A copy of this preliminary short form prospectus has been filed with the securities regulatory authorities in each of the provinces of Canada except Québec but has not
yet become final for the purpose of the sale of securities. Information contained in this preliminary short form prospectus may not be complete and may have to be
amended. The securities may not be sold until a receipt for the short form prospectus is obtained from the securities regulatory authorities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form prospectus constitutes a public
offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. These
securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws. Accordingly,
except as permitted by the Underwriting Agreement (as defined herein) and pursuant to an exemption from the registration requirements of the 1933 Act and state
securities laws, these securities may not be offered, sold or delivered within the United States (as defined herein) and this short form prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of these securities within the United States. See “Plan of Distribution”.
Information has been incorporated by reference in this short form prospectus from documents filed with the securities commissions or similar authorities in Canada.
Copies of the documents incorporated herein by reference may be obtained on request without charge from the Vice President, Finance & Chief Financial Officer of
Toro Oil & Gas Ltd. at Suite 2200, 250 – 5th Street S.W., Calgary, Alberta, T2P 0R4, telephone (403) 237-9996, and are also available electronically at www.sedar.com.
New Issue
June 13, 2016
PRELIMINARY SHORT FORM PROSPECTUS
$
• Units
Price: $• per Unit
This short form prospectus qualifies for distribution • units (the “Units”) of Toro Oil & Gas Ltd. (“Toro” or the “Corporation”) at a
price of $ • per Unit (the “Offering Price”) for aggregate gross proceeds of $ • (the “Offering”). The Offering Price shall be determined
in the context of the market and the total size of the Offering is currently anticipated to be within a range of approximately $10 million
to $12 million.
Each Unit consists of one common share of the Corporation (a “Unit Share”) and one-half of one common share purchase warrant of
the Corporation (each, a “Warrant”). Each whole Warrant will entitle the holder thereof to acquire, subject to adjustment in accordance
with the Warrant Indenture (as defined herein), one common share of the Corporation (a “Warrant Share”) at an exercise price of $ •
per Warrant Share at any time prior to 5:00 p.m. (Calgary time) on the date that is • months following the Closing Date (as defined
herein). The Warrants will be governed by a warrant indenture (the “Warrant Indenture”) to be entered into on or before the Closing
Date (as defined herein) between the Corporation and TMX Equity Transfer and Trust Company (the “Warrant Agent”). The Unit
Shares and the Warrants comprising the Units will separate immediately upon the closing of the Offering. See “Description of Securities
Being Distributed”. The Offering Price was determined by negotiation between Toro and AltaCorp Capital Inc. on its own behalf, and
on behalf of •, •, and • (collectively, the “Underwriters”). See “Plan of Distribution”.
The issued and outstanding common shares of the Corporation (“Common Shares”) are listed on the TSX Venture Exchange (the
“TSXV”) under the symbol “TOO”. Toro has applied to list the Unit Shares, Warrants and Warrant Shares issuable pursuant to the
Offering on the TSXV. Such listing will be subject to Toro fulfilling all of the listing requirements of the TSXV. On June 10, 2016,
the last complete trading day on which the Common Shares traded prior to the announcement of the Offering, the closing price of the
Common Shares on the TSXV was $0.25.
There is no market through which the Warrants comprising the Units may be sold and purchasers may not be able to resell the
Warrants purchased under this short form prospectus. This may affect the pricing of the Warrants in the secondary market,
ii
the transparency and availability of trading prices, the liquidity of the Warrants, and the extent of the issuer regulation. See
“Risk Factors”.
Price to the Public
$•
$•
Per Unit
Total
Underwriters’ Fee
$•
$•
Net Proceeds to Toro (1)
$•
$•
Notes:
(1)
(2)
Before deducting expenses of the Offering, estimated to be $• which will be paid from the proceeds of the Offering.
The Corporation has granted to the Underwriters an option (the “Over-Allotment Option”), exercisable in whole or in part, at any time,
from time to time, until the day that is 30 days following the closing of the Offering, to purchase up to an additional • Units (the “OverAllotment Units”) at a price of $• per Over-Allotment Unit on the same terms and conditions as the issuance of the Units for the purposes
of covering the Underwriters’ over-allocation position, if any, and for market stabilization purposes. A purchaser who acquires securities
forming part of the Underwriters’ over-allocation position acquires those securities under this short form prospectus, regardless of whether
the Underwriters’ over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market
purchases. If the Over-Allotment Option is exercised in full, the total Offering, fee payable to the Underwriters and net proceeds to the
Corporation (before deducting expenses of the Offering) will be $•, $• and $•, respectively. This short form prospectus also qualifies the
distribution of the Over-Allotment Units pursuant to the exercise of the Over-Allotment Option. See “Plan of Distribution”.
The following sets forth the number of Over-Allotment Units that may be issued by Toro pursuant to the Over-Allotment Option:
Underwriters’ Position
Maximum size or
number of securities
held
Over-Allotment Option
• Over-Allotment Units
Exercise period
Exercise price
At any time during the 30 days
following closing of the Offering
$• per Over-Allotment
Unit
The Underwriters, as principals, conditionally offer the Units for sale, subject to prior sale, if, as and when issued by Toro and accepted
by the Underwriters in accordance with the conditions contained in the Underwriting Agreement referred to under “Plan of Distribution”.
The Offering is subject to approval of certain legal matters relating to the Offering on behalf of Toro by Torys LLP and on behalf of the
Underwriters by Dentons Canada LLP. The Units shall be taken up by the Underwriters, if at all, on or before a date that is not later than
42 days after the receipt for the final short form prospectus. Toro has been advised by the Underwriters that, in connection with the
Offering, the Underwriters may effect transactions that stabilize or maintain the market price of the Common Shares and Warrants at
levels other than those that might otherwise prevail in the open market. Such transactions, if commenced, may be discontinued at any
time. Unless the context otherwise requires, references herein to the “Offering” and the “Units” includes the Over-Allotment Units. See
“Plan of Distribution”.
• is a direct or indirect wholly-owned subsidiary of a Canadian chartered bank which is a lender to Toro and to which Toro is
indebted. Consequently, Toro may be considered to be a connected issuer of this Underwriter for the purposes of securities
regulations in certain provinces. A portion of the net proceeds of the Offering will be used to repay a part of the indebtedness of
Toro to such bank. See “Relationship Between Toro and a Certain Underwriter”, “Recent Developments”, “Use of Proceeds” and
“Consolidated Capitalization”.
The Underwriters propose to offer the Units initially at the Offering Price. After a reasonable effort has been made to sell all
the Units at the price specified, the Underwriters may subsequently reduce the selling price to investors from time to time in
order to sell any of the Units remaining unsold. Any such reduction will not affect the proceeds received by Toro. See “Plan of
Distribution”.
Subscriptions for Units will be received subject to rejection or allotment in whole or in part and the right is reserved to close the
subscription books at any time without notice. Closing is expected to occur on or about June 28, 2016 but in any event not later than the
date that is 42 days after the date of the receipt for the final short form prospectus.
The Unit Shares and Warrants will be registered and deposited directly with CDS Clearing and Depository Services Inc. (“CDS”) or its
nominee under the electronic book-based system administered by CDS. No certificates evidencing the Unit Shares or Warrants will be
issued to purchasers except in certain limited circumstances. Purchasers of Units will receive only a customer confirmation from the
iii
Underwriter or other registered dealer who is a CDS participant and from or through whom a beneficial interest in the Units is purchased.
See “Plan of Distribution”.
An investment in the securities offered hereunder is speculative and involves a high degree of risk. The risk factors identified
under the headings “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in this short form prospectus and
under the headings “Risk Factors” and “Forward-Looking Statements” in the AIF (as defined herein) should be carefully
reviewed and evaluated by prospective purchasers before purchasing the securities being offered hereunder. An investment in
the Unit Shares and Warrants comprising the Units is suitable only for those investors who are willing to risk a loss of their
entire investment.
The Units may be sold only in those jurisdictions where offers and sales are permitted. This short form prospectus is not an offer to sell
or a solicitation of an offer to buy the Units in any jurisdiction where it is unlawful. Investors should rely only on the information
contained in or incorporated by reference in this short form prospectus. The Corporation has not authorized anyone to provide investors
with different information. Purchasers should not assume that the information contained in this short form prospectus is accurate as of
any date other than the date of this short form prospectus.
The Corporation’s head office is located at Suite 2200, 250 – 5th Street S.W., Calgary, Alberta, T2P 0R4, and its registered office is
located at Suite 4600, 525 – 8th Avenue S.W., Calgary, Alberta, T2P 1G1.
TABLE OF CONTENTS
Page
GLOSSARY OF TERMS ..........................................................................................................................................................................1
ABBREVIATIONS ...................................................................................................................................................................................2
OIL AND GAS INFORMATION .............................................................................................................................................................2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ............................................................................................4
DOCUMENTS INCORPORATED BY REFERENCE.............................................................................................................................5
MARKETING MATERIALS....................................................................................................................................................................6
TORO OIL & GAS LTD. ..........................................................................................................................................................................6
RECENT DEVELOPMENTS ...................................................................................................................................................................6
DESCRIPTION OF SECURITIES BEING DISTRIBUTED....................................................................................................................7
DIVIDENDS TO SHAREHOLDERS .......................................................................................................................................................8
CONSOLIDATED CAPITALIZATION...................................................................................................................................................8
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS............................................................................................9
PRICE RANGE AND TRADING VOLUME ......................................................................................................................................... 11
PLAN OF DISTRIBUTION .................................................................................................................................................................... 11
USE OF PROCEEDS .............................................................................................................................................................................. 13
PRIOR SALES ........................................................................................................................................................................................ 14
RELATIONSHIP BETWEEN TORO AND A CERTAIN UNDERWRITER........................................................................................ 14
INTEREST OF EXPERTS ...................................................................................................................................................................... 15
ELIGIBILITY FOR INVESTMENT....................................................................................................................................................... 15
RISK FACTORS ..................................................................................................................................................................................... 15
AUDITORS, TRANSFER AGENT AND REGISTRAR........................................................................................................................ 17
STATUTORY AND CONTRACTUAL RIGHTS OF WITHDRAWAL AND RESCISSION .............................................................. 17
CERTIFICATE OF THE CORPORATION.......................................................................................................................................... C-1
CERTIFICATE OF THE UNDERWRITERS ....................................................................................................................................... C-2
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GLOSSARY OF TERMS
In this short form prospectus, the following terms shall have the meanings set forth below, unless otherwise indicated:
“1933 Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder;
“ABCA” means the Business Corporations Act (Alberta), as amended, including the regulations promulgated thereunder;
“AIF” means the annual information form of the Corporation dated March 31, 2016 relating to the year ended December 31, 2015;
“Annual MD&A” means management’s discussion and analysis of the financial condition and results of operations of the Corporation
for the year ended December 31, 2015;
“Audited Financial Statements” means the audited comparative consolidated financial statements of the Corporation as at
December 31, 2015 and for the years ended December 31, 2015 and 2014, together with the notes thereto and the auditors’ report
thereon;
“Board of Directors” means the board of directors of Toro, as constituted from time to time;
“Business Day” means any day other than a Saturday, Sunday or statutory holiday in Calgary, Alberta;
“Canadian GAAP” or “GAAP” means the generally accepted accounting principles in Canada determined with reference to the
Handbook of Chartered Professional Accountants of Canada, which are in effect from time to time and which since January 1, 2011
have been consistent with the International Financial Reporting Standards as issued by the International Accounting Standards Board;
“CDS” means CDS Clearing and Depository Services Inc.;
“Closing Date” means June 28, 2016, or such later date as may be agreed among the parties to the Underwriting Agreement, but no
later than the date that is 42 days after the date of the receipt for the final short form prospectus;
“COGE Handbook” means the Canadian Oil and Gas Evaluation Handbook prepared jointly by the Society of Petroleum Evaluation
Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum;
“Common Shares” means the common shares in the capital of Toro, as constituted from time to time;
“Credit Facility” has the meaning given to such term under the heading “Recent Developments”;
“Dawson” means Dawson Oil Transportation Corp., a wholly-owned subsidiary of Toro;
“NI 41-101” means National Instrument 41-101 – General Prospectus Requirements;
“NI 44-101” means National Instrument 44-101 – Short Form Prospectus Distributions;
“NI 51-101” means National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities;
“SEDAR” means the System for Electronic Document Analysis and Retrieval;
“Shareholders” means the holders from time to time of the Common Shares;
“Tax Act” means the Income Tax Act (Canada), as amended, including the regulations promulgated thereunder;
“Toro” or the “Corporation” means Toro Oil & Gas Ltd., including where the context requires, its predecessors;
“TSXV” means the TSX Venture Exchange;
-2-
“Underwriters” means, collectively, AltaCorp Capital Inc., • , • , and • ;
“Underwriting Agreement” means the underwriting agreement dated as of June •, 2016 among Toro and the Underwriters in respect
of the Offering; and
“United States” or “U.S.” means the United States of America, its territories, its possessions, any state of the United States and the
District of Columbia.
All financial information herein has been presented in Canadian dollars in accordance with GAAP.
Words importing the singular number only include the plural, and vice versa, and words importing any gender include all genders.
ABBREVIATIONS
Oil and Natural Gas Liquids
bbl
barrel
bbls
barrels
bbls/d
barrels per day
BOE or boe
barrel(s) of oil equivalent
boe/d
barrels of oil equivalent per day
Mbbls
thousand barrels
NGLs
natural gas liquids
Mstb
thousand stock tank barrels of oil
Mboe
thousand barrels of oil equivalent
MMboe
million barrels of oil equivalent
Other
API
psi
m
ha
$000s
WTI
M
Natural Gas
Bcf
billion cubic feet
Mcf
thousand cubic feet
Mcf/d
thousand cubic feet per day
Mcfe
thousand cubic feet of natural gas equivalent
MMcf
million cubic feet
MMcf/d
million cubic feet per day
m3
cubic metres
MMbtu
million British Thermal Units
GJ
gigajoule
the measure of the density or gravity of liquid petroleum products derived from a specific gravity
pounds per square inch
metre(s)
hectare(s)
thousands of dollars
West Texas Intermediate
thousand
Toro has adopted the standard of 6 Mcf:1 bbl when converting natural gas to oil equivalent and 1 bbl:6 Mcf when converting oil to
natural gas equivalent. Boe’s may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based
on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency
at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly
different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of
value.
OIL AND GAS INFORMATION
Caution Respecting Reserves Information
The determination of oil and natural gas reserves involves the preparation of estimates that have an inherent degree of associated
uncertainty. Categories of proved and probable reserves have been established to reflect the level of these uncertainties and to provide
an indication of the probability of recovery. The estimation and classification of reserves requires the application of professional
judgment combined with geological and engineering knowledge to assess whether or not specific reserves classification criteria have
been satisfied. Knowledge of concepts including uncertainty and risk, probability and statistics, and deterministic and probabilistic
estimation methods is required to properly use and apply reserves definitions.
The recovery and reserve estimates of oil, NGLs and natural gas reserves provided herein are estimates only. Actual reserves may be
greater than or less than the estimates provided herein. The estimated future net revenue from the production of the Corporation’s natural
gas and petroleum reserves does not represent the fair market value of the Corporation’s reserves.
-3-
Definitions
Certain terms used in this short form prospectus in describing reserves and other oil and natural gas information are defined below.
Certain other terms and abbreviations used in this short form prospectus, but not defined or described, are defined in NI 51-101 or the
COGE Handbook and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101 or the COGE
Handbook.
Reserves
Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known
accumulations, as of a given date, based on: (a) analysis of drilling, geological, geophysical and engineering data; (b) the use of
established technology; and (c) specified economic conditions, which are generally accepted as being reasonable and shall be disclosed.
Reserves are classified according to the degree of certainty associated with the estimates as follows:
“proved reserves” are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the estimated proved reserves.
“probable reserves” are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the
actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
The qualitative certainty levels referred to in the definitions above are applicable to “individual reserves entities” (which refers to the
lowest level at which reserves calculations are performed) and to “reported reserves” (which refers to the highest-level sum of individual
entity estimates for which reserves estimates are presented). Reported reserves should target the following levels of certainty under a
specific set of economic conditions:
●
at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves; and
●
at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus
probable reserves.
Interests in Reserves, Production, Wells and Properties
“gross” means: (a) in relation to an issuer’s interest in production or reserves, its “company gross reserves”, which are its working
interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the issuer; (b) in
relation to wells, the total number of wells in which an issuer has an interest; and (c) in relation to properties, the total area of properties
in which an issuer has an interest.
“net” means: (a) in relation to an issuer’s interest in production or reserves its working interest (operating or non-operating) share after
deduction of royalty obligations, plus its royalty interests in production or reserves; (b) in relation to an issuer’s interest in wells, the
number of wells obtained by aggregating the issuer’s working interest in each of its gross wells; and (c) in relation to an issuer’s interest
in a property, the total area in which the issuer has an interest multiplied by the working interest owned by the issuer.
“working interest” means the percentage of undivided interest held by an issuer in the oil and/or natural gas or mineral lease granted
by the mineral owner, Crown or freehold, which interest gives the issuer the right to “work” the property (lease) to explore for, develop,
produce and market the leased substances.
Description of Development Costs
“development costs” means costs incurred to obtain access to reserves and to provide facilities for extracting, treating, gathering and
storing the crude oil and natural gas from the reserves. More specifically, development costs, including applicable operating costs of
support equipment and facilities and other costs of development activities, are costs incurred to: (a) gain access to and prepare well
locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing
ground, draining, road building, and relocating public roads, gas lines and power lines, to the extent necessary in developing the reserves;
(b) drill and equip development wells, development type stratigraphic test wells and service wells, including the costs of platforms and
of well equipment such as casing, tubing, pumping equipment and wellhead assembly; (c) acquire, construct and install production
-4-
facilities such as flow lines, separators, treaters, heaters, manifolds, measuring devices and production storage tanks, natural gas cycling
and processing plants, and central utility and waste disposal systems; and (d) provide improved recovery systems.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this short form prospectus constitute forward-looking statements and forward-looking information
(collectively referred to herein as “forward-looking statements”) within the meaning of applicable Canadian securities laws. Such
forward-looking statements relate to future events or Toro’s future performance. All statements other than statements of historical fact
may be forward-looking statements. Such forward-looking statements are often, but not always, identified by the use of words such as
“seek”, “anticipate”, “budget”, “plan”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “predict”, “potential”,
“targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown
risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forwardlooking statements. Toro believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be
given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference
into, this short form prospectus should not be unduly relied upon as Toro cannot assure investors that actual results will be consistent
with these forward-looking statements. These forward-looking statements speak only as of the date of this short form prospectus or as
of the date specified in the documents incorporated by reference into this short form prospectus, as the case may be.
Specifically, this short form prospectus includes forward-looking statements relating to:
•
•
•
•
•
•
•
•
•
the size of the Offering;
the use of the net proceeds from the Offering;
the timing and completion of the Offering;
Toro’s anticipated drilling and development program, plans and opportunities;
the exercise of the Over-Allotment Option;
anticipated terms of the amended Credit Facility;
the Corporation’s dividend policy;
Toro’s capital expenditure program and the allocation thereof; and
the enactment of the Proposed Amendments (as defined herein).
The actual results, performance or achievements of Toro could differ materially from those anticipated in these forward-looking
statements as a result of risk factors including, but not limited to those set forth below and elsewhere in this short form prospectus:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
risks related to the Credit Facility;
completion of the Offering on the timing planned or at all;
the receipt, in a timely manner of regulatory, stock exchange and other required approvals in connection with the Offering;
volatility in market prices for oil and natural gas and foreign exchange rates;
operational risks and liabilities inherent in oil and natural gas operations;
uncertainties associated with estimating oil and natural gas reserves;
competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;
geological, technical, drilling and processing problems;
changes in general economic, market and business conditions;
the incorrect assessment of the value of acquisitions;
the accuracy of oil and gas reserves and resources estimates and estimated production levels as they are affected by exploration
and development drilling and estimated decline rates;
fluctuations in the costs of borrowing;
the use of derivative financial instruments;
political or economic developments;
ability to obtain regulatory approvals;
the occurrence of unexpected events; and
the other factors discussed under “Risk Factors” herein and in the AIF.
Statements relating to “reserves” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain
estimates and assumptions, that the resources and reserves described can be profitably produced in the future.
-5-
With respect to forward-looking statements contained in this short form prospectus, Toro has made assumptions regarding, among other
things: the timing of obtaining regulatory and other approvals relating to the completion of the Offering; the receipt of formal waivers
from its lender; availability of skilled labour and services; timing and amount of capital expenditures; future exchange rates; the price
of oil and natural gas; the impact of increasing competition; conditions in general economic and financial markets; access to capital;
availability of drilling and related equipment; effects of regulation by governmental agencies; royalty rates and future operating costs.
Toro has included the above summary of assumptions and risks related to forward-looking information provided in this short form
prospectus in order to provide investors with a more complete perspective on Toro’s current and future operations and such information
may not be appropriate for other purposes. Forward-looking statements contained in certain documents incorporated by reference into
this short form prospectus are based on the key assumptions and are subject to the risks described in such documents. The reader is
cautioned that such assumptions, although considered reasonable by Toro at the time of preparation, may prove to be incorrect.
Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this
short form prospectus and in the documents incorporated by reference into this short form prospectus are expressly qualified
by this cautionary statement. Except as required by applicable securities laws, Toro does not undertake any obligation to
publicly update or revise any forward-looking statements and readers should also carefully consider the matters discussed under
the heading “Risk Factors” in this short form prospectus and in the documents incorporated by reference into this short form
prospectus.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions
or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge
from the Vice President, Finance & Chief Financial Officer of Toro, at Suite 2200, 250 – 5th Street S.W., Calgary, Alberta, T2P 0R4,
telephone (403) 237-9996. In addition, copies of the documents incorporated herein by reference may be obtained from the securities
commissions or similar authorities in Canada through the SEDAR website at www.sedar.com.
The following documents of Toro, filed with the various securities commissions or similar authorities in the provinces of Canada, are
specifically incorporated by reference into and form an integral part of this short form prospectus:
1.
the AIF;
2.
the Audited Financial Statements;
3.
the Annual MD&A;
4.
the unaudited interim comparative condensed consolidated financial statements of Toro as at March 31, 2016 and for the three
months ended March 31, 2016 and 2015, together with the notes thereto;
5.
the management discussion and analysis of the financial condition and results of operations of Toro for the three months ended
March 31, 2016;
6.
the management information circular – proxy statement of the Corporation dated April 25, 2016 relating to the annual and
special meeting of the Shareholders held on May 25, 2016;
7.
the management information circular – proxy statement of the Corporation dated April 27, 2015 relating to the annual and
special meeting of the Shareholders held on May 26, 2015; and
8.
the “template version” (as such term is defined NI 41-101) of the term sheet of the Corporation dated June 13, 2016 with respect
to the Offering (“Marketing Materials”).
Any documents of the type required by NI 44-101 to be incorporated by reference in a short form prospectus including any material
change reports (excluding confidential reports), condensed consolidated interim financial statements, annual consolidated financial
statements and the auditor’s report thereon, management’s discussion and analysis of financial condition and results of operations,
information circulars, annual information forms and business acquisition reports filed by Toro with the securities commissions or similar
-6-
authorities in the provinces of Canada subsequent to the date of this short form prospectus and prior to the termination of this distribution
are deemed to be incorporated by reference in this short form prospectus.
Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for the purposes of this short form prospectus 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 shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted
a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this short form
prospectus.
MARKETING MATERIALS
The Marketing Materials are not part of this short form prospectus to the extent that the contents of the Marketing Materials have been
modified or superseded by a statement contained in this short form prospectus. Any template version of any “marketing materials”
(each as defined in NI 41-101) that has been, or will be, filed on SEDAR before the termination of the distribution under the Offering
(including any amendments to, or an amended version of, any template version of any marketing materials) is deemed to be incorporated
into this short form prospectus.
TORO OIL & GAS LTD.
General
Toro is based in Calgary, Alberta and is engaged in the acquisition, exploration, exploitation, development and production of petroleum
and natural gas in Alberta and Saskatchewan. The business of the Corporation is as set forth in the AIF under the heading “Business of
Toro”.
The head and principal office of the Corporation is located at Suite 2200, 250 – 5th Street S.W., Calgary, Alberta, T2P 0R4 and the
Corporation’s registered office is located at 4600, 525 – 8th Avenue S.W., Calgary, Alberta, T2P 1G1.
RECENT DEVELOPMENTS
Credit Facility
On November 9, 2015, the Corporation reestablished its credit facility (the “Credit Facility”) provided by a Canadian bank consisting
of a $7 million revolving operating demand facility and a $18 million development demand facility. The interest rate in connection with
the Credit Facility is based on the bank’s prime rate plus an applicable margin that is tied to certain financial ratios in respect of Toro
and the type of advances under the Credit Facility. The Credit Facility is secured by a fixed and floating charge on the Corporation’s
assets. In addition, Dawson has provided a guarantee of the Corporation’s obligations under the Credit Facility.
The Credit Facility contains usual and customary reporting covenants and one financial covenant which requires that the Corporation
maintain a working capital ratio of not less than 1.00:1.00 at all times. As at March 31, 2016, Toro’s ratio equated to 0.94:1 which is
marginally below the requirement. As part of the Corporation’s discussions with its lender during its ongoing semi-annual review, a
waiver in respect of the first quarter’s covenant was requested and has been verbally granted.
Although no formal decision has been made by Toro’s lender on the size of the operating credit facility, as part of its ongoing semiannual review, Toro was advised verbally that the $18 million development facility will no longer be available to Toro. With respect to
the operating facility, Toro’s overall draw on this portion remains below the previously approved $7 million limit. However, the
Corporation is proactively working with its lender to ensure remaining amounts drawn, if any, would be in compliance with soon to be
established reduced levels based on lower commodity pricing. In early June 2016, the Corporation received draft terms of an amended
credit facility from its lender. Significant terms of the proposal specify a maximum amount of $4 million under the operating demand
facility at the earliest of an equity raise or June 30, 2016, an increase on drawn pricing to the lender’s prime rate + 4%, reduction of
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amounts drawn by the Corporation to $2 million or qualification for a $2 million operating line using the lender’s standard practices, in
either case by October 1, 2016, and a semi-annual review to be held on December 1, 2016. The amended credit facility is subject to
approval by the lender’s credit department. See “Risk Factors – Credit Facility”.
DESCRIPTION OF SECURITIES BEING DISTRIBUTED
The Offering consists of • Units (• Units if the Over-Allotment Option is exercises in full). Each Unit will be comprised of one Unit
Share and one-half of one Warrant.
Common Shares
Toro is authorized to issue an unlimited number of Common Shares without nominal or par value. As of the date hereof, 56,926,832
Common Shares are issued and outstanding. The holders of Common Shares are entitled to: dividends if, as and when declared by the
Board of Directors; to one vote per Common Share at meetings of the Shareholders; and upon liquidation, dissolution or winding up of
the Corporation to receive pro rata the remaining property and assets of the Corporation. All of the Common Shares currently
outstanding have been issued as fully-paid and non-assessable.
Warrants
The Warrants will be governed by the Warrant Indenture to be entered into on or before the Closing Date between the Corporation and
the Warrant Agent. Under the Warrant Indenture, each whole Warrant will entitle the holder thereof to acquire, subject to adjustment in
accordance with the Warrant Indenture, one Warrant Share at an exercise price of $ • per Warrant Share at any time prior to 5:00 p.m.
(Calgary time) on the date that is • months following the Closing Date.
Warrant Indenture
The following summary of certain anticipated provisions of the Warrant Indenture does not purport to be complete and is subject in its
entirety to the detailed provisions of the executed Warrant Indenture. Reference is made to the Warrant Indenture for the full text of the
attributes of the Warrants which, following the closing of the Offering (i) will be filed on SEDAR under the issuer profile of Toro at
www.sedar.com, or (ii) may be obtained on request without charge from the Vice President, Finance & Chief Financial Officer of Toro
at Suite 2200, 250 – 5th Street S.W., Calgary, Alberta, T2P 0R4, telephone (403) 237-9996. A register of holders will be maintained at
the principal offices of the Warrant Agent in Toronto, Ontario.
The Warrant Indenture is expected to provide, in the event of certain alterations of the Common Shares, that the number of Common
Shares which may be acquired by a holder of Warrants upon the exercise thereof will be subject to anti-dilution provisions governed by
the Warrant Indenture, including provisions for the appropriate adjustment of the class, number and price of the securities issuable under
the Warrant Indenture upon the occurrence of certain events including any subdivision, consolidation, or reclassification of the Common
Shares, payment of dividends outside of the ordinary course, or amalgamation/merger of the Corporation.
No fractional Warrant Shares will be issuable to any holder of Warrants upon the exercise thereof, and no cash or other consideration
will be paid in lieu of fractional Warrant Shares. The holding of Warrants will not make the holder thereof a Shareholder or entitle such
holder to any right or interest in respect of the Warrant Shares except as expressly provided in the Warrant Indenture. Holders of Warrants
will not have any voting or preemptive rights or any other rights enjoyed by Shareholders.
The Corporation is also expected to covenant in the Warrant Indenture, during the period in which the Warrants are exercisable, to give
notice to holders of Warrants of certain stated events, including events that would result in an adjustment to the exercise price for the
Warrants or the number of Warrant Shares issuable upon exercise of the Warrants, a proscribed number of days prior to the record date
or effective date, as the case may be, of such event.
The Warrant Indenture is expected to provide that, from time to time, the Warrant Agent and the Corporation, without the consent of
the holders of Warrants, may be able to amend or supplement the Warrant Indenture for certain purposes, including rectifying any
ambiguities, defective provisions, clerical omissions or mistakes, or other errors contained in the Warrant Indenture or in any deed or
indenture supplemental or ancillary to the Warrant Indenture, provided that, in the opinion of the Warrant Agent, relying on counsel,
the rights of the holders of Warrants are not prejudiced, as a group.
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The Warrant Indenture is also expected to contain provisions making binding upon all holders of Warrants resolutions passed at meetings
of such holders in accordance with such provisions or by instruments in writing signed by holders of Warrants holding a specified
percentage of the Warrants. Any amendment or supplement to the Warrant Indenture that is prejudicial to the interests of the holders of
Warrants, as a group, is expected to be subject to approval by an “Extraordinary Resolution”, which is expected be defined in the Warrant
Indenture as a resolution either: (i) passed at a meeting of the holders of Warrants at which there are holders of Warrants present in
person or represented by proxy representing at least 20% of the aggregate number of the then outstanding Warrants and passed by the
affirmative vote of holders of Warrants representing not less than 66⅔% of the aggregate number of all the then outstanding Warrants
represented at the meeting and voted on the poll for such resolution; or (ii) adopted by an instrument in writing signed by the holders of
Warrants representing not less than 66⅔% of the number of all of the then outstanding Warrants.
The principal transfer office of the Warrant Agent in Toronto, Ontario is the location at which Warrants may be surrendered for exercise
or transfer.
Securities Ranking Senior to Common Shares and Warrants
Preferred Shares
Toro is authorized to issue an unlimited number of preferred shares without nominal or par value. As of the date hereof, no preferred
shares are issued. The Board of Directors may fix the designation, rights, privileges, restrictions and conditions attached to each series
of preferred shares prior to them being issued. In the event of liquidation, dissolution or winding-up of the Corporation, holders of each
series of preferred shares shall be entitled to be paid in priority to holders of Common Shares on a distribution of the capital of the
Corporation.
DIVIDENDS TO SHAREHOLDERS
The Corporation has not declared or paid any dividends on the Common Shares since incorporation. Any decision to pay dividends on
the Common Shares will be made by the Board of Directors on the basis of the Corporation’s earnings, financial requirements and other
conditions that the Board of Directors may consider appropriate in the circumstances. It is not intended that dividends will be paid in
the foreseeable future.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of Toro as at March 31, 2016: (i) before giving effect to the Offering; and
(ii) after giving effect to the Offering. There have been no material changes to the information provided below since March 31, 2016
other than as set forth in the notes to the table.
Cash and Deposits(1)
As at March 31, 2016
before giving effect to the Offering(3)
As at March 31, 2016
after giving effect to the Offering(3)
$160,000
$•
$6,197,000
$•
$29,146,000
(56,926,832 Common Shares)
$•
(• Common Shares)
Nil
(Nil Warrants)
$•
(• Warrants)
Nil
(Nil shares)
Nil
(Nil shares)
Long Term Debt
Credit Facility (2)
Share Capital
Common Shares (unlimited) (4)(5)(6)
Warrants (•)(7)
Preferred Shares (unlimited)
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Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Includes restricted cash and cash equivalents and long-term deposits as at March 31, 2016.
As at the date hereof, approximately $6.55 million had been drawn against the Credit Facility. The Credit Facility is currently under review by the lender and
the Corporation has received draft terms of an amended credit facility from the lender. • is a direct or indirect wholly-owned subsidiary of the Canadian
chartered bank which is a lender to Toro to which Toro is indebted. See “Recent Developments” and “Relationship Between Toro and a Certain Underwriter”.
Based on the issuance of • Units pursuant to the Offering for aggregate gross proceeds of $• less the fee payable to the Underwriters of $ • and estimated
expenses of the Offering of $ • for net proceeds to Toro of approximately $ •. If the Over-Allotment Option is exercised in full, the number of Common Shares
issued and outstanding following the completion of the Offering will be increased by •, the gross proceeds of the Offering will be $ •, the fee payable to the
Underwriters will be $• and the net proceeds to Toro will be $ • (after deducting expenses of the Offering estimated to be $ •).
Does not include 550,890 Common Shares to be issued to existing directors, officers and employees of Toro to offset salary and fee reductions, which issuance
has been approved by the TSXV.
As at March 31, 2016, 2,384,333 options to purchase Common Shares (“Options”) were outstanding under the Corporation’s stock option plan. The average
weighted exercise price of the outstanding Options as at March 31, 2016 was $0.67. As at June 13, 2016, 2,357,667 Options are outstanding under the
Corporation’s stock option plan. The average weighted exercise price of the outstanding Options as at June 13, 2016 was $0.67.
As at March 31, 2016 and June 13, 2016, the Corporation had outstanding performance warrants to purchase 12,620,778 Common Shares.
Includes Warrants issuable pursuant to the Offering. Does not include the 12,260,778 performance warrants outstanding as at March 31, 2016.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Torys LLP, tax counsel to the Corporation, and Dentons Canada LLP, counsel to the Underwriters, the following is,
as at the date of this short form prospectus, a summary of the principal Canadian federal income tax considerations under the Tax Act
generally applicable to a purchaser of the Units under the Offering who, at all relevant times for purposes of the Tax Act, (i) is or is
deemed to be resident in Canada, (ii) deals at arm’s length with the Corporation and the Underwriters, (iii) is not affiliated with the
Corporation or a subsequent purchaser of the Unit Shares, Warrant Shares or Warrants, and (iv) acquires and holds the Unit Shares, and
Warrants, and will hold the Warrant Shares issuable on the exercise of the Warrants, as capital property (a “Holder”).
Generally, the Unit Shares, Warrant Shares and Warrants will be considered to be capital property to a Holder provided that the Holder
does not use or hold the Unit Shares, Warrant Shares or Warrants in the course of carrying on a business of trading or dealing in securities
and such Holder has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
Certain Holders may, in certain circumstances, make an irrevocable election under subsection 39(4) of the Tax Act to have their Unit
Shares and Warrant Shares, and every other “Canadian security” (as defined in the Tax Act) owned by such Holder in the taxation year
of the election and in all subsequent years deemed to be capital property. The election under subsection 39(4) of the Tax Act does not
apply to Warrants. Holders should consult their own tax advisors for advice as to whether an election under subsection 39(4) of the Tax
Act is available or advisable in their particular circumstances.
This summary is not applicable to a Holder: (i) that is a “financial institution” (as defined in the Tax Act for the purposes of the “markto-market” rules); (ii) an interest in which is a “tax shelter investment” for the purposes of the Tax Act; (iii) that makes or has made an
election to report its “Canadian tax results” (as defined in the Tax Act) in a currency other than Canadian currency pursuant to section 261
of the Tax Act; (iv) that is a “specified financial institution” (as defined in the Tax Act); (v) that is a “principal-business corporation”
(as defined in the Tax Act); (vi) that is a partnership or trust; (vii) that has entered, or will enter, into a “derivative forward agreement”
(as defined in the Tax Act) with respect to the Unit Shares, Warrant Shares or Warrants and (viii) a Holder who would receive dividends
on the Unit Shares and Warrant Shares under or as part of a “dividend rental arrangement” (as defined in the Tax Act, including the
Proposed Amendments (as defined herein)) of the Holder. This summary does not address the deductibility of interest by a Holder who
borrows money to acquire Units. Such Holders should consult their own tax advisors with respect to an investment in Unit Shares,
Warrant Shares or Warrants.
This summary is based upon the current provisions of the Tax Act in force on the date hereof, all specific proposals (the “Proposed
Amendments”) to amend the Tax Act that have been publicly announced by, or on behalf of, the Minister of Finance (Canada) prior to
the date hereof and counsel’s understanding of the current published administrative policies and assessing practices of the Canada
Revenue Agency (the “CRA”) made public prior to the date hereof. This summary assumes that the Proposed Amendments will be
enacted in the form proposed, but no assurance can be given that the Proposed Amendments will be enacted in their current proposed
form, if at all. Except for the Proposed Amendments, this summary does not otherwise take into account or anticipate any changes in
law, whether by legislative, governmental or judicial decision or action, or changes in the administrative or assessing practices and
policies of the CRA. In addition, this summary does not take into account other federal or any provincial, territorial or foreign tax
legislation or considerations, which may differ significantly from the Canadian federal income tax considerations discussed in this shortform prospectus.
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A reasonable allocation of the Offering Price between the Unit Share and the Warrant that comprise each Unit will be required to
determine the cost of each to the Holder for purposes of the Tax Act. Toro has advised its counsel that, of the $ • Offering Price per
Unit, Toro intends to allocate $• to the Unit Share and $ • to the Warrant. Although the Corporation believes that such allocation is
reasonable, it is not binding on the CRA or any Holder and the CRA may not agree with such allocation. Counsel expresses no opinion
with respect to such allocation.
Common Shares
Receipt of Dividends on Common Shares
A Holder will be required to include in computing its income for a taxation year any dividends received on Common Shares.
In the case of a Holder that is an individual (other than certain trusts), such dividends will be subject to the gross-up and dividend tax
credit rules normally applicable to taxable dividends received from taxable Canadian corporations, including the enhanced gross-up and
dividend tax credit rules for dividends designated as “eligible dividends” by such corporations in accordance with the provisions of the
Tax Act.
In the case of a Holder that is a corporation, dividends received on Common Shares by the Holder will be included in the Holder’s
income for the taxation year in which such dividends are received and generally will be deductible in computing the Holder’s taxable
income. A “private corporation”, as defined in the Tax Act, and any other corporation controlled, whether because of a beneficial interest
in one or more trusts or otherwise, by or for the benefit of an individual (other than a trust) or a related group of individuals (other than
trusts), may be liable to pay a refundable tax of 38⅓% under Part IV of the Tax Act on dividends received on Common Shares to the
extent such dividends are deductible in computing taxable income for the year. This tax will generally be refunded to the Corporation
at a rate of $1.00 for every $3.00 of taxable dividend paid.
Taxable dividends received by an individual (including certain trusts) may give rise to a liability for alternative minimum tax as
calculated under the detailed rules of the Tax Act.
Disposition of Unit Shares and Warrant Shares
A disposition or a deemed disposition of a Common Share (including a Unit Share, and Warrant Share) by a Holder (except to the
Corporation) will generally result in the Holder realizing a capital gain (or a capital loss) equal to the amount, if any, by which the
proceeds of disposition of the Common Share net of any reasonable costs of disposition are greater (or less) than the Holder’s adjusted
cost base thereof. Such capital gain (or capital loss) will be subject to the tax treatment described below under “Taxation of Capital
Gains and Capital Losses”.
Generally, the cost for tax purposes of a Common Share will be the amount paid to acquire such shares and reasonable costs associated
with the acquisition. The adjusted cost base to a purchaser of a Common Share will generally be the average tax cost of all Common
Shares held by such purchaser as capital property at a particular time. Any tax consequences arising from a subsequent disposition of a
Common Share will be measured by reference to the adjusted cost base of the Common Shares based on this averaging rule.
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain (a “taxable capital gain”) realized by a Holder in a taxation year on must be included in the
Holder’s income for the year, and one-half of any capital loss (an “allowable capital loss”) realized by a Holder in a taxation year must
be deducted from taxable capital gains realized by the Holder in that year. Allowable capital losses for a taxation year in excess of
taxable capital gains for that year generally may be carried back and deducted in any of the three preceding taxation years or carried
forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under
the circumstances described in the Tax Act.
The amount of any capital loss realized on the disposition of a Common Share by a Holder that is a corporation may be reduced by the
amount of dividends received by it on such Common Share to the extent and under the circumstances described by the Tax Act. Similar
rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns Common Shares, directly or
indirectly, through a partnership or a trust. Such Holders should consult their own tax advisors.
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A Holder that is, throughout the relevant taxation year, a “Canadian-controlled private corporation”, as defined in the Tax Act, may be
liable to pay the refundable tax of 10⅔% on its “aggregate investment income”, which is defined to include taxable capital gains.
Capital gains realized by an individual (including certain trusts) may give rise to a liability for alternative minimum tax as calculated
under the detailed rules in the Tax Act.
Warrants
Exercise of Warrants
No gain or loss will be realized by a Holder upon the exercise of a Warrant to acquire a Warrant Share. When a Warrant is exercised,
the Holder’s cost of the Warrant Share acquired thereby will be the aggregate of the Holder’s adjusted cost base of such Warrant and
the exercise price paid for the Warrant Share. The cost to a Holder of a Warrant Share so acquired must generally be averaged with the
adjusted cost base of all other Common Shares held by the Holder as capital property at the time of the exercise of the Warrant to
determine the Holder’s adjusted cost base of all such Common Shares held.
Disposition and Expiry of Warrants
A disposition or deemed disposition by a Holder of a Warrant (other than upon the exercise thereof) will generally give rise to a capital
gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are
exceeded by) such Holder’s adjusted cost base of the Warrant. In the event of the expiry of an unexercised Warrant, the Holder will
generally realize a capital loss equal to the Holder’s adjusted cost base of such Warrant. The tax treatment of capital gains and capital
losses is discussed in greater detail above under “Taxation of Capital Gains and Capital Losses”.
PRICE RANGE AND TRADING VOLUME
The Common Shares trade on the TSXV under the trading symbol “TOO”. The following table sets forth the price range and trading
volume of the Common Shares as reported by the TSXV for the periods indicated in twelve months period before the date hereof.
Additional historical trading information in respect of the Common Shares is contained in the AIF under the heading “Market for
Securities”.
Period
High ($)
Low ($)
Volume
2015
June
July
August
September
October
November
December
0.78
0.59
0.49
0.46
0.59
0.55
0.42
0.55
0.40
0.30
0.35
0.37
0.41
0.27
1,645,892
1,331,344
1,357,845
1,412,977
3,725,903
1,072,368
2,003,805
2016
January
February
March
April
May
June (1-10)
0.33
0.30
0.39
0.31
0.31
0.28
0.20
0.21
0.26
0.25
0.26
0.25
1,299,310
2,589,751
2,146,066
2,818,342
1,416,273
719,688
PLAN OF DISTRIBUTION
The Offering
Pursuant to the Underwriting Agreement, Toro has agreed to issue and sell an aggregate of • Units to the Underwriters, and the
Underwriters have severally, and not jointly, nor jointly and severally, agreed to purchase such Units on the Closing Date, subject to the
terms and conditions stated in the Underwriting Agreement, at a price of $ • per Unit. The obligations of the Underwriters under the
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Underwriting Agreement may be terminated upon the occurrence of certain stated events. In consideration for their services in
connection with the Offering, the Underwriters will be paid a fee of $ • per Unit. The Offering Price was determined by negotiation
between Toro and AltaCorp Capital Inc., on its own behalf and on behalf of the other Underwriters.
The Corporation has granted to the Underwriters the Over-Allotment Option, exercisable in whole or in part, at any time, from time to
time, until the day that is 30 days following the closing of the Offering, to purchase up to an additional • Over-Allotment Units at a price
of $ • per Over-Allotment Unit on the same terms and conditions as the issuance of the Units for the purposes of covering the
Underwriters’ over-allocation position, if any, and for market stabilization purposes. Each Over-Allotment Unit consists of one Unit
Share Over-Allotment Unit Share and one-half of one Over-Allotment Warrant (each, an “Over-Allotment Warrant”). Each whole
Over-Allotment Warrant will entitle the holder thereof to acquire, subject to adjustment in accordance with the Warrant Indenture, one
Warrant Share (an “Over-Allotment Warrant Share”) at an exercise price of $ • per Over-Allotment Warrant Share at any time prior
to 5:00 p.m. (Calgary time) on the date that is • months following the initial Closing Date. A purchaser who acquires securities forming
part of the Underwriters’ over-allocation position acquires those securities under this short form prospectus, regardless of whether the
Underwriters’ over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market
purchases. If the Over-Allotment Option is exercised in full, the total Offering, fee payable to the Underwriters and net proceeds to the
Corporation (before deducting expenses of the Offering) will be $ •, $ • and $ •, respectively. This short form prospectus also qualifies
the distribution of the Over-Allotment Units pursuant to the exercise of the Over-Allotment Option.
The obligations of the Underwriters under the Underwriting Agreement are several (and not joint nor joint and several), and may be
terminated at their discretion upon the occurrence of certain stated events, including, in the event that at or prior to closing of the
Offering: (i) any order to cease or suspend trading in any securities of the Corporation, or prohibiting or restricting the distribution of
any of the Units is made, or proceedings are announced, commenced or threatened for the making of any such order, by any securities
commission or similar regulatory authority, the TSXV or by any other competent authority, and the same has not been rescinded, revoked
or withdrawn; (ii) any inquiry, investigation (whether formal or informal) or other proceeding in relation to the Corporation or any of
its directors or senior officers is announced, commenced or threatened by any federal, provincial, state, municipal, other governmental
department or any securities commission or similar regulatory authority, the TSXV or by any other competent authority, if, in the sole
opinion of an Underwriter, acting reasonably, the announcement or commencement thereof or change, as the case may be, seriously
adversely affects, or will seriously adversely affect, the distribution or market price or value of any of the Units and which has not been
rescinded, revoked or withdrawn; (iii) there should develop, occur or come into effect or existence any event, action, state, condition
(including, without limitation, terrorism or accident) or major financial occurrence of national or international consequence, or any
action by government, law or regulation, enquiry or any other occurrence of any nature whatsoever which in the sole opinion of an
Underwriter, acting reasonably, seriously adversely affects, or involves, or might be reasonably expected to seriously adversely affect
or involve, the financial markets in Canada or the United States or the business, operations or affairs of the Corporation and its
subsidiaries (taken as a whole); (iv) there should occur any change, event, fact or circumstance (actual, contemplated or threatened) or
any development that could result in such a change, event, fact or circumstance, any of which, in the sole opinion of the Underwriter,
acting reasonably, could reasonably be expected to have a significant adverse effect on the business, operations or affairs of the
Corporation and its subsidiaries (taken as a whole) or the market price or value of the Units; (v) an Underwriter determines that the
Corporation shall be in breach of, default under or non-compliance with any material representation, warranty, covenant, term or
condition of the Underwriting Agreement; or (vi) an Underwriter becomes aware, as a result of its due diligence review, of any adverse
material information, fact or change (determined solely by the Underwriter, acting reasonably) with respect to the Corporation and its
subsidiaries (taken as a whole) which had not been publicly disclosed or disclosed or made available in writing to the Underwriters prior
to the date of the Underwriting Agreement or which occurred after the effective date of the Underwriting Agreement but prior to the
closing time of the Offering which in the sole opinion of the Underwriters or any one of them, acting reasonably, could be expected to
have a material adverse effect on the market price or value of the Units.
If an Underwriter fails to purchase the Units which it has agreed to purchase, the remaining Underwriter(s) may terminate their obligation
to purchase their allotment of Units, or may, but are not obligated to, purchase the Units not purchased by the Underwriter or
Underwriters which fail to purchase; provided, however, that in the event that the percentage of the total number of Units which one or
more Underwriters has failed or refused to purchase is not more than •% of the total number of the Units which the Underwriters have
agreed to purchase, the other Underwriters shall be obligated severally to purchase on a pro rata basis the Units (other than pursuant to
the Over-Allotment Units except to the extent it shall have been exercised) which would otherwise have been purchased by the one or
more Underwriters which failed or refused to purchase. The Underwriters are, however, obligated to take up and pay for all Units if any
are purchased under the Underwriting Agreement. The Underwriting Agreement also provides that Toro will indemnify the Underwriters
and their directors, officers, agents, shareholders and employees against certain liabilities and expenses.
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Toro has been advised by the Underwriters that, in connection with the Offering, the Underwriters may effect transactions that stabilize
or maintain the market price of the Unit Shares and Warrants at levels other than those that might otherwise prevail in the open market.
Such transactions, if commenced, may be discontinued at any time.
The Underwriters propose to offer the Units initially at the Offering Price. After a reasonable effort has been made to sell all of the Units
at the price specified, the Underwriters may subsequently reduce the selling prices to investors from time to time in order to sell any of
the Units remaining unsold. In the event the Offering Price is reduced, the compensation received by the Underwriters will be decreased
by the amount the aggregate price paid by the purchasers for the Units is less than the gross proceeds paid by the Underwriters to Toro
for the Units. Any such reduction will not affect the proceeds received by Toro.
Toro has agreed that prior to 90 days after the Closing Date, it will not directly or indirectly, sell or offer to sell any Common Shares or
otherwise lend, transfer or dispose of any securities exchangeable, convertible or exercisable into Common Shares, without the consent
of AltaCorp Capital Inc., on its own behalf and on behalf of the Underwriters, such consent not to be unreasonably withheld other than:
(i) in connection with the Offering or the Over-Allotment Option; (ii) in connection with the grant or exercise of Options; (iii) in
connection with the issuance of up to 550,890 Common Shares to employees, officers and directors as compensation for salary and fee
decreases; (iv) in connection with the exchange, transfer, conversion or exercise right of existing outstanding securities or existing
commitments to issue such securities; and (v) in connection with the exchange or exercise of Warrants.
Toro has applied apply to list the Unit Shares, Warrants and Warrant Shares issuable pursuant to the Offering on the TSXV. Such listing
will be subject to Toro fulfilling all of the listing requirements of the TSXV.
Subscriptions for Units will be received subject to rejection or allotment in whole or in part and the right is reserved to closing the
subscription books at any time without notice. The Closing Date is anticipated to occur on or about June 28, 2016 but in any event not
later than the date that is 42 days after the date of the receipt for the final short form prospectus.
The Unit Shares and Warrants will be registered and deposited directly with CDS or its nominee under the electronic book-based system
administered by CDS. No certificates evidencing the Unit Shares or Warrants will be issued to purchasers except in certain limited
circumstances. Purchasers of Units will receive only a customer confirmation from the Underwriter or other registered dealer who is a
CDS participant and from or through whom a beneficial interest in the Units is purchased.
The Units offered hereby have not been and will not be registered under the 1933 Act, or any state securities laws, and accordingly may
not be offered, sold or delivered, within the United States except in transactions exempt from the registration requirements of the 1933
Act and applicable state securities laws. Except as permitted in the Underwriting Agreement and pursuant to an exemption from the
registration requirements of the 1933 Act and applicable state securities laws, the Underwriters will not offer or sell the Units within the
United States. The Underwriting Agreement permits the Underwriters to offer and resell the Units that they have acquired pursuant to
the Underwriting Agreement to “qualified institutional buyers” (as defined in Rule 144A under the 1933 Act) (“Rule 144A”), in the
United States, provided such offers and sales are made in transactions exempt from the registration requirements of the 1933 Act in
accordance with Rule 144A. The Underwriting Agreement also provides that the Underwriters will offer and sell the Units outside the
United States only in accordance with Regulation S under the 1933 Act. This short form prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the securities within the United States.
In addition, until 40 days after the commencement of the Offering, an offer or sale of Units, Common Shares or Warrants within the
United States by any dealer (whether or not participating in the Offering) may violate the registration requirements of the 1933 Act if
such offer or sale is made otherwise than in accordance with an exemption from registration under the 1933 Act.
USE OF PROCEEDS
The net proceeds to Toro from the sale of the Units hereunder are estimated to be $ • after deducting the fees of $ • payable to the
Underwriters and the estimated expenses of the Offering of $ •. If the Over-Allotment Option is exercised in full, the aggregate net
proceeds of the Offering are estimated to be $ • and after deducting the fee of $• payable to the Underwriters and estimated expenses of
the Offering of $ •. See “Plan of Distribution”.
The net proceeds of the Offering are expected to initially be used as follows:
Expansion of Capital Budget
$ • million
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Partial Repayment of Credit Facility
General corporate purposes
$ • million
$ • million
The Corporation intends to use the proceeds from the Over-Allotment Option, if any, to further expand its Alberta Viking capital budget
in addition to potentially source and secure additional strategic tuck-in acquisitions. See “Recent Developments”, “Consolidated
Capitalization” and “Plan of Distribution”.
The Corporation has used proceeds of the indebtedness under the Credit Facility for a number of purposes. The principal purposes of
the indebtedness incurred by the Corporation were: (i) to fund one tuck-in acquisition (approximately $ • million); (ii) to partially fund
the Corporation’s fourth quarter 2015 drilling and completion program (approximately $ • million); and (iii) to fund the replacement of
rented production facilities with permanent capital components during the last quarter of 2015 and the first quarter of 2016
(approximately $ • million).
For further details on the Credit Facility, see “Recent Developments”, “Relationship between Toro and a Certain Underwriter” and
“Consolidated Capitalization”.
The business objective the Corporation expects to accomplish using the net proceeds is to continue to fund its business operations and
implement its business plan of focusing on light oil development and exploitation of known or existing reservoirs through the use of
technology advancements. In order for the aforementioned business objective to be accomplished successfully, the Corporation will
require the approval of the amended Credit Facility or to negotiate an alternative source of financing.
The Corporation had negative operating cash flow in its most recent interim financial period and financial year. The Corporation’s
ability to generate positive operating cash flow will depend on a number of factors, including, among others, commodity prices and the
success of the Corporation’s drilling programs. To the extent the Corporation has negative cash flows in future periods, the Corporation
may use a portion of its general working capital or seek additional equity financing to fund such negative cash flows. See “Risk Factors”.
While Toro intends to use the net proceeds as stated above, there may be circumstances that are not known at this time where a
reallocation of the net proceeds may be advisable for business reasons that management believes are in the Corporation’s best interests.
PRIOR SALES
The following table summarizes the issuances of Common Shares or securities convertible into Common Shares for the 12-month period
prior to the date hereof.
Date of Issuance
July 2015
April 13, 2016
Securities
Common Shares
Options
Number of
Securities
350,000 (1)
175,000 (2)
Price per
Security
$0.50
$0.275
Notes:
(1)
(2)
Common Shares issued to private company in relation to the production royalty agreement.
These Options were later terminated on June 9, 2016 as the recipient resigned prior to any portion vesting.
RELATIONSHIP BETWEEN TORO AND A CERTAIN UNDERWRITER
• is a direct or indirect wholly-owned subsidiary of a Canadian chartered bank which is a lender to Toro and to which Toro is indebted.
Consequently, Toro may be considered to be a connected issuer of this Underwriter under applicable securities laws.
As at the date hereof, approximately $6.55 million was outstanding under the Credit Facility. The financial covenant under the Credit
Facility requires that the Corporation maintain a working capital ratio of not less than 1.00:1.00 at all times. As at March 31, 2016,
Toro’s ratio equated to 0.94:1 which is marginally below the requirement. As part of the Corporation’s ongoing discussions with its
lender, a waiver in respect of the first quarter’s covenant was requested and has been verbally granted.
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The decision to distribute the Units offered hereunder and the determination of the terms of the distribution were made through
negotiations primarily between Toro and AltaCorp Capital Inc. on its own behalf and on behalf of the other Underwriters. The lender
under the Credit Facility did not have any involvement in such decision or determination, but has been advised of the issuance and terms
thereof. As a consequence of this issuance, • will receive its respective share of the Underwriters’ fee.
INTEREST OF EXPERTS
Certain legal matters relating to the Offering will be passed upon by Torys LLP on behalf of Toro, and by Dentons Canada LLP on
behalf of the Underwriters. As at the date hereof, the partners and associates of Torys LLP, as a group, and Dentons Canada LLP, as a
group, each own, directly or indirectly, less than 1% of the Common Shares, respectively. Scott Cochlan, the Corporate Secretary of
Toro and Janan Paskaran, the Assistant Corporate Secretary, are each partners of Torys LLP.
Reserve estimates contained in certain of the documents incorporated by reference into this short form prospectus are based upon reports
prepared by Sproule Associates Limited (“Sproule”), as independent qualified reserves evaluators. As of the date hereof, the principals
of Sproule and its designated professionals, as a group, own, directly or indirectly, less than 1% of the outstanding Common Shares.
MNP LLP, Chartered Professional Accountants, has provided opinions in certain of the documents incorporated by reference in this
short form prospectus. MNP LLP is independent of Toro within the meaning of the Rules of Professional Conduct of the Institute of
Chartered Accountants of Alberta.
ELIGIBILITY FOR INVESTMENT
In the opinion of Torys LLP, counsel to the Corporation, and Dentons Canada LLP, counsel to the Underwriters, based on current
provisions of the Tax Act, as of the date hereof, the Unit Shares, Warrants and Warrant Shares, if issued on the date hereof, would be
qualified investments for purposes of the Tax Act for trusts governed by registered retirement savings plans (“RRSP”), registered
retirement income funds (“RRIF”), deferred profit sharing plans, registered education savings plans, registered disability savings plans
and tax-free savings accounts (“TFSA”) (each as defined in the Tax Act and collectively, “Deferred Income Plans”), provided that, as
of the date hereof and at all relevant times: (i) the Common Shares of the Corporation are listed on a “designated stock exchange” as
defined in the Tax Act (which currently includes Tiers 1 and 2 of the TSXV); and (ii) in the case of the Warrants, neither the Corporation,
nor any person with whom the Corporation does not deal at arm’s length for the purposes of the Tax Act, is an annuitant, a beneficiary,
an employer or a subscriber under, or a holder of, the particular Deferred Income Plan.
Notwithstanding the foregoing, if the Unit Shares, Warrants or the Warrant Shares are a “prohibited investment” for a particular TFSA,
RRSP or RRIF (a “Registered Plan”), the holder or annuitant of the particular Registered Plan, as the case may be, will be subject to a
penalty tax as set out in the Tax Act. Provided that the holder or annuitant of a particular Registered Plan deals at “arm’s length” (as
defined in the Tax Act) with the Corporation and does not hold a “significant interest” (as defined in the Tax Act for the purposes of the
prohibited investment rules) in the Corporation, the Unit Shares, Warrants and Warrant Shares should not be prohibited investments for
the particular Registered Plan.
Holders of Units should consult with their own tax advisors with respect to the prohibited investment rules. Prospective
purchasers who intend to hold Unit Shares, Warrants or Warrant Shares in a Deferred Income Plan are advised to consult their
own tax advisors.
RISK FACTORS
An investment in the Units is subject to certain risks due to the nature of Toro’s involvement in the exploration for, and the
acquisition, development and production of, oil and natural gas reserves. Investors should carefully consider the risks described
under the heading “Risk Factors” in the AIF incorporated by reference in this short form prospectus, the risks identified
elsewhere in this short form prospectus and the documents incorporated by reference herein and the risk factors set forth below
prior to making an investment in the Units.
Credit Facility Risk
Toro has the Credit Facility and in early June 2016, the Corporation received draft terms of an amended credit facility from the lender
as described under “Recent Developments” and “Consolidated Capitalization”. There is a risk that the amendment to the Credit Facility
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will not be completed on the proposed terms or at all. There can be no assurance that the proposed amount will be adequate for Toro’s
future financial obligations including its capital expenditure program, or that additional funds will be available under the Credit Facility
or from other sources. The facility is payable on demand. In the event that the amendment to the Credit Facility is not completed, the
lender may demand repayment of the Credit Facility in full. There is no assurance that Toro would be able to make such repayment in
the time allowed by its lender.
Toro is required to comply with its covenants under the Credit Facility. In the event that Toro does not comply with its covenants under
the Credit Facility, access to the Credit Facility could be restricted or accelerated repayment could be required by its lender and debt
service costs would likely increase. The financial covenant under the Credit Facility requires that the Corporation maintain a working
capital ratio of not less than 1.00:1.00 at all times. As at March 31, 2016, Toro’s ratio equated to 0.94:1 which is marginally below the
requirement. As part of the Corporation’s ongoing discussions with its lender, a waiver in respect of the first quarter’s covenant was
requested and has been verbally granted. There is no assurance that future waivers will be obtained and a failure to obtain the waiver
could lead to the reduction in the size of the Credit Facility or a demand for repayment of the Credit Facility in full. There is no assurance
that Toro would be able to make such repayment in the time allowed by its lender.
Market Conditions
As a result of the weakened global economic situation, particularly in regard to the oil and gas industry, Toro, along with all other oil
and gas issuers, may face reduced cash flow and restricted access to capital until these conditions improve. A prolonged period of
adverse market conditions may affect Toro’s ability to finance planned capital expenditures. In addition, a prolonged period of adverse
market conditions may impede Toro’s ability to refinance its credit facilities or arrange alternative financing for operations, capital
expenditures and future acquisition opportunities. In each case, Toro’s ability to maintain and grow its reserves and fully exploit its
properties for the benefit of Shareholders would be adversely affected. As well, given the recent volatility in commodity prices and in
Canadian and global equity markets, the trading prices of the Common Shares in the future may be subject to considerable volatility.
Future trading prices of the Common Shares may be significantly below current levels, the Offering Price and the exercise price of the
Warrants.
Volatility of Market Price of Common Shares
The market price of the Common Shares may be volatile. The volatility may affect the ability of holders of Common Shares to sell the
Common Shares at an advantageous price. Market price fluctuations in the Common Shares may be due to the Corporation’s operating
results failing to meet the expectations of securities analysts or investors in any quarter, downward revision in securities analysts’
estimates, governmental regulatory action, adverse change in general market conditions or economic trends, acquisitions, dispositions
or other material public announcements by the Corporation or its competitors, along with a variety of additional factors, including,
without limitation, those set forth under “Special Note Regarding Forward-Looking Statements” herein and in the AIF. In addition, the
market price for securities in the stock markets recently experienced significant price and trading fluctuations. These fluctuations have
resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating
performance. These broad market fluctuations may adversely affect the market prices of the Common Shares.
Going Concern
The Corporation has included a “going concern” qualification in the notes to the Corporation’s unaudited condensed interim consolidated
financial statements for the period ended March 31, 2016 and which is incorporated by reference into this short form prospectus.
If the Corporation is unable to obtain sufficient funding, its business, prospects, financial condition and results of operations will be
materially and adversely affected and the Corporation may be unable to continue as a going concern. If the Corporation is unable to
continue as a going concern, the Corporation may have to liquidate its assets and investors will likely lose all or a part of their investment.
If the Corporation seeks additional financing to fund business activities in the future and there remains doubt about its ability to continue
as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable
terms or at all.
Negative Operating Cash Flow
The Corporation had negative operating cash flow in its most recent interim financial period and financial year. The Corporation’s
ability to generate positive operating cash flow will depend on a number of factors, including, among others, commodity prices and the
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success of the Corporation’s drilling programs. To the extent the Corporation has negative cash flows in future periods, the Corporation
may use a portion of its general working capital or seek additional equity financing to fund such negative cash flows. There is no
assurance that additional capital or other types of financing will be available if needed or that these financings will be on terms at least
as favourable to the Corporation as those previously obtained, or at all.
Absence of Public Trading Market for Warrants
Currently there is no public market for the Warrants. The Corporation cannot predict at what price the Warrants will trade and there can
be no assurance that an active market for the Warrants will develop, or if developed, that such market will be sustained. To the extent
that an active market for the Warrants does not develop or is not sustained, the liquidity and trading prices for the Warrants may be
adversely affected. The Corporation has applied to list the Warrants and the Warrant Shares on the TSXV. Listing will be subject to
the Corporation fulfilling all of the listing requirements of the TSXV.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of Toro are MNP LLP, Chartered Professional Accountants, Suite 1500, 640 – 5th Avenue S.W., Calgary, Alberta, T2P 3G4.
The transfer agent and registrar for the Common Shares is TMX Equity Services at its principal office in Calgary, Alberta.
The Warrant Agent for the Warrants will be TMX Equity Transfer and Trust Company at its principal offices in Calgary, Alberta.
STATUTORY AND CONTRACTUAL RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase
securities. This right may be exercised within two Business Days after receipt or deemed receipt of a prospectus and any amendment.
In several of the provinces, securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions,
revisions of the price or damages, if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser,
provided that the remedies for rescission or revisions of the price or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s province. Purchasers should refer to any applicable provisions of the securities
legislation of the province in which the purchaser resides for the particulars of these rights or consult with a legal advisor.
C-1
CERTIFICATE OF THE CORPORATION
Dated: June 13, 2016
This short form prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of
all material facts relating to the securities offered by this short form prospectus as required by the securities legislation of each of the
Provinces of Canada except Québec.
(signed) “Barry Olson”
President and Chief Executive Officer
(signed) “Greg G. Phaneuf”
Vice-President, Finance and Chief Financial Officer
ON BEHALF OF THE BOARD OF DIRECTORS
(signed) “James Mahoney”
Director
(signed) “Dean Bernhard”
Director
C-2
CERTIFICATE OF THE UNDERWRITERS
Dated: June 13, 2016
To the best of our knowledge, information and belief, this short form prospectus, together with the documents incorporated herein by
reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this short form prospectus
as required by the securities legislation of each of the Provinces of Canada except Québec.
ALTACORP CAPITAL INC.
By: (signed) “Gurdeep S. Gill”