On September 24, 2015, The Canadian Securities Administrators (CSA) adopted final amendments to various National Instruments and Multilateral Instruments that will result in changes to Rights Offerings.
On November 3, 2015, it was announced that the amendments were approved and would come into force on December 8, 2015.
Previously Rights Offerings were allowed under National Instrument 45-101 – Rights Offerings. NI 45-101 has been repealed and Rights Offerings can now be issued under a streamlined prospectus exemption (the Rights Offering Exemption) under National Instrument 45-106 Prospectus Exemptions (NI 45-106).
The purpose of the amendments is to create a more streamlined process for reporting issuers who want to raise capital through a Rights Offering. The CSA conducted research and found that the existing process for Rights Offerings was too lengthy and expensive and, as a result, very few issuers were issuing them.
A Rights Offering is a way for an issuer to raise capital by offering additional shares to their existing securityholders. Each securityholder receives a number Rights, based on their existing holdings, allowing them to purchase a certain number of additional shares at a specific subscription price, within a specific time frame.
Some of the new, simplified, requirements for Rights Offerings are:
- There is no longer a requirement for regulatory review prior to issuance of the rights circular.
- There is a new form of notice that has been created (Form 45-106F14). This form has to be filed on SEDAR and sent to securityholders, along with the rights certificate. It is to be prepared in plain language, in a Q&A format, and is not expected to be more than 2 pages long. It must advise the securityholder about how to access the full circular electronically.
- There is a new form of simplified rights offering circular (Form 45-101F15). The circular must be in plain language, in a Q&A format, and is not expected to be more than 10 pages long. It must be filed electronically on SEDAR, but there is no requirement to send it to securityholders. The notice (Form 45-1016F14) must provide information about how to access the circular either on-line or by requesting a hard copy.
- The dilution limit has been increased from 25% to 100%.
- The exercise period for the rights must be at least 21 days and not more than 90 days.
- The subscription price must be lower than the market price of the security on the day the rights offering notice is filed.
- An additional subscription privilege can be offered. This means that if any securityholder does not exercise their Rights to purchase shares, another securityholder can. Each securityholder using the additional subscription privilege can only receive, at a maximum, the same number of securities as they purchased through their original subscription.
On January 18, 2016, after the adoption of the final amendments by the CSA, the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXv) provided guidance to issuers in respect of the new Rights Offering Exemptions offered under NI 45-106. The TSX issued
Staff Notice 2016-0002 and the TSXv issued a
TSXv Corporate Finance Bulletin. Both exchanges have indicated that they intend to update their manuals.
Certain of the guidance provided contains details about requirements for exchange pre-clearance of Rights Offering documents, determination of the record date, minimum subscription and warrant exercise prices and listing requirements. Issuers should consult their own advisors to understand their specific requirements and obligations.
If you are interested in taking advantage of the new simplified Rights Offering process, please contact your Relationship Manager