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Notice and Proposed Changes: NI - 45-101 - Rights Offerings
Notice and Proposed Changes: NI - 45-101 - Rights Offerings
NOTICE OF PROPOSED CHANGES TO PROPOSED NATIONAL INSTRUMENT 45-101
RIGHTS OFFERINGS, COMPANION POLICY 45-101CP
AND FORM 45-101F AND RESCISSION OF CERTAIN POLICIES
Substance and Purpose of Proposed National Instrument and Companion Policy
On November 21, 1997 the Ontario Securities Commission together with the other members of the CanadianSecurities Administrators (the "CSA") published proposed National Instrument 45-101 (the "Instrument"),proposed Companion Policy 45-101CP (the "Policy") and proposed Form 45-101F (the "Form") and theOntario Securities Commission published notice of its intention to rescind certain policies. The CSA receivedseveral comments on the Instrument, Policy and Form and is today republishing them. The republicationincludes proposed amendments to the Instrument and Policy relating to changing the period during which arights offering may remain open, expanding the list of persons or companies who may act as depositories,deleting the prohibition on rights offerings priced above the market, redefining the restrictions on certainsecurityholders' ability to take up under a rights offering in excess of their current proportionate share if therights offering is priced above the market or if there is no market from which to derive a price for the underlyingsecurities, as well as some minor drafting and definitional changes. The republication includes proposedchanges to the Form regarding the amount of disclosure relating to the issuer to be included and deleting thecertificate.
The substance and purpose of the Instrument is to prescribe the basis on which an issuer may, by way of arights offering, sell additional securities of its own issue to holders of its securities either by way of aprospectus or in reliance on the rights offering prospectus exemptions found in Canadian securities legislation.In order to utilize the exemptions in the Canadian securities legislation, the issuer must send to the Canadiansecurities regulatory authority or regulator (the "reviewing authority") information about the securities that itproposes to offer which the reviewing authority determines to be acceptable. A reviewing authority may objectto the use of the rights offering prospectus exemption and rights offering registration exemption.
The Instrument requires that issuers seeking to use the rights offering prospectus exemption provide thereviewing authority in a jurisdiction in which the rights offering is effected with information about the issuer,including information previously delivered to the issuer's securityholders but not available through SEDAR, topermit the reviewing authority to confirm that securityholders have been provided with current information aboutthe affairs of the issuer and are not in need of a prospectus for the rights offering. This information will allowthe reviewing authorities to assess if the rights offering is being made in compliance with the Instrument andthat the terms of the offering are clearly stipulated, and to ensure that the offering has not been structured forthe purpose of allowing an insider to increase its proportionate ownership interest in the issuer's securities.The Instrument also requires issuers to provide information to securityholders in accordance with the Formprescribed.
The Instrument provides that the rights offering prospectus exemption is unavailable in certain circumstancesincluding where:
(a) as a result of the exercise of the rights under the offering and the exercise of rights issuedwithin the previous 12 months there would be an increase of more than 25 percent in thenumber, or, in the case of debt, the principal amount, of the outstanding securities of the classto be issued upon the exercise of the rights;
(b) the rights are exercisable for securities of a class which were not previously outstanding;
(c) there is an agreement to compensate dealers in a manner which encourages solicitation ofthe exercise of rights by holders of rights that were not securityholders of the issuerimmediately prior to the rights offering;
(d) there is a minimum amount of proceeds necessary to conduct the purpose for which the funds arebeing raised and the offering is open for more than 45 days;
(e) the issuer is not a reporting issuer in any jurisdiction and the offering is open for more than 60days; and
(f) the issuer is a reporting issuer in any jurisdiction and the offering is open for more than 90 days.
Finally, the Instrument advises issuers that approval by the reviewing authority of the listing representationsrequired in the Form will be evidenced by the acceptance of the rights offering circular, and that the approvalby the reviewing authority of listing representations contained in a prospectus will be evidenced by a receiptfor the prospectus.
The purpose of the Policy is to provide information on the factors that the reviewing authorities will considerin determining whether to object to the offering proceeding under the rights offering prospectus exemption orin refusing to issue a receipt for a prospectus used for a rights offering. The Policy also provides guidelinesrelating to a number of provisions found in the Instrument including how to calculate certain numericalthresholds, the various types of evidence that may be used to establish that a person or company supplyinga stand-by commitment will be positioned to meet its obligations under the commitment, and the use of the rightsoffering registration exemption independently from the rights offering prospectus exemption. The Policy alsoprovides notice that the issuer may, in certain circumstances, need to implement a mechanism to "claw back"securities subscribed for by insiders.
Finally, the Policy cautions issuers that excluding securityholders resident in a particular jurisdiction, if thereis sufficient connection to the jurisdiction, may cause the Canadian securities regulatory authority in thejurisdiction to consider taking action against the issuer and its directors and officers.
The Instrument, Policy and Form are initiatives of the CSA. The Instrument is expected to be adopted as a rulein British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as a Commission regulation in Saskatchewanand as a policy in all other jurisdictions represented by the CSA. The Policy is expected to be implementedas a policy in all of the jurisdictions represented by the CSA. The Instrument and Policy are substantiallysimilar to administrative practices and policies of the Canadian securities regulatory authorities includingUniform Act Policy Statement No. 2-05, British Columbia Securities Commission Policy Statement No. 3-05,Alberta Securities Commission Policy Statement No. 5.2 and Ontario Securities Commission Policy StatementNo. 6.2, which they replace.
The Instrument and Policy implement, in part, the recommendation of the CSA Task Force on OperationalEfficiencies that Canadian securities regulatory authorities increase the co-ordination of regulation, includingstandardization of requirements.
Terms used in the Policy that are defined or interpreted in the Instrument or a definition instrument in force inthe jurisdiction should be read in accordance with the Instrument or definition instrument, unless the contextotherwise requires.
Summary of the Instrument, Policy and Form
Under Canadian securities legislation the issuer must send to the reviewing authority information about thesecurities offered under the rights offering. A reviewing authority may object to the use of the rights offeringprospectus exemption and rights offering registration exemption.
For rights offerings made in reliance on a rights offering prospectus exemption, the most significant changeto the regulatory regime is the requirement to prepare and deliver to the reviewing authorities an offeringcircular in accordance with the Form. The Form must be delivered initially in draft form to the reviewingauthorities in the jurisdictions in which the rights offering is effected together with various documents that willallow the reviewing authorities to determine that the use of the rights offering prospectus exemption isappropriate in the circumstances.
For rights offerings made under a prospectus, the most significant change to the regulatory regime is thecodification of the requirement that the prospectus qualify the distribution of securities issuable upon theexercise of rights as well as the rights issued under the prospectus.
The Instrument also harmonizes the practice of some of the Canadian securities regulatory authorities onstand-by commitments, the additional subscription privilege and the appointment of a depository for a rightsoffering.
The Instrument prohibits an issuer from filing a prospectus or an amendment to a prospectus or relying on therights offering prospectus exemption for a rights offering if the issuer or the rights offering do not comply withthe requirements of the Instrument.
The Instrument provides that the rights offering prospectus exemption is unavailable in certain circumstances.These circumstances include:
(a) as a result of the exercise of the rights under the offering and the exercise of rights issued withinthe previous 12 months there would be an increase of more than 25 percent in the number, or, inthe case of debt, the principal amount, of the outstanding securities of the class to be issued uponthe exercise of the rights;
(b) the rights are exercisable for securities of a class which were not previously outstanding;
(c) there is an agreement to compensate dealers in a manner which encourages solicitation of theexercise of rights by holders of rights that were not securityholders of the issuer immediately priorto the rights offering;
(d) there is a minimum amount of proceeds necessary to conduct the purpose for which the funds arebeing raised and the offering is open for more than 45 days;
(e) the issuer is not a reporting issuer in any jurisdiction and the offering is open for more than 60days; and
(f) the issuer is a reporting issuer in any jurisdiction and the offering is open for more than 90 days.
The Instrument provides an exemption from compliance with it if there is minimal connection of the issuer tothe jurisdiction or to Canada based on number of securityholders and percentage of capital held bysecurityholders.
Finally, the Instrument advises issuers that the approval of the reviewing authority to the listing representationsrequired in the Form will be evidenced by the acceptance of the rights offering circular, and the approval ofthe reviewing authority to listing representations in a prospectus will be evidenced by the prospectus receipt.
The Policy sets out some factors that the reviewing authorities will consider in determining whether to objectto the offering proceeding under the rights offering prospectus exemption. The Policy also provides guidelinesas to how certain thresholds are to be calculated as well as the types of evidence suggested to establish thefinancial ability of a person or company supplying a stand-by commitment to meet its obligations under thecommitment.
The Policy advises that the regulators may, in certain circumstances, refuse to issue a receipt for a prospectusunder which rights are issued if the rights are exercisable into convertible securities and the securitiesunderlying the convertible securities are not qualified by the prospectus.
The Policy also provides notice of the position of the Canadian securities regulatory authorities on using therights offering registration exemption independently from the rights offering prospectus exemption.
The Policy provides notice that the issuer may need a mechanism such as an escrow to "claw back" securitiessubscribed for by insiders.
The Policy advises issuers that excluding securityholders resident in a particular jurisdiction, if there issufficient connection to the jurisdiction, may cause the Canadian securities regulatory authority in thejurisdiction to consider taking action against the issuer and its directors and officers.
The Form requires disclosure of the name of the issuer, a summary of the offering, a brief description of thebusiness of the issuer, details of the rights and securities being offered, details of the registration and deliveryof security certificates under the offering, identification of the depository, subscription agent and the transferagent, a description of how to exercise the rights, a description of any stand-by commitments and escrowingof proceeds and depository arrangements, identification of the managing dealer and soliciting dealers,information relating to ownership or changes of ownership of the securities of the issuer as well as the use ofproceeds and statements relating to transferability of rights. The Form also requires that certain statutory rightsbe set out.
Related Instruments
The Instrument, Policy and Form are related. The Policy is related, in Ontario, to subparagraph 35(1)14(i) andsubclause 72(1)(h)(i) of the Securities Act (Ontario)(the "Ontario Act") and Ontario Securities CommissionRule 45-501 - Exempt Distributions.
The CSA, other than the Commission des Valeurs Mobilieres du Quebec, will be publishing shortly for commenta proposed multi-lateral instrument that will harmonize resale requirements for securities issued underexemptions, including the rights offering exemption. Under this proposed instrument, broader relief is expectedto be provided for resales of securities of issuers that are SEDAR filers.
Summary of Written Comments Received by the CSA
The CSA received five comments on the original publication of the Instrument, Policy and Form. Thecommentators were:
(i) McDermid St. Lawrence Securities Inc.
(ii) Thomson Kernaghan & Co. Ltd.
(iii) Davies, Ward & Beck
(iv) Osler, Hoskin & Harcourt
(v) Stikeman, Elliott
The commentators were generally positive with respect to the Instrument and Policy. Generally speaking, theconcept of harmonization to the extent possible was acknowledged as a positive step. However, some of thecommentators were concerned that there is not complete harmonization in the Instrument which may lead toproblems for issuers using the Instrument in jurisdictions in which there is disharmony.
Three of the commentators were concerned about the provision stating that an issuer cannot rely on the rightsoffering prospectus exemption to issue rights that are exercisable into a class of securities which are notalready in existence.
This has always been the position of staff of the Canadian securities regulatory authorities and is not a newrestriction on the use of the rights offering prospectus exemption. The provision in most of the local policystatements relating to the denial of the use of the statutory exemption if capital was increased by more than25% of a particular class of securities is evidence of that position. The provision is in line with theunderlying policy of the rights offering exemption in that it should not be used as a major financing initiative.Since the position has been in effect for several years and has not caused grave concerns with issuers inrespect of the use of the rights offering prospectus exemption, the CSA has determined not to make anychanges to that staff position.
Two of the commentators suggested that the 30 day offering period for best efforts offerings was too short andsuggested a 45 day period.
The CSA has considered this comment and has determined to increase the offering period for best effortsofferings to 45 days. In light of this change, the CSA has also changed the offering period to 60 days fornon-reporting issuers.
One commentator suggested that the requirement that issuers provide such information as the Commission mayrequest was too broad.
This provision basically reflects the language in most of the Canadian securities legislation relating towhether or not the particular securities regulatory authority would object to the use of a rights offeringexemption. In light of this, the CSA has determined not to make a change in this provision.
One commentator suggested that the requirement to send information to shareholders generally rather than justto securityholders entitled to receive rights was an onerous provision on the issuer.
The CSA has determined that the requirement was onerous in light of the fact that all of the information thatis required to be delivered is generally continuous disclosure documents which should be available throughSEDAR.
One commentator raised a concern over the practicality of a four day review for amendments while twosuggested that the blanket prohibition on amendments to the terms was inappropriate.
Given that rights have only two specific elements on which to price their trading in the market (i.e. thesubscription price and the expiry date), it was determined by the CSA that a change to these two provisionscould adversely affect holders who had previously traded the securities on the basis of that marketinformation. Therefore the CSA will retain its position that amendments to the terms of the rights offeringare not permitted and that an issuer wishing to abandon a rights offering and commence a new rightsoffering based on different terms should do so in that way. The timing for review has been shortened to twodays to accord with the provisions in Canadian securities legislation in Quebec.
One commentator suggested that maximum pricing should not be regulated.
The CSA has considered this position and determined that, so long as insiders do not take more than theirpro rata portion of the offering, above market pricing will not be prohibited. The National Instrument hasbeen amended to reflect this position.
One commentator suggested that evidence of the financial resources of a standby commitment is unnecessary.
The CSA disagree with this position as the failure of the standby commitment could affect thesecurityholders who exercise their rights on the basis of this commitment being available.
Two commentators suggested that obtaining information on who is a "related party" under the NationalInstrument is a difficult task.
The CSA realizes that this is a difficult task and has changed this test to insiders.
Finally, one commentator was concerned that the certificate requirement on the Form was too onerous.
The CSA has determined to delete the certificate requirement.
In respect of the Policy, one commentator suggested expanding to all jurisdictions the provision relating to juniorissuers using registrants to act as depository.
The CSA has considered this position and has accepted it. The National Instrument has been revisedaccordingly.
One commentator suggested that aggregation relief should be provided to certain "related parties" to permitthem to increase their pro rata share in a rights offering in certain circumstances.
The CSA has considered this and has changed the test to insiders so the comment is no longer applicable.
Several commentators provided drafting comments, some of which have been reflected in the Instrument andothers which have not.
Regulations to be Revoked
The adoption of the Instrument as a rule does not require any regulation to be revoked.
Comments
Interested parties are invited to make written submissions with respect to the proposed changes to theInstrument and Policy. Submissions received by November 10, 2000 will be considered.
Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of theOntario Securities Commission, in duplicate, as indicated below.
British Columbia Securities CommissionAlberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Registrar of Securities, Northwest Territories
Registrar of Securities, Yukon
Registrar of Securities, Nunavut
c/o John Stevenson, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:
Claude St Pierre, SecrétaireCommission des valeurs mobilières du Québec
800 Victoria Square
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3
A diskette containing the submissions (in Windows format, preferably WordPerfect 6/8) should also besubmitted. As securities legislation in certain provinces requires that a summary of written comments receivedduring the comment period be published, confidentiality of submission cannot be maintained.
Questions may be referred to any of:
Wayne RedwickDirector, Corporate Finance Division
British Columbia Securities Commission
(604) 899-6500
[email protected]
Agnes Lau
Deputy Director, Capital Markets
Alberta Securities Commission
(780) 422-2191
[email protected]
Stephen Murison
Legal Counsel
Alberta Securities Commission
(403) 427-4233
[email protected]
Dean Murrison
Deputy Director, Legal
Saskatchewan Securities Commission
(306) 787-5645
[email protected]
Margo Paul
Manager, Corporate Finance
Ontario Securities Commission
(416) 593-8136
[email protected]
Erez Blumberger
Legal Counsel, Corporate Finance
Ontario Securities Commission
(416) 593-3662
[email protected]
Ann Leduc
Regulation
Commission des valeurs mobilières du Québec
(514) 940-2199
[email protected]
Text of Instrument, Policy and Form
The text of the Instrument, Policy and Form follow, together with footnotes which are not part of the Instrument,Policy or Form, as applicable, but have been included to provide background and explanation.
Rescission of Policies
The Instrument, Policy and Form will replace, in Ontario, Uniform Act Policy Statement No. 2-05 and OntarioSecurities Commission Policy Statement No. 6.2. The Ontario Securities Commission proposes to rescindthese policies. The text of the proposed rescission is as follows:
"The policies of the Ontario Securities Commission entitled Uniform Act Policy Statement No.2-05 and Ontario Securities Commission Policy Statement No. 6.2 are rescinded."
Dated: August 11, 2000.
PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION
1.1 Definitions
1.2 Interpretation
1.3 Application
PART 2 REMOVAL OF RIGHTS OFFERING PROSPECTUS EXEMPTION
2.1 General
2.2 Restricted Offerings
PART 3 PROSPECTUS EXEMPT OFFERINGS
3.1 Deliveries to the Reviewing Authority
3.2 Requests for Additional Information
3.3 Delivery to Securityholders
3.4 Amendments
PART 4 PROSPECTUS OFFERINGS
4.1 Reliance on Registration Exemption
4.2 Prospectus
4.3 Compliance with Instrument
4.4 Amendment
PART 5 INSIDER SUBSCRIPTIONS
5.1 Insider Subscriptions
PART 6 STAND-BY COMMITMENTS
6.1 Stand-By Commitments
PART 7 ADDITIONAL SUBSCRIPTION PRIVILEGE
7.1 Additional Subscription Privilege
7.2 Stand-by Commitment
7.3 Number or Amount of Securities
7.4 Price of Securities
PART 8 APPOINTMENT OF DEPOSITORY
8.1 Depository
8.2 Release of Funds from Depository
PART 9 LISTING REPRESENTATIONS
9.1 Listing Representations
PART 10 EXEMPTION
10.1 Connection Test
10.2 Exemption
10.3 Form of Approval of Reviewing Authority
FORM 45-101F
RIGHTS OFFERINGS(1)
PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION(2)
1.1 Definitions - In this Instrument
"acceptance date" means
(i) the date that is 10 days after the notice referred to in the rights offering prospectusexemption is given to the reviewing authority, or
(ii) if the reviewing authority has objected to the rights offering before the end of such 10 dayperiod, the date the reviewing authority notifies the issuer by written notice that it no longerobjects to the use of the rights offering prospectus exemption;
"additional subscription privilege" means the privilege, granted to a holder of a right, to subscribefor securities not subscribed for under a basic subscription privilege;
"basic subscription privilege" means a privilege to subscribe for that number of securities set outin a rights certificate held by a holder of the rights certificate;
"class" includes a series of a class of securities;
"managing dealer" means a dealer that has entered into an agreement with an issuer under whichthe dealer has agreed to organize, and participate in, the solicitation of the exercise of rightsissued by the issuer;
"market price" means for securities of a class for which there is a published market
(a) except as provided in paragraph (b)
(i) if the published market provides a closing price, the average of the closing price ofsecurities of that class on the published market for the days on which tradingoccurred during the 20 trading days immediately before the day as of which themarket price is being determined, or
(ii) if the published market does not provide a closing price, but provides only the highestand lowest prices of securities of the class traded, the average of the averages of thehighest and lowest prices of securities of the class on the published market for thedays on which trading occurred during the 20 trading days immediately before theday as of which the market price is being determined, or
(b) if trading of securities of the class in the published market has occurred on fewer than 10of the immediately preceding 20 trading days, the average of the amounts established foreach of the 20 trading days immediately before the day as of which the market price isbeing determined as follows:
1. The average of the average bid and lowest ask prices for each day on which therewas no trading.
2. If the published market
(i) provides a closing price of securities of the class for the days that tradingoccurred, the closing price, or
(ii) provides only the highest and lowest prices of securities of the class traded, theaverage of the average of the highest and lowest prices of securities of theclass for the days that trading occurred;
"published market" means, for a class, a market on which securities of the class are traded thatis
(a) an exchange; or
(b) a quotation and trade reporting system, if the prices at which securities of the class havetraded on that market are regularly published in a publication of general and regular paidcirculation;
"reviewing authority" means
(a) in all jurisdictions except British Columbia, Alberta and Saskatchewan, the securitiesregulatory authority or regulator; and
(b) in British Columbia, Alberta and Saskatchewan, the regulator;(3)
"rights offering" means
(a) in all jurisdictions except British Columbia, the issuance by an issuer to its securityholdersof
(i) a right to purchase additional securities of the issuer's own issue, and
(ii) securities on exercise of the right; and
(b) in British Columbia, the issuance by an issuer to its securityholders of a right to purchaseadditional securities of the issuer's own issue;
"rights offering prospectus exemption" means the exemption in securities legislation from theprospectus requirement(4) for a rights offering;
"rights offering registration exemption" means the exemption in securities legislation from thetrading registration requirement for a rights offering;
"soliciting dealer"(5) means a person or company the interest of which in a rights offering is limitedto participating in the solicitation of the exercise of rights by holders of those rights;
"stand-by commitment" means an agreement by a person or company to acquire securities of anissuer not issued under the basic subscription privilege or the additional subscription privilegeavailable under a rights offering; and
"subscription price" means the price per security at which the securities issuable on the exerciseof rights may be subscribed for under a rights offering.
1.2 Interpretation - For the purpose of the definition of "market price", if there is more than onepublished market for a security,
(a) if only one of the published markets is in Canada, the market price shall be determinedsolely by reference to that market;
(b) if there is more than one published market in Canada, the market price shall be determinedsolely by reference to the published market in Canada on which the greatest volume oftrading in the particular class of securities occurred during the 20 trading days immediatelybefore the date as of which the market price is being determined; and
(c) if there is no published market in Canada, the market price shall be determined solely byreference to the published market on which the greatest volume of trading in the particularclass of securities occurred during the 20 trading days immediately before the date onwhich the market price is being determined.
1.3 Application
(1) This Instrument applies to an issuer that distributes, by way of a rights offering, securitiesof its own issue to a beneficial holder of its securities that is resident in the localjurisdiction(6).
(2) This Instrument applies to rights offerings whether made by way of a prospectus or inreliance upon the rights offering prospectus exemption.
PART 2 REMOVAL OF RIGHTS OFFERING PROSPECTUS EXEMPTION
2.1 General - The rights offering prospectus exemption is not available to an issuer unless the issuerand the rights offering comply with the requirements of Parts 3, 5, 6, 7 and 8 of this Instrument.
2.2 Restricted Offerings - The rights offering prospectus exemption is not available to an issuer fora rights offering in any of the following circumstances:
1. The issuer is a reporting issuer in any jurisdiction and there would be an increase of morethan 25 percent in the number, or, in the case of debt, the principal amount, of theoutstanding securities of the class to be issued upon the exercise of rights, assuming theexercise of all rights issued under the offering and the exercise of any other rights issuedby the issuer under the rights offering prospectus exemption during the 12 monthsimmediately before the acceptance date.
2. The issuer has entered into an agreement to compensate a person or company for solicitingthe exercise of rights issued under the offering that provides for payment of a higher fee forsoliciting the exercise of rights by holders of rights that were not securityholders of theissuer immediately before the rights offering than the fee payable for soliciting the exerciseof rights by holders of rights that were securityholders at that time.
3. The offering is conditional on a minimum amount of proceeds being raised and the exerciseperiod for the rights is more than 45 days after the acceptance date.(7)
4. The issuer is not a reporting issuer in any jurisdiction and the exercise period for the rightsis more than 60 days after the acceptance date.(8)
5. The issuer is a reporting issuer in any jurisdiction and the exercise period for the rights ismore than 90 days after the acceptance date.(9)
6. The issuer is a reporting issuer in any jurisdiction and the exercise period for the rights isless than 21 days after the date on which the rights offering circular is sent tosecurityholders under subclause 3.3(a)(i).
7. The issuer appears on the list of defaulting reporting issuers maintained by the securitiesregulatory authority.
PART 3 PROSPECTUS EXEMPT OFFERINGS
3.1 Deliveries to the Reviewing Authority
(1) An issuer that is required to provide notice under the rights offering prospectus exemptionshall send to the reviewing authority the following documents:
1. A rights offering circular in draft and final form prepared in accordance with Form45-101F.(10)
2. If the rights offering is being made in a foreign jurisdiction by way of a prospectus,a copy of the preliminary prospectus or, if prepared, the prospectus submitted or tobe submitted for acceptance in the foreign jurisdiction.
3. If not already filed under National Instrument 13-101 System for Electronic DocumentAnalysis and Retrieval, the issuer's financial statements for its most recentlycompleted financial year for which statements have been prepared and any interimfinancial statements prepared and filed, or required to be filed under Canadiansecurities legislation for reporting issuers, for a period that ends after that financialyear.
4. If not already filed under National Instrument 13-101 System for Electronic DocumentAnalysis and Retrieval, the notice of meeting and information circular prepared andfiled, or required to be filed under Canadian securities legislation, for the most recentannual meeting of securityholders of the issuer.
5. If not already filed under National Instrument 13-101 System for Electronic DocumentAnalysis and Retrieval, the notice of meeting and information circular prepared andfiled, or required to be filed under Canadian securities legislation, for any specialmeeting of securityholders of the issuer held after the most recent annual meeting.(11)
6. A copy of any agreement entered into, or proposed to be entered into, by the issuerwith a managing dealer.(12)
7. A copy of the technical reports and certificates prepared under National Instrument43-101 Standards of Disclosure for Mineral Projects or National Policy Statement 2-BGuide for Engineers and Geologists Submitting Oil and Gas Reports to CanadianProvincial Securities Administrators or any successor instrument.
8. The details of any other rights offering completed by the issuer within the 12 monthsbefore the date of sending to the reviewing authority the rights offering circular indraft form.
(2) A rights offering circular in draft form may exclude information about the subscription priceand other matters dependent on the subscription price.
3.2 Requests for Additional Information - An issuer that intends to effect a rights offering under therights offering prospectus exemption shall send such other information to the reviewing authorityas the reviewing authority may require to allow the reviewing authority to determine whether toobject to the use of the rights offering prospectus exemption.(13), (14)
3.3 Delivery to Securityholders - An issuer that is required to provide notice under the rightsoffering prospectus exemption shall send
(a) to each securityholder entitled to receive rights under the rights offering
(i) a rights offering circular to which the reviewing authority has not objected or hasconfirmed its acceptance, and
(ii) concurrently with sending the rights offering circular, a copy of the prospectus, ifany, referred to in paragraph 2 of section 3.1; and
(b) to each securityholder entitled to receive rights under the rights offering and to eachregistered rights holder, a copy of any amendment under section 3.4.
3.4 Amendments
(1) An issuer that has sent to its securityholders a rights offering circular under clause 3.3(a)(i)may amend the rights offering circular, for the purpose of updating information, by sendingto the reviewing authority an amendment to the rights offering circular in draft and final formor an amended rights offering circular in draft and final form blacklined to the previouslyfiled rights offering circular.(15)
(2) The reviewing authority shall notify the issuer within two business days of the filing of anamendment to the rights offering circular in draft form or an amended rights offering circularin draft form if changes are required to the document.
(3) Despite subsection (1), once a rights offering circular has been accepted by the reviewingauthority, an issuer shall not amend the rights offering circular to change the terms of therights offering.
PART 4 PROSPECTUS OFFERINGS
4.1 Reliance on Registration Exemption - An issuer that files a prospectus for a rights offering andintends to rely on the rights offering registration exemption shall state that it intends to rely on theexemption in a letter accompanying the filing of the preliminary prospectus.
4.2 Prospectus - An issuer shall not file a prospectus for a rights offering, unless
(a) in addition to qualifying the distribution of the rights, the prospectus qualifies the distributionof the securities issuable on the exercise of the rights(16);
(b) if there is a managing dealer, the managing dealer has signed the underwriter's certificatein the prospectus(17); and
(c) if the issuer is a reporting issuer, the exercise period for the rights is at least 21 days afterthe date on which the prospectus is sent to securityholders.
4.3 Compliance with Instrument - An issuer shall not file a prospectus or an amendment to aprospectus for a rights offering unless the issuer and the rights offering comply with therequirements of Parts 5, 6, 7 and 8 of this Instrument.
4.4 Amendment - An issuer shall not file an amendment to a prospectus for a rights offering tochange the terms of the rights offering.
PART 5 INSIDER SUBSCRIPTIONS(18)
5.1 Insider Subscriptions
(1) If there is no market price, or the subscription price is greater than the market price, forsecurities of the class of securities issuable on the exercise of the rights, no person orcompany that is an insider of the issuer shall be permitted to increase its proportionateinterest in the issuer through the exercise of the rights under the rights offering or througha stand-by commitment.
(2) Subsection (1) does not apply if there is no market price and the issuer, at the time that therights offering circular in final form or the rights offering prospectus under which the rightsare to be issued is sent to the reviewing authority, by notice in writing confirms to thereviewing authority that the subscription price for the securities issuable on the exercise ofthe rights is not greater than the fair value of the securities on the day before the date thesubscription price is established.
PART 6 STAND-BY COMMITMENTS
6.1 Stand-By Commitments - If there is a stand-by commitment for a rights offering, the issuer shalldeliver to the reviewing authority at the time the rights offering circular in final form or the rightsoffering prospectus is sent to the reviewing authority evidence that the person or companyproviding the stand-by commitment has the financial ability to carry out the stand-by commitment.
PART 7 ADDITIONAL SUBSCRIPTION PRIVILEGE
7.1 Additional Subscription Privilege - An issuer shall not grant an additional subscription privilegeto a holder of a right unless the issuer grants the additional subscription privilege to all holders ofrights.
7.2 Stand-by Commitment - If there is a stand-by commitment for a rights offering, the issuer shallgrant an additional subscription privilege in accordance with section 7.1(19).
7.3 Number or Amount of Securities
(1) Under an additional subscription privilege, each holder of a right shall be entitled to receive,on exercise of the additional subscription privilege, the number or amount of securities thatis the lesser of the number or amount of securities
(a) subscribed for by the holder under the additional subscription privilege; and
(b) equal to x(y/z) where
x = the aggregate number or amount of securities available through unexercisedrights,
y = the number of rights previously exercised by the holder under the rights offering,and
z = the aggregate number of rights previously exercised under the rights offering byholders of rights that have subscribed for securities under the additional subscriptionprivilege(20).
(2) Any unexercised rights shall be allocated on a pro rata basis to holders who subscribed foradditional securities based on the additional subscription privilege up to the number ofsecurities subscribed for by a particular holder.
7.4 Price of Securities - The subscription price under an additional subscription privilege or a stand-by commitment shall be the same as the subscription price under the basic subscription privilege.
PART 8 APPOINTMENT OF DEPOSITORY(21)
8.1 Depository
(1) If an issuer that is a reporting issuer has specified in a rights offering circular or rightsoffering prospectus that no securities will be issued on the exercise of the rights unlessproceeds in an amount not less than the specified minimum amount are received by theissuer under the rights offering, the issuer shall appoint one of the following to hold, as adepository, all money received on the exercise of the rights until that specified minimumamount is received:
1. A Canadian financial institution(22).
2. A registrant in the jurisdiction in which the funds are held, who is acting as managingdealer for the rights offering, or if there is no managing dealer, who is acting as asoliciting dealer.
(2) The issuer shall identify the depository appointed under subsection (1) in the rights offeringcircular or rights offering prospectus.
8.2 Release of Funds from Depository - The agreement between the depository and the issuerunder which the depository referred to in section 8.1 is appointed shall provide that, if thespecified minimum amount referred to in section 8.1 is not received by the depository during theexercise period for the rights, the money held by the depository will be returned in full to theholders of rights that have subscribed for securities under the rights offering.
PART 9 LISTING REPRESENTATIONS
9.1 Listing Representations - A reviewing authority's written permission to a listing representationcontained in a rights offering circular or a rights offering prospectus is evidenced by theacceptance of the circular or the issuance of a receipt for the prospectus by the reviewingauthority.(23)
PART 10 EXEMPTION
10.1 Connection Test(24)
(1) Parts 2, 3, 5, 6, 7 and 8 do not apply to a rights offering by an issuer if
(a) the number of holders of the class of securities for which the rights are issued whoselast address as shown on the books of the issuer is in Canada, and, as certified bythe issuer under subsection (2), the number of beneficial holders of the class residentin Canada, constitutes, in the aggregate, less than 10 percent of all holders of thatclass;
(b) the number of securities of the issuer of the class of securities for which the rightsare issued held by securityholders whose last address as shown on the books of theissuer is in Canada, and, as certified by the issuer under subsection (2), heldbeneficially by holders resident in Canada, constitutes, in the aggregate, less than 10percent of the outstanding securities of that class;
(c) the number of holders of the class for which the rights are issued whose last addressas shown on the books of the issuer is in the local jurisdiction, and, as certified by theissuer under subsection (2), the number of beneficial holders of the class resident inthe local jurisdiction constitutes, in the aggregate, less than five percent of all holdersof that class;
(d) the number of securities of the issuer of the class for which the rights are issued heldby securityholders whose last address as shown on the books of the issuer is in thelocal jurisdiction, and, as certified by the issuer under subsection (2), heldbeneficially by holders resident in the local jurisdiction constitutes, in the aggregate,less than five percent of the outstanding securities of that class(25); and
(e) all materials sent to any other securityholders for the rights offering are concurrentlysent to the reviewing authority and to each securityholder of the issuer resident in thejurisdiction.
(2) An issuer relying on the exemption in subsection (1) shall send to the reviewing authoritya written notice that it is relying on the exemption and a certificate of an officer or directorof the issuer, or if the issuer is a limited partnership, an officer or director of the generalpartner of the issuer, or if the issuer is a trust, a trustee or officer or director of a trusteeof the issuer, that to the knowledge of the person signing the certificate, after reasonableinquiry that
(a) the number of beneficial holders of the class for which the rights are issued residentin Canada does not constitute 10 percent or more of all holders of that class;
(b) the number of securities of the issuer of the class for which the rights are issuedbeneficially held by securityholders resident in Canada does not constitute, in theaggregate, 10 percent or more of the outstanding securities of that class;
(c) the number of beneficial holders of the class for which the rights are issued residentin the local jurisdiction does not constitute five percent or more of all holders of thatclass; and
(d) the number of securities of the issuer of the class for which the rights are issuedbeneficially held by securityholders resident in the local jurisdiction does notconstitute, in the aggregate, five percent or more of the outstanding securities of thatclass.
10.2 Exemption
(1) The regulator or the securities regulatory authority may grant an exemption from thisInstrument, in whole or in part, subject to such conditions or restrictions as may be imposedin the exemption.
(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.
10.3 Form of Approval of Reviewing Authority - Without limiting the manner in which an exemptionunder section 10.2 may be evidenced, the issuance by the reviewing authority of a receipt for therights offering prospectus or acceptance of the rights offering circular is evidence of the grantingof the exemption if
(a) the person or company that sought the exemption delivered to the regulator on orbefore the date the preliminary rights offering prospectus or rights offering circularin draft form was sent to the reviewing authority, a letter or memorandum describingthe matters relating to the exemption application, and indicating why considerationshould be given to the granting of the exemption; and
(b) the regulator has not sent written notice to the contrary to the person or company thatsought the exemption before or concurrently with the issuance of the receipt for theprospectus or acceptance of the circular by the reviewing authority.
NATIONAL INSTRUMENT 45-101
FORM 45-101F
INFORMATION REQUIRED IN A RIGHTS OFFERING CIRCULAR
This is the form required by section 3.1 of National Instrument 45-101 Rights Offerings.
Item 1 - Name of Issuer
1.1 Name of Issuer - State the full legal name of the issuer and the addresses of its head orregistered office and principal office.
Item 2 - Summary of Offering
2.1 Summary of Offering - On the first page of the circular, set out in summary form
(i) the record date;
(ii) the time and date of expiry of the offer;
(iii) the subscription price;
(iv) the basic subscription privilege;
(v) the maximum number of securities issuable and the proceeds to be received by the issuer,assuming the exercise of all rights issued under the rights offering;
(vi) the estimated expenses of the rights offering;
(vii) any stand-by commitment;
(viii) the basis on which any additional subscription privilege may be exercised; and
(ix) the minimum amount of proceeds, if any, upon which the rights offering is conditioned.
INSTRUCTIONS(1):
1. If the rights will be listed on a stock exchange, include the following statement on the face page:
"The Rights are listed on the [name of exchange]".
2. If the securities issuable on the exercise of the rights will be listed on a stock exchange, includethe following statement on the face page:
"The [name of exchange] has approved the listing of the [name of securities] issuable on theexercise of the Rights".
Item 3 - Brief Description of the Business of the Issuer
3.1 Brief Description of the Business of the Issuer - Briefly describe the business carried on andintended to be carried on by the issuer and its subsidiaries.
Item 4 - Details of the Rights and Securities Offered
4.1 Details of the Rights and Securities Offered - Describe the material attributes of the rightsissued under the rights offering and the securities to be issued on the exercise of the rights.
Item 5 - Registration and Delivery of Certificates Evidencing Securities
5.1 Registration and Delivery of Certificates Evidencing Securities - Describe the details of theregistration and delivery of security certificates or other evidence of securities to holders of rightswho exercise the rights.
Item 6 - Subscription Agent and Transfer Agent
6.1 Subscription Agent and Transfer Agent
(1) Identify the person or company appointed as subscription agent to receive subscriptionsand payments from holders of a rights certificate and to perform the services relating to theexercise and transfer of the rights and provide details of such arrangements.
(2) Identify the person or company appointed as registrar and transfer agent for the securitiesto be issued on exercise of the rights.
Item 7 - How to Exercise the Rights
7.1 How to Exercise the Rights - Set out in detail how a holder may exercise the basic subscriptionprivilege, exercise any additional subscription privilege, sell or transfer rights or divide or combinethe rights evidenced by the certificate.
INSTRUCTIONS:
1. Describe the number of rights and the subscription price.
2. Describe the basis on which a holder of a rights certificate may exercise any additionalsubscription privilege.
3. State if a holder of rights is to forward payment for additional securities issuable under anyadditional subscription privilege with the duly completed rights certificate or wait until notifiedby the issuer of the number of additional securities allotted to such holder.
4. Describe the basis on which the holder of a rights certificate may sell or transfer the rights orthe prohibitions to the transfer.
5. Describe the basis on which the holder of a rights certificate may divide or combine thecertificate with other rights certificates.
Item 8 - Stand-By Commitment
8.1 Stand-By Commitment - Identify the person or company providing the stand-by commitment, ifany. Describe the stand-by commitment, if any, and the material terms of the basis on which theperson or company providing the stand-by commitment may terminate the obligation under thestand-by commitment.
Item 9 - Escrow of Proceeds and Depository
9.1 Escrow of Proceeds and Depository - Identify the depository, if any, and any provisions for thedeposit of the proceeds of the rights offering with the depository.
Item 10 - Managing Dealer and Soliciting Dealer(s)
10.1 Managing Dealer and Soliciting Dealer(s) - Identify the managing dealer, if any, and thesoliciting dealers, if known, and describe the fees payable to them.
INSTRUCTIONS:
1. Issuers are directed to Multilateral Instrument 33-105 Underwriting Conflicts for disclosurerequirements for connected and related issuers.
Item 11 - Ownership of Securities of Issuer
11.1 Ownership of Securities of Issuer - State, if known, the intentions of the persons or companiesthat are, to the knowledge of the issuer after reasonable inquiry insiders of the issuer, for theexercise of rights issued under the rights offering.
11.2 Changes of Ownership - State the particulars of any issuances(2) or, if known to any director orsenior officer of the issuer, transfers of securities of the issuer that in either case have materiallyaffected the control of the issuer since the end of the most recent financial year for which auditedfinancial statements have been prepared.
Item 12 - Use of Proceeds
12.1 Use of Proceeds - Describe the use of the proceeds of the rights offering.
INSTRUCTIONS:
1. Specify the net estimated proceeds of the rights offering, after deducting expenses of the issue,assuming full exercise of the rights, and the purpose intended for the proceeds.
2. Provide particulars of any minimum amount of proceeds required to complete the rights offering.
Item 13 - Statement as to Non-Transferability
13.1 Statement as to Non-Transferability - If the issuer is not a reporting issuer in jurisdictions wherethere are restrictions on the resale of securities of non-reporting issuers, the Offering Circularshould have a heading "Statement as to Non-Transferability" under which the following statementsor a variation that contains substantially the same information as may be permitted by thereviewing authority should be set out:
1. The rights issued under this rights offering to securityholders whose last address asshown on the books of the issuer is in the [jurisdictions in which issuer is not areporting issuer] are not transferable in [jurisdictions].
2. The securities issued to residents of [jurisdiction] upon exercise of the rights may notbe sold or otherwise disposed of for value in [jurisdiction], except under either aprospectus or a prospectus exemption (available only in specific and limitedcircumstances), unless or until the issuer has been a reporting issuer in [jurisdiction]for at least [insert number] months and disclosure to the securities regulatoryauthority of the original purchase has been made.
3. The issuer is not a reporting issuer in [jurisdiction]."(3)
Item 14 - Statutory Rights
14.1 Statutory Rights
(1) If the issuer has not been incorporated or organized under the laws of Canada or ajurisdiction and is required to deliver to each securityholder entitled to receive rights underthe rights offering, a prospectus in accordance with subparagraph 3.3(a)(ii) of theInstrument, include the following statement under the heading "Statutory Rights":
"The statutory rights described in the Prospectus enclosed may not be available to residentsof [jurisdiction]. As a result, residents of [jurisdiction] may have to rely on other remediesincluding common law rights of action for damages or rescission."
(2) If the issuer has not been incorporated or organized under the laws of Canada or ajurisdiction or if any experts named in the prospectus or any directors or officers resideoutside of Canada, then the issuer shall also include the following statement in the offeringcircular under the heading "Statutory Rights":
"[All/certain of] the directors and officers of the issuer and [all/certain of] the experts namedherein reside outside of Canada. Although the issuer has appointed [name and address ofagent for service] as its agent for service of process in [applicable jurisdiction] it may notbe possible for investors to effect service of process within [applicable jurisdiction] upon thedirectors, officer and experts referred to above. It may also not be possible to collect fromthe issuer, [certain of] its directors and officers, and [certain of] the experts named hereinjudgments obtained in Canadian courts predicated upon the civil liability provisions ofCanadian securities legislation."
(3) In Saskatchewan, the Offering Circular must comply with the requirement to disclosestatutory rights of action prescribed under securities legislation.
Item 15 - Website
15.1 Website - Disclose the SEDAR website address and that continuous disclosure for the issuer canbe obtained on that site.
PART 1 PROSPECTUS EXEMPT OFFERINGS
1.1 Notice Under Rights Offering Prospectus Exemption
1.2 Objection to Use of Prospectus Exemption
1.3 Calculation of Number of Securities
1.4 Timing of Deliveries
1.5 Reports under National Policy Statement 2-A or National Policy Statement 2-B
1.6 Acceptance of Rights Offering Circular
1.7 Availability of Registration Exemption
PART 2 PROSPECTUS OFFERINGS
2.1 Availability of Registration Exemption
2.2 Public Interest
PART 3 INSIDER SUBSCRIPTIONS
3.1 Insider Subscriptions
PART 4 STAND-BY COMMITMENTS
4.1 Stand-by Commitments
PART 5 OFFERINGS OUTSIDE OF LOCAL JURISDICTION
5.1 Offerings Outside of Local Jurisdiction
PART 6 RESALE RESTRICTIONS
6.1 Resale Restrictions
PART 7 EXEMPTIONS
7.1 Exemptions
COMPANION POLICY 45-101CP TO NATIONAL INSTRUMENT 45-101
RIGHTS OFFERINGS(1)
PART 1 PROSPECTUS EXEMPT OFFERINGS
1.1 Notice Under Rights Offering Prospectus Exemption - The reviewing authority will considerthe following as the notice required to be sent under securities legislation in order to rely on therights offering prospectus exemption:
1. A rights offering circular in draft and final form.
2. The information required to be sent under clause 10.1(1)(e) and subsection 10.1(2) of theInstrument in order to rely on the exemption provided in subsection 10.1(1) of theInstrument.
1.2 Objection to Use of Prospectus Exemption
(1) The reviewing authority may exercise its statutory power to object to a rights offering beingmade in reliance on the rights offering prospectus exemption if(2)
(a) the rights offering is for the purpose of financing the reactivation of a dormant orinactive issuer;
(b) the rights offering is for the purpose of financing a material undertaking that wouldconstitute a material departure from the business or operations of the issuer as at thedate of its last annual financial statements that have been filed under securitieslegislation(3);
(c) excessive consideration is payable to the managing dealer, to any soliciting dealeror for a stand-by commitment; or
(d) the reviewing authority believes that, in the circumstances, reliance upon theexemption is not otherwise appropriate.
(2) Despite clause 1.2(1)(a), the regulator in British Columbia will generally not object to the useof the rights offering prospectus exemption solely on the basis that the proceeds of therights offering will be used to finance a reactivation. In exercising its discretion, the regulatorwill consider the following factors:
(a) the amount of funds to be raised, which is generally expected to be less than:
(i) $500,000, if a rights offering complies with the condition in paragraph 1 ofsection 2.2 of the Instrument ("2.2-1"); and
(ii) $250,000, if the increase in the outstanding securities of the class to be issuedon exercise of the rights will not exceed 50% of the outstanding securities ofthat class immediately before the rights offering (in which case the regulatoris prepared to consider granting an exemption from the 25% limit in 2.2-1);
(b) if the rights offering circular, together with other records required to be delivered,contains full, true and plain disclosure of all material facts relating to the reactivation;and
(c) the extent to which shareholders of the issuer, other than management and insiders,can reasonably participate in the rights offering (generally the regulator will not objectif the public shareholders able to participate in the offering constitute more than 50%of all shareholders).
1.3 Calculation of Number of Securities
(1) In calculating the number of outstanding securities for purposes of paragraph 1 of section2.2 of the Instrument the Canadian securities regulatory authorities are of the view that
(a) if
x = the number of securities of the class of the securities that may be or have beenissued upon the exercise of rights under all rights offerings made by the issuerin reliance on the rights offering prospectus exemption during the previous 12months;
y = the maximum number of securities that may be issued upon exercise of rightsunder the proposed rights offering; and
z = the number of securities of the class of securities that is issuable upon theexercise of rights under the proposed rights offering that are outstanding as ofthe date of the rights offering circular prepared for the proposed rights offeringthat is delivered to the securities regulatory authority;
then x + y must be equal to or less than 0.25; and
z
(b) it is inappropriate to exceed the 25 percent threshold in paragraph 1 of section 2.2of the Instrument if securities convertible into the securities issuable on the exerciseof the rights are likely to be converted within a short period of time after the rightsoffering. Therefore, unless it is reasonably expected that convertible securities will notbe converted before 12 months after the date of the rights offering, the potentialincrease in outstanding securities should be calculated as if the conversion ofconvertible securities had occurred(4).
(2) The formula suggested in subsection (1) should be adjusted to take into account anyconcurrent rights offering.
(3) Since paragraph 1 of section 2.2 of the Instrument prohibits a rights offering under therights offering prospectus exemption where the result would be an increase in the numberor amount of the securities in excess of 25%, the use of the rights offering prospectusexemption is not generally permitted under that paragraph for a rights offering under whichthe rights are exercisable into a security of a class of securities none of which wereoutstanding before the date of issuance of the rights.
1.4 Timing of Deliveries - Under the Instrument the issuer is required to send a rights offeringcircular in draft form to ensure the reviewing authorities are satisfied as to the contents. Once thereviewing authorities are they will advise the issuer that they are prepared to accept the rightsoffering circular in final form.
1.5 Reports under National Policy Statement 2-A or National Policy Statement 2-B - Thereviewing authorities may object to the use of the rights offering exemption if reports preparedunder National Policy Statement 2-A or any successor instrument or National Policy Statement 2-Bor any successor instrument do not comply with those policies or successor instruments.
1.6 Acceptance of Rights Offering Circular - The delivery of information relating to the securitiesthat is accepted by a reviewing authority will be confirmed in writing to the issuer by the reviewingauthority.
1.7 Availability of Registration Exemption - The registration rights offering exemption is alsoordinarily available if the rights offering prospectus exemption is available.
PART 2 PROSPECTUS OFFERINGS
2.1 Availability of Registration Exemption - If an issuer proposes to effect a rights offering by wayof prospectus, the rights offering registration exemption continues to be available to the issuer. TheCanadian securities regulatory authorities will not ordinarily object to the use of the rights offeringregistration exemption in that case.
2.2 Public Interest - A regulator may refuse to issue a receipt for a prospectus filed for a rightsoffering under which rights are issued if the rights are exercisable into convertible securities thatrequire an additional payment by the holder on conversion and the securities underlying theconvertible securities are not qualified under the prospectus. This will ensure that the remedies formisrepresentation in the prospectus are available to the person or company who pays value.
PART 3 INSIDER SUBSCRIPTIONS
3.1 Insider Subscriptions - If no market exists for the securities issuable on the exercise of the rightsor if the subscription price is greater than the market price, section 5.1 of the Instrument does notnecessarily preclude an insider from exercising rights under a rights offering. Insiders maysubscribe for securities issuable on the exercise of rights to maintain their proportionate interestin any class of securities and avoid any dilution. An insider may not, however, exercise its rightsto increase its proportionate interest in the issuer. Since the maximum number of securities oramount of securities that an insider may acquire under a rights offering will not be known until itis determined how many rights are exercised by non-insiders, issuers relying on section 5.1 willneed to put in place a mechanism to "claw back" securities subscribed for by insiders and torepay subscription proceeds in certain circumstances, such as when the rights held by non-insiders are not fully exercised or have been traded to insiders. The Canadian securitiesregulatory authorities suggest that an escrow mechanism be used to ensure a successful claw-back, if necessary.
PART 4 STAND-BY COMMITMENTS(5)
4.1 Stand-by Commitments - In assessing if a person or company providing a stand-by commitmenthas the financial ability to carry out its obligations under the commitment, a reviewing authority willconsider any of the following:
1. A statement of net worth attested to by the person or company making the commitment.
2. A bank letter of credit.
3. The most recent annual audited financial statements of the person or company making thecommitment.
4. Any other evidence that provides comfort to the reviewing authority.
PART 5 OFFERINGS OUTSIDE OF LOCAL JURISDICTION
5.1 Offerings Outside of Local Jurisdiction
(1) A Canadian securities regulatory authority may consider taking appropriate action, suchas the denial of exemptions, issuance of a cease trade order or other sanctions, against anissuer and its directors and officers if securityholders resident in its jurisdiction areexcluded from a rights offering that is made by an issuer that is
(a) a reporting issuer; or
(b) not a reporting issuer but has securityholders resident in its jurisdiction either
(i) representing five percent or more of the holders of the securities of the classthat are to be issued on the exercise of rights under the rights offering; or
(ii) holding five percent or more of the securities of the class that are to be issuedon the exercise of rights under the rights offering.
(2) The Canadian securities regulatory authorities recognize the difficulty of determiningbeneficial ownership given the book-based system of holding securities. The Canadiansecurities regulatory authorities are of the view that the issuer should use reasonable effortsto determine the jurisdictions in which its securityholders are resident. Such efforts couldinclude requesting a securityholders' list and participants' list from the issuer's transfer agentand requesting the transfer agent to request that each participant provide information on theaggregate number of securityholders for which the participant holds securities in eachjurisdiction and the percentage of securities of the class held by the securityholders in eachjurisdiction.
PART 6 RESALE RESTRICTIONS
6.1 Resale Restrictions - Issuers should refer to Canadian securities legislation to determine resalerestrictions and exemptions from these restrictions.
PART 7 EXEMPTIONS
7.1 Exemptions - The Canadian securities regulatory authorities will consider exemptions fromparagraph 2 of section 2.2 of the Instrument in certain circumstances if the securities issuable onthe rights are convertible or exchangeable into a class of securities that are currently outstanding.
1 This proposed National Instrument is derived from policies and administrative practices of Canadian securities regulatory authoritiesrelating to rights offerings including Uniform Act Policy No. 2-05, in British Columbia, Local Policy Statement No. 3.05, in Alberta,Alberta Securities Commission Policy Statement No. 5.2 and in Ontario, Ontario Securities Commission Policy Statement No. 6.2. Thisproposed National Instrument is expected to be adopted as a rule in British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as aCommission regulation in Saskatchewan and as a policy in all other jurisdictions represented by the CSA.
2 A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain termsused in more than one national instrument. National Instrument 14-101 also provides that a term used in a national instrument anddefined in the statute relating to securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion ofthe statute, will have the meaning given to it in the statute relating to securities of that jurisdiction. National Instrument 14-101 alsoprovides that a provision in a national instrument that specifically refers by name to a jurisdiction, other than the local jurisdiction shallnot have any effect in the local jurisdiction, unless otherwise stated in the provision.
3 In some jurisdictions, notably British Columbia, Alberta and Saskatchewan, it is the regulator and not the securities regulatoryauthority that has the discretion to object to a rights offering proceeding in reliance on the rights offering prospectus exemption. Theterm "securities regulatory authority" is defined in National Instrument 14-101 Definitions. The definition is the securities commissionor similar regulatory authority in the local jurisdiction listed in an appendix to that instrument. The term "regulator" is defined inNational Instrument 14-101 Definitions as meaning, in a jurisdiction, the person listed in an appendix to that instrument.
4 The term "prospectus requirement" is defined in National Instrument 14-101 as the requirement in securities legislation that prohibits aperson or company from distributing a security unless a preliminary prospectus and prospectus for the security have been filed andreceipts obtained for them. The term "securities legislation" is defined in National Instrument 14-101 Definitions as meaning theparticular statute and legislative instruments of the local jurisdiction set out in an appendix to that instrument and will generally includethe statute, regulations and, in some cases, rules, rulings, orders and forms relating to securities in the local jurisdiction. The term"local jurisdiction" is defined in the National Instrument 14-101 Definitions. The definition is "in a national instrument adopted or madeby a Canadian securities regulatory authority, the jurisdiction in which the Canadian securities regulatory authority is situate".
5 The above provision has been conformed from the definition of "selling group member" in section 204 of the Regulation to theSecurities Act (Ontario).
6 The term "jurisdiction" is defined in National Instrument 14-101 Definitions as meaning "a province or territory of Canada except whenused in the term foreign jurisdiction". Given the extensive use of book-based systems to register securities, a "residency" test hasbeen imposed.
7 If there is a minimum amount of proceeds required, the Canadian securities regulatory authorities wish to limit the amount of time duringwhich a rightholder and other securityholder will not know if the transaction will proceed.
8 In the case of an issuer with no continuous disclosure requirements the amount of time during which a rightholder should be requiredto rely on the disclosure contained in the circular and any other information provided by the issuer to its securityholders must belimited. In other circumstances, it is important that the rights offering not be left open indefinitely because of concerns over the rightsoffering circular disclosure becoming outdated.
9 It is important that the rights offering not be left open indefinitely because of concerns over rights offering circular disclosurebecoming outdated.
10 Form 45-101F is the required form. The form is designed to serve as a simple checklist for issuers and their advisors for the preparationof a rights offering circular. The form mandates the disclosure currently required by the rights offering prospectus exemption and items(4) through (7) of Uniform Act Policy No. 2-05. The disclosure required by the form relates principally to the securities being offeredand the procedure for exercise of the rights. This is consistent with the policy rationale underlying the rights offering prospectusexemption, which is that existing securityholders of the issuer do not need further disclosure about the issuer, but do require disclosureabout the securities being offered, the procedures under the rights offering and the use of the proceeds to be obtained on the exerciseof the rights issued under the rights offering.
11 This provision is based on a requirement of the rights offering regime under Canadian securities legislation and Canadian securitiesdirections in British Columbia and improves the quality of the information before the securities regulatory authority or regulator,allowing staff to better assess the quality of the disclosure previously provided to securityholders and the appropriateness ofproceeding on a prospectus exempt basis in light of recent activity of the issuer.
12 The Canadian securities regulatory authorities are of the view that staff will be in a better position after reviewing this agreement todetermine the basis on which the managing dealer and the soliciting dealers, if any, will be compensated and that the compensation hasbeen appropriately described in the rights offering circular. Staff may also wish to confirm that there is no greater incentive for dealersto solicit the exercise of rights by new securityholders than by existing securityholders on the basis that such remuneration wouldoffend the spirit of the exemption, which is intended to permit existing securityholders (as opposed to new securityholders) to receivethe securities issuable on the exercise of rights and protect themselves against dilution. This principle currently appears in item (10) ofUniform Act Policy Statement No. 2.05 and is continued in Section 2.2 of this Instrument.
13 This language is substantially similar to the statutory language for the rights offering exemption currently existing under Canadiansecurities legislation. Additional circumstances in which the securities regulatory authority or regulator may object to the use of therights offering prospectus exemption are set out in the proposed Companion Policy 45-101CP to this Instrument.
14 In Ontario, the Ontario Securities Commission has delegated its power to object to use of the exemption or confirm acceptance of arights offering circular to the Director under section 6 of the Securities Act (Ontario).
15 In Quebec an amendment to a rights offering circular is required if a material change occurs after the circular has been accepted.
16Given that consideration is not typically paid in connection with the issuance of rights but rather at the time the rights are exercised, toensure the applicability of the statutory rights of action under Canadian securities legislation the prospectus must qualify thedistribution of securities issuable on the exercise of the rights. This will require the issuer to keep the prospectus current for the periodof time up to the earlier of the exercise of all the rights and the expiry of the rights.
17 This provision formalizes the practice of the Ontario Securities Commission as set out in its notice entitled "Rights Offerings Under aProspectus" (1989), 12 OSCB 1463.
18 Concerns about pricing exist if the pricing of an offering could assist an insider in its efforts to consolidate its holdings of an issuer bydiscouraging non-insiders from participating in the offering. The provisions are intended to address such concerns. If consolidation isnot an issue, an issuer should not be restricted by the reviewing authority in the issuer's decision as to the pricing of an offering.
19 This provision codifies practice of staff of Canadian securities regulatory authorities that requires an additional subscription privilegeeven in circumstances in which the stand-by commitment is not provided by a related party.
20 This provision amends the formula prescribed in Ontario Securities Commission Policy Statement No. 6.2 Part VI paragraph (4) in orderto more efficiently permit the exercise of all unexercised rights. In the amended formula, the denominator of the fraction used in thecalculation properly references the number of rights previously exercised by those exercising the additional subscription privilegerather than the aggregate number of rights exercised by all holders of rights under the basic subscription privilege.
21 This requirement formalizes the practice of Canadian securities regulatory authorities concerning the appointment of a depository.
22 The term "Canadian financial institution" is defined in National Instrument 14-101 Definitions as a bank, loan corporation, trustcompany, insurance company, treasury branch, credit union or caisse populaire licensed in Canada or a province or territory and theConfédération des caisses populaires et d'economie Desjardins du Québec.
23 This procedure has been established so that the reviewing authority's non-objection to the use of the prospectus exemption or, ifapplicable, confirmation of the reviewing authority's approval of the rights offering circular or receipt of a rights offering prospectus,constitutes the written permission of the regulator for the offering circular or prospectus to contain representations about the listing ofsecurities in accordance with securities legislation.
24 The purpose of the exemption from this National Instrument is to permit a rights offering to be made to residents of a local jurisdictionwithout the need to comply with the provisions of the proposed Instrument if there is little connection of the issuer to the jurisdiction.
25 Historically, residents in some jurisdictions have been excluded from some rights offerings by the issuers not located in thatjurisdiction for reasons relating to the cost of compliance and timing concerns. Typically, Canadian securities regulatory authoritieshave exempted an issuer on the basis that the connection of the issuer to the jurisdiction is minor. For example see the exemption inOntario Securities Commission Policy Statement No. 6.2 Part III paragraph (5).
1 National Instrument 45-101 provides that acceptance of a rights offering circular or receipt of a prospectus in which a listingrepresentation is made is evidence of the regulator's written permission under securities legislation to the making of the representation.
2 Under item (6) of Uniform Act Policy Statement No. 2-05, transfers affecting control since the last shareholders meeting were expectedto be disclosed. The disclosure under the Instrument expands the requirement to disclose any issuances affecting control. Suchdisclosure is required for the period after the end of the last year for which audited statements have been prepared. This is a morepractical cut-off date than the date of the last meeting of shareholders, as was previously required.
3 This provision is based on Ontario Securities Commission Policy Statement No. 6.2 Part III paragraph (2). Reference is also made toOntario Rule 72-501 Prospectus Exemption for First Trades over a Market Outside Ontario.
1 This proposed Companion Policy is expected to be adopted as a policy in all jurisdictions represented by the CSA.
2 Item (b) of this list is restated from Ontario Securities Commission Policy Statement No. 6.2. Part III paragraph (3).
3 The experience of staff at the Ontario Securities Commission has been that the term "major new undertaking" in Ontario SecuritiesCommission Policy Statement No. 6.2 created considerable confusion and accordingly an effort has been made to define the conceptmore particularly. This concept is intended to capture both qualitative and quantitative matters.
4 This provision is intended to include in the calculation of the 25% threshold those securities which may be issued on conversionwithin one year, other than securities for which it is reasonably expected that the conversion will not occur within the 12-month period.Accordingly, unless the conversion is unlikely to take place within one year of the date of the rights offering, the Canadian securitiesregulatory authorities will look through the issuance of the convertible security to the potential issuance of underlying securities.
5 This requirement is based upon a requirement of the British Columbia rights offering regime. It is intended to provide a protocol for theassessment of financial capacity.