax considerations under the Tax Act generally applicable to an individual (other than a trust) who acquires Trust Units pursuant to the Offering and who, for all purposes of the Tax Act, is resident in Canada, deals at “arm’s length” and is not “affiliated” with the Trust and holds any applicable securities as “capital property”. Generally, Trust Units will be considered to be “capital property” to a person provided that such person (a) does not hold such Trust Units in the course of carrying on a business, (b) has not acquired such Trust Units in one or more transactions considered to be an adventure or concern in the nature of trade, and (c) does not hold such Trust Units as “mark-to-market property”. Certain persons who might not otherwise be considered to hold Trust Units as “capital property” may, in certain circumstances, be entitled to have such securities and all other “Canadian securities” owned or subsequently acquired by them treated as capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act.
This summary is based on the terms of the Offering, certain representations made by the parties thereto, the current provisions of the Tax Act and the Regulations thereto in force as of the date hereof, all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”), and and Buchanan Barry LLP’s understanding of the current published administrative policies and assessing practices of the CRA publicly available prior to the date hereof. This summary assumes that the Proposed Amendments will be enacted in the form proposed, although no assurance can be given that such proposals will be enacted in that form or at all. Except for the Proposed Amendments, this summary does not take into account or anticipate any changes in law or administrative policy and assessing practice, whether by way of legislative, governmental or judicial decision or action, nor does it take into account other federal or any provincial or foreign tax legislation or consideration, which may differ materially from those described herein.
CAL01: 1951970: v8 50 This summary is not applicable to security holders: (a) that are “financial institutions” for purposes of the “mark-to-market” rules; (b) “specified financial institutions” (as defined in the Tax Act); (c) that are partnerships; (d) an interest in whom would be a “tax shelter investment” (as defined in the Tax Act); (e) a holder to which the functional currency reporting rules apply; (f) that are Non-Residents; (g) that are exempt from tax under Part I of the Tax Act; or (h) who have entered into a “derivative forward agreement” (as defined in the Tax Act) with respect to Trust Units. The above-noted security holders should consult their own tax advisors with respect to the matters discussed herein.
This summary is of a general nature only and is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Trust Units. Moreover, the income tax and other tax consequences of acquiring, holding or disposing of securities will vary according to the status of the investor, the province or provinces in which the investor is taxable and, generally, the investor’s own particular circumstances. Accordingly, the following description of income tax matters is of a general nature only and is not intended to constitute advice to any particular Investor. Investors should consult their own tax advisors with respect to the income tax and other tax consequences of the Offering and an investment in Trust Units, based upon such security holder’s particular circumstances.
6.2.1 Eligibility for Investment by Exempt Plans
Provided that the Trust at all times qualifies as a “mutual fund trust” as defined in the Tax Act, the Trust Units acquired pursuant to the Offering should be “qualified investments” (as defined in the Tax Act) for Exempt Plans subject to the specific provisions in the Tax Act governing each particular Exempt Plan.
Notwithstanding the foregoing, the holder of a TFSA or, the annuitant under a RRSP or RRIF that holds Trust Units should be subject to a penalty tax if such Trust Units are a “prohibited investment” for purposes of the Tax Act. Generally, Trust Units will be considered a “prohibited investment” if the holder of the TFSA or the annuitant under a RRSP or RRIF, as the case may be, (i) does not deal at arm’s length with the Trust for the purposes of the Tax Act; or (ii) that has a “significant interest” (as defined in the Tax Act) in the Trust. A “significant interest” includes but is not limited to the ownership of 10% or more of the fair market value of the Trust Units. However, a Trust Unit will generally not be a “prohibited investment” if the Trust Unit is “excluded property” (as defined in section 207.01(1) of the Tax Act) for a TFSA, RRSP or RRIF.
The Redemption Notes which may be delivered to Trust Unitholders on an in specie redemption of Trust Units will not be qualified investments for Exempt Plans. Accordingly, Exempt Plans that own Trust Units should consult their own tax advisors prior to exercising redemption rights.
Investors who intend to hold Trust Units in an Exempt Plan should consult their own professional tax advisors regarding their particular circumstances.
Where an Exempt Plan acquires or holds a unit or other asset that is not a “qualified investment”, or is a “prohibited investment”, material adverse tax consequences may arise to the Exempt Plan and annuitant, holder or beneficiary thereof.
6.2.2 Status of the Trust
Mutual Fund Trust
This summary is based on the assumption that the Trust will at all relevant times qualify as a “mutual fund trust” (as defined in the Tax Act), that the Trust will validly elect under the Tax Act to be a “mutual fund trust” from the date it was established, that the Trust has not been established and will not be maintained primarily for the benefit of Non-Residents, and that not more than 50% (based on fair market value) of the Trust Units will be held by Non-Residents, partnerships that are not “Canadian partnerships”, or any combination thereof, all for the purposes of the Tax Act.
If certain Proposed Amendments released on September 16, 2004 are enacted as proposed (the “September 16th Tax Proposals”), the Trust would cease to qualify as a “mutual fund trust” for the purposes of the Tax Act if, at any time after 2004, the fair market value of all Trust Units held by Non-Residents, or partnerships that are not “Canadian partnerships”, or any combination of the foregoing, is more than 50% of the fair market value of all issued and outstanding Trust Units unless not more than 10% (based on fair market value) of the Trust’s property is at any time “taxable Canadian property” within the meaning of the Tax Act and certain other types of specified property. Restrictions on the ownership of Trust Units are intended to limit the number of Trust Units held by Non-Residents such that Non-Residents, partnerships that are not “Canadian partnerships” (as defined in the Tax Act), or any combination of the foregoing, may not own Trust Units representing more than 45% of the fair market value of all Trust Units. The September 16th Tax Proposals have not been enacted as of the date hereof. Pursuant to the Tax Act, the Trust would be deemed not to be a “mutual fund trust” after any time when it can reasonably be considered that the Trust was established or is maintained primarily for the benefit of Non-Residents unless at that time all or substantially all of its property is property other than taxable Canadian property.
CAL01: 1951970: v8 51 Generally, to qualify as a “mutual fund trust”, (a) the Trust must be a Canadian resident “unit trust” for the purposes of the Tax Act, (b) the only undertaking of the Trust must be (i) the investing of its funds in property (other than real property or interests in real property or an immovable or a real right in an immovable), (ii) the acquiring, holding, maintaining, improving, leasing or managing of any real property (or interest in real property) or of any immovable (or right in immovables) that is capital property of the Trust, or (iii) any combination of the activities described in (i) and (ii); and (c) the Trust must comply with certain minimum requirements respecting the ownership and dispersal of Trust Units (the “minimum distribution requirements”).
If the Trust were not to qualify as a “mutual fund trust” at all times, the income tax considerations described herein would, in some respects, be materially and adversely different.
SIFT Rules
On October 31, 2006, the Minister of Finance announced proposed changes to the manner in which certain “specified investment flow-through” entities (“SIFTs”) and the distributions from such entities are taxed. Bill C-52, which received Royal Assent on June 30, 2007, and Bill C-10, which received Royal Assent on March 12, 2009, contained legislation implementing these proposals (the “SIFT Rules”).
The SIFT Rules apply to trusts that are resident in Canada for the purposes of the Tax Act and that hold one or more “non- portfolio properties” (as defined in the Tax Act) and the units of which are listed or traded on a stock exchange or other public market (“SIFT Trust”). Under the SIFT Rules, if the Trust were a SIFT Trust it would be subject to a special tax in respect of income from its “non-portfolio properties” and “capital gains” respecting “non-portfolio properties” (collectively, the “Non- Portfolio Earnings”). Non-Portfolio Earnings would be taxed at a rate that is generally equivalent to the federal general corporate tax rate plus a prescribed amount on account of provincial tax. Any Non-Portfolio Earnings that become payable by a SIFT Trust or SIFT partnership will be taxed as though they were a taxable dividend from a taxable Canadian corporation and will be deemed to be an “eligible dividend” eligible for the enhanced gross-up and tax credit rules.
The Trust currently does not meet the requirements of a SIFT. Provided that the Trust is not a SIFT, it should not be subject to tax in the manner contemplated by the SIFT Rules. This summary assumes that at all material times the Trust is not a SIFT Trust.
If the Trust were to become a SIFT Trust, the income tax consequences for the Trust and for unitholders would be materially different from those described herein.
6.2.3 Taxation Principles Applicable to the Partnership
The Partnership is not subject to income tax under the Tax Act. Each partner (including the Trust) is required to include in computing the partner’s income the partner’s share of the income or loss of the Partnership for its fiscal year ending in or coinciding with the partner’s taxation year, whether or not any such income is distributed to the partner in the taxation year. For this purpose, the income or loss of the Partnership should be computed for each fiscal year as if it were a separate person resident in Canada. In computing such income or loss, the Partnership should be entitled to deduct reasonable amounts in respect of administrative and other expenses incurred for the purpose of earning income from business or property. The income or loss of the Partnership for a fiscal year will be allocated to each Partner on the basis of the Partner’s share of such income or loss subject to the Partnership Agreement and computed in accordance with the provisions of the Tax Act in respect of partnerships, including, in the case of the allocation of losses to Limited Partners, the “at-risk rules”.
The Trust, as a partner, is required to include in its income the taxable portion of any capital gain on the disposition of its interest in the Partnership. In general, the “adjusted cost base” of a partnership interest to a partner at a particular time is equal to the partner’s initial cost of the partnership interest, plus income allocated to the partner for fiscal periods ending before that time, minus deductible losses allocated to the partner for fiscal periods ending before that time and minus amounts received by the partner as distributions of partnership income or capital. To the extent that the “adjusted cost base” to the Trust of its interest in the Partnership is less than zero at the end of a fiscal period of the Partnership, the negative amount should be deemed to be a capital gain of the Trust from the disposition of its partnership interest in the year in which the negative amount arises and the “adjusted cost base” to the Trust of its partnership interest should be nil immediately thereafter.
6.2.4 Taxation of the Trust
Provided that the Trust is not a SIFT Trust, the Trust should be subject to tax in each taxation year under Part I of the Tax Act on the amount of its income for the year, including its share of the Partnership’s income and net realized capital gains less the portion thereof that it claims in respect of the amount paid or payable to Trust Unitholders in the year. An amount should be considered payable to a Trust Unitholder in a taxation year only if it is paid in the year by the Trust or the Trust Unitholder is entitled in the year to enforce payment of the amount.
CAL01: 1951970: v8 52 The Trust’s share of such: (i) net realized taxable capital gains of the Partnership; (ii) the income of the Partnership from foreign sources; and (iii) the taxable dividends received or deemed to be received by the Partnership on shares of “taxable Canadian corporations” (as defined in the Tax Act) should effectively retain its character and be treated as such in the hands of the Trust for the purposes of the Tax Act. The availability of foreign tax credits in respect of foreign source income designated to the Trust is subject to the foreign tax credit rules under the Tax Act. To the extent that amounts are designated as taxable dividends from “taxable Canadian corporations”, the gross-up and dividend tax credit rules should apply, including the enhanced gross-up and dividend tax credit rules in respect of “eligible dividends” paid by “taxable Canadian corporations”.
The Trust should be entitled to deduct reasonable current administrative and other expenses that are incurred to earn income. Any losses incurred by the Trust may not be allocated to Trust Unitholders but may generally be carried forward and back and deducted in computing the taxable income of the Trust in accordance with the detailed rules in the Tax Act.
6.2.5 Taxation of Trust Unitholders
Subject to the SIFT Rules, a Trust Unitholder will generally be required to include in computing income for a particular taxation year the amount of the Trust’s net income for the taxation year, including net realized taxable capital gains, paid or payable to the Trust Unitholder (whether in cash, Trust Units or other form) in the taxation year, whether or not the amount was actually paid to the Trust Unitholder. Income of a Trust Unitholder from a Trust should generally be considered to be income from property for the purposes of the Tax Act. The non-taxable portion of the Trust’s net realized capital gains paid or payable and designated to a Trust Unitholder in a taxation year should not be included in the Trust Unitholder’s income for the year. Any other amount in excess of the Trust Unitholder’s share of the Trust’s net income for a taxation year paid or payable to the Trust Unitholder in the year will not generally be included in the Trust Unitholder’s income, but should generally reduce the adjusted cost base of the Trust Unitholder’s Trust Units. To the extent that the “adjusted cost base” of a Trust Unit would otherwise be less than nil, the negative amount should be deemed to be a capital gain realized by the Trust Unitholder from the disposition of the Trust Unit, and the Trust Unitholder’s “adjusted cost base” should be increased by the amount of such deemed capital gain to nil. Any losses of the Trust for the purposes of the Tax Act cannot be allocated to, and cannot be treated as a loss of, a Trust Unitholder.
Under the Tax Act, the Trust is permitted to deduct in computing its income for a taxation year an amount that is less than the amount of its distributions for the year. This should enable the Trust to utilize, in the taxation year, losses from prior years without affecting the ability of the Trust to distribute its income annually. The amount distributed to a Trust Unitholder but not deducted by the Trust should not be included in the Trust Unitholder’s income. However, the “adjusted cost base” of the Trust Unitholder’s Trust Units should be reduced by such amount. To the extent that the “adjusted cost base” of a Trust Unit would otherwise be less than nil, the negative amount should be deemed to be a capital gain realized by the Trust Unitholder from the disposition of the Trust Unit, and the Trust Unitholder’s “adjusted cost base” should be increased by the amount of such deemed capital gain to nil.
Provided that appropriate designations are made by the Trust, such portion of (i) net realized taxable capital gains of the Trust, (ii) the income of the Trust from foreign sources, and (iii) the taxable dividends received or deemed to be received by the Trust on shares of “taxable Canadian corporations” (as defined in the Tax Act), as is paid or becomes payable to a Trust Unitholder, should effectively retain its character and be treated as such in the hands of the Trust Unitholder for the purposes of the Tax Act. The availability of foreign tax credits in respect of foreign source income designated to a Trust Unitholder by the Trust is subject to the foreign tax credit rules under the Tax Act and the Trust Unitholder’s particular circumstances. To the extent that amounts are designated as taxable dividends from “taxable Canadian corporations”, the gross-up and dividend tax credit rules should apply, including the enhanced gross-up and dividend tax credit rules in respect of “eligible dividends” paid by “taxable Canadian corporations”. Investors should consult their own professional tax advisors in this regard.
On the disposition or deemed disposition of a Trust Unit (whether on a sale, redemption or otherwise), a Trust Unitholder should realize a capital gain (or capital loss) to the extent that the Trust Unitholder’s “proceeds of disposition” (other than any amount payable by the Trust which represents an amount of capital gain allocated to the Trust Unitholder or that is otherwise required to be included in the Trust Unitholder’s income) exceed (or are less than) the “adjusted cost base” of such Trust Unit and any reasonable costs of disposition. For the purpose of determining the “adjusted cost base” of Trust Units to a Trust Unitholder, when Trust Units are acquired, the cost of the newly acquired Trust Units should be averaged with the “adjusted cost base” of the Trust Units owned by the Trust Unitholder as “capital property” immediately before that time. The cost of Trust Units acquired as a distribution of income or capital gains from the Trust should generally be equal to the amount of the distribution. The taxation of capital gains and capital losses is described below under Item 6.2.6 - Taxation of Capital Gains and Losses.
A redemption of Trust Units in consideration for cash, Redemption Notes, or other property of the Trust distributed in specie, as the case may be, should be a disposition of such Trust Units for proceeds equal to the amount of such cash or the fair market value of such consideration, less any income or capital gain realized by the Trust in connection with the redemption of those Trust Units which has been designated by the Trust to the Trust Unitholder. The Trust Declaration provides that the Trustees have the discretion to designate certain net income and any capital gain realized by the Trust as a result of the redemption of Trust Units to the Trust Unitholder redeeming Trust Units as is reasonable in the circumstances. The Trust Unitholder should be CAL01: 1951970: v8 53 required to include in income any such net income so designated. Redeeming Trust Unitholders should consequently realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition (less any portion thereof that is considered a distribution of the Trust’s income) exceeds (or is less than) the aggregate of the Trust Unitholder’s adjusted cost base of the Trust Units and any reasonable costs of disposition.
In general terms, net income of the Trust paid or payable to a Trust Unitholder that is an individual or trust that is designated as taxable dividends from taxable Canadian corporations or as net realized taxable capital gains as well as taxable capital gains realized by the Trust Unitholder on the disposition of Trust Units may increase the Trust Unitholder’s liability for alternative minimum tax (“AMT”) under the Tax Act.
6.2.6 Taxation of Capital Gains and Capital Losses
Generally, 50% of any capital gain (a “taxable capital gain”) realized on the disposition of property by a Trust Unitholder must be included in income for the taxation year of disposition and 50% of any capital loss (an “allowable capital loss”) may normally be deducted by a Trust Unitholder against any taxable capital gains realized in the same taxation year. Any excess of allowable capital losses over taxable capital gains for the year of disposition (an “allowable net capital loss”) should generally be deductible against net taxable capital gains realized in any of the three prior taxation years or in any subsequent taxation year, in the circumstances and to the extent described in the Tax Act.
A security holder that throughout the relevant taxation year is a “Canadian-controlled private corporation” (as defined in the Tax Act) may be subject to an additional refundable tax of 6⅔% in respect of its “aggregate investment income” (which is defined in the Tax Act to include taxable capital gains and interest income).
Taxable capital gains realized by security holders that are individuals or trusts, other than certain specified trusts, may increase the security holder’s liability for AMT under the Tax Act.
6.2.7 Taxation of Trust Unitholders Not Resident in Canada (i.e. Non-Residents)
Trust Unitholders who, for purposes of the Tax Act and any tax treaty that Canada has with a relevant foreign jurisdiction, are not resident in Canada and are not deemed to be resident in Canada should consult their own professional tax advisors regarding their particular circumstances.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Trust Unitholder and no representations with respect to the income tax consequences are made to any particular Trust Unitholder. Consequently, prospective Trust Unitholders should consult their own professional tax advisors with respect to their particular circumstances. Trust
Unitholders who are residents of Canada, but who are also subject to the tax laws of another jurisdiction (such as the United States of America), should consult their own professional tax advisors.
ITEM 7 - COMPENSATION PAID TO SELLERS AND FINDERS
Trust Units will be sold by exempt market dealers that are appointed from time to time by the Trust. The exempt market dealers will be entitled to Selling Commissions under one of two plans, to be selected by the exempt market dealer at the time of sale:
(a) up to 7.0% of the Gross Offering Proceeds from Trust Units that they sell, except where the payment of such commissions or fees is prohibited. In addition, the Trust may pay a trailer fee to each exempt market dealer equal to 1.5% per annum of the Gross Offering Proceeds invested by Trust Unitholders that were sold Trust Units by that entity and continue to hold their Trust Units for at least 36 months after the date of their initial subscription and such trailer fee commences on such 37th month. For clarity, the trailer fees will not be retroactive to cover the 36-month prior period. These trailer fees will continue to be paid, annually in arrears, until the Trust Units of those Investors are redeemed. Any trailer fee payable for the year in which a Trust Unit is redeemed will be prorated at a rate of 0.125% for each full month prior to the redemption; or
(b) up to 10.0% of the Gross Offering Proceeds from Trust Units that they sell, except where the payment of such commissions or fees is prohibited. In addition, the Trust may pay a trailer fee to each exempt market dealer equal to 1.0% per annum of the Gross Offering Proceeds invested by Trust Unitholders that were sold Trust Units by that entity and continue to hold their Trust Units for at least 60 months after the date of their initial subscription and such trailer fee commences on such 61st month. For clarity, the trailer fees will not be retroactive to cover the 60-month prior period. These trailer fees will continue to be paid, annually in arrears, until the Trust Units of those Investors are redeemed. Any trailer fee payable for the year in which a Trust Unit is redeemed will be prorated at a rate of 0.083% for each full month prior to the redemption.
CAL01: 1951970: v8 54 Accordingly, the maximum possible Selling Commission payable under the Offering is $10,000,000 plus any applicable trailer fees which are payable annually except where the amount is significant in the opinion of the Trustees acting reasonably wherein such fees can be paid quarterly.
The exempt market dealers appointed by the Trust to sell Trust Units will be reimbursed for reasonable expenses incurred in connection with the Offering.
The decision to distribute the Trust Units and the determination of the structure and pricing and other terms and conditions of the Offering were made by the Trust.
No person has been authorized to give any information or to make any representation not contained in this offering memorandum. Any such information or representation that is given or received must not be relied upon.
ITEM 8 - RISK FACTORS
The purchase of Trust Units pursuant to the Offering should only be made after consulting with independent and qualified investment, legal and tax advisors. Investment in the Trust Units at this time is highly speculative. The risks discussed in this offering memorandum can adversely affect the Trust’s prospects, results and financial condition. These risks could cause the value of the Trust Units to decline, cause the Trust to be unable to pay distributions on the Trust Units, and also cause Investors to lose part or all of their investment. In addition to the risk factors set out below and elsewhere in this offering memorandum, other material risks and uncertainties of which the Trust is not presently aware may also harm the Trust’s business and its investments. Trust Unitholders must rely on the ability, expertise, judgment, discretion, integrity and good faith of the Trustees and the Trust’s management. This offering is suitable for Investors who are willing to rely solely upon the Trustees and the Trust’s management and who can afford a total loss of their investment.
In addition to factors set forth elsewhere in this offering memorandum, potential Investors should carefully consider the following factors, many of which are inherent to the ownership of Trust Units. The following risk factors include risk factors that are inherent to the Offering as a result of the Affiliated Operators’ business. Such risks may not only affect any given Affiliated Operator, but also, the Trust because the Trust’s primary asset is the investment in the Partnership and the Partnership’s primary asset will be the portfolio of Loans with Affiliated Operators. The following is a summary only of the risk factors involved in an investment in the Trust Units. Prospective Investors should review the risks with their financial, legal and tax advisors. No Guarantee that Investment will be Successful
There is no guarantee that Investors will not realize losses from an investment in Trust Units and there can be no assurance that the Trust’s objective of earning a profit on its investment in the Partnership, indirectly through the Loans to the Affiliated Operators, will be achieved. The success of the Trust depends to a certain extent on the efforts and abilities of the management of the Trust and Affiliated Operators, and on external factors such as, among other things, the real estate markets where Properties are located and the general political and economic conditions that may prevail from time to time, which factors are out of the Trust’s control. A return on investment for a purchaser of Trust Units depends upon the ability of the Affiliated Operators to pay interest and repay principal under their Loans with the Partnership. As a result, there is no guarantee that the Trust and, correspondingly, the Trust Unitholders will earn a return on their investment.
Once the Trust distributions are paid in a given distribution period, the Trustees may, in their discretion, make other distributions on the Trust Units. However, the Trustees are under no obligation to make any such other distributions. Once the Trust distributions have been fully satisfied in a given distribution period, the Trust Unitholders have no entitlement to other distributions.
Trust Units are Not Liquid
There is currently no market through which the Trust Units may be sold and it is very unlikely that one will develop. The Trust intends to restrict the transfer of Trust Units to prevent the development of a market for the Trust Units. None of the Trust Units will be listed or posted for trading on a recognized stock exchange or other trading or quotation system. The Trust has not prepared, filed or delivered to potential Trust Unitholders a prospectus. The Trust Units are subject to a number of restrictions respecting transferability and resale, including a restriction on trading imposed by applicable securities laws. Until the restriction on trading expires, you will not be able to trade the Trust Units unless you comply with an exemption from the prospectus and registration requirements under securities legislation and the Trust Declaration.
Unless permitted under securities legislation, no Trust Unitholder can trade Trust Units before the date that is four months and a day after the date the Trust becomes a reporting issuer in any province or territory of Canada. The Trust is not, and currently has no intention of becoming, a reporting issuer in any province or territory of Canada, and therefore the Trust Units will be subject to an indefinite hold period. The Trust Units may only be transferred under limited exemptions under applicable securities laws. Consequently, Trust Unitholders may not be able to sell the Trust Units readily or at all, and they may not be accepted as collateral
CAL01: 1951970: v8 55 for a loan. Trust Unitholders should be prepared to hold the Trust Units indefinitely and cannot expect to be able to liquidate their investment even in the case of an emergency. Accordingly, an investment in Trust Units is suitable solely for persons able to make and bear the economic risk of a long-term investment.
As stated above, none of the Trust Units may be sold, assigned or transferred by a Trust Unitholder, in whole or in part: (i) without prior written consent of the Trustees; (ii) to a person who is an affiliate of the Trust Unitholder; or (iii) as otherwise expressly provided in the Trust Declaration, subject to compliance with applicable law (including applicable securities laws and regulatory policy) and the transfer requirements in the Trust Declaration.
Redemption Right
Redemption rights under the Trust Declaration are restricted and provide limited opportunity for Investors to liquidate their investment in Trust Units. Investors should carefully review Item 2.7.2 - Trust Declaration - Redemption of Trust Units. Upon a redemption of Trust Units or termination of the Trust, the Trustees may distribute Redemption Notes directly to the Trust Unitholders (subject to obtaining any required regulatory approvals). Redemption Notes so distributed may not be qualified investments for Exempt Plans which could give rise to adverse consequences to an Exempt Plan or the annuitant under an Exempt Plan, including the redeeming unitholder becoming subject to a penalty tax or having its tax exempt status revoked depending on the circumstances. See Item 6.1.2 – Eligibility for Investment.
The Trust may at any time, upon giving a Retraction Notice as described in the Trust Declaration, redeem one or more of the then outstanding Trust Units in accordance with the provisions of the Trust Declaration as if such Trust Units were tendered by the applicable Trust Unitholders for redemption as at the date of the Retraction Notice.
Cash Distributions
There is no assurance that there will be adequate cash flow of the Trust to meet the anticipated obligations and economic objectives described in this offering memorandum. The Trust’s sources of capital are primarily subscriptions for Trust Units and distributions and loan payments from Partnership. The Trust may not have any available funds to distribute cash or pay expenses, even where it has established and funded a working capital reserve for such purposes. The Trust will rely on the cash flow of the Trust to fund, in the Trustees’ discretion, distributions (if any) of Distributable Cash (if any).
Cash distributions of the Trust will substantially depend upon the success of the Affiliated Operators’ investments in Properties. There can be no assurance that the Trust’s income from the distributions and loan payments from Partnership will sufficiently fund distributions (if any) to Trust Unitholders, including the Trust’s payment of Trust distributions during each distribution period.
If, for any reason, the Trust is unable to meet its obligations to distribute Distributable Cash (if any), the Trust will need to find other sources of financing to pay for its ongoing costs and expenses or to fund distributions (if any), which other sources of financing may not be available or may not be available under terms that are acceptable to the Trust. There is no assurance regarding the actual levels of Distributable Cash by the Trust. In addition, the composition of Distributable Cash for tax purposes may change over time and may affect after-tax return for Trust Unitholders.
The return on an investment in the Trust Units is not comparable to the return on an investment in fixed-income securities. Cash distributions to Trust Unitholders are not guaranteed and are not fixed obligations of the Trust; any receipt of cash distributions by a Trust Unitholder is at any time subject to the terms of the Trust Declaration. Any anticipated return on investment is based upon many performance assumptions. Although the Trust intends to distribute its available cash to Trust Unitholders, cash distributions may be reduced or suspended at any time and from time to time. The ability of the Trust to make cash distributions and the actual amount distributed depends on the operations of the Properties acquired by the Affiliated Operators, and will be subject to various factors including the other factors referenced in Item 8 - Risk Factors. The value of the Trust Units may decline if the Trust is unable to meet its cash distribution targets in the future and that decline may be significant.
Limited Operational History
The Trust has been recently formed for a limited purpose and will carry on no business other than to:
• distribute Trust Units;
• invest proceeds from the issue and sale of Trust Units in and hold a limited partnership interest in the Partnership; and
• pay distributions to Trust Unitholders in each Distribution Period pursuant to the Trust Declaration.
CAL01: 1951970: v8 56 The Trust’s business is subject to all the risks inherent in the establishment of a new business enterprise. There is no certainty that the Trust’s business strategy will be successful. The likelihood of success of the Trust must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any business. If the Trust fails to address any of these risks or difficulties adequately, its business will likely suffer. There is no assurance that the Trust can operate profitably.
Disclosure Obligations
The Trust is not a reporting issuer and does not have any continuous disclosure obligations. The Trust will provide Trust Unitholders with annual audited financial statements. In addition, the Trust will make reasonably available to Trust Unitholders such other information as required by applicable securities laws for a non-reporting issuer that distributes securities using the “offering memorandum” exemption (including audited annual financial statements, annual notices of use of proceeds and notices of certain key events, if any, and when applicable. See Item 9 – Reporting Obligations.
The Trust has Limited Assets and Working Capital
The Trust has no assets, and will undertake no activities, other than as described in this offering memorandum (being investing in Partnership through the purchase of limited partnership units and loans). The Loans to the Affiliated Operations will represent the primary assets of the Trust indirectly through ownership of the Partnership.
The Trust will not carry on an active business and will have limited sources of working capital. There is no assurance that the Trust will have adequate working capital to meet the anticipated requirements. In addition, there is no assurance that the Trust will have access to additional debt or equity financing when needed or at all, or on acceptable terms.
Reliance upon Management
The Trust and the Affiliated Operators are highly dependent on Moiz Bhamani and Harwinder Kang and the loss of their services may materially adversely affect the ability of the Trust and the Affiliated Operators to implement their business plans.
Reliance upon Partnership, the Partnership and the Affiliated Operators
The Trust is an open-ended limited purpose investment trust that will entirely depend upon the Partnership and the Affiliated Operators since the Trust’s primary asset is its interest in the Partnership. Distributions, if any, to Trust Unitholders will depend upon numerous factors, including profitability, fluctuations in working capital, the sustainability of margins and capital expenditures of the Partnership and the Affiliated Operators.
The Loans to the Affiliated Operators will represent the primary asset of the Partnership. The Trust’s financial performance is directly tied to the performance of the Partnership and consequently directly tied to the performance of the Affiliated Operators. Neither Partnership nor the Trust has any other investments of significance; therefore, the Trust’s success depends solely on the success of the Affiliated Operators.
Concentration Risk
The Trust initially intends to lend funds and take security from Prime St. Albert, Prime Cochrane and Royal Oak LP. Prime St. Alberta and Royal Oak’s projects are underway with significant development and the project of Prime Cochrane consists primarily of vacant land. The Trustees are under no obligation to fund one project over the other, and will make such decisions based on the current value each project can bring to the Trust in its capacity as a lender of such project.
The Partnership has entered into a separate Loan Agreement with each of Prime St. Albert and Prime Cochrane for a principal amount of up to $4,500,000 for each of them in accordance with the Loan Guidelines. The Partnership has entered into a Loan Agreement with Royal Oak LP for a principal amount of up to $500,000.00 in accordance with the Loan Guidelines. The Partnership intends to advance funds in tranches to Prime Cochrane, Prime St. Albert, Royal Oak LP, Royal Oak II Prime Funds Inc., Lethbridge Prime Funds Inc., and potentionally other Affiliated Operators from time to time. As of March 1, 2017: (a) Prime St. Albert has received aggregate advances of $5,964,800 (out of $7,000,000); (b) Prime Cochrane has received aggregate advances of $1,580,800 (out of $4,500,000); (c) Royal Oak LP has received aggregate advances of $445,000 (out of $500,000), Royal Oak II Prime Funds Inc. has received aggregate advances of $110,000 (out of $4,500,000) and Lethbridge Prime Funds Inc. has received 230,000 (out of $4,500,000). Consequently, the Partnership’s loan portfolio is concentrated particulary in Prime St. Albert. The Trust’s financial performance is directly tied to the performance of the Partnership and consequently directly tied to the performance of Prime Cochrane, Prime St. Albert , Prime Royal Oak II Funds Inc., Lethbridge Prime Funds Inc., and Royal Oak LP.
CAL01: 1951970: v8 57
Financing
The proceeds raised by the Offering may not be sufficient to accomplish all of the Trust’s objectives and there is no assurance that alternative financing to pay for such objectives will be available. The real estate industry is highly capital intensive. The Affiliated Operators will require access to capital to maintain Properties, as well as to fund their growth strategies and significant capital expenditures from time to time. There can be no assurance that the Affiliated Operators will have access to sufficient capital or access to capital on terms favourable to the Trust for future property acquisitions, financing or refinancing of properties, funding operating expenses or other purposes. In addition, global financial markets have experienced a sharp increase in volatility, particularly during 2007–2009. This has been, in part, the result of the re-valuation of assets on the balance sheets of international financial institutions and related securities. This has contributed to a reduction in liquidity among financial institutions and has reduced the availability of credit to those institutions and to the issuers who borrow from them. While central banks as well as governments continue attempts to restore liquidity to the global economy, no assurance can be given that the combined impact of the significant re-valuations and constraints on the availability of credit will not continue to materially and adversely affect economies around the world in the near to medium term. These market conditions and unexpected volatility or illiquidity in financial markets may inhibit the Trust’s access to short-term and long-term financing in the capital markets. As a result, it is possible that financing which the Affiliated Operators may require in order to grow and expand their operations, upon the expiry of the term of financing, on refinancing any particular property owned by the Affiliated Operators or otherwise, may not be available or, if it is available, may not be available on favourable terms. Failure by the Affiliated Operators to access required capital could have a material adverse effect on the Trust’s business, cash flows, financial condition and results of operations and ability to make distributions to holders of Trust Unitholders.
Additional and Undetermined Property Acquisitions
The Trust expects that the Available Funds from the Offering will be loaned by the Partnership to the Affiliated Operators and thereafter used by the Affiliated Operators to acquire, develop, lease or sell one or more Properties. The specific Affiliated Operators that will receive Loans from the Partnership have not been determined as of the date of this offering memorandum and consequently the specific Properties that the Available Funds will be used for have not been determined as of the date of this offering memorandum. While the Trust anticipates that the Affiliated Operators will be able to operate their businesses in a manner that allows them to service the Loans there is no assurance that they will be able to do so.
Risks of Real Property Ownership
Real estate developments, speculation and investments are, generally, subject to numerous risks depending on the nature and location of the Property that can affect attractiveness and sale ability to potential purchasers or other investors, or the owner’s use of such Properties, all of which are beyond the control of the Trust and Affiliated Operators. Such risks include:
• the highly competitive nature of the real estate industry;
• changes in general economic conditions (such as the availability and cost to the Affiliated Operators or widespread fluctuations in adjacent property values);
• changes in general or local conditions (such as the supply of competing Properties or the possibility of competitive overbuilding or the inability to obtain full occupancy or other usage of any Properties);
• governmental regulation, rules or policies (such as increased taxation on the sale of or profits from real property, environmental legislation or municipal approvals for usage, development or subdivision); and
• changes in costs or operating expenses anticipated for Properties.
Each segment in the real estate industry is capital intensive and is typically sensitive to interest rates. Any proceeds generated by the sale of Properties depend upon general economic conditions and, accordingly, the ability of an Affiliated Operator to service the Loans may be affected by changes in those conditions. Affiliated Operators will be required to make certain significant expenditures in respect of their business including, but not limited to, the payment of property taxes, mortgage payments, insurance costs and related charges which must be made regardless of whether or not Properties are producing sufficient income to service such expenses. If an Affiliated Operator is unable or unwilling to meet the payment obligations on such loans, losses could be sustained as a result of the exercise by the lenders of their rights of foreclosure or sale. As a result, the Affiliated Operator’s ability to make interest payments or repay principal to Partnership, could be adversely affected. In such case, the Trust’s ability to make cash distributions to its Trust Unitholders would be adversely affected.
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The economic performance and value of an Affiliated Operator’s investments in Properties will be subject to all of the risks associated with investing in real estate, including, but not limited to:
• changes in the national, regional and local economic climate;
• local conditions, including an oversupply of properties similar to the Affiliated Operator’s Properties, or a reduction in demand for such Properties;
• the attractiveness of all or parts of the Properties to renters or purchasers;
• competition from other available Properties; and
• changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes.
An Affiliated Operator’s performance will be affected by the supply and demand for property in its geographic area(s) of ownership. Key drivers of demand include employment levels, population growth, demographic rents and consumer confidence. The potential for reduced sales revenue exists in the event that demand diminishes or supply becomes overabundant thereby driving down prices for Properties.
Funds from the Offering used towards the purchase price of one of more Properties may be made with subordinated security
Available Funds from the Offering may be used by the Affiliated Operators by granting only subordinated security to the Partnership. In the event of an insolvency of the Affiliated Operator, the Partnership would rank as subordinated creditor and consequently may have very limited recourse to recover any amount owing pursuant to the Loan.
Realizing on the Security under a Loan may take a Lengthy Period of Time
If the Partnership is granted security on a Loan and is required to enforce that security granted to it by one or more Affiliated Operators and realize on its security, in whole or in part, a lengthy period of time may be required in order for the Partnership to do so, including time needed to sell the Property(ies). Further, there is no guarantee that the proceeds to the Partnership from the sale or other realization of the security will be adequate to compensate the Partnership for the Loan.
Financial Crisis
Global financial and real estate markets experienced dramatic change during 2007-2009, which is often referred to as the global credit crisis or “subprime mortgage crisis”. The changes to the financial and real estate markets were dramatic and significant in the short term and resulted in tighter credit conditions, slower growth and a downturn in the North American economy. Real estate markets may experience further dramatic changes, which may occur abruptly and unexpectedly. Continued concerns about the systemic impact of inflation, the availability and cost of credit, the real estate market, energy costs and geopolitical issues have contributed to increased market volatility and diminished expectations for the global economy. These conditions, combined with declining business activity levels and consumer confidence, increase unemployment and volatile oil prices, have contributed to unprecedented levels of volatility in the capital markets. If the global market and economic crisis intensifies or continues for a long period, disruptions in the capital and credit markets may adversely affect our business, financial condition and results of operations. In addition, economic circumstances in real estate markets may cause an Affiliated Operator to hold Properties for a longer than anticipated period of time in order to realize profits from the sale thereof. There can be no guarantee that any Affiliated Operator will realize a profit from Properties and there is no guarantee that the Trust will attain its intended results.
Real Estate Investments are Relatively Illiquid
Real property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relation to demand for and for the perceived desirability of, the investment. Such illiquidity may tend to limit an Affiliated Operator’s ability to vary its asset base promptly in response to changing economic or investment conditions. If the proceeds to an Affiliated Operator from the rental, refinancing or sale of a Property are significantly less than the total cost of its investment, in whole or in part, on a timely basis, the Trust’s ability to pay distributions to Trust Unitholders could be adversely affected.
Acquisitions
It is not possible to manage all risks associated with real estate acquisitions in the terms and conditions contained in commercial agreements pertaining to such acquisitions. The Property(ies) may be subject to unknown, unexpected or undisclosed liabilities
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that may materially and adversely affect Affiliated Operators’ operations and financial condition and results. The representations and warranties, if any, given by arm’s length third parties to Affiliated Operators may not adequately protect against these liabilities and any recourse against third parties may be limited by the financial capacity of such third parties. Moreover, Property(ies) acquired by Affiliated Operators may not meet expectations of operational or financial performance due to unexpected costs associated with developing an acquired property, as well as the general investment risks inherent in any real estate investment.
Nature of the Trust Units
The Trust Units do not represent a direct investment in Properties or any Affiliated Operator and should not be viewed by Trust Unitholders as a direct interest in Properties or any Affiliated Operator. As holders of Trust Units, Trust Unitholders will not have the statutory rights normally associated with ownership of shares of a corporation including, for example, the right to bring “oppression” or “derivative” actions.
Price for the Units Determined Arbitrarily
As there is no market for the Units, the Trustee has arbitrarily determined the offering price of the Trust Units pursuant to this Offering. The Trustee makes no representation to prospective Investors as to the market value of the Units. All prospective Investors are urged to consider the purchase of the Trust Units on its merits as an investment and to consult professional advisors having relevant expertise.
Trust Units are Not Direct Investments in Real Estate
The Trust Units are not an investment in the Properties or other real estate, but an investment in equity securities, namely the Trust Units. The Trust will not be investing in Properties or other real estate but will be subscribing for limited partnership of the Partnership. The Trust will not have a direct interest in the Affiliated Operators or a direct interest in any Properties.
Trust Units are Not Insured
The Trust Units are not “deposits” within the meaning of the Canada Deposit Insurance Corporation Act (Canada) and are not insured under the provisions of that act or any other legislation or any other insurance company or program.
SIFT Legislation
It is intended that the Trust not become a SIFT Trust for the purposes of the SIFT Rules. If at any time the Trust Units become listed or traded on any stock exchange or other public market, within the meaning of the SIFT Rules, the Trustees will use their reasonable commercial efforts to operate the Trust to ensure that the Trust qualifies as a “real estate investment trust” or not be characterized as a SIFT Trust for purposes of the Tax Act, including by restricting the Trust from making investments or undertaking activities prohibited by the SIFT Rules and that would cause the Trust not to meet those revenue and asset conditions set out in the SIFT Rules that exempt a “real estate investment trust” from “specified investment flow-through trust” treatment. In the event that the Trust is characterized as a SIFT Trust the income tax considerations described in this offering memorandum would be materially different and adversely different in certain respects. To mitigate this risk the Trust intends to restrict the transfer of Trust Units. There is no assurance that the Trust will not otherwise become a SIFT Trust.
Income Tax Risks
Canadian federal and provincial tax aspects and local tax aspects should be considered prior to purchasing Trust Units under the Offering. Trust Unitholders are urged to consult their own tax advisors, prior to purchasing Trust Units, with respect to the specific tax consequences to them. No advance income tax ruling has been applied for or received with respect to the income tax consequences described in this offering memorandum.
There can be no assurance that Canadian federal income tax laws or the judicial interpretation thereof or the administrative or assessing practices of the CRA respecting the treatment of trusts or limited partnerships will not be changed in a manner that adversely affects Trust Unitholders or fundamentally alters the income tax consequences of investing in, holding or disposing of the Trust Units. There is also a risk that CRA may reassess the returns of Trust Unitholders relating to their investments in the Trust Units.
The taxation of corporations, trusts and limited partnerships is complex. In the ordinary course of business, the Trust may be subject to ongoing audits by tax authorities. In addition, tax legislation changes periodically.
While the Trust believes that its tax filing position is appropriate and supportable, and that the Trust is not subject to the SIFT Rules, it is possible that tax matters, including the calculation and determination of revenue, expenditures, deductions, credits
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and other tax attributes, taxable income and taxes payable, may be reviewed and challenged by the tax authorities. If such challenge were to succeed, it could have a material adverse effect on the Trust’s tax position. Further, the interpretation of and changes in tax laws, whether by legislative or judicial action or decision, and the administrative policies and assessing practices of taxation authorities, could materially adversely affect the Trust’s tax position. As a consequence, the Trust is unable to predict with certainty the effect of the foregoing on its effective tax rate and earnings. The Trust will review the adequacy of its tax provisions and believes that it has adequately provided for those matters. Should the ultimate outcomes differ materially from the provisions, the Trust’s effective tax rate and earnings may be affected positively or negatively in the period in which the matters are resolved.
Trust Unitholders should consult their own professional advisors as to the tax consequences to them of making an investment in, and of holding, Trust Units.
Although the Trust is of the view that all expenses to be claimed by it in the determination of its income under the Tax Act will be reasonable and deductible in accordance with the applicable provisions of the Tax Act and that the allocations of income and losses to be made for purposes of the Tax Act will be reasonable, there can be no assurance that the Tax Act or the interpretation of the Tax Act will not change, or that the CRA will agree with the expenses claimed. If CRA successfully challenges the deductibility of expenses or the allocation of income and losses, the Trust’s allocation of taxable income and losses to the Trust Unitholders may change.
The possibility exists that a Trust Unitholder will receive allocations of income without receiving cash distributions from the Trust in the year sufficient to satisfy the Trust Unitholder’s tax liability for the year arising from its status as a Trust Unitholder.
If any Trust Unitholder is not a resident of Canada, there may be adverse Canadian income tax consequences to the Trust, the Trustees and or Trust Unitholders, including that at the time of a dissolution of the Trust, any distribution of undivided interests in the assets of the Trust may not be effected on a tax-deferred basis.
Eligibility for Investment by Exempt Plans
In order for the Trust Units to be eligible for investment by Exempt Plans the Trust must qualify as a “mutual fund trust” under the Tax Act, which requires, among other things, that the Trust have a minimum of 150 unitholders, each holding at least $1,000 worth of Trust Units. The Trust intends to close on Investors’ subscriptions prior to achieving 150 unitholders. Provided that on or before March 31, 2015, the Trust both satisfies the criteria required to qualify as a “mutual fund trust” under the Tax Act and makes a tax election in accordance with section 132(6.1) of the Tax Act, the election will be retroactive and all of the Trust Units should be eligible for investment by Exempt Plans.
The Trust qualifies as a “mutual fund trust” as defined by the Tax Act and qualifies to have Trust Units that are eligible for purchase by registered retirement savings plan and other Exempt Plans.
The Canada Revenue Agency has accepted the Trust as a Registered Investment under section 204.4 of the Tax Act, with effect from December 31, 2014. All “mutual fund trusts” must meet the requirements of a unit trust either under paragraph 108(2)(a) or 108(2)(b) of the Tax Act. The Trust has been registered as a quasi mutual fund trust as defined in paragraph 204.4(2)(d) that meets the redemption requirements of paragraph 108(2)(a).
If the Trust ceases to qualify as a “mutual fund trust”, the Trust Units will cease to be “qualified investments” (as defined in the specific provisions of the Tax Act governing each particular Exempt Plan) for Exempt Plans which may have adverse tax consequences to Exempt Plans or their annuitants or beneficiaries.
The Redemption Notes which may be received as a result of a redemption of Trust Units will not be qualified investments for Exempt Plans. Consequently, Trust Units that are held in Exempt Plans should be withdrawn from the Exempt Plan prior to redemption, if the redemption price is to be paid in Redemption Notes (in whole or in part). Trust Unitholders desiring to redeem Trust Units held in an Exempt Plan should contact a tax adviser prior to redeeming any Trust Units.
Securities Regulatory Risks
In the ordinary course of business, the Trust may be subject to ongoing reviews by the securities regulators, who have broad powers to pass, interpret, amend and change the interpretation of securities laws from time to time and broad powers to protect the public interest and to impose terms, conditions, restrictions or requirements regarding registration under securities laws. Further, the securities regulators have the authority to retroactively deny the benefit of an exemption from prospectus or registration requirements otherwise provided for in the securities laws where the regulator considers it necessary to do so to protect investors or the public interest.
While the Trust believes that its position regarding compliance with securities laws is appropriate and supportable, it is possible that securities matters may be reviewed and challenged by the securities authorities. If such challenge were to succeed, it could CAL01: 1951970: v8 61
have a material adverse effect on the Trust. There can be no assurance that applicable securities laws or the securities regulators interpretation thereof or the practices of the securities regulators will not be changed or re-interpreted in a manner that adversely affects the Trust.
Conflicts of Interest
There may be situations where the interests of the Trust or the Trustees conflict with the interests of the Trust’s affiliates and/or the officers and directors of various other entities managed or controlled by one or more of the Trustees, including the Affiliated Operators.
The Trustees and management of the Trust may in the future be involved with other persons or entities that may also participate in a business that directly competes with that of the Trust. Although none of the Trustees and officers of the Trust will devote their full time to the business and affairs of the Trust, they will devote as much time as is necessary for the management of the business and affairs of the Trust.
Nevertheless, the Trust Declaration includes a covenant of the Trustees to exercise their powers in good faith and in the best interests of the Trust, and in connection therewith, to exercise the care, diligence and skill of a reasonably prudent person. Similar to corporate law, if a Trustee or an officer of the Trust is party to a material contract or transaction with the Trust creating a possible conflict of interest, such Trustee or officer is required under the terms of the Trust Declaration to provide full written disclosure and refrain from voting on any resolution relating thereto, subject to certain exemptions relating to remuneration, indemnities or liability insurance.
Transactions between the Trust and the Trustees and one or more of the affiliates or associates of the Trustees may be entered into without the benefit of arm’s length bargaining. Therefore, situations may arise in which the Trustees may be making determinations which could benefit themselves, affiliates or their respective associates, officers or directors to the detriment of the Trust. Trust Unitholders must rely on the standard of care owed by the Trustees to all Trust Unitholders as set out in the Trust Declaration to prevent overreaching by others in transactions with the Trust.
Other than the standard of care specified in the Trust Declaration, the Trustees and their affiliates are not in any way limited or affected in their ability to carry on business ventures for their own account and for the account of others and may be engaged in the ownership, acquisition and operation of businesses, which compete with the Trust. There is no obligation on the Trustees or their affiliates to present any particular property to the Trust and such persons may recommend to others such investment opportunity to the exclusion of the Trust. In addition, the Trustees have established and may establish, in the future, other limited partnerships or other investment vehicles which have or may have investment objectives that are the same as or similar to those of the Trust and to act as adviser, manager, Trustee and/or general partner to such entities. Although none of the directors or officers of the Trustees will devote their full time to the business and affairs of the Trust, they will devote as much time as is necessary for the management of the business and affairs of the Trust.
The Independent Review Committee has been established to provide advice and assistance to the Trustees and directors of the General Partner regarding actual and potential conflicts of interest as defined in NI 81-107, including with respect to the commercial reasonableness of the terms of the loans to the Affiliated Operators. See Item 2.2.3 – Governance Matters and Independent Review Committee.
Non-Arm’s Length Transactions
Certain transactions contemplated by the Trust’s structure involve non-arm’s length parties. As such, certain contractual terms usually contained in documentation that is negotiated at arm’s length are not necessarily included in the agreements among the Trust, Partnership, the Partnership and the Affiliated Operators as those terms would not have the same effect as they would have in transactions between unrelated parties.
The Independent Review Committee has been established to provide advice and assistance to the Trustees and directors of the General Partner regarding actual and potential conflicts of interest as defined in NI 81-107, including with respect to the commercial reasonableness of the terms of the loans to the Affiliated Operators. See Item 2.2.3 – Governance Matters and Independent Review Committee.
Trust Unitholders have limited voting rights
Trust Unitholders are not shareholders and do not enjoy the rights and privileges offered to shareholders under corporate statutes. The Trust is not generally regulated by established corporate law and Trust Unitholders’ rights are governed primarily by the specific provisions of the Trust Declaration. Subject to the Trust Declaration, Trust Unitholders have rights to attend and vote at meetings of Trust Unitholders. However, the Trust may but is not required to hold annual meetings of Trust Unitholders or any Trust Unitholder meetings on a periodic basis. The Trust does not, at this time, intend to call annual meetings for the election of Trustees or otherwise. Consequently, Trust Unitholders will not vote to appoint the Trustees on an annual or periodic basis. CAL01: 1951970: v8 62
Further, unlike an ABCA corporation, Trust Unitholders do not have the right to appoint the Trust’s auditor; rather such right is held by the Trustees.
Statutory Remedies
The Trust is not generally regulated by established corporate law and Trust Unitholders’ rights are governed primarily by the specific provisions of the Trust Declaration.
Trust Unitholders are not shareholders and do not enjoy the rights and privileges generally offered to shareholders of a corporation incorporated under the ABCA. Although the Trust Declaration confers upon Trust Unitholders some of the same protections, rights and remedies that an Investor would have as a non-voting shareholder of a corporation governed by the ABCA, significant differences do exist.
For example, while the Trust Units are voting, the Trust does not, at this time, intend to call annual meetings for the election of Trustees or otherwise and consequently, Trust Unitholders will not generally vote for the election of the Trustees. See Item 8 – Risk Factors – Trust Unitholders have limited voting rights. In addition, the matters in respect of which Trust Unitholder approval is required under the Trust Declaration are generally less extensive than the rights conferred on the shareholders of an ABCA corporation.
The matters in respect of which Trust Unitholder approval is required under the Trust Declaration are generally less extensive than the rights conferred on the shareholders of an ABCA corporation.
Other than as described in the Trust Declaration, Trust Unitholders do not have recourse to a dissent right under which shareholders of an ABCA corporation are entitled to receive the fair value of their shares where certain fundamental changes affecting the corporation are undertaken, such as an amalgamation, a continuance under the laws of another jurisdiction, the sale of all or substantially all of its property, a going private transaction or the addition, change or removal of provisions restricting: (i) the business or businesses that the corporation can carry on, or (ii) the issue, transfer or ownership of shares.
Trust Unitholders similarly do not have recourse to the statutory oppression remedy that is available to shareholders of an ABCA corporation where the corporation undertakes actions that are oppressive, unfairly prejudicial or disregard the interests of security holders and certain other parties. Shareholders of an ABCA corporation may also apply to a court to order the liquidation and dissolution of the corporation in those circumstances, whereas Trust Unitholders could rely only on the general provisions of the Trust Declaration, which permit the termination of the Trust with the approval by Special Resolution. The ABCA also permits shareholders to bring or intervene in derivative actions in the name of the corporation or any of its subsidiaries, with the leave of a court. The Trust Declaration does not include a comparable right of Trust Unitholders to commence or participate in legal proceedings with respect to the Trust.
In the event of an insolvency or restructuring of the Trust, the rights of Trust Unitholders will be different from those of shareholders of an insolvent or restructuring corporation.
Liability of Trust Unitholders
There is a risk that a party may seek to assert that Trust Unitholders be held personally liable for the obligations of the Trust or in respect of claims against the Trust. Such risks are expected to be limited since the Trust intends to limit its investments to limited partnership units of the Partnership and the Trust does not intend to carry on any business. However, there is no assurance that Trust Unitholders will not be personally liable for the obligations of the Trust.
Pursuant to the Trust Declaration, if any Trust Unitholder is held personally liable as such to any other person in respect of any debt, liability or obligation incurred by or on behalf of the Trust, or any action taken on behalf of the Trust, such Trust Unitholder is entitled to indemnity and reimbursement out of the Trust assets to the full extent of such liability for all costs of any litigation or other proceedings in which such liability has been determined, including all fees and disbursements of counsel. The rights accruing to a Trust Unitholder do not exclude any other rights to which such Trust Unitholders may be lawfully entitled, nor does anything contained in the Trust Declaration restrict the right of the Trustees to indemnify or reimburse a Trust Unitholder out of the Trust’s assets in any appropriate situation not specially provided in the Trust Declaration but, for greater certainty, the Trustees have no liability to reimburse a Trust Unitholder for taxes assessed against them by reason of or arising out of his ownership of Trust Units.
Lack of Independent Experts Representing Unitholders
Each of the Trust and the Trustees has consulted with legal counsel regarding the formation and terms of the Trust and the Offering of the Trust Units. The Trust Unitholders have, however, not been independently represented. Therefore, to the extent that the Trust, the Trust Unitholders or this Offering could benefit by further independent review, such benefit will not be
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available. Each prospective investor should consult his or her own legal, tax and financial advisors regarding the desirability of purchasing the Units and the suitability of investing in the Trust.
Key Personnel
The Trust’s success depends in large measure on certain key executive personnel of the Trust, including Moiz Bhamani and Harwinder Kang. The loss of services of such key personnel could have a material adverse effect on the Trust. The Trust does not have key person insurance in effect for management of the Trust. The contributions of these individuals to the immediate operations of the Trust are likely to be of central importance. In addition, the competition for qualified personnel in the industry is intense and there can be no assurance that it will be able to continue to attract and retain all personnel necessary for the development and operation of its business. Investors must rely upon the ability, expertise, judgment, discretions, integrity and good faith of the Trustees and management of the Trust.
Environmental Matters
Under various environmental laws, ordinances and regulations, the current or previous owner or operator of properties acquired or refinanced by the Affiliated Operators, may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such properties. These costs could be substantial. Such laws could impose liability whether or not the Affiliated Operator knew of, or was responsible for, the presence of such hazardous or toxic substances.
The presence of hazardous or toxic substances, or the failure to remove or remediate such substances, if any, or restrictions imposed by environmental laws on the manner in which such properties may be operated or developed could adversely affect an Affiliated Operator’s ability to sell such properties and pay cash distributions and could potentially also result in claims against the Affiliated Operator.
Environmental laws provide for sanctions for non-compliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances into the air. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could be substantial and reduce cash distributions to the Trust.
Affiliated Operators may be subject to liability for undetected pollution or other environmental hazards against which they cannot insure, or against which they may elect not to insure where premium costs are disproportionate to the Affiliated Operators’ perception of relative risk. Such factors may impact Affiliated Operators’ ability to service their Loans with the Partnership, which in turn will have an adverse impact on the Trust.
Renovation/Maintenance Risks
The Affiliated Operators may be subject to the financial risk of having unoccupied units during extended periods of renovations or maintenance. During renovations or periods of extensive maintenance, these Properties are unavailable for occupancy and do not generate income. Certain significant expenditures, including property taxes, interest payments, insurance costs and related charges must be made throughout the period of ownership of real property regardless of whether the property is producing revenue. Delays in the renovation of the buildings or individual suites would delay the renting of such building or individual suites resulting in an increased period of time where that building is not producing revenue or produces less revenue than a fully- tenanted building.
Credit Risk
An Affiliated Operator may be exposed to credit risk in that tenants in the Properties may become unable to pay their rents or that such properties, where offered for sale, might remain unsold. An Affiliated Operator’s income and, consequently, ability to service the Loans, may be adversely affected if one or more major tenants or a significant number of tenants become unable to meet their rental obligations, if the Affiliated Operator is unable to rent a significant number of such properties on commercially favourable terms, or if such Properties are not sold at commercially favourable prices. In the event of default by a tenant, the Affiliated Operator may experience delays or limitations in enforcing rights as lessor and may pay substantial costs in protecting its investment.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges must be made throughout the period of ownership of real property regardless of whether the property is producing revenue. If the Affiliated Operator is unable to meet mortgage payments or other financing costs (if any) on any Property that it owns or operates, losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure or sale.
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Utilities Risk
The Affiliated Operators’ business is exposed to fluctuating utility and energy costs such as electricity and natural gas (heating) prices.
Uninsured Losses
The Affiliated Operators intend to carry comprehensive general liability, fire, flood, extended coverage, rental loss and vacancy insurance with policy specifications, limits and deductibles customarily carried for similar Properties. However, there are certain types of risks, generally of a catastrophic nature, such as wars, terrorist attacks or environmental contamination, which are either uninsurable or not insurable on an economically viable basis. Should an uninsured or underinsured loss occur, an Affiliated Operator could lose its investment in, and anticipated profits and cash flows from, one or more of its Properties, but would continue to be obligated to repay any recourse mortgage indebtedness on such Properties.
From time to time an Affiliated Operator may be subject to lawsuits as a result of the nature of its business. The Affiliated Operators intend to maintain business and property insurance policies in amounts and with such coverage and deductibles as are deemed appropriate, based on the nature and risks of the businesses, historical experience and industry standards. However, there can be no assurance that claims in excess of the insurance coverage or claims not covered by the insurance coverage will not arise or that the liability coverage will continue to be available on acceptable terms. A successful claim against an Affiliated Operator that is not covered by, or in excess of, an Affiliated Operator’s insurance could materially affect such entity’s operating results and financial condition, which would have an adverse effect on Trust Unitholders. Claims against an Affiliated Operator, regardless of their merit or eventual outcome, will require management to devote time to matters unrelated to the operation of the business.
Fluctuations in Cap Rates
Generally, as interest rates fluctuate in the lending market, Cap Rates will fluctuate, which affects the underlying value of real estate. As such, when interest rates rise, generally Cap Rates should be expected to rise. Over the period of investment, capital gains and losses at the time of disposition can occur due to the increase or decrease of these Cap Rates.
Litigation Risks
In the normal course of the Trust’s operations, whether directly or indirectly, it may become involved in, named as a party to or the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions relating to personal injuries, property damage, property taxes, land rights, the environment and contract disputes. The outcome with respect to outstanding, pending or future proceedings cannot be predicted with certainty and may be determined in a manner adverse to the Trust and as a result, could have a material adverse effect on the Trust’s assets, liabilities, business, financial condition and results of operations. Even if the Trust prevails in any such legal proceeding, the proceedings could be costly and time consuming and may divert the attention of management and key personnel from the Trust’s business operations, which could have a material adverse effect on the Trust’s business, cash flows, financial condition and results of operations and ability to make distributions to Trust Unitholders.
Debt Financing
Affiliated Operators will be subject to the risks associated with debt financing, including the risk that mortgage indebtedness secured by their Properties will not be able to be refinanced or that the terms of refinancing will not be as favourable as the terms of existing indebtedness.
Interest Rate Fluctuations
Financing by Affiliated Operators may include indebtedness with interest rates which may fluctuate over time and which will result in fluctuations in Affiliated Operators’ cost of borrowing, if any.
No Review of Offering Memorandum by Regulatory Authorities
Investors will not have the benefit of a review of this offering memorandum, the Trust Declaration, or any other documents in relation to the Offering by any regulatory authorities.
Legislative Changes
Legal, tax and regulatory changes may occur that can adversely affect the Trust or the Trust Units. There can be no assurance that income tax, securities and other laws will not be changed in a manner that adversely affects the Trust or the Trust Units.
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No Independent Counsel for Trust Unitholders
Legal counsel that assisted in preparing the documentation in connection with the Offering, including the Trust Declaration, acted as legal counsel for the Trust. No independent counsel was retained on behalf of the Trust Unitholders. There has been no review by independent counsel on behalf of the Trust Unitholders of this offering memorandum, the Trust Declaration or any other documentation in relation to the Offering. No due diligence has been conducted on behalf of Trust Unitholders by counsel.
Employee Errors or Misconduct
There have been a number of highly publicized cases involving fraud or other misconduct by employees in the investment industry in recent years and, notwithstanding the measures we intend to take to deter and prevent such activity, we run the risk that employee misconduct could occur. Misconduct by employees could include binding us to transactions that exceed authorized limits or present unacceptable risks, or concealing from us unauthorized or unsuccessful activities, which in either case, may result in unknown and unmanaged risks or losses. Employee misconduct could also involve the improper use of confidential information, which could result in regulatory sanctions and serious reputational harm. The Trust and the Affiliated Operators are also susceptible to loss as a result of employee error. It is not always possible to deter employee misconduct or prevent employee error and the precautions taken to prevent and detect this activity may not be effective in all cases, which could materially adversely affect the Trust and the Affiliated Operators.
Dilution/Concentration
The Trust is authorized to issue an unlimited number of Trust Units. Any issuance of additional Trust Units may have a dilutive or concentrative effect on the value of Trust Units. However, no additional class or series of Trust Units will be created which are/or will be detrimental to the current Trust Units. Trust Unitholders who invest after a particular Property is acquired will be entitled to receive the same distributions as a Trust Unitholder who invested before such Property was acquired and will therefore be entitled to the equivalent benefits or disadvantages as each other Trust Unitholder.
Disclosure of Personal Information
Investors are advised that their names and other specified information, including the number and aggregate value of the Trust Units owned: (i) will be disclosed to the relevant Canadian securities regulatory authorities and may become available to the public in accordance with the requirements of applicable securities and freedom of information laws and the investor consents to the disclosure of such information; (ii) is being collected indirectly by the applicable Canadian securities regulatory authority under the authority granted to it in securities legislation; and (iii) is being collected for the purposes of the administration and enforcement of the applicable Canadian securities legislation.
The foregoing risk factors do not purport to be a complete explanation of all risks involved in purchasing the Trust Units. Potential investors should read this entire offering memorandum and consult with their legal and other professional advisors before determining to invest in the Trust Units.
ITEM 9 - REPORTING OBLIGATIONS
The Trust is not, and has no current intention of becoming, a reporting issuer (or holding an equivalent reporting status) in any jurisdiction in Canada or the United States and, accordingly, is not required to report, financially or otherwise, to the Trust Unitholders (except as otherwise provided in the Trust Declaration). As a result, the Trust is not subject to the continuous disclosure requirements of a “reporting issuer” under applicable securities laws, and is not required, among other things, to prepare, file, disseminate or send to securities holders, unaudited interim financial statements, annual or interim versions of management’s discussion and analysis of financial condition and operating results, news releases disclosing material changes or facts about the activities of the Trust.
The Trust will provide Trust Unitholders with annual audited financial statements. In addition, the Trust will make reasonably available to Trust Unitholders such other information as required by applicable securities laws for a non-reporting issuer that distributes securities using the “offering memorandum” exemption (including audited annual financial statements, annual notices of use of proceeds and notices of certain key events, if and when applicable).
The Independent Review Committee is also required to make an annual report reasonably available to the Trust Unitholders.
Generally, documents will be considered to have been “made reasonably available” if the documents are mailed to Trust Unitholders, or if they receive notice that the disclosure documents can be viewed on a public website of the Trust or a website accessible by all Trust Unitholders (such as a password-protected website).
On or before March 31 in each year (or within such other time required by the Tax Act), the Trust will provide to Trust Unitholders who received distributions from the Trust in the prior calendar year, such information regarding the Trust required CAL01: 1951970: v8 66
by Canadian law to be submitted to Trust Unitholders for income tax purposes to enable Trust Unitholders to complete their tax returns in respect of the prior calendar year.
The Trust will file, on behalf of itself and the Trust Unitholders, annual trust information returns and any other information returns required to be filed under the Tax Act and any other applicable tax legislation in respect of the Trust.
Upon written request, the Trustees will send to any Trust Unitholder, the financial statements of the Trust together with comparative financial statements for the preceding fiscal year, if any, and the report of the accountant thereon, within 120 days of the end of the fiscal year of the Trust. Such financial statements will not be audited unless the Trust has engaged an auditor to audit such financial period as may be required for future offerings or applicable law. In the event the Trust has prepared audited financial statements, the financial statements and auditor’s report, will be distributed to all Trust Unitholders within 30 days of the audit report date.
Each Trust Unitholder has the right to obtain from the Trust, on request without fee, a copy of the Trust Declaration and any amendments thereto.
We are not required to send you any other documents on an annual or ongoing basis. Financial or other information relating to the Trust and provided to you in the future may not by itself be sufficient for you to assess the performance of your investment.
Certain information regarding the Trust’s distribution of securities from time to time may be publicly available at the offices of applicable securities regulatory authorities.
ITEM 10 - RESALE RESTRICTIONS
General
The Trust Units will be subject to a number of resale restrictions, including a restriction on trading. Until the restriction on trading expires, you will not be able to trade the Trust Units unless you comply with an exemption from the prospectus and registration requirements under securities legislation.
For trades in Alberta, British Columbia, Saskatchewan, Ontario, Nova Scotia or New Brunswick unless permitted under securities legislation, you cannot trade the Trust Units before the date that is four months and a day after the date the Trust becomes a reporting issuer in any province or territory of Canada. The Trust is not, and has no intention of becoming, a reporting issuer in any province or territory of Canada, and therefore the Trust Units will be subject to an indefinite hold period and may only be transferred under limited exemptions under applicable securities laws.
For trades in Manitoba, unless permitted under securities legislation, you must not trade the Trust Units without the prior written consent of the regulator in Manitoba unless:
(a) the Trust has filed a prospectus with the regulator in Manitoba with respect to the Trust Units you have purchased and the regulator in Manitoba has issued a receipt for that prospectus, or
(b) you have held the Trust Units for at least 12 months.
The regulator in Manitoba will consent to your trade if the regulator is of the opinion that to do so is not prejudicial to the public interest.
Transfer Restrictions in the Trust Declaration
Trust Unitholders may only transfer their Trust Units in accordance with the provisions of the Trust Declaration. A Trust Unitholder is not entitled to transfer (whether by sale, assignment or otherwise) any of its Trust Units except:
(a) with the prior, written consent of the Trustees, to be signified by a resolution of the Trustees;
(b) to a person who is an affiliate of the Trust Unitholder; or
(c) as otherwise expressly provided in the Trust Declaration, subject always to compliance with applicable law (including applicable securities laws and regulatory policy) and the transfer requirements in the Trust Declaration. Any attempted transfer (whether by sale, assignment or otherwise) of Trust Units in contravention of the Trust Declaration is null and void and the Trustees will not approve any transfer of Trust Units in
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contravention of the Trust Declaration. The Trustees are authorized to make such rules and regulations, in their discretion, may from time to time consider necessary or desirable in connection with the transfer (whether by sale, assignment or otherwise) of Trust Units.
There is no market over which the Trust Units can be transferred and it is very unlikely that one will develop. An Investor is encouraged to seek independent advice from its legal advisors. See Item 8 – Risk Factors.
ITEM 11 - INVESTORS’ RIGHTS
The securities laws in your jurisdiction may provide you with the statutory right, in certain circumstances, to seek damages or to cancel your agreement to buy Trust Units. Most often, those rights are available, if we make a misrepresentation in this offering memorandum but, in some jurisdictions, you may have those rights in other circumstances, including if we fail to deliver the offering memorandum to you within the required time or if we make a misrepresentation in any advertisements or sales literature regarding Trust Units. Generally, a “misrepresentation” means an untrue statement about a material fact or the failure to disclose a material fact that is required to be stated or that is necessary in order to make a statement not misleading in light of the circumstances in which it was made. The meaning of “misrepresentation” may differ slightly depending on the law in your jurisdiction.
If you purchase Trust Units, you will have certain rights, some of which are described below. For information about your rights, you should consult a lawyer.
Two-day Cancellation Right
You can cancel your agreement to purchase these Trust Units. To do so, you must send a notice to us by midnight on the second business day after you sign the agreement to buy the Trust Units.
Statutory Rights of Action
The following is a summary of the rights of rescission and damages, available to Investors under the securities legislation of certain provinces of Canada. Investors should refer to the applicable provisions of the securities legislation of their province of residence for the particulars of rights available to them, or consult with a legal adviser. The rights described below are in addition to and without derogation from any other rights or remedies available at law to an Investor.
11.2.1 Investors in British Columbia, Alberta or Manitoba
In addition to any other right or remedy available to you at law, if there is a misrepresentation in this offering memorandum, you have a statutory right to sue:
(a) to cancel your agreement to buy these Trust Units; or
(b) for damages against the Trust, every person who was a Trustee of the Trust at the date of this offering memorandum and any other person who signed this offering memorandum.
This statutory right to sue is available to you whether or not you relied on the misrepresentation. If you choose to rescind your purchase, you cannot then sue for damages. In addition, in an action for damages, the defendant will not be liable for all or any portion of damages that it proves do not represent the depreciation in value of your Trust Units as a result of the misrepresentation. Further, the amount recoverable in an action for damages will not exceed the price at which the Trust Units were offered.
There are various defences available to the persons or companies that you have a right to sue. For example, they have a defence if you knew of the misrepresentation when you purchased the securities. In addition, the defendant will not be liable for a misrepresentation in forward-looking information if the defendant proves that:
(a) this offering memorandum contains reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and a statement of material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward- looking information; and
(b) the Trust has a reasonable basis for drawing the conclusion or making the forecasts and projections set out in the forward-looking information.
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However, in Alberta the above defence does not relieve a person of liability respecting forward-looking information in a financial statement.
These rights are subject to more defences as more particularly described in securities legislation of Alberta, British Columbia and Manitoba (as applicable to the Investor).
Statutory rights for failure to deliver the offering memorandum
If you reside in British Columbia, Alberta or Manitoba and you do not receive a copy of this offering memorandum before you sign your Subscription Agreement, you have a right to sue for damages, or if you still own your Trust Units, you can choose to cancel your agreement instead of suing for damages.
Time limitations
If you intend to rely on the statutory right to sue described above, you must do so within strict time limitations.
In British Columbia or Alberta you must commence your action to cancel the agreement within 180 days after the transaction or commence your action for damages within the earlier of: (i) 180 days after learning of the misrepresentation, or (ii) three years after the transaction.
In Manitoba, you must commence your action to cancel your agreement within 180 days after the transaction or commence your action for damages within the earlier of: (i) 180 days after learning of the misrepresentation, or (ii) two years after the day of the transaction.
11.2.2 Investors in Saskatchewan
If this offering memorandum together with any amendment hereto or advertising or sales literature used in connection therewith delivered to an Investor resident in Saskatchewan contains a misrepresentation, the Investor has, without regard to whether the Investor relied on the misrepresentation, a right of action for damages against the Trust, every person acting in a capacity with respect to the Trust which is similar to that of a director or promoter of the Trust , and every person who or company that sells the Trust Units on behalf of the Trust under this offering memorandum or amendment thereto, or, alternatively, an Investor may elect to exercise a right of rescission against the Trust, provided that among other limitations:
(a) no person or company is liable, nor does a right of rescission exist, where the person or company proves that the Investor purchased the Trust Units with knowledge of the misrepresentation;
(b) in an action for damages, no person or company will be liable for all or any portion of the damages that it proves do not represent the depreciation in value of the Trust Units as a result of the misrepresentation relied on;
(c) in no case shall the amount recoverable exceed the price at which the Trust Units were sold to the Investor; and
(d) no action shall be commenced to enforce these rights more than:
(i) in the case of an action for rescission, 180 days after the date of the acceptance of the Investor’s Subscription Agreement by the Trust; or
(ii) in the case of any action, other than an action for rescission, the earlier of one year after the Investor first had knowledge of the facts giving rise to the cause of action or six years after the date of the acceptance of the Investor’s Subscription Agreement by the Trust.
A person or company is not liable in an action for a misrepresentation in forward-looking information if the person or company proves that:
(a) this offering memorandum contains, proximate to that information:
(i) reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information; and
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(ii) a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and
(b) the person had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information.
These rights are subject to more defences as more particularly described in The Securities Act, 1988 (Saskatchewan).
11.2.3 Investors in Ontario
If this offering memorandum, together with any amendment or supplement to this offering memorandum, delivered to an Investor resident in Ontario contains a misrepresentation and it was a misrepresentation at the time of purchase of Trust Units by such Investor, the Investor will have, without regard to whether the Investor relied on such misrepresentation, a right of action against the Trust for damages or, while still the owner of the Trust Units purchased by that Investor, for rescission, in which case, if the Investor elects to exercise the right of rescission, the Investor will have no right of action for damages against the Trust, provided that:
(a) the Trust shall not be held liable pursuant to either right of action if the Trust proves the Investor purchased the Trust Units with knowledge of the misrepresentation;
(b) in an action for damages, the Trust is not liable for all or any portion of such damages that it proves do not represent the depreciation in value of the Trust Units acquired by the Investor as a result of the misrepresentation relied upon;
(c) the Trust will not be liable for a misrepresentation in forward-looking information if the Trust proves that:
(i) this offering memorandum contains reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and a statement of material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and
(ii) the Trust has a reasonable basis for drawing the conclusion or making the forecasts and projections set out in the forward-looking information;
(d) in no case shall the amount recoverable pursuant to such right of action exceed the purchase price of the Trust Units acquired; and
(e) no action may be commenced to enforce such right of action more than:
(i) in the case of an action for rescission 180 days after the date of the acceptance of the Investor’s Subscription Agreement by the Trust; or
(ii) in the case of an action for damages, the earlier of:
(A) 180 days after the Investor first had knowledge of the facts giving rise to the cause of action, or
(B) three years after the date of the acceptance of the Investor’s Subscription Agreement by the Trust.
If you intend to rely on the statutory right to sue described above, you must do so within strict time limitations. You must commence your action:
(a) in the case of an action for rescission, 180 days after the date of the acceptance of the Investor’s Subscription Agreement by the Trust; or
(b) in the case of an action for damages, the earlier of:
(i) 180 days after the Investor first had knowledge of the facts giving rise to the cause of action, or
(ii) three years after the date of the acceptance of the Investor’s Subscription Agreement by the Trust.
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The foregoing rights do not apply if the Investor purchased Trust Units of the Trust using the “accredited investor” exemption and is:
(a) a Canadian financial institution (as defined in Ontario Securities Commission Rule 45-501) or a Schedule III bank;
(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada); or
(c) a subsidiary of any person referred to in paragraphs (a) and (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary.
These rights are subject to more defences as more particularly described in the Securities Act (Ontario).
11.2.4 Investors in Nova Scotia
In the event that this offering memorandum, together with any amendments hereto, or any advertising or sales literature (as defined in the Securities Act (Nova Scotia)) contains an untrue statement of material fact or omits to state a material fact that is required to be stated or that is necessary in order to make any statements contained herein or therein not misleading in light of the circumstances in which it was made (in this Item 11.2.4 – Investors in Nova Scotia, a “misrepresentation”), a purchaser of the Trust Units is deemed to have relied upon such misrepresentation if it was a misrepresentation at the time of purchase and has, subject to certain limitations and defences, a statutory right of action for damages against the issuer or other seller of such Trust Units, the directors of the seller and the persons who have signed the offering memorandum or, alternatively, while still the owner of the Trust Units, may elect instead to exercise a statutory right of rescission against the issuer or other seller, in which case the purchaser will have no right of action for damages against the issuer or other seller, the directors of the seller or the persons who have signed the offering memorandum, provided that, among other limitations:
(a) no action will be commenced to enforce the right of action for rescission or damages by a purchaser resident in Nova Scotia later than 120 days after the date payment was made for the Trust Units (or after the date on which initial payment was made for the Trust Units where payments subsequent to the initial payment are made pursuant to a contractual commitment assumed prior to, or concurrently with, the initial payment);
(b) no person will be liable if it proves that the purchaser purchased the Trust Units with knowledge of the misrepresentation;
(c) in the case of an action for damages, no person will be liable for all or any portion of the damages that it proves do not represent the depreciation in value of the Trust Units; and
(d) in no case will the amount recoverable in any action exceed the price at which the Trust Units were offered to the purchaser.
The liability of all persons or companies referred to above is joint and several with respect to the same cause of action. A defendant who is found liable to pay a sum in damages may recover a contribution, in whole or in part, from a person or company who is jointly and severally liable to make the same payment in the same cause of action unless, in all the circumstances of the case, the court is satisfied that it would not be just and equitable.
These rights are subject to more defences as more particularly described in the Securities Act (Nova Scotia).
11.2.5 Investors in New Brunswick
If this offering memorandum contains a misrepresentation, a purchaser who purchases the Trust Units will be deemed to have relied on the misrepresentation and will have, subject to certain limitations and defences, a statutory right of action against the Trust for damages or, while still the owner of the Trust Units, for rescission, in which case, if the purchaser elects to exercise the right of rescission, the purchaser will have no right of action for damages, provided that the right of action for rescission will be exercisable by the purchaser only if the purchaser commences an action against the defendant, not more than 180 days after the date of the transaction that gave rise to the cause of action, or, in the case of any action other than an action for rescission, the earlier of: (i) one year after the plaintiff first had knowledge of the facts giving rise to the cause of action; or (ii) six years after the date of the transaction that gave rise to the cause of action. “Misrepresentation” in this Item 11.2.5 – Investors in New Brunswick means 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 the light of the circumstances in which it was made.
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The defendant will not be liable for a misrepresentation if it proves that the purchaser purchased the Trust Units with knowledge of the misrepresentation.
In an action for damages, the defendant will not be liable for all or any portion of the damages that the defendant proves do not represent the depreciation in value of the Trust Units as a result of the misrepresentation relied upon.
In no case will the amount recoverable for the misrepresentation exceed the price at which the Trust Units were offered.
If you intend to rely on the statutory right to sue described above, you must do so within strict time limitations. You must commence your action:
(a) not more than 180 days after the date of the transaction that gave rise to the cause of action; or
(b) in the case of any action other than an action for rescission, the earlier of:
(i) one year after you first had knowledge of the facts giving rise to the cause of action; or
(ii) six years after the date of the transaction that gave rise to the cause of action.
These rights are subject to more defences as more particularly described in the Securities Act (New Brunswick).
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ITEM 12 - FINANCIAL STATEMENTS
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F-1
Prime Income Trust Consolidated Financial Statements For the year ended December 31, 2016
Independent Auditors’ Report
To the Unitholders of Prime Income Trust:
We have audited the accompanying consolidated financial statements of Prime Income Trust and its subsidiary, which comprise the consolidated statement of financial position as at December 31, 2016, the consolidated statements of comprehensive income, changes in Unitholders' equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Prime Income Trust and its subsidiary as at December 31, 2016 and their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Calgary, Alberta March 3, 2017 Chartered Professional Accountants
Prime Income Trust Consolidated Statement of Financial Position (Expressed in Canadian Dollars)
December 31, December 31, 2016 2015 As at: Note $ $
ASSETS Current Assets Cash 45,196 176,057 Accounts receivable - 186,347 Notes receivable 9 7,988,500 3,474,500
Total Assets 8,033,696 3,836,904
LIABILITIES Current Liabilities Accounts payable and accrued liabilities 88,702 156,839 Note payable 9 337,839 -
Total Liabilities 426,541 156,839
UNITHOLDERS’ EQUITY Unitholders’ capital 8 7,337,596 3,579,697 Retained earnings 269,559 100,368
Total Unitholders’ Equity 7,607,155 3,680,065
Total Liabilities and Unitholders’ Equity 8,033,696 3,836,904
Signed on behalf of the Trustees of the Trust
“signed” Moiz Bhamani Trustee
The accompanying notes are an integral part of these consolidated financial statements. Page 1
Prime Income Trust Consolidated Statement of Comprehensive Income (Expressed in Canadian Dollars)
Year ended Year ended December 31, December 31, 2016 2015 $ $
Revenue Loan consulting fees 248,270 191,098 Interest income 496,249 75,089
Total revenue 744,519 266,187
Expenses Professional fees 73,792 75,519 Advertising 23,594 16,074 Loan interest 17,439 - Bank charges and interest 947 660 Dues and subscriptions - 2,500
Total expenses 115,772 94,753
Total comprehensive income 628,747 171,434
The accompanying notes are an integral part of these consolidated financial statements. Page 2
Prime Income Trust Consolidated Statement of Changes in Unitholders’ Equity (Expressed in Canadian Dollars)
Total Unitholders’ Retained Unitholders’ capital earnings equity Note $ $ $
Balance at December 31, 2014 18,625 (8,902) 9,723 Issuance of trust units 3,880,100 - 3,880,100 Issuance costs (349,821) - (349,821) Unit distribution to unitholders 30,793 (30,793) - Cash distribution to unitholders - (31,371) (31,371) Total comprehensive income for the year - 171,434 171,434
As at December 31, 2015 3,579,697 100,368 3,680,065
Issuance of trust units 8 4,024,300 - 4,024,300 Issuance costs 8 (393,763) - (393,763) Unit distribution to unitholders 8 170,211 (170,211) - Cash distribution to unitholders 8 - (289,345) (289,345) Redemption of trust units 8 (42,849) - (42,849) Total comprehensive income for the year - 628,747 628,747
As at December 31, 2016 7,337,596 269,559 7,607,155
The accompanying notes are an integral part of these consolidated financial statements. Page 3
Prime Income Trust Consolidated Statement of Cash Flows (Expressed in Canadian Dollars)
Year ended Year ended December 31, December 31, 2016 2015 $ $ Cash provided by (used in) the following activities:
Operating activities Total comprehensive income 628,747 171,434 Changes in non-cash working capital items Accounts payable and accrued liabilities (68,137) 148,019 Accounts receivable 186,347 (186,347)
Net cash provided by operating activities 746,957 133,106
Investing activities Increase in notes receivable (Note 9) (4,514,000) (3,474,500)
Net cash used in investing activities (4,514,000) (3,474,500)
Financing activities Proceeds from issuance of units for cash (Note 8) 4,024,300 3,880,100 Redemption of units for cash (Note 8) (42,849) - Issuance costs (Note 8) (393,763) (349,821) Cash distribution to unitholders (Note 8) (289,345) (31,371) Advances on note payable (Note 9) 337,839 -
Net cash provided by financing activities 3,636,182 3,498,908
(Decrease) increase in cash (130,861) 157,514 Cash – Beginning of year 176,057 18,543
Cash – End of year 45,196 176,057
The accompanying notes are an integral part of these consolidated financial statements. Page 4
Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
1 Incorporation and Operations
Prime Income Trust (the “Trust”) is an open-ended unincorporated Mutual Fund Trust established under the laws of the province of Alberta, pursuant to the trust indenture (the “Declaration of Trust”) dated June 30, 2014. The registered office and principal place of business is Suite 1206, 734 – 7th Avenue SW, Calgary, Alberta, T2P 3P8. The Trust was formed solely to offer units for sale and to utilize the gross proceeds of the offering to acquire units in Prime Income Limited Partnership (the “Limited Partnership”) as sole holder of limited partnership units.
The business of the Limited Partnership is to loan funds to related parties engaged in real estate projects. Each note receivable will bear interest at a reasonable market rate, between 8% and 12% based on its specific risk profile and the loan’s underlying security, if any. The Limited Partnership will also charge the borrower up to 5.5% of the value of the loan as a onetime setup fee. The Trustees of the Trust are Moiz Bhamani and Harwinder Kang (the “Trustees”). The Trustees are the sole shareholders of Prime Income GP Inc., the Limited Partnership’s general partner (the “General Partner”). The General Partner acts on behalf of the limited partners through an irrevocable power of attorney.
The Limited Partnership intends to distribute all distributable cash each month to the limited partners, subject to certain reserves as deemed necessary by the General Partner. However, the General Partner has absolute discretion to make any distribution. Any return to be received by the Trust, and ultimately Trust unitholders, is dependent on the Limited Partnership having sufficient cash to distribute, and on the General Partner making a distribution.
The consolidated financial statements were authorized for issue by the Trustees on March 3, 2017.
2 Basis of Preparation
Statement of compliance The consolidated financial statements of the Trust have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) effective as at January 1, 2016.
Basis of measurement The consolidated financial statements have been prepared under the historical cost convention, except for certain financial instruments measured at fair value.
Functional and presentation currency These consolidated financial statements are presented in Canadian dollars, which is the Trust’s functional currency.
Page 5
Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
2 Basis of Preparation (continued)
Principles of consolidation These consolidated financial statements include the accounts of the Trust and the Limited Partnership, which is wholly owned. All intercompany transactions have been eliminated in these consolidated financial statements. Subsidiaries are those entities that the Trust controls by having the power to govern the financial and operating policies of the entity. The existence and effect of potential voting rights that are currently exercisable are considered when assessing whether the Trust controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained by the Trust and are subsequently deconsolidated from the consolidated financial statements on the date that control ceases.
3 Summary of Significant Accounting Policies
The accounting policies set out below have been applied consistently to the periods presented in these consolidated financial statements.
(a) Financial instruments Financial instruments are recognized when the Trust becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Trust has transferred substantially all risks and rewards of ownership. Financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, financial instruments are measured as described below:
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Trust’s loans and receivable instruments are comprised of cash, accounts receivable and notes receivable. Loans and receivables are subsequently measured at amortized cost using the effective interest method less a provision for impairment.
Other financial liabilities: Other financial liabilities include accounts payable and accrued liabilities and note payable. They are initially recognized at the amount required to be paid less, when material, a discount to reduce the liabilities to fair value. Subsequently, they are measured at amortized cost using the effective interest method.
Equity: Class A Trust units are classified as equity. Incremental costs directly attributable to the issuance of Trust units are recognized as a deduction from equity.
(b) Cash Cash consists of cash on hand.
(c) Revenue recognition Loan interest income is recognized on an accrual basis and in the statement of comprehensive income using the effective interest method. Fees that are an integral part of the effective interest rate of the financial instrument, including loan consulting fees, are capitalized as part of the related note receivable asset and amortized to interest income over the term of the loan using the effective interest method.
Page 6
Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
3 Summary of Significant Accounting Policies (continued)
(d) Income taxes The Trust will designate, for purposes of the Income Tax Act (Canada), that income earned by the Trust in any taxation year of the Trust shall be paid or made payable to the unitholders pro rata based on their units. As a result, the Trust will not be liable for income tax under the Income Tax Act (Canada).
(e) Impairment of financial assets A financial asset is considered to be impaired only if evidence indicates that one or more events have occurred after its initial recognition that have had a negative effect on the estimated future cash flows of that asset. The Trust considers evidence of impairment its loans and receivables at both a specific and collective level. All individually significant loans and receivables are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identifiable at an individual mortgage level. Loans and receivables that are not individually significant are collectively assessed for impairment by grouping together loans and receivables with similar risk characteristics. In assessing collective impairment, the Company reviews historical trends of probability of default, the timing of recoveries and the amount of loss incurred, adjusted for the trustee’s judgments as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a specific loan and receivable is calculated as the difference between its carrying amount including accrued interest and the present value of the estimated future cash flows discounted at the receivable’s original effective interest rate. Losses are recognized in the statement of comprehensive income and reflected in an allowance account against the loan and receivable. When a subsequent event causes the amount of an impairment loss to decrease, the decrease in impairment loss is reversed through the statement of comprehensive income.
4 Recent Accounting Pronouncements The Trust has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Trust:
(a) IFRS 9, Financial Instruments In October 2010, the IASB issued IFRS 9, which replaces IAS 39 and establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of future cash flows. This new standard is effective for annual periods beginning on or after January 1, 2018. The Trust is assessing the impact of this new standard on its consolidated financial statements.
(b) IFRS 15, Revenue from Contracts with Customers The IASB issued the standard to replace IAS 18 which establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard is effective for the annual periods beginning on January 1, 2018, with the required retrospective application and earlier adoption permitted. The Trust is assessing the impact of this new standard on its consolidated financial statements.
Page 7
Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
4 Recent Accounting Pronouncements (continued)
(c) IFRS 16, Leases IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee. Instead leases are ‘capitalized’ by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, a company also recognizes a financial liability representing its obligation to make future lease payments. IFRS 16 is effective for fiscal periods beginning on or after January 1, 2019. The Trust is assessing the impact of this new standard on its consolidated financial statements.
5 Significant Accounting Judgments, Estimates and Assumptions The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments in applying its accounting policies and estimates and assumptions about the future. These judgments, estimates, and assumptions affect the reported amounts of assets, liabilities at the reporting date and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The following discusses the most significant accounting judgments, estimates and assumptions that the Trust has made in the preparation of its consolidated financial statements.
Judgments:
(a) Classification of Trust units In determining whether these should be classified as liabilities or equity, management has assessed whether the Trust units contain a contractual agreement to deliver cash or another financial asset to another entity, whether the units are puttable, and whether the criteria in IAS 32 Financial Instruments: Presentation which permit classification of a puttable instrument as equity have been satisfied. The Trust units have been determined to be classified as equity.
Estimates:
(a) Allowance for doubtful accounts The allowance for doubtful accounts is reviewed by the Trustees at each reporting period. Loans and receivables are considered impaired on a case-by-case basis when they are past due or evidence is received that a customer will default. Assessments are made by the Trustees after taking into consideration the customer’s payment history, the current economic environment and their credit worthiness. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables.
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Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
6 Financial Instruments and Risk Management
Financial instruments The Trust’s financial instruments consist of cash, accounts receivable, notes receivable, accounts payable and accrued liabilities and note payable. The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued liabilities and note payable approximate their fair values given the short-term maturity of these instruments.
Risk management The Trust's activities expose it to a variety of financial risks that arise as a result of its operating and financing activities such as credit risk, liquidity risk, and, market risk. The Trust employs risk management strategies and policies to ensure that any exposure to risk is in compliance with the Trust's business objectives and risk tolerance levels.
Credit risk Credit risk arises from the possibility that counterparties may default on their financial obligations. The Trust is exposed to credit risk on cash, accounts receivable and notes receivable. The Trust's credit risk exposure on cash is minimized substantially by ensuring that cash is held with credible financial institutions. A substantial portion of the Trust’s accounts receivables and notes receivable are from related parties (see note 9). The Trust minimizes credit risk through short payment terms, regular review of loans and receivables and monitoring financial conditions of counterparties. The Trust believes that there is no unusual exposure associated with the collection of these loans and receivables and as at December 31, 2016 and 2015 the Trust has not identified any loans and receivables that are impaired.
Liquidity risk Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with financial liabilities. The Trust has accounts payable and accrued liabilities and note payable that are as a result of normal operations and financing from a related party (Note 9). The Trustees consider the exposure to liquidity risk from these instruments to be low.
Market risk Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates will affect the Trust's net earnings or the value of financial instruments. The objective of the Trust is to manage and mitigate market risk exposures within acceptable limits, while maximizing returns.
(a) Foreign currency risk Currency risk is the risk that the value of financial instruments denominated in currencies other than the reporting currency of the Trust will fluctuate due to changes in foreign exchange rates. The Trust is not exposed to any foreign currency risk as all of its financial instruments are denominated Canadian dollars.
(b) Interest rate risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. The Trust is not exposed to interest rate risk as it does not own any financial instruments that bear a variable interest rate.
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Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
7 Capital Management The Trust defines capital resources as the aggregate of unitholder’s capital and cash. The Trust’s capital management framework is designed to maintain a level of capital that allows it to implement its business strategy. The Company does not have any restrictions on its capital.
8 Redeemable Trust Units
Authorized The Trust is authorized to issue an unlimited number of Class A units, issuable at $100 per unit. Each redeemable trust unit entitles the holder thereof to one vote at all meetings of unitholders.
Issued and outstanding The following is a continuity of the Trust’s issued and outstanding units:
Number of units $
Balance at January 01,2015 1,210 18,625 Issuance of units (i) 38,801 3,880,100 Unit issuance cost - (349,821) Reinvestment unit distribution 308 30,793 Balance at December 31, 2015 40,319 3,579,697
Issuance of units (ii) 40,243 4,024,300 Unit issuance cost - (393,763) Reinvestment unit distribution 1,702 170,211 Redemption of units (428) (42,849) Balance at December 31, 2016 81,836 7,337,596 i. During the year ended December 31, 2015, the Trust issued 38,801 Class A units for a subscription price of $100.00 per unit. ii. During the year ended December 31, 2016, the Trust issued 40,243 Class A units for a subscription price of $100.00 per unit.
Distributions The Trustees of the Trust, in their sole discretion, will distribute an amount of available income of the Trust to unitholders in accordance with the Declaration of Trust dated June 30, 2014. The Trustees intend to declare all allocations and distributions to unitholders on or before December 31 of each year. If the Trustee determines that the Trust does not have sufficient cash to make the full amount of the distribution which has been declared, the Trustee may settle the distribution in the form of additional trust units. Unitholders may elect to receive the distributions in cash or to reinvest the distributions into units of the Trust. For the year ended December 31, 2016, total distributions amounted to $521,720 (2015 - $62,164) of which $170,211 (2015 - $30,793) was elected to be reinvest distributions in the units of the Trust and $289,345 (2015 - $31,371) was paid in cash.
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Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
8 Redeemable Trust Units (continued)
Redemptions Units are redeemable by unitholders at any time, on demand, on delivery to the Trust of a duly completed and properly executed notice requesting the redemption specifying the number of units to be redeemed. On receipt by the Trust of a notice to redeem units, the unitholder will no longer have any rights with respect to the units other than to receive the redemption amount. The unitholder is entitled to receive the redemption amount per unit, calculated as the lesser of: a) The redemption price per trust unit calculated as the most recent book value of the Trust’s assets less the most recent book value of the Trust’s liabilities, such calculations to be made by the Trustees twice during each fiscal period at approximately six-month intervals (all as determined on a consolidated basis) then divided by the issued and outstanding trust units, adjusted for any potentially diluting instruments or securities (including options and warrants), provided that the Trustees may in their discretion calculate the foregoing more frequently than six-month intervals; b) one of the following: i) if the redemption date is on or before the date that is 365 days from the date such trust units were issued to the Trust unitholder (the “First Redemption Period”), an amount that is 90% of the price for which the Trust unitholder acquired such trust unit (the “Subscription Price”); ii) if the redemption date is on or before the date that is 365 days from the last day of the first redemption period (the “Second Redemption Period”), an amount that is 92% of the Subscription Price; iii) if the redemption date is on or before the date that is 365 days from the last day of the Second Redemption Period (the “Third Redemption Period”), an amount that is 94% of the Subscription Price; iv) if the redemption date is on or before the date that is 365 days from the last day of the Third Redemption Period (the “Fourth Redemption Period”), an amount that is 96% of the Subscription Price; v) if the redemption date is on or before the date that is 365 days from the last day of the Fourth Redemption Period (the “Fifth Redemption Period”), an amount that is 98% of the Subscription Price; and, vi) if the redemption date is any time after the end of the Fifth Redemption Period, an amount that is 100% of the Subscription Price, plus any declared but unpaid distribution attributable to the trust unit.
The Trustee may satisfy the redemption amount by way of issuance of redemption notes equal to the redemption amount if the total redemption amount, as determined above, is greater than $20,000 in the calendar month or in the Trustees’ opinion (in their sole discretion), the Trust has insufficient liquid assets to fund such redemptions or that the liquidation of assets at such time would be to the detriment of the remaining Trust unitholders or the Trust generally. If the redemption of the Trust units, as outlined above will result in the Trust losing its status as a “Mutual Fund Trust” for purposes of the Income Tax Act (Canada) there will not be a cash redemption.
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Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
9 Related Party Transactions and Balances
Notes receivable The following is a summary of the Trust's notes receivable from related parties: December December 31, 31, 2016$ 2015$
Prime St. Albert Development Inc. 5,840,100 2,872,500 Prime Cochrane Development Inc. 1,363,400 387,000 Royal Oak Investment Limited Partnership 445,000 215,000 Lethbridge Prime Funds Limited Partnership 230,000 - Prime Funds Royal Oak Limited Partnership II 110,000 -
7,988,500 3,474,500
Prime St. Albert Development Inc. Prime St. Albert Development Inc. is related by virtue of common management. On January 1, 2015, the Trust entered into a promissory note agreement with Prime St. Albert Development Inc. whereby the Trust will provide Prime St. Albert Development Inc. with a financing facility of up $4,500,000. This agreement has been amended on May 15, 2016 to extend financing facility up to $7,000,000. The promissory note bears interest at 8.5% per annum, carries a loan consulting fee of 5.5% on drawdowns and is due on demand. As at December 31, 2016, $5,840,100 had been drawn down on the facility resulting in interest of $392,588 and loan consulting fees of $163,217 being earned by the Trust.
Prime Cochrane Development Inc. Prime Cochrane Development Inc. is related by virtue of common management. On October 1, 2015, the Trust entered into a promissory note agreement with Prime Cochrane Development Inc. whereby the Trust will provide Prime Cochrane Development Inc. with a financing facility of up $4,500,000. The promissory note bears interest at 8.5% per annum, carries a loan consulting fee of 5.5% on drawdowns and is due on demand. As at December 31, 2016, $1,363,400 had been drawn down on the facility resulting in interest of $53,544 and loan consulting fees of $53,702 being earned by the Trust.
Royal Oak Investment Limited Partnership Royal Oak Investment Limited Partnership is related by virtue of common management. On October 1, 2015, the Trust entered into a promissory note agreement with Royal Oak Investment Limited Partnership whereby the Trust will provide Royal Oak Investment Limited Partnership with a financing facility of up $500,000. The promissory note bears interest at 8.5% per annum, carries a loan consulting fee of 5.5% on drawdowns and is due on demand. As at December 31, 2016, $445,000 had been drawn down on the facility resulting in interest of $36,643 and loan consulting fees of $12,650 being earned by the Trust.
Lethbridge Prime Funds Limited Partnership Lethbridge Prime Funds Limited Partnership is related by virtue of common management. On January 15 2015, the Trust entered into a promissory note agreement with Lethbridge Prime Funds Limited Partnership whereby the Trust will provide Lethbridge Prime Funds Limited Partnership with a financing facility of up $4,500,000. The promissory note bears interest at 8.5% per annum, carries a loan consulting fee of 5.5% on drawdowns and is due on demand. As at December 31, 2016, $230,000 had been drawn down on the facility resulting in interest of $9,557 and loan consulting fees of $12,650 being earned by the Trust.
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Prime Income Trust Notes to the Consolidated Financial Statements For the years ended December 31, 2016 and 2015 (Expressed in Canadian Dollars)
9 Related Party Transactions and Balances (continued)
Prime Funds Royal Oak Limited Partnership II Prime Funds Royal Oak Limited Partnership II is related by virtue of common management. On January 15 2015, the Trust entered into a promissory note agreement with Prime Funds Royal Oak Limited Partnership II whereby the Trust will provide Prime funds Royal Oak Limited Partnership II with a financing facility of up $4,500,000. The promissory note bears interest at 8.5% per annum, carries a loan consulting fee of 5.5% on drawdowns and is due on demand. As at December 31, 2016, $110,000 had been drawn down on the facility resulting in interest of $3,917 and loan consulting fees of $6,050 being earned by the Trust.
Note payable During 2016, the Trust entered into a note payable with Prime Real Estate Development Inc., a company beneficially owned or controlled, directly or indirectly, by the Trustees, which bears interest at a rate of 10% per annum and is due on demand. At December 31, 2016, the balance of the note payable is $337,839 and the Trust has accrued interest expense of $17,439.
Management fee For the year ended December 31, 2016, the Trust paid Prime Real Estate Development Inc., $64,262 (2015 - $64,531) for management services provided to the Trust which are included in professional fees in the consolidated statement of comprehensive income and in accounts payable and accrued liabilities in the consolidated statement of financial position.
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ITEM 13 - DATE AND CERTIFICATE
Dated: March 1, 2017
This offering memorandum does not contain a misrepresentation.
(Signed) MOIZ BHAMANI (Signed) HARWINDER KANG Acting Chief Executive Officer Acting Chief Financial Officer
BY THE BOARD OF TRUSTEES
(Signed) MOIZ BHAMANI (Signed) HARWINDER KANG Trustee Trustee
PROMOTERS
(Signed) MOIZ BHAMANI (Signed) HARWINDER KANG
C-1
SCHEDULE “A” SUBSCRIPTION AGREEMENT
[Remainder of page is intentionally blank]
A-1
Name: Rep Code: Commission: (Please check applicable commission) 7% (5% to Dealer - 2% Marketing Expenseretained by SUBSCRIPTION AGREEMENT Trust) + 1.5 % trailer 10% (8% to Dealer - 2% Marketing Expenseretained by TO: PRIME INCOME TRUST (the “Trust”) Trust) + 1.0% trailer The undersigned (the “Investor”) hereby irrevocably subscribes for and agrees to purchase the number of Trust Units of the Trust (“Trust Units”) set forth below for the aggregate subscription price set forth below (the “Aggregate Subscription Price”), representing a subscription price of $100.00 per Trust Unit, upon and subject to the terms and conditions set forth in “Terms and Conditions of Subscription” attached hereto (together with these first two pages and the attached Exhibits, the “Subscription Agreement”). By executing this Subscription Agreement, the Investor consents to the collection, use and disclosure of the Investor’s personal information in the manner described herein. In addition to this face page, the Investor must also complete the Exhibits attached hereto, if applicable (see page 2 for instructions).
Investor’s Particulars Number of Trust Units:
(Name of Investor – please print) Aggregate Subscription Price (number of Trust Units x $100.00):
By: (Signature of Investor) (Date) If the Investor is signing as agent for a principal and is not deemed to be purchasing as principal pursuant to NI 45-106 (as defined herein) by
(Official Capacity or Title – please print) virtue of being either (i) a trust company or trust corporation acting on behalf of a fully managed account managed by the trust company or trust corporation; or (ii) a person acting on behalf of a fully managed account
(Please print name of individual whose signature appears above if managed by it, and in each case satisfying the criteria set forth in NI 45- different than the name of the Investor printed above.) 106 or Section 73.3 of the Securities Act (Ontario), complete the following to ensure that the applicable Exhibits are completed in respect of such principal (“Disclosed Beneficial Purchaser”):
(Investor’s Address)
(Name of Principal)
(Principal’s Address including postal code)
Social Insurance No. or Business Identification No. (Principal’s Telephone Number)
(Telephone Number) (E-Mail Address)
(Principal’s E-Mail Address)
Register the Trust Units as set forth below (if different than Deliver the Trust Units as set forth below (if different than above): registration address):
(Name) (Name)
(Account reference, if applicable) (Account reference, if applicable)
(Address) (Contact Name)
(Address) Additional Investor Information – MUST BE COMPLETED BY RESIDENTS OF BRITISH COLUMBIA ONLY The Investor (check one) is or is not a registrant (as defined herein). If you selected “is” to either of the categories on the left, then state the number of Trust Units held prior to this Offering (as The Investor (check one) is or is not an insider (as defined herein). defined herein):
ACCEPTANCE: The Trust hereby accepts this Subscription Agreement, subject to the terms and conditions contained herein.
PRI ME INCOME TRUST Per: DATED this day of , 201 . Authorized Signatory
CAL01: 1921088: v2
INSTRUCTIONS
The Investor must deliver a certified cheque or bank draft payable to Prime Income Trust for the aggregate subscription price or payment of the same amount in such other manner as is acceptable to the Trust and must complete and execute this Subscription Agreement and all applicable Exhibits as described below. Offering Memorandum Exemption Exhibits
(a) Exhibit 1 and 2 - All Investors subscribing under the “offering memorandum exemption”.
(b) Exhibit 3 - Investors subscribing under the “offering memorandum exemption” whose acquisition cost exceeds $10,000.
(i) Note: Investors using the relationship of “close business associate” or “close personal friend” to establish that they are “eligible investors” must also complete Exhibit 7 and if the Investor is resident in Saskatchewan, then they must also complete Exhibit 8.
(ii) Note: Investors using the status of “accredited investor” to establish that they are “eligible investors” must also complete all applicable accredited-investor Exhibits, which are Exhibit 5 and Exhibit 6.
(iii) Note: If the Investor is subscribing for securities as an “eligible investor” or “accredited investor” then the person meeting with or providing information to the Investor must complete Exhibit 10 in respect of such investor.
(c) Exhibit 4 – An Investor who is an individual (including family trusts and personal holding corporations) subscribing under the “offering memorandum exemption” must complete Part 1 and Part 2 of Exhibit 4 and meet the investment limits therein.
Note: If the Investor is relying on advice from a portfolio manager, investment dealer or exempt market dealer (each a “registrant”) in order to increase the Investor’s investment limit to $100,000 in a 12-month period, then the dealing representative or advising representative of such registrant that provided such advice must complete section 2 of Part 1 of Exhibit 4.
Accredited Investor Exemption Exhibits
(d) Exhibit 5 – All Investors subscribing under the “accredited investor exemption”.
(e) Exhibit 6 – All Investors subscribing under the “accredited investor exemption” who are individuals (unless investing under category J.1 of “accredited investor” in which case Exhibit 6 is not required).
Family, Friends and Business Associates Exemption Exhibits
(f) Exhibit 7 - All Investors subscribing under the “family, friends and business associates” exemption, and if the Investor is a “close personal friend” or “close business associate” then the questionnaire in Exhibit 7 must be completed.
(g) Exhibit 8 – all Saskatchewan Investors that are relying on a “close personal friend” or “close business associate” relationship.
(h) Exhibit 9 – all Ontario Investors that are relying on the “family, friends and business associates” exemption.
Note: Exhibit 9 must be signed by all of the following:(i) the Investor; (ii) an executive officer of the Trust other than the Investor; (iii) if the Investor is a person referred to under category B on Exhibit 9, the director, executive officer or control person of the Trust or an affiliate of the Trust who has the specified relationship with the Investor; (iv) if the Investor is a person referred to under category (C), the director, executive officer or control person of the Trust or an affiliate of the Trust whose spouse has the specified relationship with the Investor; (v) if the Investor is a person referred to under paragraph 4(D) or (E), the director, executive officer or control person of the Trust or an affiliate of the Trust who is a close personal friend or a close business associate of the Investor; and (vi) the founder of the Trust, if the Investor is a person referred to in category (F) or (G) other than the founder of the Trust).
Salesperson Exhibit – Must be completed for all Accredited Investors and Eligible Investors
(i) Exhibit 10 - If the Investor is subscribing for securities as an “eligible investor” or “accredited investor” then the person meeting with or providing information to the Investor must complete Exhibit 10 in respect of suchinvestor.
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TERMS AND CONDITIONS OF SUBSCRIPTION
Definitions
1. In this Subscription Agreement, unless the context otherwise requires:
(a) “Closing” means the completion of the issue and sale by the Trust and the purchase by the subscribers of Trust Units pursuant to the subscription agreements, substantially in the form of this Subscription Agreement, which may occur on one or more Closing Dates;
(b) “Closing Date” means such date or dates as the Trust may determine. The Investor acknowledges that multiple Closings may occur with multiple subscribers;
(c) “Closing Time” means 9:00 a.m. (Calgary time) on the Closing Date or such other time as the Trust determines;
(d) “insider” means:
(i) a director or officer of the Trust;
(ii) a director or officer of a person or company that is itself an insider or subsidiary of the Trust; or
(iii) a person that has: (A) beneficial ownership of, or control or direction over, directly or indirectly; or (B) a combination of beneficial ownership of and control or direction over, directly or indirectly, securities carrying more than 10% of the voting rights attached to all of the Trust’s outstanding voting securities, excluding, for the purpose of the calculation of the percentage held, any securities held by the person or company as underwriter in the course of a distribution;
(e) “Offering” has the meaning ascribed thereto in subparagraph 2(a) hereof;
(f) “registrant” means a person registered or required to be registered pursuant to the Securities Laws applicable to such person; and
(g) “Trust Units” has the meaning ascribed thereto on the face page of this Subscription Agreement.
Terms of the Offering
2. The Investor acknowledges that:
(a) this subscription is subject to rejection or allotment by the Trust in whole or in part; and
(b) the Trust Units subscribed for by it hereunder form part of a larger issuance and sale by the Trust of Trust Units at a price of $100.00 per Trust Unit (the “Offering”); and
(c) the Offering is not subject to any minimum subscription level, as such, any funds invested will be available to the Trust and will be paid tothe Trust on the Closing Date and need not be refunded to the Investor; and
(d) in the event that the Trust rejects the Subscription Agreement, the subscription proceeds will be promptly returned to the Investor at the address of the Investor set out on the face page hereof, without interest or deduction; and
(e) it acknowledges that: (i) the Trust is not a “reporting issuer” (or equivalent thereof) under the securities laws of any province or territory of Canada; (ii) there is no assurance that the Trust will become a reporting issuer under the securities laws of any province or territory of Canada in the
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TRUST UNITS
future and the Trust has not made or given any such assurances; (iii) the Trust Units will be subject to a hold period of four months and a day from the later of the applicable Closing Date and the date the Trust becomes a reporting issuer under the securities laws of any province or territory of Canada (which it has no obligation to become), during which time the Investor may not trade the Trust Units without filing a prospectus or being able to rely on one of the limited exemptions from the requirement to file a prospectus under applicable securities laws; and (iv) any certificates or electronic records representing the Trust Units will bear a legend indicating that the resale of such securities is so restricted in the following form:
“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER OF: [THE DISTRIBUTION DATE], AND (ii) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY”; and
(f) by executing this Subscription Agreement, the Investor agrees that if the Investor transfers such Trust Units during any applicable hold periods, the Investor will advise such transferee of the resale restrictions applicable to such Trust Units.
Representations, Warranties and Covenants by Investor
3. The Investor (on its own behalf and, if applicable, on behalf of each person on whose behalf the Investor is contracting hereunder) represents, warrants and covenants to the Trust and its counsel (and acknowledges that the Trust and its counsel are relying thereon) that both at the date hereof and at the Closing Time:
(a) Offering Memorandum Exemption: the Investor is a resident of a province of Canada other than Quebec, and:
(i) the Investor has received, reviewed and understands the Trust’s confidential offering memorandum dated March 1, 2017, as updated, amended or restated from time to time prior to the date of this subscription (the “Offering Memorandum”) it has completed and signed Exhibit 1 in respect of acknowledging receipt of the Offering Memorandum. The Investor has reviewed and understands the , the disclosure set out under the heading Item 8 – Risk Factors, and has had an opportunity to ask and have answered all questions which it wished to raise regarding the business and affairs of the Trust, the nature of its activities, the proposed use of the Offering proceeds, the Trust Units and this Subscription Agreement; and other than the Offering Memorandum and the brochure attached thereto, the Investor has not received, requested and does not have any need to receive, any offering memorandum, or any other document describing the Trust that has been prepared for delivery to and review by, prospective subscribers in order to assist it in making an investment decision in respect of the Units; and
(ii) it has completed and signed two copies of the Risk Acknowledgement form attached as Exhibit 2; and
(iii) either:
(A) the acquisition cost to the Investor does not exceed $10,000; or
(B) the Investor is an “eligible investor” as such term is defined in National Instrument 45-106 - Prospectus Exemptions and it was not created or used solely to purchase or hold securities as an “eligible investor” in NI 45-106, and it has concurrently executed and delivered a Representation Letter in the form attached as Exhibit 3 hereto and has initialed in Appendix “A” thereto indicating that the Investor satisfies one of the categories of “eligible investor” set forth in such definition,
4
TRUST UNITS
and in either case, if the Investor is an individual (including family trusts and personal holding companies), the Investor has concurrently completed, executed and delivered Exhibit 4 and meets the investment limit described in Exhibit 4; or
(b) Accredited Investor Exemption: the Investor is relying on the “accredited investor” exemption and it is an “accredited investor”, as such term is defined in NI 45-106 or section 73.3 of the Securities Act (Ontario), and it was not created or used solely to purchase or hold securities as an accredited investor as described in paragraph (m) of the definition of “accredited investor” in NI 45-106, and it has concurrently executed and delivered a Representation Letter in the form attached as Exhibit 5 hereto and has initialled in Appendix “A” thereto indicating that the Investor satisfies one of the categories of “accredited investor” set forth in such definition and, if the Investor is an individual (unless investing under category J.1 of “accredited investor” set forth in Appendix “A” to Exhibit 5), has completed Exhibit 6 hereto; or
(c) Family, Friends and Business Associates Exemption: the Investor is a resident of or otherwise subject to all applicable securities laws of a province or territory of Canada and it meets and has initialled one or more of the categories on Exhibit 7 (including completing the questionnaire therein) and if the Investor is resident in Saskatchewan or is otherwise subject to the applicable securities laws of Saskatchewan, it has completed Exhibit 8 hereto and in the case of an Investor resident in Ontario or otherwise subject to applicable securities laws of Ontario, then the Investor has completed and executed Exhibit 9, which has also been completed and executed by the other persons specified therein; and
(d) No Undisclosed Beneficiaries and Jurisdiction:
(i) unless it is purchasing pursuant to subparagraph 3(e) hereof, it is purchasing the Trust Units as principal for its own account, not for the benefit of any other person, for investment only and not with a view to the resale or distribution of all or any of the Trust Units, it is resident in or otherwise subject to applicable securities laws of the jurisdiction set out as the “Investor’s Address” on the face page hereof and any act, solicitation, conduct or negotiation directly or indirectly in furtherance of such purchase and sale has occurred only in such jurisdiction; and
(ii) the Investor does not act jointly or in concert with any other person or company for the purposes of acquiring securities of the Trust; and
(e) Exempt Status of Disclosed Beneficial Purchaser: subject to securities laws applicable to the Investor, if it is acting as agent for one or more Disclosed Beneficial Purchasers, each of such Disclosed Beneficial Purchasers is purchasing as principal for its own account, not for the benefit of any other person, for investment only, and not with a view to distribution of all or any of the Trust Units, and each Disclosed Beneficial Purchaser complies with paragraph 3(a), 3(a)(iv) or 3(c) hereof as is applicable to it (including completion of applicable Exhibits hereto). The agent further acknowledges that the Trust is required by law to disclose to certain regulatory authorities the identity of each Disclosed Beneficial Purchaser for whom it may be acting, it and each Disclosed Beneficial Purchaser is resident in or otherwise subject to the securities laws of the jurisdiction set out as the “Investor’s Address” and “Principal’s Address including postal code”, respectively, on the face page hereof; and
(f) Risk Acknowledgment: it (and any Disclosed Beneficial Purchaser for whom it is acting) acknowledges that:
(i) no securities commission or similar regulatory authority has reviewed or passed on the merits of the Trust Units; and
(ii) there is no government or other insurance covering the Trust Units; and
(iii) there are risks associated with the purchase of the Trust Units; and
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TRUST UNITS
(iv) there are restrictions on the Investor’s ability to resell the Trust Units and it is the responsibility of the Investor to find out what those restrictions are and to comply with them before selling such Trust Units; and
(v) the Trust has advised the Investor that the Trust is relying on an exemption from the requirements to provide the Investor with a prospectus and to sell securities through a person or company registered to sell securities under applicable securities laws and, as a consequence of acquiring Trust Units pursuant to this exemption, certain protections, rights and remedies provided by applicable securities laws, will not be available to the Investor; and
(vi) the investment in the Trust is a highly speculative investment and involves a high degree of risk of loss of the entire investment; and
(vii) there is no guarantee that any gain will be realised from its investment in the Trust; and
(viii) without limitation, no representation, guarantee or warranty has been made or given to the Investor by the Trust, its officers, agents or employees or any other person, expressly or by implication, as to:
(A) the approximate or exact length of time that the Investor will be required to remain as an investor in the Trust;
(B) the financial viability of the business of the Trust; or
(C) the future profitability of the business of the Trust; and
(ix) it confirms that neither the Trust nor any of its directors, trustees, officers, employees or representatives, has made any representations (oral or written) to the Investor:
(A) that any person will resell or repurchase any of the Trust Units;
(B) that any person will refund the purchase price of the Trust Units; or
(C) as to the future price or value of the Trust Units; and
(x) it has such knowledge of financial and business affairs as to be capable of evaluating the merits and risks of its investment and is able to bear the economic risk of loss of its investments; and
(xi) except for this Subscription Agreement and the Offering Memorandum, it has not relied upon any oral or written representation as to fact or otherwise made by or on behalf of the Trust; and
(xii) the Trust has not provided or purported to provide any or all of the information which may be required to evaluate and make an informed assessment of an investment in the Trust and the Investor is responsible for making its own investigations in respect of all such matters; and
(xiii) its offer to subscribe for Trust Units has not been induced by any representations with regard to the present or future worth of the Trust Units; and
(xiv) it, either alone or together with the Investor’s financial advisor, has sufficient financial knowledge and experience to evaluate the merit and risks of an investment in the Trust on the basis of information presented to the Investor; and
6
TRUST UNITS
(xv) it understands, acknowledges and is aware that the Trust Units are being offered for sale only on a “private placement” basis and that the sale and delivery of the Trust Units is conditional upon such sale being exempt from the requirements under applicable Securities Laws as to the filing of a prospectus or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the filing of a prospectus and, as a consequence: (i) it is restricted from using most of the civil remedies available under securities legislation; (ii) it may not receive information that would otherwise be required to be provided to it under securities legislation; and (iii) the Trust is relieved from certain obligations that would otherwise apply under securities legislation; and
(xvi) the Investor understands that no securities commission, stock exchange, governmental agency, regulatory body or similar authority has made any finding or determination or expressed any opinion with respect to the merits of investing in the Trust Units; and
(xvii) it is capable of bearing the economic risks of an investment in the Trust Units and the Investor’s present financial condition is such that the Investor is under no present or contemplated future need to dispose of any of the Trust Units to satisfy any existing or contemplated undertaking, need or indebtedness; and
(g) Restrictions on Resale:
(i) it has been independently advised as to restrictions with respect to trading in the Trust Units imposed by applicable securities laws in the jurisdiction in which it resides or is otherwise subject, confirms that no representation (written or oral) has been made to it by or on behalf of the Trust with respect thereto, acknowledges that it is aware of the characteristics of the Trust Units, the risks relating to an investment therein and of the fact that it will not be able to resell the Trust Units except in accordance with limited exemptions under applicable securities legislation and regulatory policy until expiry of the applicable restricted period and compliance with the other requirements of applicable law; and it agrees that any certificates representing the Trust Units will bear a legend, indicating, or such electronic records shall indicate, that the resale of such Trust Units is restricted; the Investor further acknowledges that it should and has had the opportunity to consult its own legal counsel in its jurisdiction of residence for full particulars of the resale restrictions applicable to it; and
(ii) the Investor is aware that there is no market upon which the Trust Units trade and there is no assurance that the Trust Units will be listed and posted for trading on a stock exchange or dealer network in the future; and
(iii) the Investor is aware it may be subject to certain escrow requirements of a stock exchange or applicable securities laws which restrict the trading in the Trust Units for directors, officers, insiders and their affiliates in the event that the Trust becomes a reporting issuer or obtains a stock listing and the Investor agrees to be subject to such escrow requirements, as may be applicable; and
(iv) it will not resell the Trust Units, except in accordance with the provisions of applicable securities legislation, regulations, rules, policies and orders and applicable stock exchange rules; and
(h) No connection to U.S.:
(i) it is aware that the Trust Units have not been and will not be registered under the United States Securities Act of 1933, as amended (“U.S. Securities Act”) or the securities laws of any state of the United States and that these securities may not be offered or sold, directly or indirectly, in the United States without registration under the U.S. Securities Act or compliance with requirements of an exemption from registration and the applicable laws of
7
TRUST UNITS
all applicable states and acknowledges that the Trust has no present intention of filing a registration statement under the U.S. Securities Act in respect of any of the Trust Units; and
(ii) the Trust Units have not been offered to the Investor in the United States, and the individuals making the order to purchase the Trust Units and executing and delivering this Subscription Agreement on behalf of the Investor were not in the United States when the order was placed and this Subscription Agreement was executed and delivered; and
(iii) it is not a U.S. Person (as defined in Regulation S under the U.S. Securities Act, which definition includes, but is not limited to, an individual resident in the United States, an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. Person and any partnership or corporation organized or incorporated under the laws of the United States) and is not purchasing the Trust Units on behalf of, or for the account or benefit of, a person in the United States or a U.S. Person; and
(iv) it (and, if applicable, any Disclosed Beneficial Purchaser) undertakes and agrees that it will not offer or sell any of the Trust Units in the United States unless such securities are registered under the U.S. Securities Act and the securities laws of all applicable states of the United States or an exemption from such registration requirements is available and further that it will not resell the Trust Units except in accordance with the provisions of applicable securities legislation, regulations, rules, policies and orders and stock exchange rules, as applicable;
(i) Existence of Investor & Authority to Subscribe:
(i) if it is a corporation, partnership, unincorporated association or other entity, it has been duly incorporated, formed or created and is valid and subsisting under the laws of the jurisdiction of its incorporation, formation or creation and it has the legal capacity to enter into and be bound by this Subscription Agreement and it further certifies that all necessary approvals of directors, shareholders or otherwise have been given and obtained;and
(ii) if an individual, it is of the full age of majority and is legally competent to execute this Subscription Agreement and take all action pursuant hereto; and
(iii) this Subscription Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Investor; and
(iv) in the case of the subscription by it for Trust Units acting as agent for a Disclosed Beneficial Purchaser, it is duly authorized to execute and deliver this Subscription Agreement and all other necessary documentation in connection with such subscription on behalf of such principal and this Subscription Agreement has been duly authorized, executed and delivered by or on behalf of, and constitutes a legal, valid, binding and enforceable agreement, of such principal; and
(v) the entering into of this Subscription Agreement and the completion of the transactions contemplated hereby do not and will not result in a violation of any of the terms or provisions of any law applicable to the Trust Units, and if the Investor is not a natural person, any of the Investor’s constating documents, or any agreement to which the Investor is a party or by which it is bound; and
(vi) no authorization, consent, order, approval or notice of any federal, provincial, territorial, municipal or foreign regulatory body or official must be obtained or given, and no waiting period must expire, in order that this Subscription Agreement and the transactions contemplated herein can be consummated by the Investor; and
(vii) it acknowledges that the Trust may complete additional financings in the future in order to develop the business of the Trust and to fund its ongoing development; that there is no
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TRUST UNITS
assurance that such financings will be available and, if available, on reasonable terms; any such future financings may have a dilutive effect on current securityholders, including the Investor; that if such future financings are not available, the Trust may be unable to fund its ongoing development; and the lack of capital resources may result in the failure of its business venture; and
(j) Further Assurances: if required by applicable securities laws, regulations, rules, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Investor will execute, deliver, file and otherwise assist the Trust in filing, such reports, undertakings and other documents with respect to the issue of the Trust Units including, without limitation, this duly completed and executed Subscription Agreement and all applicable Exhibits; and
(k) Investor is not a Control Person: the acquisition of the Trust Units hereunder by the Investor will not result in the Investor becoming a “control person”, as defined under applicable securities laws; and
(l) Independent Legal Advice:
(i) it acknowledges that the Trust’s counsel is acting as counsel to the Trust and not as counsel to the Investor; and
(ii) the Investor acknowledges that it has had the opportunity to obtain independent legal, income tax and investment advice with respect to its subscription for the Trust Units and accordingly, has had the opportunity to acquire an understanding of the meanings of all terms contained herein relevant to the Investor for purposes of giving representations, warranties and covenants under this Subscription Agreement and the Trust does not bear any responsibility whatsoever for any such matter; and
(m) Status under Tax Act: the Investor:
(i) is not a non-resident of Canada for purposes of the Income Tax Act (Canada), together with any and all regulations promulgated thereunder, as amended from time to time (the “Tax Act”); and
(ii) deals at arm’s length, within the meaning of the Tax Act, with the Partnership and will continue to deal at arm’s length with the Partnership at all material times; and
(iii) it is not a “tax shelter investment” within the meaning of the Tax Act; and
(iv) it has not financed its acquisition of Trust Units with a financing for which recourse is or is deemed to be limited within the meaning of the Tax Act and for the purposes hereof, limited recourse amount means the unpaid principal amount of any indebtedness for which recourse is limited, either immediately or in the future and either absolutely or contingently, and also includes any borrowing which is deemed to be a limited recourse amount. Borrowing will not be deemed to be a limited recourse amountif:
(v) bona fide arrangements, evidenced in writing, are made at the time the debt arose for the repayment by the borrower of the principal and interest on the debt within a reasonable period of time, not greater than 10 years; and
(vi) the debt is not a part of a series of loans and repayments that ends more than 10 years after it begins; and
(vii) interest on the debt is payable at least annually, and is actually paid no later than 60 days after the end of the borrower’s taxation year, at a rate equal or greater than the lesserof:
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TRUST UNITS
(viii) the prescribed interest rate for purposes of the Tax Act in effect at the time when the debt arose; and
(ix) the prescribed interest rate for purposes of the Tax Act applicable from time to time during the term of the debt;
(x) will maintain the status set out in (i), (ii), (iii) and (iv) above during such time as the Trust Units are held; and
(n) Covenant of Investor Regarding No Market for Units: the Investor covenants and agrees not to take any actions or steps which are intended to or may result in there being any “public market” for the Units within the meaning of the Tax Act, including without limitation, any system that supports over-the-counter, private or other trading of the Trust Units; and
(o) Legitimate Source of Funds: the funds representing the Aggregate Subscription Price which will be advanced by the Investor to the Trust hereunder will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering)and Terrorist Financing Act (Canada) (the “PCMLA”) or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the “PATRIOT Act”) and the Investor acknowledges that the Trust may in the future be required by law to disclose the Investor’s name and other information relating to this Subscription Agreement and the Investor’s subscription hereunder, on a confidential basis, pursuant to the PCMLA or the PATRIOT Act. To the best of its knowledge: (a) none of the subscription funds to be provided by the Investor: (i) have been or will be derived from or related to any activity that is deemed criminal under the law of Canada, the United States of America, or any other jurisdiction; or (ii) are being tendered on behalf of a person or entity who has not been identified to the Investor; and (b) it shall promptly notify the Trust if the Investor discovers that any of such representations ceases to be true, and to provide the Trust with appropriate information in connection therewith.
Closing
4. The Investor agrees that this Subscription Agreement (including applicable Exhibits) and certified cheque or bank draft payable to Prime Income Trust for the aggregate subscription price or payment of the same amount in such other manner as is acceptable to the Trust shall be delivered to Prime Income Trust, Suite 1206, 734- 7th Avenue SW, Calgary, Alberta T2P 3P8 not later than 4:00 p.m. (Calgary time) on the day that is not less than two business days prior to the applicable Closing Date. The Investor acknowledges and accepts that the conditions precedent to the closing of this Offering are for its benefit and that the Trust may waive, in whole or in part, the completion or satisfaction of any of such conditions precedent on behalf of the Investor pursuant to section 11 hereof.
5. If this Subscription Agreement is rejected in whole or in part, the Investor acknowledges that the unused portion of the subscription amount will be promptly returned to it without interest ordeduction.
6. The sale of the Trust Units pursuant to this Subscription Agreement will be completed in Calgary, Alberta at the Closing Time and the Closing Date(s).
7. The Trust shall be entitled to rely on delivery of a facsimile or electronically scanned (PDF) copy of executed Subscription Agreements, and acceptance by the Trust of such facsimile or PDF subscriptions shall be legally effective to create a valid and binding agreement between the Investor and the Trust in accordance with the terms hereof. In addition, this Subscription Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same document. If less than a complete copy of this Subscription Agreement is delivered to the Trust at the Closing Time, the Trust shall be entitled to assume that the Investor accepts and agrees with all of the terms and conditions of this Subscription Agreement on the pages not delivered at the Closing Time unaltered.
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General
8. The Investor agrees that the representations, warranties and covenants of the Investor herein will be true and correct both as of the execution of this Subscription Agreement and as of the Closing Time and will survive the completion of the issuance of the Trust Units. The representations, warranties and covenants of the Investor herein are made with the intent that they be relied upon by the Trust and its counsel in determining the eligibility of a purchaser of Trust Units and the Investor agrees to indemnify and hold harmless the Trust and its affiliates, shareholders, directors, trustees, officers, partners, employees and agents (including their respective legal counsel), from and against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur which are caused or arise from a breach thereof. The Investor undertakes to immediately notify the Trust at Prime Income Trust, Suite 1206, 734-7th Avenue SW, Calgary, Alberta T2P 3P8 email: [email protected] of any change in any statement or other information relating to the Investor set forth herein which takes place prior to the Closing Time.
9. The Investor hereby irrevocably authorizes the Trust, in its sole discretion: (a) to act as its representative at the Closing and to execute in its name and on its behalf all closing receipts and documents required; (b) to complete or correct any minor errors or omissions in any form or document, including this Subscription Agreement, provided by the Investor; (c) to receive on its behalf certificates representing the Trust Units purchased under this Subscription Agreement; and (d) to approve any opinions, certificates or other documents addressed to the Investor. This power of attorney is irrevocable, is coupled with an interest and has been given for valuable consideration, the receipt and adequacy of which is acknowledged. This power of attorney and other rights and privileges granted under this paragraph 9 will survive any legal or mental incapacity, dissolution, bankruptcy or death of the Investor. This power of attorney extends to the heirs, executors, administrators, other legal representatives and successors, transferees and assigns of the Investor. Any person dealing with the Trust may conclusively presume and rely upon the fact that any document, instrument or agreement executed by the Trust pursuant to this power of attorney is authorized and binding on the Investor, without further inquiry. The Investor agrees to be bound by any representations or actions made or taken by the Trust pursuant to this power of attorney, and waives any and all defences that may be available to contest, negate or disaffirm any action of the Trust taken in good faith under this power of attorney.
10. The Investor acknowledges that this Subscription Agreement and the Exhibits hereto require the Investor to provide certain personal information (the “Information”) to the Trust. Such Information is being collected by the Trust for the purposes of completing the Offering, which includes, without limitation, determining the Investor’s eligibility to purchase the Trust Units under applicable securities legislation, preparing and registering any certificates representing securities to be issued to the Investor and completing filings required by any stock exchange or securities regulatory authority. The Information may be disclosed by the Trust to: (a) applicable stock exchanges or securities regulatory authorities; (b) the registrar and transfer agent of the Trust; (c) Canada Revenue Agency; and (d) any of the other parties involved in the Offering, including legal counsel to the Trust, and may be included in record books in connection with the Offering. By executing this Subscription Agreement, the Investor consents to the foregoing collection, use and disclosure of the Information. The Investor also consents to the filing of copies or originals of any of the Investor’s documents described herein as may be required to be filed with any applicable stock exchange or securities regulatory authority in connection with the transactions contemplated hereby.
11. The Investor acknowledges that the Trust will be required to file a report of exempt distribution with all applicable securities regulatory authorities in one or more jurisdictions containing personal information about the Investor including the following personal information:
(a) the full name, residential address and telephone number of the Investor;
(b) whether the Investor is an insider or a registrant (as defined in applicable securities legislation);
(c) the number and type of securities purchased;
(d) the total purchase price (in Canadian dollars);
(e) the exemption relied on; and
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(f) the date of distribution.
12. Each Investor in Ontario authorizes the indirect collection of the Information by the Ontario Securities Commission and confirms that it has been notified by the Trust:
(i) that the Trust will be delivering the Information to the Ontario Securities Commission;
(ii) that such Information is being collected indirectly by the Ontario Securities Commission under the authority granted to it in applicable securities laws;
(iii) that such Information is being collected for the purpose of the administration and enforcement of applicable securities laws; and
(iv) that the title, business address and business telephone number of the public official in the Province of Ontario who can answer questions about the Ontario Securities Commissions indirect collection of such Information is as follows:
Administrative Assistant to the Director of Corporate Finance Ontario Securities Commission Suite 1903, Box 55, 20 Queen Street West Toronto, Ontario M5H 2S8 Telephone: (416) 593-8086
13. If the Investor (or if applicable a Disclosed Beneficial Purchaser) is resident in or otherwise subject to the applicable securities laws of British Columbia, the Investor authorized the indirect collection of the Information by the British Columbia Securities Commission and is hereby notified that:
(a) the Trust may deliver to the British Columbia Securities Commission the Information;
(b) the Information is being collected indirectly by the British Columbia Securities Commission under the authority granted to it in securities legislation;
(c) the Information is being collected for the purposes of the administration and enforcement of the securities legislation of British Columbia;
(d) certain of the Information pertaining to the Investor will be available for public inspection at the British Columbia Securities Commission during normal business hours, including the Investor’s full name, whether the Investor is an insider of Trust or a registrant, the number of Trust Units purchased by the Investor, and the total purchase price paid for such Trust Units, and, if the Investor is an insider or promoter of the Trust, the number, type and total consideration paid for all securities of the Trust beneficially owned or directly or indirectly controlled, on the applicable Closing Date, by such insider or promoter; and
(e) the Investor may contact the following public official in British Columbia with respect to questions about the British Columbia Securities Commission’s indirect collection of such information at the following address and telephone number:
British Columbia Securities Commission P.O. Box 10142, Pacific Centre 701 West Georgia Street Vancouver, British Columbia V7Y 1L2 Telephone: (604) 899-6500 Toll free across Canada: 1-800-373-6393 Facsimile. (604) 899-6581
14. The obligations of the parties hereunder are subject to acceptance of the terms of the Offering by any required regulatory approvals.
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15. The Investor acknowledges and agrees that all costs incurred by the Investor (including any fees and disbursements of any special counsel retained by the Investor) relating to the sale of the Trust Units to the Investor shall be borne by the Investor.
16. The contract arising out of this Subscription Agreement and all documents relating thereto, which by common accord has been or will be drafted in English, shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein. The parties irrevocably attorn to the exclusive jurisdiction of the courts of the Province of Alberta.
17. This Subscription Agreement represents the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein.
18. The terms and provisions of this Subscription Agreement shall be binding upon and enure to the benefit of the Investor and the Trust and their respective heirs, executors, administrators, successors and assigns; and this Subscription Agreement shall not be assignable by any party without prior written consent of the other parties.
19. The Investor agrees that this subscription is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Investor, on its own behalf and, if applicable, on behalf of others for whom it is contracting hereunder
20. Subject to section 9, neither this Subscription Agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.
21. The invalidity, illegality or unenforceability of any provision of this Subscription Agreement shall not affect the validity, legality or enforceability of any other provision hereof.
22. The headings used in this Subscription Agreement have been inserted for convenience of reference only and shall not affect the meaning or interpretation of this Subscription Agreement or anyprovision hereof.
23. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
24. Time is of the essence hereof.
25. In this Subscription Agreement (including the Exhibits attached hereto), references to dollar amounts are to Canadian dollars.
13
Exhibit 1 – All Offering Memorandum Investors
EXHIBIT 1 RECEIPT OF OFFERING MEMORANDUM
TO: Prime Income Trust
In connection with the purchase of Trust Units of the Trust (the “Trust Units”), the undersigned investor (the “Investor”) hereby represents, warrants, covenants and certifies to the Trust (and acknowledges that the Trust and its counsel are entitled to rely thereon) that the Investor has received a copy of the Trust’s offering memorandum dated March 1, 2017.
Dated: , 201
Print name of Investor
By: Signature
Print name of Signatory (if different from Investor)
Title
E1-1
Exhibit 2 – All Offering Memorandum Investors
EXHIBIT 2 RISK ACKNOWLEDGEMENT
TO: Prime Income Trust • I acknowledge that this is a risky investment. • I am investing entirely at my own risk. • No securities regulatory authority or regulator has evaluated or endorsed the merits of these securities or the disclosure in the Offering Memorandum. WARN • I will not be able to sell these securities except in very limited circumstances. I may never be able to sell these securities. • The securities are redeemable, but I may only be able to redeem them in limitedcircumstances. • I could lose all the money I invest.
I am investing $ in total; this includes any amount I am obliged to pay in the future. I understand that Prime Income Trust may pay up to % of this amount to as a fee or commission.
I acknowledge that this is a risky investment and that I could lose all the money I invest. I
N Date Signature of Investor Print Name of Investor
G
Date Signature of Co-Investor Print Name of Co-Investor (if applicable) (if applicable)
Sign 2 copies of this document. Keep one copy for your records.
You have two business days to cancel your purchase.
To do so, send a notice to Prime Income Trust stating that you want to cancel your purchase. You must send the notice before midnight on the 2nd business day after you sign the agreement to purchase the securities. You can send the notice by fax or e-mail, or deliver it in person, to Prime Income Trust to the address shown below. Keep a copy of the notice for your records. PRIME INCOME TRUST Suite 1206, 734-7th Avenue SW Calgary, Alberta T2P 3P8 Phone: 1-877-577-4634 Email: [email protected]
You are buying Exempt Market Securities They are called exempt market securities because two parts of securities law do not apply to them. If an issuer wants to sell exempt market securities to you: • the issuer does not have to give you a prospectus (a document that describes the investment in detail and gives you some legal protections); and • the securities do not have to be sold by an investment dealer registered with a securities regulatory authority or regulator.
There are restrictions on your ability to resell exempt market securities. Exempt market securities are more risky than other securities.
E2-1
Exhibit 2 – All Offering Memorandum Investors
You will receive an offering memorandum
Read the offering memorandum carefully because it has important information about the Partnership and its securities. Keep the offering memorandum because you have rights based on it. Talk to a lawyer for details about these rights.
The securities you are buying are not listed The securities you are buying are not listed on any stock exchange and they may never be listed. You may never be able to sell these securities.
The issuer of your securities is a non-reporting issuer A non-reporting issuer does not have to publish financial information or notify the public of changes in its business. You may not receive on-going information about this issuer.
For more information on exempt market securities, call your local securities regulatory authority. If you live in: British Columbia, contact the British Columbia Securities Commission at (604) 899-6500 (outside the local area, call toll-free at 1-800 373-6393) or visit its website at www.bcsc.bc.ca; Alberta, contact the Alberta Securities Commission at (403) 297-6454 or visit its website at www.albertasecurities.com; Saskatchewan, contact the Saskatchewan Financial Services Commission at (306) 787-5879 or visit its website at www.sfsc.gov.sk.ca; Manitoba, contact the Manitoba Securities Commission at (204) 945-2548 or visit its website at www.msc.gov.mb.ca; Nova Scotia contact the Nova Scotia Securities Commission at (902) 424-7768 or visit its website at www.nssc.novascotia.ca New Brunswick contact the Financial and Consumer Services Commission at (506) 658-3060 or visit its website at http://www.fcnb.ca Newfoundland and Labrador contact the Office of the Superintendent of Securities, Service Newfoundland and Labrador at (709) 729-4189 or visit its website at www.gov.nl.ca/gs Prince Edward Island contact the Office of the Superintendent of Securities, Consumer, Corporate and Insurance Services Division at (902) 368-4569 or visit its website at www.gov.pe.ca/securities Northwest Territories contact the Office of the Superintendent of Securities, Northwest Territories, Department of Justice at (867) 920-3318 or visit its website at www.justice.gov.nt.ca/ Nunavut contact the Nunavut Securities Office, Department of Justice at (867) 975-6590 or visit its website at http://nunavutlegalregistries.ca/sr_index_en.shtml
Yukon contact the Office of the Yukon Superintendent of Securities at (867) 667-5225 or visit its website at http://www.community.gov.yk.ca/corp/securities_about.html
The Investor must sign 2 copies of this form. The Investor and the Trust must each receive a signed copy.
E2-2
Exhibit 3 - All Offering Memorandum Investors purchasing more than $10,000
EXHIBIT 3 REPRESENTATION LETTER
(FOR ELIGIBILE INVESTORS)
TO: Prime Income Trust (the “Trust”)
In connection with the purchase of Trust Units of the Trust (the “Trust Units”), the undersigned subscriber (the “Investor”) hereby represents, warrants, covenants and certifies to the Trust (and acknowledges that the Trust and its counsel are entitled to rely thereon) that:
1. The Investor is purchasing the Trust Units as principal for its own account or complies with the provisions of paragraph 3(e) of the Subscription Agreement;
2. The Investor is and will be at the Closing Time (as defined in the Subscription Agreement) an “eligible investor” within the meaning of National Instrument 45-106 - Prospectus Exemptions (“NI 45-106”) by virtue of satisfying the indicated criterion as set out in Appendix “A” to this Representation Letter;
3. The Investor fully understands the meaning of the terms and conditions of the category of “eligible investor” applicable to it and confirms that it has reviewed and understands the definitions in Appendix “A” to this Representation Letter in respect of the category of “eligible investor” applicable to it and it has reviewed and understands the definition of “net assets”, if applicable, contained in Appendix “A” hereto;
4. The Investor was not created or used solely to purchase or hold securities as an eligible investor; and
5. Upon execution of this Exhibit 3 by the Investor, this Exhibit 3 shall be incorporated into and form a part of the Subscription Agreement and the Trust and its counsel shall be entitled to relythereon.
Dated: , 201
Print name of Investor
By: Signature
Print name of Signatory (if different from Investor)
Title IMPORTANT: PLEASE INITIAL THE APPLICABLE PROVISION IN APPENDIX “A” ON THE NEXT PAGES
E3-1
Exhibit 3 - All Offering Memorandum Investors purchasing more than $10,000 APPENDIX “A” TO EXHIBIT 3 CATEGORIES OF ELIGIBLE INVESTOR
NOTE: THE INVESTOR MUST INITIAL BESIDE THE APPLICABLE PORTION OF THE DEFINITION BELOW.
In connection with the purchase of Trust Units by the Investor, the Investor (or the signatory on behalf of the Investor) certifies for the benefit of the Trust that the Investor is an “eligible investor” within the meaning of National Instrument 45-106 – Prospectus Exemptions in the category indicated below:
(a) a person whose
(i) net assets, alone or with a spouse, in the case of an individual, exceed $400,000,
(ii) net income before taxes exceeded $75,000 in each of the 2 most recent calendar years and who reasonably expects to exceed that income level in the current calendar year, or (iii) net income before taxes, alone or with a spouse, in the case of an individual, exceeded $125,000 in each of the 2 most recent calendar years and who reasonably expects to exceed that income level in the current calendar year, (b) a person of which a majority of the voting securities are beneficially owned by eligible investors or a majority of the directors are eligible investors,
(c) a general partnership of which all of the partners are eligible investors,
(d) a limited partnership of which the majority of the general partners are eligibleinvestors,
(e) a trust or estate in which all of the beneficiaries or a majority of the trustees or executors are eligible investors,
Note: If you initialled (b), (c), (d) or (e), then indicate the name and category of eligible investor (by reference to the applicable letter above) as follows (attach additional pages if required):
(b) list all owners of voting securities (and % owned) and directors (c) list all partners
(d) list all general partners
(e) list all beneficiaries and trustees and executors
Name and Title % of Category of Eligible Investor Securities
E3-2
Exhibit 3 - All Offering Memorandum Investors purchasing more than $10,000 (f) an accredited investor,
Note: If you initialled (f), then Exhibit 5 and Exhibit 6 must be completed (and the Salesperson must complete Exhibit 10)
(g) a person described in Exhibit 7 (family, friends and business associates); or
Note: If you initialled (g), then Exhibit 7 must be completed and Saskatchewan Investors relying on a “close personal friend” or “close business associate” relationship must complete Exhibit 8 and all Ontario Investors must complete Exhibit 9. (h) person that has obtained advice regarding the suitability of the investment and, if the person is resident in a jurisdiction of Canada, that advice has been obtained from an eligibility adviser.
Note: If you initialled (h), then state the name, title and firm of the eligibility adviser.
Name Title Firm
For the purposes hereof:
(i) “eligibility adviser” means
(i) a person that is registered as an investment dealer or in an equivalent category of registration under the securities legislation of the jurisdiction of a purchaser and authorized to give advice with respect to the type of security being distributed, and
(ii) in Saskatchewan and Manitoba, also means a lawyer who is a practicing member in good standing with a law society of a jurisdiction of Canada or a public accountant who is a member in good standing of an institute or association of chartered accountants, certified general accountants or certified management accountants in a jurisdiction of Canada provided that the lawyer or public accountant must not
(A) have a professional, business or personal relationship with the issuer, or any of its directors, executive officer, founders, or control persons, and
(B) have acted for or been retained personally or otherwise as an employee, executive officer, director, associate or partner of a person that has acted for or been retained by the issuer or any of its directors, executive officers, founders or control persons within the previous 12 months;
(j) “net assets” means the Investor’s total assets minus all of the Investor’s total liabilities. Accordingly, for the purposes of the net asset test, the calculation of total assets would include the value of an Investor’s personal residence and the calculation of total liabilities would include the amount of any liability (such as a mortgage) in respect of the Investor’s personalresidence;
(k) “person” includes
(i) an individual,
(ii) a corporation,
(iii) a partnership, trust, fund and an association, syndicate, organization or other organized groups of persons, whether incorporated or not, and
(iv) an individual or other person in that person’s capacity as a trustee, executor, administrator or personal or other legal representative;
(l) “spouse” means, an individual who,
(i) is married to another individual and is not living separate and apart within the meaning of the Divorce Act (Canada), from the other individual,
E3-3
Exhibit 3 - All Offering Memorandum Investors purchasing more than $10,000 (ii) is living with another individual in a marriage-like relationship, including a marriage-like relationship between individuals of the same gender, or
(iii) in Alberta, is an individual referred to in paragraph (i) or (ii) above, or is an adult interdependent partner within the meaning of the Adult Interdependent Relationships Act (Alberta); and
(m) “subsidiary” means an issuer that is controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary.
All monetary references are in Canadian Dollars.
E3-4
Exhibit 4 - All Offering Memorandum Investors who are individuals (including family trusts and personal holding corporations) EXHIBIT 4 TO SUBSCRIPTION AGREEMENT
Complete and sign one copy of this form for each Investor or for co-Investors
SCHEDULE 1 TO EXHIBIT 4 Classification of Investors Under the Offering Memorandum Exemption
Instructions: This Schedule 1 of Exhibit 4 must be completed together with the Risk Acknowledgement Form (Exhibit 1) and Schedule 2 to Exhibit 4 by individuals (including family trusts and personal holding corporations) purchasing securities under the exemption (the offering memorandum exemption) in subsection 2.9(2.1) of National Instrument 45-106 Prospectus Exemptions (NI 45-106)
How you qualify to buy securities under the offering memorandum exemption Initial the statement under A, B, C or D containing the criteria that applies to you. (You may initial more than one statement.) If you initial a statement under B or C, you are not required to complete A.
Your A. You are an eligible investor because: initials Your net income before taxes was more than $75,000 in each of the 2 most recent calendar years, and you expect it to be more than $75,000 in this calendar year. (You can find your net income before taxes
on your personal income tax return.)
OR
T
S Your net income before taxes combined with your spouse’s was more than $125,000 in each of the 2
E most recent calendar years, and you expect your combined net income to be more than $125,000 in this
NV I
calendar year. (You can find your net income before taxes on your personal income taxreturn.)
E
L
B
I
G
I
L E Either alone or with your spouse, you have net assets worth more than $400,000. (Your net assets are your total assets, including real estate, minus your total debt including any mortgage on your
property.)
B. You are an eligible investor, as a person described in section 2.3 [Accredited investor] of NI 45- 106 or, as Your applicable in Ontario, subsection 7.3(3) of the Securities Act (Ontario), because: initials Your net income before taxes was more than $200,000 in each of the 2 most recent calendar years, and you expect it to be more than $200,000 in this calendar year. (You can find your net income before taxes on your personal income tax return.)
D D
Your net income before taxes combined with your spouse’s was more than $300,000 in each of the 2
E
T OR
I most recent calendar years, and you expect your combined net income before taxes to be more than
T
D S
E $300,000 in the current calendar year.
RE
V
C
N
C I A Either alone or with your spouse, you own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities.
Either alone or with your spouse, you have net assets worth more than $5 million. (Your net assets are
your total assets (including real estate) minus your total debt.)
E4-1
Exhibit 4 - All Offering Memorandum Investors who are individuals (including family trusts and personal holding corporations)
C. You are an eligible investor, as a person described in section 2.5 [Family, friends and business associates] of Your NI 45-106, because: initials You are: 1) [check all applicable boxes] □ a director of the issuer or an affiliate of the issuer □ an executive officer of the issuer or an affiliate of the issuer □ a control person of the issuer or an affiliate of the issuer □ a founder of the issuer OR 2) [check all applicable boxes] a person of which a majority of the voting securities are beneficially owned by, or a majority of the directors are, (i) individuals listed in (1) above and/or (ii) family members, close personal friends or close business associates of individuals listed in (1) above a trust or estate of which all of the beneficiaries or a majority of the trustees or executors are (i) individuals listed in (1) above and/or (ii) family members, close personal
friends or close business associates of individuals listed in (1) above
S
TE
A You are a family member of [Instruction: Insert the name of I
C the person who is your relative either directly or through his or her spouse] , who holds the following
O S
S position at the issuer or an affiliate of the issuer:
A
S _ .
S
E
IN S
U
B
D
N A
You are the of that person or that person’s spouse. S
D [Instruction: To qualify for this investment, you must be (a) the spouse of the person listed above or (b)
N E
I the parent, grandparent, brother, sister, child or grandchild of that person or that person’s spouse.]
R
F
,
Y L
I You are a close personal friend of [Instruction: Insert thename of AM
F your close personal friend], who holds the following position at the issuer or an affiliate of the issuer:
_ .
You have known that person for years.
You are a close business associate of [Instruction: Insert the name of your close business associate], who holds the following position at the issuer or an affiliate of the issuer: _ .
You have known that person for years.
Your D. You are not an eligible investor. initials
You acknowledge that you are not an eligible investor.
E E
OR
L
T
B
I
S
G
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I
N
V
L
A
N
E I
T
O N
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Exhibit 4 - All Offering Memorandum Investors who are individuals (including family trusts and personal holding corporations)
SCHEDULE 2 TO EXHIBIT 4 Investment Limits for Investors Under the Offering Memorandum Exemption
Instructions: This Schedule 2 of Exhibit 4 must be completed together with the Risk Acknowledgement Form (Exhibit 2) and Schedule 1 to Exhibit 4 by individuals (including family trusts and personal holding corporations) purchasing securities under the exemption (the offering memorandum exemption) in subsection 2.9(2.1) of National Instrument 45-106 Prospectus Exemptions (NI 45-106)
SECTION 1 TO BE COMPLETED BY THE PURCHASER 1. Investment limits you are subject to when purchasing securities under the offering memorandum exemption
You may be subject to annual investment limits that apply to all securities acquired under the offering memorandum exemption in a 12- month period, depending on the criteria under which you qualify as identified in Schedule 1 to Exhibit 4. Initial the statement that applies to you.
Your A. You are an eligible investor. initials As an eligible investor that is an individual, you cannot invest more than $30,000 in all offering memorandum exemption investments made in the previous 12 months, unless you have received advice from a portfolio manager, investment dealer or exempt market dealer, as identified in section 2 of this schedule, that your investment is suitable.
Initial one of the following statements:
E E
L
OR B
T You confirm that, after taking into account your investment of $ today in this issuer, you
I
S G
E have not exceeded your investment limit of $30,000 in all offering memorandum exemption investments
I
V L
N made in the previous 12 months.
E I You confirm that you received advice from a portfolio manager, investment dealer or exempt market dealer, as identified in section 2 of this schedule that the following investment is suitable.
You confirm that, after taking into account your investment of $ today in this issuer, you have not exceeded your investment limit in all offering memorandum exemption investments made in
the previous 12 months of $100,000.
B. You are an eligible investor, as a person described in section 2.3 [Accredited investor] of NI 45- 106 or, as Your applicable in Ontario, subsection 7.3(3) of the Securities Act (Ontario). initials
You acknowledge that, by qualifying as an eligible investor as a person described in section 2.3 D D
[Accredited investor], you are not subject to investment limits.
E
T
OR
I
T
D
S
E
RE
V
C
N
C
I
A
C. You are an eligible investor, as a person described in section 2.5 [Family, friends and business associates] of Your NI 45-106. initials
E4-3
Exhibit 4 - All Offering Memorandum Investors who are individuals (including family trusts and personal holding corporations)
You acknowledge that, by qualifying as an eligible investor as a person described in section 2.5
S [Family, friends and business associates], you are not subject to investment limits.
TE
AND
A
S
I
C
ND
O
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I
SS
R
A
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, F ,
S
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A
B
F
Your D. You are not an eligible initials investor. You acknowledge that you cannot invest more than $10,000 in all offering memorandum exemption
investments made in the previous 12 months.
E E
OR
L
T
B I
S You confirm that, after taking into account your investment of $ today in this issuer, you
G
E
I
N
V L
A have not exceeded your investment limit of $10,000 in all offering memorandum exemption
N
E I
T investments made in the previous 12 months.
O
N
SECTION 2 TO BE COMPLETED BY THE REGISTRANT 2. Registrant information [Instruction: this section must only be completed if an investor has received advice from a portfolio manager, investment dealer or exempt market dealer concerning his or her investment.]
First and last name of registrant (please print):
Registered as: [Instruction: indicate whether registered as a dealing representative or advising representative] Telephone: Email: Name of firm: [Instruction: indicate whether registered as an exempt market dealer, investment dealer or portfolio manager.] Date:
E4-4
Exhibit 5 – All Accredited Investors
EXHIBIT 5 REPRESENTATION LETTER
(FOR ACCREDITED INVESTORS)
TO: Prime Income Trust (the “Trust”)
In connection with the purchase of Trust Units of the Trust (the “Trust Units”), the undersigned subscriber (the “Investor”) hereby represents, warrants, covenants and certifies to the Trust (and acknowledges that the Trust and its counsel are entitled to rely thereon) that:
1. The Investor is purchasing the Trust Units as principal for its own account or complies with the provisions of paragraph 3(e) of the Subscription Agreement;
2. The Investor is and will be at the Closing Time (as defined in the Subscription Agreement) an “accredited investor” within the meaning of National Instrument 45-106 - Prospectus Exemptions (“NI 45-106”) or Section 73.3 of the Securities Act (Ontario) by virtue of satisfying the indicated criterion as set out in Appendix “A” to this Representation Letter;
3. The Investor fully understands the meaning of the terms and conditions of the category of “accredited investor” applicable to it and confirms that it has reviewed and understands the definitions in Appendix “A” to this Representation Letter in respect of the category of “accredited investor” applicable to it and, in particular, if the Investor is an “accredited investor” by virtue of satisfying paragraph (j), (j.1), (k) or (l) of Appendix “A” to this Representation Letter, it has reviewed and understands the definitions of “financial assets”, “related liabilities” and “net assets”, as applicable, contained in Appendix “A” hereto;
4. The Investor was not created or used solely to purchase or hold securities as an accredited investor as described in paragraph (m) of the definition of “accredited investor” in NI 45-106 or Section 73.3 of the Securities Act (Ontario) (paragraph (m) of Appendix “A” hereto);
5. If the Investor is an “accredited investor” by virtue of satisfying paragraph (j), (k) or (l) of Appendix “A” to this Representation Letter, it acknowledges that it needs to complete Exhibit 6 to the Subscription Agreement and upon execution of Exhibit 6 by the Investor, Exhibit 6 shall be incorporated into and form a part of the Subscription Agreement and the Trust and its counsel shall be entitled to rely thereon; and
6. Upon execution of this Exhibit 5 by the Investor, this Exhibit 5 shall be incorporated into and form a part of the Subscription Agreement and the Trust and its counsel shall be entitled to relythereon.
Dated: , 201
Print name of Investor
By: Signature
Print name of Signatory (if different from Investor)
Title IMPORTANT: PLEASE INITIAL THE APPLICABLE PROVISION IN APPENDIX “A” ON THE NEXT PAGES
E5-1
Exhibit 5 – All Accredited Investors
APPENDIX “A” TO EXHIBIT 5 CATEGORIES OF ACCREDITED INVESTOR
NOTE: THE INVESTOR MUST INITIAL BESIDE THE APPLICABLE PORTION OF THE DEFINITION BELOW.
In connection with the purchase of Trust Units by the Investor, the Investor (or the signatory on behalf of the Investor) certifies for the benefit of the Trust that the Investor is an “accredited investor” within the meaning of National Instrument 45-106 – Prospectus Exemptions or Section 73.3 of the Securities Act (Ontario) in the category indicated below:
(a) (i) except in Ontario, a Canadian financial institution, or a Schedule IIIbank;
(ii) in Ontario, a financial institution described in section 73.1(1) of the Securities Act (Ontario) as described below;
(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada);
(c) a subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
(d) (i) except in Ontario, a person registered under the securities legislation of a jurisdiction of Canada as an adviser or dealer;
(ii) in Ontario, a person or company registered under the securities legislation of a province or territory in Canada as an adviser or dealer, except as otherwise prescribed by the regulations; (e) an individual registered under the securities legislation of a jurisdiction of Canada as a representative of a person referred to in paragraph (d);
(e.1) an individual formerly registered under the securities legislation of a jurisdiction of Canada, other than an individual formerly registered solely as a representative of a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador);
(f) the Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the Government of Canada or a jurisdiction of Canada;
(g) a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec;
(h) any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government; (i) a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada), a pension commission or similar regulatory authority of a jurisdiction of Canada;
E5-2
Exhibit 5 – All Accredited Investors
(j) an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that, before taxes, but net of any related liabilities, exceeds $1,000,000; (note: see definition of “financial assets” below and complete Exhibit 6)
(j.1) an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5,000,000; (note: see definition of “financial assets” below and you are not required to complete Exhibit 6)
(k) an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; (note: complete Exhibit 6)
(Note: if individual accredited investors wish to purchase through wholly-owned holding companies or similar entities, such purchasing entities must qualify under section (t) below, which must be initialled.)
(l) an individual who, either alone or with a spouse, has net assets of at least $5,000,000; (note: complete Exhibit 6 and note that your “net assets” are your total assets (including real estate) minus your total debt) (m) a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements;
(n) an investment fund that distributes or has distributed its securities only to (i) a person that is or was an accredited investor at the time of thedistribution,
(ii) a person that acquires or acquired securities in the circumstances referred to in sections 2.10 and 2.19 of National Instrument 45-106, or
(iii) a person described in paragraph (i) or (ii) that acquires or acquired securities
under section 2.18 of National Instrument 45-106;
(o) an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt;
(p) a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed
account managed by the trust company or trust corporation, as the case may be;
(q) a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction;
(r) a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser or an adviser registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded;
(s) an entity organized in a foreign jurisdiction that is analogous to any of the entities
referred to in paragraphs (a) to (d) or paragraph (i) in form and function;
(t) a person in respect of which all of the owners of interests, direct, indirect or
E5-3
Exhibit 5 – All Accredited Investors
beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors;
Note: If you initialled (t), then indicate the name and category of accredited investor (by reference to the applicable letter above) of each of the owners of interests (attach additional pages if more than three):
Name Category of Accredited Investor
(u) an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser;
(v) a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator as an accredited investor; or
(w) a trust established by an accredited investor for the benefit of the accredited investor’s family members of which a majority of the trustees are accredited investors and all of the beneficiaries are the accredited investor’s spouse, a former spouse of the accredited investor or a parent, grandparent, brother, sister, child or grandchild of that accredited investor, of that accredited investor’s spouse or of that accredited
investor’s former spouse.
Note: If you initialled (w), then indicate the name and category of accredited investor (by reference to the applicable letter above) of each of the following (attach additional pages if more than three trustees):
Name Category of Accredited Investor Individual who established trust:
Trustee
Trustee
Trustee
For the purposes hereof:
(a) “affiliate” means an issuer connected with another issuer because
(i) one of them is the subsidiary of the other;
(ii) each of them is controlled by the same person; or
(iii) for the purposes of Saskatchewan securities law, both are subsidiaries of the sameissuer;
(b) “bank” means a bank named in Schedule 1 or II of the Bank Act (Canada);
(c) “Canadian financial institution” means
E5-4
Exhibit 5 – All Accredited Investors
(i) an association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative credit society for which an order has been made under section 473(1) of that Act, or
(ii) a bank, loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union, caisse populaire, financial services cooperative, or league that, in each case, is authorized by an enactment of Canada or a jurisdiction of Canada to carry on business in Canada or a jurisdiction of Canada;
(d) “consultant” means, for an issuer, a person, other than an employee, executive officer, or director of the issuer or of a related entity of the issuer, that
(i) is engaged to provide services to the issuer or a related entity of the issuer, other than services provided in relation to a distribution;
(ii) provides the services under a written contract with the issuer or a related entity of the issuer; and
(iii) spends or will spend a significant amount of time and attention on the affairs and business of the issuer or a related entity of the issuer and includes, for an individual consultant, a corporation of which the individual consultant is an employee or shareholder, and a partnership of which the individual consultant is an employee or partner;
(e) “control person” has the same meaning as in securities legislation except in Manitoba, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Québec where control person means any person that holds or is one of a combination of persons thatholds
(i) a sufficient number of any of the securities of an issuer so as to affect materially the control of the issuer, or
(ii) more than 20% of the outstanding voting securities of an issuer except where there is evidence showing that the holding of those securities does not affect materially the control of the issuer;
(f) “director” means:
(i) a member of the board of directors of a company or an individual who performs similar functions for a company, and
(ii) with respect to a person that is not a company, an individual who performs functions similar to those of a director of a company;
(g) “eligibility adviser” means
(i) a person that is registered as an investment dealer or in an equivalent category of registration under the securities legislation of the jurisdiction of a purchaser and authorized to give advice withrespect to the type of security being distributed, and
(ii) in Saskatchewan and Manitoba, also means a lawyer who is a practicing member in good standing with a law society of a jurisdiction of Canada or a public accountant who is a member in good standing of an institute or association of chartered accountants, certified general accountants or certified management accountants in a jurisdiction of Canada provided that the lawyer or public accountant must not
(A) have a professional, business or personal relationship with the issuer, or any of its directors, executive officer, founders, or control persons, and
(B) have acted for or been retained personally or otherwise as an employee, executive officer, director, associate or partner of a person that has acted for or been retained by the issuer or any of its directors, executive officers, founders or control persons within the previous 12 months;
(h) “executive officer” means, for an issuer, an individual who is
E5-5
Exhibit 5 – All Accredited Investors
(i) a chair, vice-chair or president,
(ii) a vice-president in charge of a principal business unit, division or function including sales, finance or production, or
(iii) performing a policy-making function in respect of the issuer;
(i) “financial assets” means
(i) cash,
(ii) securities, or
(iii) a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;
(j) “financial institution” described in section 73.1(1) of the Securities Act (Ontario) means:
(i) a bank listed in Schedule I, II or III to the Bank Act (Canada);
(ii) an association to which the Cooperative Credit Associations Act (Canada) applies or a central cooperative credit society for which an order has been made under subsection 473(1) of that Act; or
(iii) a loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union, a caisse populaire, financial services cooperative or credit union league or federation that is authorized by a status of Canada or Ontario to carry o business in Canada or Ontario, as the case may be;
(k) “founder” means, in respect of an issuer, a person who,
(i) acting alone, in conjunction, or in concert with one or more persons, directly or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of the issuer, and
(ii) at the time of the trade is actively involved in the business of the issuer;
(l) “foreign jurisdiction” means a country other than Canada or a political subdivision of a country other than Canada;
(m) “fully managed account” means an account of a client for which a person makes the investment decisions if that person has full discretion to trade in securities for the account without requiring the client’s express consent to a transaction;
(n) “investment fund” means a mutual fund or a non-redeemable investment fund;
(o) “jurisdiction” means a province or territory of Canada except when used in the term foreign jurisdiction;
(p) “local jurisdiction” means the jurisdiction in which the Canadian securities regulatory authority is situate;
(q) “net assets” means the Investor’s total assets minus all of the Investor’s total liabilities. Accordingly, for the purposes of the net asset test, the calculation of total assets would include the value of an Investor’s personal residence and the calculation of total liabilities would include the amount of any liability (such as a mortgage) in respect of the Investor’s personal residence;
(r) “non-redeemable investment fund” means an issuer,
(i) whose primary purpose is to invest money provided by its securityholders,
(ii) that does not invest,
E5-6
Exhibit 5 – All Accredited Investors
(A) for the purpose of exercising or seeking to exercise control of an issuer, other than an issuer that is a mutual fund or a non-redeemable investment fund, or
(B) for the purpose of being actively involved in the management of any issuer in which it invests, other than an issuer that is a mutual fund or a non-redeemable investment fund, and
(iii) that is not a mutual fund;
(s) “person” includes
(i) an individual,
(ii) a corporation,
(iii) a partnership, trust, fund and an association, syndicate, organization or other organized groups of persons, whether incorporated or not, and
(iv) an individual or other person in that person’s capacity as a trustee, executor, administrator or personal or other legal representative;
(t) “regulator” means, for the local jurisdiction, the Executive Director as defined under securities legislation of the local jurisdiction;
(u) “related liabilities” means
(i) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets, or
(ii) liabilities that are secured by financial assets;
(v) “Schedule III bank” means an authorized foreign bank named in Schedule III of the Bank Act (Canada);
(w) “spouse” means, an individual who,
(i) is married to another individual and is not living separate and apart within the meaning of the Divorce Act (Canada), from the other individual,
(ii) is living with another individual in a marriage-like relationship, including a marriage-like relationship between individuals of the same gender, or
(iii) in Alberta, is an individual referred to in paragraph (i) or (ii) above, or is an adult interdependent partner within the meaning of the Adult Interdependent Relationships Act (Alberta); and
(x) “subsidiary” means an issuer that is controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary.
All monetary references are in Canadian Dollars.
E5-7
Exhibit 6 – All Individual Accredited Investors other than category J.1
EXHIBIT 6
FORM 45-106F9 FORM FOR INDIVIDUAL ACCREDITED INVESTORS
To be completed by individuals investing under categories (j), (k) or (l) of the definition of “accredited investor” in National Instrument 45-106 – Prospectus Exemptions or Section 73.3 of the Securities Act (Ontario), which are reproduced in Appendix “A” to Exhibit 5 as paragraphs (j), (k) or (l), as applicable. Note that individuals investing under category (j.1) of the definition of “accredited investor” in National Instrument 45-106 – Prospectus Exemptions or Section 73.3 of the Securities Act (Ontario) do not need to complete this form.
WARNING! This investment is risky. Don’t invest unless you can afford to lose all the money you pay for this investment
SECTION 1 TO BE COMPLETED BY THE ISSUER
1. About your investment
Type of securities: Trust Units Issuer: Prime Income Trust
Purchased from: Prime Income Trust
SECTIONS 2 TO 4 TO BE COMPLETED BY THE PURCHASER
2. Risk acknowledgement [Instruction: initial all boxes in Section 2]
Your This investment is risky. Initial that you understand that: initials
Risk of loss – You could lose your entire investment of $ . [Instruction: Insert the total dollar amount of the investment.]
Liquidity risk – You may not be able to sell your investment quickly – or at all.
Lack of information – You may receive little or no information about your investment. Lack of advice – You will not receive advice from the salesperson about whether this investment is suitable for you unless the salesperson is registered. The salesperson is the person who meets with, or provides information to, you about making this investment. To check whether the salesperson is registered, go to www.aretheyregistered.ca.
3. Accredited investor status [Instruction: initial one or more boxes that apply]
You must meet at least one of the following criteria to be able to make this investment. Initial the statement that Your applies to you. (You may initial more than one statement.) The person identified in section 6 is responsible for initials ensuring that you meet the definition of accredited investor. That person, or the salesperson identified in section 5, can help you if you have questions about whether you meet these criteria.
• Your net income before taxes was more than $200,000 in each of the 2 most recent calendar years, and you expect it to be more than $200,000 in the current calendar year. (You can find your net income before taxes on your personal income tax return.)
• Your net income before taxes combined with your spouse’s was more than $300,000 in each of the 2 most recent calendar years, and you expect your combined net income before taxes to be more than $300,000 in the current calendar year.
• Either alone or with your spouse, you own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities.
E6-1
Exhibit 6 – All Individual Accredited Investors other than category J.1
• Either alone or with your spouse, you have net assets worth more than $5 million. (Your net assets are your total assets (including real estate) minus your total debt.) 4. Your name and signature By signing this form, you confirm that you have read this form and you understand the risks of making this investment as identified in this form.
First and last name (please print):
Signature: Date:
SECTION 5 TO BE COMPLETED BY THE SALESPERSON
5. Salesperson information [Instruction: The salesperson is the person who meets with, or provides information to, the purchaser with respect to making this investment. That could include a representative of the issuer or selling security holder, a registrant or a person who is exempt from the registration requirement.]
First and last name of salesperson (please print):
Telephone: Email:
Name of firm (if registered):
SECTION 6 TO BE COMPLETED BY THE ISSUER
6. For more information about this investment
Prime Income Trust Suite #1206, 734-7 Ave SW Calgary, Alberta T2P 3P8 Tel: 1-877-577-4634
For more information about prospectus exemptions, contact your local securities regulator. You can find contact information at www.securities-administrators.ca.
Form instructions:
1. The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs the form.
2. The purchaser must sign this form. Each of the purchaser and the issuer must receive a copy of this form signed by the purchaser. The issuer is required to keep a copy of this form for 8 years after the distribution.
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Exhibit 7 – All Family, Friends and Business Associates
EXHIBIT 7 FAMILY, FRIENDS AND BUSINESS ASSOCIATES
In connection with the purchase of Trust Units by the Investor, the Investor (or the signatory on behalf of the Investor) certifies for the benefit of the Trust that the Investor is a person described in the category indicated below.
Note: All Ontario Investors must also complete Exhibit 9 and all Saskatchewan Investors relying on a “close personal friend” or “close business associate” relationship must also complete Exhibit 8.
[INITIAL THE APPROPRIATE CATEGORY] (A) a “director”, “executive officer” or “control person” (as such terms are defined in NI 45-106 and reproduced in Exhibit 5 hereto) of the Trust or of an affiliate of the Trust; or (B) a spouse (as defined in Exhibit 5 hereto), parent, grandparent, brother, sister, child or grandchild of any person referred to in subclause (A) above; or
(C) a parent, grandparent, brother, sister, child or grandchild of the spouse of any person referred to in subclause (A) above; or
(D) a “close personal friend” within the meaning thereof as set out in the Companion Policy 45- 106CP to NI 45-106) of any person referred to in subclause (A) above and has described and certifies to the Trust, the details of that relationship in the questionnaire below and, if the Investor is resident in Saskatchewan or is otherwise subject to the applicable securities laws of Saskatchewan, it has completed Exhibit 8 hereto; or
(E) a “close business associate” (within the meaning thereof as set out in Companion Policy 45- 106CP to NI 45-106) of any person referred to in subclause A above and has described and certifies to the Trust, the details of that relationship in the questionnaire below and, if the Investor is resident in Saskatchewan or is otherwise subject to the applicable securities laws of Saskatchewan, it has completed Exhibit 8 hereto; or
(F) a founder (as such term is defined in NI 45-106 and reproduced in Exhibit 5 hereto) of the Trust or a spouse, parent, grandparent, brother, sister, child, grandchild, close personal friend or close business associate of a founder of the Trust and has described and certifies to the Trust, the details of that relationship in the questionnaire below in this Exhibit 7 and,
if the Investor is resident in Saskatchewan or is otherwise subject to applicable securities laws of Saskatchewan and is relying on a “close business associate” or “close personal friend” relationship, the Investor has completed Exhibit 8 hereto; or
(G) a parent, grandparent, brother, sister, child or grandchild of the spouse of a founder of the Trust; or
(H) a person or company of which a majority of the voting securities are beneficially owned by, or a majority of the directors are, persons referred to in subparagraphs (A) to (G) above and in the case of subparagraphs (D), (E) and (F), has described, and certifies to the Trust, the details of that relationship in the questionnaire below and, if the Investor is resident in Saskatchewan or is otherwise subject to the applicable securities laws of Saskatchewan, it has completed Exhibit 8 hereto; or
(I) a trust or estate of which all of the beneficiaries or a majority of the trustees are persons described in subparagraphs (A) to (G) above and in the case of subparagraphs (D) (E) and (F), has described, and certifies to the Trust, the details of that relationship in the questionnaire below and, if the Investor is resident in Saskatchewan or is otherwise subject to the applicable securities laws of Saskatchewan, it has completed Exhibit 8 hereto.
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Exhibit 7 – All Family, Friends and Business Associates
Note: For the purposes of categories (D), (E), (F), (H) and (I) above, a person is not a “close personal friend” solely because the individual is a relative or a member of the same organization, association or religious group or because the individual is a client, customer or former client or customer, nor is an individual a close personal friend as a result of being a close personal friend of a close personal friend of one of the listed individuals above, rather the relationship must be direct. A close personal friend is one who knows the director, executive officer, founder or control person well enough and has known them for a sufficient period of time to be in a position to assess their capabilities and trustworthiness. Further, for the purposes of categories (D), (E), (F), (H) and (I) above, a person is not a “close business associate”
If the person is a casual business associate or a person introduced or solicited for purposes of purchasing securities nor is the individual a close business associate solely because the individual is a client, customer, former client or customer, nor is the individual a close business associate if they are a close business associate of a close business associate of one of the listed individuals above, rather the relationship must be direct. A close business associate is an individual who had sufficient prior dealings with the director, executive officer, founder or control person to be in a position to assess their capabilities and trustworthiness).
Questionnaire
To be completed by Investors to whom section (D), (E), (F), (H) or (I) applies or by Investors who are relying on a “close personal friend” or “close business associate” relationship.
Name of director, trustee, executive officer, control person or founder of whom Investor is a close personal friend/close business associate
Length of relationship
Details of relationship or prior business dealings
The undersigned understands that the Trust is relying on this information in determining to sell securities to the undersigned in a manner exempt from the registration and prospectus requirements of applicable securities laws.
Dated: , 20 .
Print name of Investor
By: Signature
Print name of Signatory (if different from Investor)
Title
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Exhibit 8 – All Saskatchewan Investors that are “close personal friends” or “close business associates”
EXHIBIT 8
RISK ACKNOWLEDGEMENT CLOSE PERSONAL FRIENDS AND CLOSE BUSINESS ASSOCIATES
The undersigned (the “Investor”), a resident of Saskatchewan, hereby represents and warrants, as an integral part of the attached subscription agreement, that he, she or it in all respects acknowledges and understands the following.
FORM 45-106F5
I acknowledge that this is a risky investment:
• I am investing entirely at my own risk.
• No securities regulatory authority has evaluated or endorsed the merits of thesesecurities.
• I will not be able to sell these securities except in very limited circumstances. I may never be able to resell these securities.
W • I could lose all the money I invest.
I do not have a 2-day right to cancel my purchase of these securities or the statutory rights of action • ARN for misrepresentation I would have if I were purchasing the securities under a prospectus. I do have a 2-day right to cancel my purchase of these securities if I receive an amended offering document.
I am investing $ [total consideration] in total; this includes any amount I am obliged to pay in future.
I am a close personal friend or close business associate of [state name], who is a [state title – founder, director, executive officer or control person] of Prime Income Trust
I
I acknowledge that I am purchasing based on my close relationship with [state NG name of founder, director, executive officer or control person] whom I know well enough and for a sufficient period of time to be able to assess his/her capabilities and trustworthiness.
I acknowledge that this is a risky investment and that I could lose all the money I invest.
Date Signature of Purchaser
Print name of Purchaser
Sign 2 copies of this document. Keep one copy for your records.
E8-1
Exhibit 8 – All Saskatchewan Investors that are “close personal friends” or “close business associates”
You are buying Exempt Market Securities. They are called exempt market securities because two parts of securities law do not apply to them. If an issuer wants to sell exempt market securities to you:
• the issuer does not have to give you a prospectus (a document that describes the investment in detail and gives you some legal protections), and
• the securities do not have to be sold by an investment dealer registered with a securities regulatory authority.
There are restrictions on your ability to resell exempt market securities. Exempt market securities are more risky than other securities.
You may not receive any written information about the issuer or its business.
If you have questions about the issuer or its business, ask for written clarification before you purchase the securities. You should consult your own professional advisers before investing in the securities.
The issuer of your securities is a non-reporting issuer.
A non-reporting issuer does not have to publish financial information or notify the public of changes in its business. You may not receive ongoing information about this issuer. You can only sell the securities of a non-reporting issuer in very limited circumstances. You may never be able to sell these securities.
The securities you are buying are not listed.
The securities you are buying are not listed on any stock exchange, and they may never be listed. There may be no market for these securities. You may never be able to sell these securities.
For more information on the exempt market, refer to the Saskatchewan Financial Services Commission’s website at http://www.sfsc.gov.sk.ca.
E8-2
Exhibit 9 – All Ontario Investors relying on the family, friends and business associates exemption
EXHIBIT 9
FORM 45-106F12 RISK ACKNOWLEDGEMENT FORM FOR ONTARIO FAMILY, FRIENDS AND BUSINESS ASSOCIATES
WARNING! This investment is risky. Don’t invest unless you can afford to lose all the money you pay for this investment
SECTION 1 TO BE COMPLETED BY THE ISSUER
1. About your investment
Type of securities: Trust Units Issuer: Prime Income Trust
Purchased from: Prime Income Trust
SECTIONS 2 TO 4 TO BE COMPLETED BY THE PURCHASER
2. Risk acknowledgement [Instruction: initial all boxes in Section 2]
Your This investment is risky. Initial that you understand that: initials
Risk of loss – You could lose your entire investment of $ . [Instruction: Insert the total dollar amount of the investment.]
Liquidity risk – You may not be able to sell your investment quickly – or at all.
Lack of information – You may receive little or no information about your investment. Lack of advice – You will not receive advice from the salesperson about whether this investment is suitable for you unless the salesperson is registered. The salesperson is the person who meets with, or provides information to, you about making this investment. To check whether the salesperson is registered, go to www.aretheyregistered.ca.
3. Family, friend or business associate status [Instruction: initial one or more boxes that apply] You must meet at least one of the following criteria to be able to make this investment. Initial the statement that Your applies to you. initials
A) You are: 1. [check all applicable boxes] a director of the issuer or an affiliate of the issuer an executive officer of the issuer or an affiliate of the issuer a control person of the issuer or an affiliate of the issuer a founder of the issuer OR
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Exhibit 9 – All Ontario Investors relying on the family, friends and business associates exemption
2. [check all applicable boxes] a person of which a majority of the voting securities are beneficially owned by, or a majority of the directors are, (i) individuals listed in (1) above and/or (ii) family members, close personal friends or close business associates of individuals listed in (1) above a trust or estate of which all of the beneficiaries or a majority of the trustees or executors are (i) individuals listed in (1) above and/or (ii) family members, close personal friends or close business associates of individuals listed in (1) above
B) You are a family member of [Instruction: Insert the name of the person who is your relative either directly or through his or her spouse], who holds the following position at the issuer or anaffiliate of the issuer: . You are the of that person or that person’s spouse. [Instruction: To qualify for this investment, the person listed above must be (a) your spouse or (b) your or your spouse’s parent, grandparent, brother, sister, child or grandchild.]
C) You are a close personal friend of [Instruction: Insert the name of your close personal friend], who holds the following position at the issuer or an affiliate of the issuer: . You have known that person for years.
D) You are a close business associate of [Instruction: Insert the name of your close business associate], who holds the following position at the issuer or an affiliate of the issuer: . You have known that person for years.
4. Your name and signature By signing this form, you confirm that you have read this form and you understand the risks of making this investment as identified in this form. You also confirm that you are eligible to make this investment because you are a family member, close personal friend or close business associate of the person identified in section 5 of this form
First and last name (please print):
Signature: Date:
SECTION 5 TO BE COMPLETED BY PERSON WHO CLAIMS THE CLOSE PERSONAL RELATIONSHIP, IF APPLICABLE
5. Contact person at the issuer or an affiliate of the issuer [Instruction: To be completed by the director, executive officer, control person or founder with whom the purchaser has a close personal relationship indicated under sections 3B, C or D of this form.]
By signing this form, you confirm that you have, or your spouse has, the following relationship with the purchaser: [check the box that applies] family relationship as set out in section 3B of this form close personal friendship as set out in section 3C of this form close business associate relationship as set out in section 3D of this form
First and last name of contact person (please print):
Position with the issuer or affiliate of the issuer (director, executive officer, control person or founder):
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Exhibit 9 – All Ontario Investors relying on the family, friends and business associates exemption
Telephone: Email:
Signature: Date:
SECTION 6 TO BE COMPLETED BY THE ISSUER
6. For more information about this investment
Prime Income Trust Suite 1206, 734-7th Avenue SW Calgary, Alberta T2P 3P8 Tel: 1-877-577-4634 Email: [email protected]
For more information about prospectus exemptions, contact your local securities regulator. You can find contact information at www.securities-administrators.ca.
Signature of executive officer of the issuer (other than the Date: purchaser):
Form instructions:
1. The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs theform.
2. The purchaser, an executive officer who is not the purchaser and, if applicable, the person who claims the close personal relationship to the purchaser must sign this form. Each of the purchaser, contact person at the issuer and the issuer must receive a copy of this form signed by the purchaser. The issuer is required to keep a copy of this form for 8 years after the distribution.
3. The detailed relationships required to purchase securities under this exemption are set out in section 2.5 of National Instrument 45-106 Prospectus Exemptions. For guidance on the meaning of “close personal friend” and “close business associate”, please refer to sections 2.7 and 2.8, respectively, of Companion Policy 45-106CP Prospectus Exemptions.
E9-3
Exhibit 10 – To be completed by salesperson for all eligible investors and accredited investors EXHIBIT 10 ACCREDITED / ELIGIBLE INVESTOR SUPPORTING CHECKLIST
To be completed by the person meeting with or providing information to the investor (the “Salesperson”) that is subscribing for securities as an “accredited investor” or “eligible investor”. The issuer is required to keep a copy of this form and any supporting documentation (if any was received) for 8 years after the distribution. 1. Investor Information
Name of Investor: Issuer: Prime Income Trust
Name of Representative of Investor (for non-individual Security: Trust Units investors):
2. Salesperson Information
Print first and last name of Salesperson:
Date:
3. Support for Accredited Investor / Eligible Investor Status
(a) Describe how the investor was identified or located:
(b) How long have you known the investor?
(c) Describe the details of your relationship with the investor or prior business dealings:
(d) Indicate the category or categories of “accredited investor” or “eligible investor” that the investor certified apply to the investor in the investor’s subscription agreement in the box on the right. Note: If the category of “accredited investor” is based on a financial threshold, then you must ask the investor Investor Category whether the investor has “net income before taxes”, “net assets” or “financial assets” (as applicable) that exceed the applicable threshold and you must explain that: Note: indicate the paragraph(s) indicated “financial assets” are cash and securities, after subtracting any debt related to the cash and securities. on Appendix A to Exhibit 3 or 4 of the “net assets” are total assets (including real estate) minus the investor’s total debt; and investor’s Subscription “net income before taxes” is available on the investor’s tax returns. Agreement
(e) Did the investor appear to understand the category or categories of “accredited investor” or “eligible investor” that the investor certified apply to the investor, including, if applicable, the definition of “net Yes No income”, “financial assets” or “net assets”? Note: If “no” then Note: You must ask the investor questions regarding the investor’s net income before taxes, net assets and/or complete part (f). financial assets (as applicable) to determine that the investor meets or exceeds the financial threshold in the applicable category of accredited investor or eligible investor.
(f) Do the investor’s initial responses to the questions asked in part (e) seem reasonable, including whether the investor meets the category of “accredited investor” or “eligible investor” that the investor certified on the Yes No subscription agreement? Note: If “no” you must make further inquiries regarding the investor’s financial circumstances and if the Note: If “no” then response to this part (f) remains “no” then you must complete part (g) to proceed with the subscription. complete part (g).
(g) If the response to the question in part (f) is “no” then you must ask the investor to show you supporting documentation to support the investor’s status as an “accredited investor” or “eligible investor” and you must describe the supporting documentation below:
E10-1
DRIP ENROLLMENT FORM
To: Prime Income Trust (the “Trust”)
I wish to enrol in the Trust’s Distribution Reinvestment Plan (the “DRIP”), which will allow me to purchase additional Trust Units with cash distributions paid as provided and set out in Section 2.7.6 of the Amended and Updated OfferingMemorandum.
I acknowledge having read the applicable provisions set forth in the Amended and Updated Offering Memorandum and that my participation in the DRIP will be subject to its terms and conditions.
Distributions in respect of Trust Units purchased under the DRIP will be credited to my account and will be automatically invested under the DRIP in additional Trust Units until such time as my participation in the DRIP is terminated.
Full Legal Name of Participant Date (Day, Month, Year)
Signature of Participant Witness
Official Title or Capacity
Participant’s Address (including postal code)
Telephone Number (including area code)
E-Mail Address SIN or Business Number
All words and phrases with initial capital as used herein and not otherwise defined herein shall have the meaning as ascribed to such words and phrases in the Trust’s Amended and Updated Offering Memorandum dated March 1, 2017.
Enrollment in the Distribution Reinvestment Plan (“DRIP”) is voluntary. Prime Income Trust (the “Trust”) makes no recommendation on participation in the DRIP. The Trust will not provide any legal, tax or accounting advice or advice regarding suitability of participation for any participant in the DRIP. The participant assumes full responsibility with respect to their decision to participate. The Trust reserves the right not to accept any executed enrollment form.
Participation in the DRIP may be terminated in accordance with Item 2.7.6 of the Updated and Amended Offering Memorandum by giving written notice in the form prescribed to the Trust.
By executing the annexed enrollment form, the participant(s) named therein affirm the representations, warranties, covenants and acknowledgments made by the participant(s) in the original subscription agreement executed by said participant(s) and agree to immediately notify the Trust if the participant(s) are unable for any reason to continue to make such representations, warranties, covenants and acknowledgements on an on-going basis.
TERMINATION OF PARTICIPATION IN DRIP
To: Prime Income Trust (the “Trust”)
I, , a participant in the Trust’s Distribution Reinvestment Plan (the “DRIP”), hereby elect to withdraw my participation f rom the DRIP which will be effective, in accordance with Item 2.7.6 of the Amended and Updated Offering Memorandum, as of the f i r s t Distribution Record Date of the following year from the date of notice hereby.
Full Legal Name of Participant Date (Day, Month, Year)
Signature of Participant Witness
Official Title or Capacity
Participant’s Address (including postal code)
Telephone Number (including area code)
E-Mail Address SIN or Business Number
All words and phrases with initial capital as used herein and not otherwise defined herein shall have the meaning as ascribed to such words and phrases in the Trust’s Amended and Updated Offering Memorandum dated March 1, 2017. Enrollment in and the termination of the Distribution Reinvestment Plan (“DRIP”) is voluntary. Prime Income Trust (the “Trust”) makes no recommendation on participation in the DRIP. The Trust will not provide any legal, tax or accounting advice or advice regarding suitability of participation for any participant in the DRIP. The participant assumes full responsibility with respect to their decision to participate. The Trust reserves the right not to accept any executed enrollment form.
Participation in the DRIP may be terminated in accordance with Item 2.7.6 of the Amended and Updated Offering Memorandum by giving written notice in the form prescribed to the Trust.
SCHEDULE “B” BROCHURE
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B-1
www.PrimeFunds.ca
Address: Calgary Office Suite 1206, 734 - 7 Ave SW Calgary, AB T2P 3P8 + 1.403.452.7869 [email protected] www.PrimeFunds.ca
Disclaimer * This brochure does not constitute an offer to sell nor an offer to buy any securities. All securities offerings will be made to qualified purchasers under prospectus exemptions, including by delivery of an offering memorandum in specified jurisdictions. This investment is not guaranteed or insured. Any forward-looking statements in this brochure are subject to the assumptions and risk factors stated in the offering memorandum. Read the offering memorandum before investing and consult with your own professional advisers.
In business since 1997, and operating as successful
Prime Real Estate Group since 2008, ‘Prime’ is regional and
a full-service commercial real estate development national tenants
and investment firm. Prime specializes in developing, like a Chartered Bank, managing and owning income producing commercial Dollar Tree and Family real estate projects on behalf of its investors. Dollar, as well as government INVESTMENT YEAR Prime’s primary geographic markets are located tenants including the Federal PRINCIPAL PLUS CUMULATIVE $240,000 REINVESTED YEAR throughout Alberta, Canada and Texas, USA. Prime Government of Canada and Alberta DISTRIBUTIONS RRETEUTURRNN** has a current real estate portfolio valued at over $250 Health Services. Prime is a fully vertically $220,000 $100,000.00 0 Million and several projects currently underway. integrated real estate firm which offers $108,299.95 1 8.30% $200,000 Prime has proven itself as a successful developer, investment programs under its Prime Funds brand $117,288.79 2 17.29% manager and owner, and has lived and thrived and 3rd party commercial real estate services under $127,023.71 3 27.02% $180,000 through major economic down cycles. several brands and franchises, notably, Coldwell $137,566.61 4 37.57% Prime’s income funds have never missed distributions Banker Commercial (Alberta) $160,000 $148,984.57 5 48.98% and have provided timely exits. Prime’s real estate portfolio - the world’s largest brokerage network. $161,350.22 6 61.35% $140,000 of buildings owned and under construction includes many $174,742.21 7 74.74% $120,000 $189,245.72 8 89.25% $204,953.02 9 104.95% $100,000 $221,964.02 10 121.96% 0 1 2 3 4 5 6 7 8 9 10 11
The fund provides liquidity prior to the sunset period This fund will own a porfolio of registered and of 2021 as per the ERF schedule below. During the secured development mortgages with affiliates. Each sunset period, investors will be redeemed as funds borrowing entity will have a self-funded interest are available, with all investors fully redeemed by reserve account for the borrowing term. The fund’s 2026. very own LP has also set up a fully funded escrow * interest reserve account to be used as an interest 8% risk management strategy. (target)
Investors Investors
MFT Comm. Net Net Principal Interest ERF Return Penalty Mezzanine Debt Provides security against real estate assets
Escrow Limited Independent RRSP/ TFSA/ RESP, etc. Eligible Revitalize non-performing retirement plans First Year $100.00 8% 10% $98.00 2% Interest Review Reserve Partnership Committee Minimum $5K Investment Everyone can participate Second Year $100.00 16% 8% $108.00 0 Secured Loan Diversification Effective risk management Third Year $100.00 24% 6% $118.00 0 St. Albert New Project No Management Fees Investor aligned interest Fourth Year $100.00 32% 4% $128.00 0 Cochrane Disclaimer ** Distributions are not guaranteed and are subject to performance assumptions and risk factors, including real estate and financing risks that are summarized in the offering memorandum. Past results are not indicative of future performance and redemption and exit rights are subject to certain restrictions. This investment is not a Fifth Year $100.00 40% 2% $138.00 0 secured debt instrument but rather equity securities (trust units). The fund is not regulated by securities legislation applicable to investment funds. In the Canadian Interest Interest Interest provinces and territories (other than British Columbia, Alberta and Quebec) this brochure may be deemed to be an offering memorandum. If an offering memorandum Reserve Reserve Reserve contains a misrepresentation (which includes a misstatement of a material fact), you may have statutory rights to sue for damages or rescission of your investment depending on the law of your province or territory. These rights can be lost if your do not commence your claim within the limitation periods set out under applicable Sixth Year $100.00 48% 0% $148.00 0 law. These rights are also summarized in the offering memorandum. For more information regarding your rights, refer to securities legislation and consult with a lawyer.