On the heels of recent amendments by the Canadian Securities Administrators (CSA), the Toronto Stock Exchange (TSX) has issued guidance to issuers on rights offerings.
The TSX announced that: (i) despite the CSA amendments, rights offering documents must still be pre-cleared with the TSX; and (ii) the advance notification period to set a record date is reduced to five days, from seven days. The TSXV issued similar guidance that addresses some additional issues.
Interestingly, the TSX did not address whether shareholder approval would be required for rights offerings which result in dilution in excess of 25% – shareholder approval is typically required for private placements resulting in dilution over 25%. However, we do not expect that shareholder approval for a rights offering would be required by the TSX in such circumstances so long as dilution is below 100%, as permitted by the new rights offering prospectus exemption.
On December 8, 2015, National Instrument 45-106 Prospectus Exemptions was amended to establish a more streamlined rights offering regime. The new rights offering regime, which is available to reporting issuers that are not investment funds, does not require that a rights offering circular by reviewed by securities commissions, increases the dilution limit to 100% (instead of 25%) and simplifies the prescribed rights offering circular. We have outlined some of the key aspects of the amended rights offering in a previous post.
TSX Notice 2016-0002
TSX Staff Notice 2016-0002 states that the TSX requires pre-clearance of rights offering documents. The rights offering documents that need to be pre-cleared include the rights offering notice and the rights circular. The TSX advises that the rights offering documents should be filed in draft form with the TSX at least five days in advance of finalization. The TSX will review pricing and the mechanics and timing of the rights offering.
After reviewing the rights offering documents, the TSX will typically provide comments on such documents to be addressed by the issuer. The TSX Company Manual currently states that the rights offering documents must be finalized at least seven trading days in advance of the record date. In an effort to contribute to the streamlining of the process, the TSX will now only require an advance notification period of five days.
TSXV Corporate Finance Bulletin
The TSXV Corporate Finance Bulletin provides the same guidance as the TSX Notice (except that no time period is provided for how far in advance rights offering documents must be filed in draft form). In addition, it sets out the following:
- The minimum subscription price for a security to be acquired by the exercise of a right is proposed to be reduced from $0.05 to $0.01. Until the proposed amendment comes into force, the current minimum price will remain but will be reduced upon an application.
- The minimum exercise price of a warrant forming part of a unit acquired on the exercise of a right cannot be less than the market price prior to the news release and in any case must not be less than $0.05.
- Rights offered pursuant to a rights offering are not required to be listed for trading on the TSXV. However, if the rights are not listed, that fact must be disclosed in the news release announcing the rights offering. Until this proposed amendment comes into force, the TSXV will approve a rights offering, where the issuer elects not to list the rights, on an application for a waiver by the issuer.
- Notwithstanding that an issuer can choose not to list the rights on the TSXV, if an issuer so chooses, there may be other consequences. For example, shareholder approval will generally not be required if a new control person can result from a stand-by commitment for a rights offering, provided that the rights are listed for trading on the TSXV and the subscription price for the rights is at a prescribed discount (or a discount greater than the prescribed discount) to the market price.
- A personal information form (PIF) must be filed with the TSXV in respect of any individual who may own or control securities representing more than 10% of the voting rights attached to all outstanding voting securities as a result of the completion of a rights offering which includes a stand-by commitment.
According to the TSX, it is intended that TSX Notice 2016-0002 and the TSXV Corporate Finance Bulletin will be incorporated in section 614 of the TSX Company Manual and in TSXV Policy 4.5 Rights Offerings, respectively,in due course.