Rainmaker Entertainment Announces Filing of Preliminary Prospectus for Rights Offering to Shareholders
Rainmaker Entertainment Inc. has announced that further to its press release dated January 7th 2013, the company has filed and obtained a receipt for a preliminary prospectus in respect of a proposed rights offering of unsecured convertible debentures (“Debentures”) for aggregate gross proceeds of up to $5,828,392 (the “Rights Offering”). Concurrent with the Rights Offering, Rainmaker has also agreed to issue an additional $300,000 principal amount of Debentures on a private placement basis (the “Private Placement”). The Rights Offering and the Private Placement remain subject to the approval of the Toronto Stock Exchange (“TSX”) and applicable securities regulatory authorities.
Number of Rights to be Granted
One right will be granted to shareholders on the basis of one right for each issued and outstanding common share. There are 17,485,175 common shares issued and outstanding on the date hereof. The rights will be transferable and Rainmaker has applied to list the rights for trading on the TSX.
Concurrent with the issue of Debentures under the Rights Offering, Cavan Consulting Limited (“Cavan”) has agreed to purchase $300,000 principal amount of Debentures under the Private Placement and has agreed, under the backstop commitment described below, to purchase up to an additional $100,000 principal amount of Debentures. The Debentures issued under the Private Placement will have the same attributes as the Debentures issued under the Rights Offering, subject to applicable statutory hold periods. Craig Graham, the Chief Executive Officer and Executive Chairman of Rainmaker, is a director, officer and shareholder of Cavan.
Attributes of the Convertible Debentures
Three thousand (3,000) rights will entitle the holder thereof to purchase Debentures in the aggregate principal amount of $1,000. The Debentures will be a direct obligation of Rainmaker, will bear interest at a rate of 8% per annum, will have a maturity date of March 31, 2016 and will be unsecured. The Debentures will be convertible into common shares at a price of $0.20 per share, subject to adjustment in certain circumstances. Debentures will only be issued in denominations of $1,000 principal amount.
Investment and Backstop Commitments
In connection with the Rights Offering and Private Placement, Rainmaker has entered into a standby purchase and investment agreement with funds managed by McElvaine Investment Management Ltd., Chou Associates Management Inc. and Stacey Muirhead Capital Management and with Cavan pursuant to which the standby purchasers have agreed, subject to certain terms and conditions, to ensure a minimum of $5.0 million principal amount of Debentures are sold pursuant to the Rights Offering and Private Placement. No fee is payable to any party in respect of the backstop commitment. Further details regarding the backstop commitment are available in the preliminary prospectus and with reference to the agreement, which has been filed on SEDAR.
The record date for the Proposed Offering will be determined following the approval of the Rights Offering by the TSX and applicable securities regulatory authorities.
Expiry of Exercise Period
Shareholders will be provided a period of not less than 21 calendar days to exercise their rights. The expiry date will be determined once the record date is known.
Shareholders will be provided with a basic subscription privilege that will entitle them to subscribe for Debentures on a pro rata basis based upon the number and percentage of common shares owned by them on the record date. Shareholders will be provided with an additional subscription privilege that will entitle them to subscribe for additional Debentures in the event that less than all of the shareholders exercise their rights.
Use of Proceeds
The proceeds of the Proposed Offering will be used to fund Rainmaker’s commitments in respect of the feature length animated film production which it has preliminarily agreed to co-invest in and co-produce and for working capital purposes.
MI 61-101 Disclosure
The purchase of Debentures under the Private Placement by Cavan constitutes a “related party transaction” for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) since Mr. Graham is a director and officer of Rainmaker and a director, officer and shareholder of Cavan. Rainmaker will rely on the exemptions from the formal valuation and minority shareholder approval requirements of MI 61-101 contained in Sections 5.5(a) and 5.7(1)(a) of MI 61-101 in respect of the related party transaction based on the fact that the fair market value of the related party participation in the Private Placement will not exceed 25% of Rainmaker’s market capitalization prior to the closing of the Private Placement. The purchase of Debentures by Cavan was approved by the Board of Directors of Rainmaker, with Mr. Graham declaring his interest and abstaining from voting.
This news release is not an offer of securities for sale in the United States. The rights and the Debentures will not be registered under the U.S. Securities Act of 1933, or the securities laws of any state, and may not be offered or sold in the United States or to, or for the account or benefit of, any U.S. person or person in the United States without registration unless an exemption from registration is available.
Certain information set forth in this press release contains “forward-looking statements”, and “forward-looking information” under applicable securities laws. These statements relate to future events or future performance and include, but are not limited to, statements regarding the timing of the Rights Offering. The words “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect”, and similar expressions are often used to identify forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific. In evaluating these statements, readers should specifically consider risks which may cause actual results to differ materially from any forward-looking statement. These risks include, but are not limited to, risks relating to the possibility that the Rights Offering may not be completed. The forward-looking statements contained herein are based upon certain assumptions considered reasonable at the time they were prepared. Such assumptions include, but are not limited to, assumptions regarding: (i) general economic conditions, (ii) Rainmaker’s future business prospects and opportunities, (iii) Rainmaker’s ability to complete any or all of its proposed production work, and (iv) the outcome of the Rights Offering. Should one or more of the risks or uncertainties identified herein materialize, or should the assumptions underlying the forward-looking statements prove to be incorrect, then actual results may vary materially from those described herein. In respect of Rainmakers business generally, readers should also refer to Forward-looking Statements in the Management Discussion & Analysis for the third quarter of 2012. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required by applicable securities laws, Rainmaker does not assume any obligation to update the forward-looking statements contained herein.