The Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) issued guidance to issuers following the recent amendments relating to rights offerings adopted by the Canadian Securities Administrators (CSA) on December 8, 2015 (CSA Amendments). Both the TSX and TSXV announced that the Rights Offering Documents (defined below) will still be subject to pre-clearance and the advanced notification period to set the record date for all rights offerings is reduced to five trading days. The TSXV also provided additional guidance specific to TSXV-listed issuers.
For background information regarding the CSA Amendments, please see our December 2015 Blakes Bulletin: Rights Offering in Canada About to Get Easier.
TSX STAFF NOTICE 2016-0002
Despite the CSA Amendments that removed the review and approval process of a rights offering circular by the CSA, the TSX clarified that pre-clearance with the TSX will continue to be required for the rights offering notice (Form 45-106F14) and rights offering circular (Form 45-106F15) or rights offering prospectus (collectively, the Rights Offering Documents). The TSX suggests that Rights Offering Documents in draft form be filed with the TSX at least five trading days prior to finalization, during which time the TSX will review the pricing, mechanics and timing of the rights offering in order to maintain an orderly market for trading.
All deficiencies raised by the TSX during the pre-clearance process must be resolved and the TSX must approve the relevant Rights Offering Documents prior to the issuer announcing the record date for the rights offering. Effective immediately, the advanced notification period to set the record date has been reduced by the TSX from seven trading days to five trading days, which the TSX believes is sufficient time to advise market participants of the commencement of ex-rights trading in the listed securities. Ex-rights trading in listed securities typically begins two trading days before the record date.
The TSX intends to incorporate the guidance into section 614 of the TSX Company Manual in due course.
The TSX did not provide any guidance or propose any amendments regarding the minimum pricing limits set out in the CSA Amendments. While the new rights offering regime is more streamlined, it will be difficult to achieve the objective of increasing the attractiveness of rights offerings for reporting issuers until the applicable stock exchange requirements are revised to align with the CSA Amendments surrounding pricing. We understand that the TSX is still considering whether to make any additional changes and they will publish them for comments, if any.
TSXV CORPORATE FINANCE BULLETIN
The TSXV provides similar guidance as the TSX regarding the determination of the record date and the pre-clearance of Rights Offering Documents; however, the TSXV does not prescribe a minimum number of days for how far in advance the Rights Offering Documents must be filed with the TSXV, instead, it states that Rights Offering Documents in draft form should be filed prior to finalization in order to provide sufficient time for the TSXV’s review.
Additional TSXV Guidance
The TSXV Corporate Finance Bulletin also proposed certain amendments to its existing rights offering rules.
Minimum Rights Subscription Price
The minimum subscription price for securities to be acquired on the exercise of rights is proposed to be reduced from C$0.05 to C$0.01. Until the amendments become effective, the TSXV may grant waivers to the current minimum subscription price, on application, provided that the subscription price for the securities acquired on the exercise of rights does not fall below C$0.01.
Minimum Warrant Exercise Price
The minimum exercise price of a warrant forming any 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 event, must not be less than C$0.05.
Optional Listing of Rights
All references to the rights being listed for trading on the TSXV are 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 the amendments become effective, the TSXV may grant waivers to the current listing requirements for a rights offering, on application, provided that the issuer disclose that it has made such an application or intends to make such an application in the press release announcing the rights offering. In all cases, the rights must be transferrable.
Shareholder Approval for New Control Person
Provided that the rights are listed for trading on the TSXV and the subscription price for the rights is at a prescribed discount to the market price, it is proposed that shareholder approval will not be required for the creation of any new control person as a consequence of a standby commitment. However, if either of the above criteria is not satisfied, the TSXV may first require shareholder approval for the creation of a new control person.
Personal Information Form
If on completion of a rights offering any individual will own or control, beneficially as a nominee, directly or indirectly, securities representing more than 10 per cent of the voting rights attached to all outstanding voting securities of an issuer (or any director, officer, or insider of the securityholder if not an individual), the securityholder must first file a duly completed Personal Information Form (Form 2A) or, if applicable, a Declaration (Form 2C1), prior to the TSXV accepting a rights offering that includes a standby commitment.
The TSXV intends, subject to all required regulatory approvals, to incorporate the guidance into TSXV Policy 4.5 – Rights Offerings.