NIN 90/13 - Rights Offerings [NIN - Rescinded]

Recent experience has shown that there are a number of inconsistencies in the legislation, policies and procedures relating to rights offerings being carried out in British Columbia. This Notice:

(a) discusses the rationale underlying the blanket order, BOR#90/3, issued today by the Commission,

(b) outlines a change in the application of Local Policy Statement 3-05 with respect to the use of statements of material facts, and

(c) summarizes some other issues related to rights offerings currently being reviewed by the Commission.

Blanket order - rights offering exemption

The rights offering exemption is contained in sections 31(2)(8) and 55(2)(7) of the Securities Act (the "Act"). It is the registration and prospectus exemption relied upon by an issuer to grant a right to each holder in the Province of a class of its securities to purchase additional securities of its own issue.

The rights offering exemption is limited in scope in that it enables an issuer to distribute rights only to "holders in the Province" of a class of its securities, meaning registered shareholders with a British Columbia address.

BOR#90/3 provides a broader exemption from sections 20 and 42 of the Act that parallels the rights offering exemption but enables an issuer to distribute rights to all holders of a class of its securities. The laws of the jurisdictions in which an issuer's security holders reside will also apply to the distribution of rights in those jurisdictions.

The blanket order establishes resale rules that apply to any trade of rights issued in reliance on the order. Where rights are exercised, an issuer may rely upon sections 31(2)(12)(iii) and 55(2)(11)(iii) of the Act to issue the underlying securities. Sections 133 and 134 of the Securities Regulation establish resale rules that apply to securities issued on the exercise of the rights.

Policy changes - statements of material facts

There is some confusion as to whether the rights offering exemption or the statement of material facts exemption (section 58(1)(c) of the Act) is being relied upon by issuers that file a statement of material facts in connection with the issuance of rights under a rights offering. The rights offering exemption is the only exemption that may be relied upon by those issuers because the distribution of rights is not made "on or through the facilities" of the Vancouver Stock Exchange. As a result, section 58(1)(c) of the Act can not be relied upon by issuers to distribute rights to their shareholders. A statement of material facts filed in connection with a rights offering under section 55(2)(7) of the Act serves only as the disclosure document required under Local Policy Statement 3-05.

Section 2.4 of Local Policy Statement 3-05 requires issuers to carry out a rights offering under a prospectus or statement of material facts in certain circumstances. Effective immediately, the Superintendent will not accept a statement of material facts that qualifies the issuance of rights in the circumstances described in section 2.4 of that Policy. In those circumstances, an issuer will not be permitted to rely on the rights offering exemption and must file a prospectus under section 42 of the Act that complies with applicable policies of the Commission. The Superintendent will not issue a receipt for a prospectus where the issuer does not have an ongoing business or a specific project to be funded by the proceeds.

The Superintendent will no longer permit a statement of material facts to be used as the disclosure document for both the distribution of rights and the resale of shares that are issued to a guarantor under the terms of a guarantee or on the exercise of a bonus warrant. A prospectus can be used to qualify both distributions; otherwise the issuer must file

(a) a disclosure document in accordance with Local Policy Statement 3-05 to qualify the distribution of the rights, and

(b) a separate statement of material facts to qualify the sale of the guarantor's securities.

Issues under review

There are a number of issues relating to rights offerings currently under review by the Commission. Areas of concern include:

(a) whether it is appropriate to permit issuers to place restrictions on which holders of rights may exercise the rights and, if not, what steps need to be taken to provide a framework to enable all shareholders to participate in rights offerings,

(b) whether it is appropriate to permit the payment of a bonus to a related party of an issuer that guarantees a rights offering,

(c) whether it is appropriate to require that all beneficial shareholders receive the rights offering disclosure document before making an investment decision,

(d) whether it is appropriate to require an issuer to employ a registered dealer where it makes a distribution of rights under a prospectus,

(e) whether the shareholder notification requirements under Local Policy Statement 3-05 are adequate, and

(f) whether the thresholds set out in section 2.4 of Local Policy Statement 3-05 are appropriate.

CSA paper

A paper concerning rights offerings and the need for a national policy will be presented at the Canadian Securities Administrators meeting to be held in Montreal on May 7-9, 1990.

Interested persons are encouraged to provide written comments concerning any of the matters discussed in this Notice to Adrienne Wanstall, Deputy Superintendent, Policy and Legislation. Comments received by the end of April will be considered in the preparation of the CSA paper.


DATED at Vancouver, British Columbia, this 5th day of April 1990.

Douglas M. Hyndman
Chairman