The Canadian Securities Administrators yesterday published for comment proposed amendments to existing rules intended to create a streamlined prospectus exemption for rights offerings.
The new amendments are intended to ease some of the current requirements found in National Instrument 45-101 Rights Offerings (NI 45-101). For example, issuers seeking to rely on the current rights offering prospectus exemption must have their offering circular reviewed and accepted by CSA staff. Under the proposed exemption, a circular would still be prepared; however, prior regulatory acceptance of the circular would not be required. Rather, issuers would send security holders a short notice prior to using the exemption setting out basic disclosure about the offering and informing security holders how to access the rights offering circular electronically. A circular would be filed concurrently with the notice but would not need to be sent to security holders.
The new proposed form of rights offering circular would be in question and answer format with disclosure focused on information about the offering, use of funds and the financial condition of the issuer, and would not require inclusion of information about the business. In streamlining the information required in the circular, the CSA recognize that most investors exercising rights would be existing security holders and, thus, familiar with the issuer's disclosure record. This will further streamline the process, for example, by eliminating the need for technical reports in connection with disclosure in the circular.
The proposed exemption would also increase the current dilution limit from 25% to 100% assuming the exercise of all rights issued under the exemption during the preceding 12 months. However, as opposed to the current exemption, issuers would have to make the basic subscription privilege available on a pro rata basis to each holder of the class of securities to be distributed on exercise of the rights. The subscription price for a security would have to be lower than the market price at the time of filing the notice for listed issuers, while issuers not listed on a marketplace would have to offer securities at a price lower than "fair value" at the time of filing the notice. The proposed exercise period would be a minimum of 21 and maximum of 90 days. The proposed rights offering exemption would only be available to reporting issuers other than investment funds subject to NI 81-102, as such funds are restricted from issuing warrants and rights.
While CSA staff would not review the notice or circular prior to use, the CSA intend to conduct reviews of circulars for two years after the adoption of the proposed exemption to ensure compliance with the exemption's conditions and to gauge how issuers are using the exemption.
Statutory civil liability for secondary market disclosure is proposed to apply to the acquisition of securities in a rights offering under the exemption. The proposal also includes requirements in respect of stand-by commitments, the need to file a closing news release, and resale restrictions. An exemption for issuers with a minimal connection to Canada is also being proposed in substantially the same form as the current exemption found in section 10.1 of NI 45-101.
NI 45-101 and the prospectus exemption in NI 45-106 for rights offerings by non-reporting issuers would both be repealed and the proposed exemption would be included in National Instrument 45-106 Prospectus and Registration Exemptions. Stakeholder comments, including in respect of specific questions set out by the CSA, are being accepted until February 25, 2015.
The OSC also published a new prospectus exemption for issuances to existing security holders yesterday.