On September 24, 2015, the Canadian Securities Administrators (the “CSA”) announced the final implementation of a streamlined prospectus-exempt rights offering regime for reporting issuers. The amendments are intended to address concerns that the time and cost of conducting a rights offering under the current regime make such offerings an unattractive financing option for reporting issuers.
The CSA have designed the new prospectus-exempt rights offering regime to be more appealing to reporting issuers by, among other things, introducing a new user-friendly form of rights offering circular (the “Circular”), removing the regulatory review process prior to the use of the Circular and increasing the permitted dilution limit from 25% to 100% in any 12-month period. Provided all necessary ministerial approvals are obtained, the amendments and policy changes will come into force on December 8, 2015.
Highlights of the new prospectus-exempt rights offering process are set out below.
Principal Requirements of the Exemption
The new rights offering prospectus exemption will be available to non-investment fund reporting issuers which are up-to-date on their continuous disclosure obligations. The basic subscription privilege must be made available on a pro rata basis to all security holders in Canada. The subscription price for a security issuable on exercise of a right will have to be lower than the market price of the security on the day the rights offering notice (discussed below) is filed, and the exercise period for the rights must be no less than 21 days and no more than 90 days commencing the day after the rights offering notice is sent to security holders.
Rights Offering Notice
A rights offering notice disclosing basic details about the rights offering and how to electronically access the Circular must be filed on SEDAR and sent to each security holder resident in Canada before the commencement of the exercise period for the rights. The CSA anticipates that the notice will be no longer than two pages in length. In Quebec, the notice must be prepared in French or in French and English.
Rights Offering Circular
Issuers will be required to file (but not send to security holders) a Circular on SEDAR concurrently with the filing of the rights offering notice. The Circular will be in question-and-answer format and will contain disclosure about, among other things, the offering, the proposed use of funds and insider participation but will not require information about the issuer’s business. The CSA anticipates that a Circular will be no longer than 10 pages in length. As with the notice, Circulars provided in Quebec will have to be prepared in French or in French and English. The Circular will not be subject to advance review by securities regulators.
Issuers will be able to distribute up to 100% of their outstanding securities under a prospectus-exempt rights offering in any 12-month period, representing a significant increase from the current 25% dilution limit.
Statutory civil liability for secondary market disclosure will apply to the acquisition of securities in a rights offering conducted under the new prospectus-exempt rights offering process, which is intended to ensure that investors relying on a Circular have a right of action in respect of a misrepresentation in an issuer’s continuous disclosure documents (including the Circular). The Circular must also contain a statement that there is no material fact or material change about the issuer that has not been generally disclosed.
Stand-By Commitment Prospectus Exemption
Securities issued to a stand-by guarantor (a person who agrees to acquire securities not subscribed for under the basic subscription privilege or the additional subscription privilege) as principal will be subject to a new prospectus exemption. Unlike the amendments to the prospectus-exempt rights offering regime proposed in November of 2014 (“CSA Proposes Amendments to Prospectus Exemption For Rights Offerings”), securities issued to a stand-by guarantor will not be subject to a restricted four-month hold period on resale.
On the closing date or as soon as practicable thereafter, the issuer must issue and file a news release containing certain information, including the aggregate gross proceeds raised under the rights offering, the number of securities distributed under any stand-by commitment and the amount of any commissions paid in connection with the offering.