Canada: Exchanges Provide Guidance In Respect Of New Rights Offering Rules

Last Updated: January 21 2016
Article by André Boivin

Further to the new rights offering regime adopted by the Canadian Securities Administrators that came into force on December 8, 2015 (see our e-Lert of December 8, 2015), the Toronto Stock Exchange (TSX) has published its new guidance with respect to Section 614 - Rights Offerings of the TSX Company Manual (the Manual). The TSX Venture Exchange (TSXV) has also published a Corporate Finance Bulletin providing guidance with respect to Policy 4.5 - Rights Offerings of the TSX Venture Exchange Corporate Finance Manual.  Both Exchanges intend to amend their formal rules to incorporate the guidance contained in the foregoing publications.

Pre-clearance of Rights Offering Documents

Notwithstanding that a rights offering circular is no longer subject to CSA review and approval prior to delivery to a listed issuer's security holders, both Exchanges will still require the pre-clearance of rights offering documents including the rights offering notice (Form 45-106F14), together with the rights offering circular (Form 45-106F15), or rights offering prospectus (the Rights Offering Documents). The Rights Offering Documents should be filed in draft form with TSX at least five (5) trading days prior to finalization. The TSXV Guidance does not specify a minimum number of days like the TSX Guidance does, it only indicates that the Rights Offering Documents should be filed in draft form with the TSXV prior to finalization in order to provide sufficient time for TSXV to review the pricing, mechanics and timing of the rights offering in order to maintain an orderly market for the trading of the listed securities and the rights.

Determination of Record Date

Effective immediately, both Exchanges have reduced the advance notification period to set the record date for all rights offerings from seven (7) trading days to five (5) trading days.

Additional TSXV Guidance

Subsection 4.3 of TSXV Policy 4.5 is proposed to be amended to provide that the subscription price for securities to be acquired on the exercise of rights cannot in any case be less than $0.01. Until such time as the proposed amendments to TSXV Policy 4.5 become effective, the TSXV will, on application, grant waivers of the currently stipulated $0.05 minimum subscription price, provided that the subscription price for the securities to be acquired on the exercise of the rights is not less than $0.01.

Subsection 4.4 of TSXV Policy 4.5 is proposed to be amended to provide that the minimum exercise price of a warrant forming part of a unit to be acquired on the exercise of a right must not be less than the market price prior to the news release announcing the rights offering and in any case must not be less than $0.05.

TSXV Policy 4.5 includes references to the rights being listed for trading on the TSXV and is proposed to be amended to expressly provide that rights may be, but are not required to be, listed for trading on the TSXV, at the election of the issuer. Until such time as the proposed amendments to TSXV Policy 4.5 become effective, the TSXV will, on application, approve a particular rights offering where the issuer elects not to list the rights for trading. An issuer that has applied for or intends to apply for a waiver of the listing requirement for a rights offering must specifically disclose that it has made such application or intends to make such application, as the case may be, in the press release announcing the rights offering. In any case all rights must be transferable.
It is also proposed that the Policy be amended to provide that shareholder approval of the creation of any new control person of an issuer as a consequence of a stand-by commitment for a rights offering generally will not be required, provided that the rights are listed for trading on the TSXV and the subscription price for the rights is at a “significant discount” to market price. A “significant discount” would be equal to at least the maximum discount to market price allowed for private placements. If either of these criteria is not satisfied, the TSXV may require shareholder approval of the creation of the new control person.  Further, before the TSXV will accept a rights offering which includes a stand-by commitment, any individual who may own or control, beneficially or as nominee, directly or indirectly, securities representing more than 10 percent of the voting rights attached to all outstanding voting securities of the issuer on the completion of the rights offering must first file with the TSXV a duly completed Personal Information Form or, if applicable, a Declaration in the required form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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