On December 8, 2015, amendments to rights offering rules finally make rights offerings a viable financing option for Canadian reporting issuers. Gone are the prospectus-like disclosure documents and long reviews by the Securities Commissions. Rights offerings will be simpler and quicker, including:
•a new rights offering circular in a question and answer format that is intended to be easier for issuers to prepare and more straightforward for investors to understand – it must be filed but not sent to security holders; the Rights Offering Circular Form is Form 45-106F15;
•a new notice that reporting issuers must file on SEDAR and send to security holders informing them about how to access the rights offering circular electronically – the Rights Offering Notice Form is Form 45-106F14; and
•a dilution limit of 100% of share capital, up substantially from the current 25%.
The new rules remove the current requirement for a regulatory review of the rights offering circular while replacing it with statutory secondary market civil liability. This change means that investors under the rights offering will have a right of action against the issuer if there is a misrepresentation in the rights offering circular or other part of the issuer’s continuous disclosure record.
Some other changes include that the offering period must be open for at least 21 days but not more than 90 days, and that the offering must be priced below the market price at the time the rights offering notice is filed.
If the issuer has been a reporting issuer in Canada for at least four months prior to the issuance of rights offering securities, and other conditions of Section 2.6 of National Instrument 45-102 are in place, the rights offering securities will be freely tradable on issuance.