Significant revisions to the prospectus exempt rights offering regime will be coming into force on December 8, 2015. As we previously noted, the amendments are intended to make prospectus exempt rights offerings more palatable to issuers while maintaining investor protections. This new rights offering prospectus exemption combined with the new existing security holder prospectus exemption may change market practice with respect to capital raising strategies.

The new rights offering prospectus exemption is only available to non-investment fund reporting issuers that meet certain conditions. The issuer must be a reporting issuer in Canada and it must be current in its continuous disclosure obligations. In addition, the exercise period for the rights must be no less than 21 days and no more than 90 days and must commence the day after the rights offering notice is sent to security holders.

The following are some of the principal features of the new prospectus exempt rights offering regime:

  • An important change from the existing prospectus exempt rights offering regime is that the dilution limit is increased from 25% to 100%. In the normal course and absent unusual circumstances, we would not expect the Toronto Stock Exchange to require security holder approval for dilution in excess of 25% under a prospectus exempt rights offering. Note that the TSX Company Manual rules on rights offerings would generally apply.
  • A rights offering notice must be provided to security holders in a new Form 45-106F14 Rights Offering Notice for Reporting Issuers. The rights offering notice must be under two pages in length and it must be presented in a question and answer format.
  • A rights offering circular must be filed concurrently with the rights offering notice in a new Form 45-106F15 Rights Offering Circular for Reporting Issuers. The rights offering circular must also be presented in a question and answer format and information cannot be incorporated by reference.
  • On the closing date, or as soon thereafter as practicable, the issuer must issue and file a news release.
  • Issuers that have a minimal connection to Canada can allow Canadian security holders to participate in a foreign rights offering under another new prospectus exemption, so long as certain conditions are met. Both reporting issuers and non-reporting issuers may use this prospectus exemption so long as neither: (a) the number of beneficial security holders of the relevant class that are resident in Canada; nor (b) the number of securities beneficially held by security holders resident in Canada, exceeds 10% of all security holders or securities, respectively.

For further information, please refer to our full summary of the new prospectus exempt rights offering regime.

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.