Securities Law

LPS 3-05 - Rights Offerings to Shareholders [Rescinded]

Published Date: 1987-01-16
Effective Date: 1987-02-01
Rescinded Date: 2001-07-25


1.1        This Local Policy Statement has been revised solely to conform with the Securities Act S.B.C. 1985 c.83 and the Regulations thereto.  Other than consequential amendments, there have been no changes of a substantive nature to this policy.  It becomes effective upon proclamation of the Securities Act on February 1, 1987.


2.1        This policy statement is intended to supplement the requirements of Uniform Act Policy 2-05 and should be observed by issuers relying on exemptions under Act Sections 31(2)(8) and 55 (2)(7) and having British Columbia as the principal trading area for their securities.  Issuers listed on the Vancouver Stock Exchange should also consult Part F of Vancouver Stock Exchange Rule B.3.00.

2.2        Principal trading area outside the British Columbia jurisdiction

Where an issuer has a principal trading area outside British Columbia, the issuer should disclose in a covering letter the jurisdiction of such principal trading area and the rights offering local policy in addition to Uniform Act Policy 2-05 with which the issuer plans to comply. Alternatively, the following information should be disclosed in the covering letter:

2.2.1     the provisions of this local policy statement with which there will not be compliance;

2.2.2     name of jurisdiction in which the greatest number of shareholders reside;

2.2.3     name of jurisdiction in which the principal trading of the issuer's securities is carried on;

2.2.4     the percentage of shares outstanding of the class which is entitled to receive rights under the proposed offering held by residents of British Columbia;

2.2.5     certificate date of the most recent prospectus (if any) of the issuer receipted in this jurisdiction.

2.3        The "less than 5% rule"

Where British Columbia residents hold less than 5% of the outstanding securities of the class which is entitled to receive rights under a proposed offering, the issuer may, in lieu of complying with Section 2.2, simply disclose in a covering letter that less than 5% of such securities are held by residents within British Columbia, and may disclose either that Uniform Act Policy 2-05 is being complied with or the name of the jurisdiction outside Canada whose rights offering requirements are being complied with.

2.4        Offering by Way of Prospectus or Statement of Material Facts

Where it appears than an issuer can raise capital expeditiously from its existing shareholder base, a rights offering serves as an appropriate vehicle for this purpose.  However, where a right is transferable, someone not part of the existing shareholder base may acquire shares through the exercise of a transferred right, and a prospectus standard of disclosure may accordingly be appropriate.

Where transferability is also attended by one or more of the following circumstances, the Superintendent is likely to object to the proposed trade and to request that the rights offering be replaced by an offering by way of a prospectus or statement of material facts:

2.4.1     the proposed equity offering, if completely subscribed, would result in an increase of more than 50% in the number of shares outstanding of the class which is entitled to receive rights.

2.4.2     the offering is for the purpose of financing a major new undertaking or involves a change of control within 12 months of the completion of the issuer's first distribution of shares to the public.

2.4.3     the securities of the class which entitles shareholders to receive rights under the offering have been listed on a stock exchange but the issuer has not yet completed the programs disclosed in the use of proceeds of the prospectus whereby the issuer "went public" and/or has not yet reported on the results of such programs.


3.1        The notice required to be given to the Superintendent under Securities Act Sections 31(2)(8) and 55(2)(7) may be provided by a covering letter referring to the disclosure in an accompanying draft rights offering memorandum directed to shareholders.

3.2        Unless the context of Uniform Act Policy 2-05 clearly indicates otherwise, the information elements stipulated by that Policy should be disclosed in the draft rights offering memorandum directed to shareholders.

3.3        The draft rights offering memorandum should include a brief description of the issuer's business activities, material asset acquisitions and disposals etc. germane to investor decisions.  The following information should also be included:

3.3.1     number of rights to be issued for each share held (the minimum number of such rights being one right for each share held).

3.3.2     total number of shares or units to be offered in relation to total number of shares outstanding.

3.3.3     number of rights required to subscribe for each share or unit offered.

3.3.4     date for commencement and termination of the offering (see Section 5.2.4).

3.3.5     exercise price per share or unit offered.

3.3.6     the procedure for subscribing by exercise of rights.

3.3.7     the procedure for selling or transferring rights.

3.3.8     dollar amount of minimum subscription, if any.

3.3.9     guarantor, if any, and terms and amount of guarantee.

3.3.10   terms of pro rata over subscription.  Where there is a stand-by guarantee by an insider, there must be a provision that the excess shares unsubscribed for be available on a pro rata basis (see also Section 5.3).

3.3.11   use of proceeds of offering.

3.3.12   name of the issuer's transfer agent administering the offering.

3.3.13   payments to be made to any person or company in connection with the offering.

3.3.14   warrants to be issued, if any, with shares subscribed for, exercise price and all other material terms of such warrant.

3.3.15   disclosure concerning the issuer's ongoing programs and summaries of technical reports filed with the Superintendent in compliance with Section 4.5.6 of this Local Policy Statement.

3.3.16   date of the last annual general meeting of the issuer, and particulars of any extraordinary general meeting held since the last annual general meeting.

3.3.17   any change in the directors and senior officers since the last annual general meeting.

3.3.18   particulars known to the directors of any transfer of shares which has materially affected the control of the issuer since the last meeting of shareholders or alternatively a statement that no such particulars are known.

3.4        Where the issuer is negotiating material transactions, management should consider deferring a rights offering until such negotiations have either been abrogated or sufficiently advanced to warrant a news release and disclosure in the draft rights offering.  A rights offering memorandum appropriately should provide disclosure on all material transactions likely to be consummated by the conclusion of the rights offering, and the market for the issuer's securities at the onset of the offering period should be able to take such disclosure into account.  Ideally there should be at the outset of an offering no undisclosed material negotiations likely to require a news release prior to the expiry date of the rights offering.


A covering letter should accompany the draft rights offering memorandum.  The letter should include:

4.1        the formal notice to the Superintendent (see Section 3.1)

4.2        request for exclusion from the provisions of this Local Policy Statement, where applicable (see Sections 2.2 and 2.3)

4.3        a list of the other jurisdictions in Canada in which the offering is being made.

4.4        where applicable, a statement that the provision of Local Policy Statement 3-35 have been complied with.

4.5        a list of the documentation prescribed under this section, identifying the documents in the numbering sequence set out below.

4.5.1     Fee $75.

4.5.2     Copy of issuer's latest annual report and annual general meeting information circular if they have not already been filed.

4.5.3     Copy of issuer's most recent financial statements if they have not already been filed.

4.5.4     Minutes of the most recent annual general meeting and any extraordinary general meeting held subsequent to the annual general meeting.

4.5.5     Where a standby guarantee is involved, the guarantor must disclose any plans for subsequent distribution of the securities so acquired and must also provide satisfactory evidence to the Superintendent of his ability to carry out the provisions of the guarantee.  Such evidence may take the form of:  a statement of net worth attested to by the guarantor, or  a bank letter of credit or such other form to which the Superintendent may specifically consent.

4.5.6     Where proceeds from the rights offering memorandum are to be used to fund specific programs, appropriate technical reports conforming to the specifications of relevant policies (eg. National Policy 2A/2B, Local Policy 3-01 and Forms 54 and 55) must be filed with the Superintendent.  The offering memorandum should contain summaries of any such reports unless such summaries have already been distributed to shareholders.  The authors of such reports should consent to the filing of such reports and to the inclusion of summaries thereof in the rights offering memorandum.

4.5.7     Statement signed by a senior officer of the issuer to the effect that:  there have been no material changes in the circumstances of the issuer since the date of the last audited financial statement delivered to shareholders or that all such changes have been disclosed in the rights offering memorandum, and  there are no undisclosed material transactions currently under negotiation which are likely to require a news release prior to the expiry date of the rights offering. (See also Section 3.4).

4.5.8     Where the principal trading area is the British Columbia jurisdiction a facsimile of the subscription proposed to be distributed to shareholders.


5.1        The Superintendent recognizes that an insider may have access to current information which may provide insights into the issuer's affairs not available to others.  Any provision in a rights offering which might tend to deter non-insiders from exercising their rights or might provide an insider with an advantage in increasing his proportionate holdings would be of concern to the Superintendent.

5.2        The Superintendent, accordingly, in the absence of special circumstances which can be demonstrated to justify alternative arrangements, will object to a rights offering where:

5.2.1     the offering is priced above market; or

5.2.2     an insider has agreed to provide a stand-by commitment to take up any securities unsubscribed for by other security holders unless a second-stage right to take up any such unsubscribed securities is offered on an acceptable pro-rata basis to all security holders of the class who have exercised their initial rights in full;

5.2.3     a bonus is offered to a stand-by guarantor other than in the form of a nontransferable share purchase warrant entitling him to acquire shares of the issuer equal in number to not more than 40% of the total number of shares he has agreed to acquire on a stand-by basis, for a period not exceeding six months from the date on which such performance guarantee may be required.  The exercise price of such warrant shall not be less than the exercise price of the rights; or

5.2.4     the following procedures to notify unregistered shareholders are not followed by an issuer having its principal trading area within British Columbia:  the offering shall not commence until the expiration of seven business days after the expiry of the 10 day period or the withdrawal of the objection referred to in Section 31(2)(8) and 55(2)(7) of the Act, and  forthwith after acceptance of the notice for filing, but in any event, not later than three business days after the acceptance, the issuer shall publish a notice in at least one issue of a daily newspaper published and circulating in the County of Vancouver, such notice to be addressed to the shareholders, giving the date of commencement and termination of the offering, which period shall not exceed thirty days in cases where a minimum amount has been fixed, or not more than ninety days where a minimum amount has not been fixed.

5.3        The following will be considered an acceptable pro rata basis (although other bases may be acceptable):

Each security holder who has fully exercised his initial rights may take up, at the same price per security as in the initial offering, that number of securities available through unexercised rights that is obtained by multiplying:

5.3.1     the number which is obtained by dividing the number of rights exercised by such security holder in the initial stage by the aggregate number of rights exercised by all security holders in that stage; times

5.3.2     the total number of securities available through all unexercised rights.

If some security holders have requested  an oversubscription of less than the amount of securities equivalent to the product available to them, and some security holders have requested more than the product available to them, each such security holder requesting more may take up, at the same price per security as in the initial offering, that number of securities available through unexercised rights that is obtainable by multiplying.

5.3.3     the fraction obtained in Section 6.3.1; times

5.3.4     the remaining number of securities available through unexercised rights.

5.4        The party giving the stand-by commitment may take up all securities not taken up pursuant to the initial and second stage rights at the same price per security as in the initial and second stages.


6.1        Sections 31(2)(8) and 55(2)(7) of the Act indicate that if the Superintendent objects to the rights offering, he should inform the issuer within 10 days of the giving of the notice.

6.2        An issuer should be aware that the Superintendent will find a proposed rights offering objectionable where one or more of the conditions set out in Sections 2.4 or 5.2 of this Local Policy Statement prevail.

6.3        Uniform Act Policy 2-05 lists the holding of regular annual meetings and the timely distribution to shareholders of information required under the issuer's jurisdiction of incorporation as preconditions for acceptance of a rights offering.  The Superintendent accordingly will deem a rights offering objectionable where the issuer has not complied with the applicable statutory provisions for timely disclosure.

6.4        A company deemed dormant under Local Policy Statement 3-35 must first comply with the provisions of that Local Policy Statement before the Superintendent will find a rights offering acceptable.


7.1        Trust requirements - Unlisted Company

Where a minimum subscription is provided for in a rights offering of an unlisted company, and the funds subscribed are placed in the hands of an independent trustee in British Columbia, there must be a provision for notifying the Superintendent of Brokers

7.1.1     that the funds have been released from trust, or

7.1.2     that the funds have been returned to the subscribers, the minimum subscription having not been attained.

7.2        No minimum subscription

Where no minimum subscription has been provided for in a rights offering, the rights offering memorandum must disclose the risk that insufficient proceeds may be available from subscription to enable the aims and objectives of the rights offering to be carried out.


DATED at Vancouver, B.C., this 1st day of February, 1987.


Jill Bodkin
B.C. Securities Commission