NIN 97/46 - Notice of Proposed National Instrument 45-101 Rights Offerings, Companion Policy 45-101CP, Form 45-101F and Rescission of Certain Policies [NIN - Rescinded]
| Published Date: | 1997-11-21 |
|---|---|
| Effective Date: | 1997-11-20 |
The proposed National Instrument, Companion Policy and Form are initiatives of the CSA. The proposed National Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan, and as a policy in all other jurisdictions represented by the CSA. The proposed Companion Policy is expected to be implemented as a policy in all of the jurisdictions represented by the CSA. The Form is expected to be implemented by local rule in certain jurisdictions. In British Columbia, the Form is expected to be specified by the Executive Director under section 182 of the Securities Act.
Substance and Purpose of Proposed National Instrument, Companion Policy and Form
The proposed National Instrument, Companion Policy and Form are substantially similar to administrative practices and policies of the Canadian securities regulatory authorities including Uniform Act Policy Statement No. 2-05, British Columbia Securities Commission Local Policy Statement No. 3-05, Alberta Securities Commission Policy Statement No. 5.2 and Ontario Securities Commission Policy Statement No. 6.2. The proposed National Instrument, Companion Policy and Form will replace, in British Columbia, UPS 2-05 and LPS 3-05.
The purpose of the proposed National Instrument is to prescribe the basis on which an issuer may, by way of a rights offering, sell additional securities of its own issue to holders of its securities, whether by way of a prospectus or in reliance on the rights offering prospectus and registration exemptions available under Canadian securities legislation. Issuers intending to rely on the rights offering exemptions must provide written notice to the Canadian securities regulatory authority or regulator setting out certain information about the securities offered under the rights offering. Depending on the jurisdiction, notice may be provided to the commission or the executive director of the commission. In B.C., notice is provided to the executive director of the Commission. The executive director may object to the use of the rights offering exemptions. If the executive director objects to the use of the rights offering prospectus exemption, the rights offering may be conducted by way of a prospectus.
The proposed National Instrument sets out the information that issuers seeking to use the rights offering prospectus exemption are required to provide the executive director in order to permit the executive director to assess whether to object to the use of the rights offering prospectus exemption. It also permits the executive director to confirm that securityholders have been provided with current information about the affairs of the issuer and are not in need of a prospectus for the rights offering. In addition, the proposed National Instrument recognizes that the rights offering exemption may be used in circumstances where fuller disclosure is required. Thus, it sets out the circumstances where the use of the rights offering prospectus exemption is prohibited.
Under the rights offering exemptions, the rights may be issued only to existing securityholders in recognition that they have access to information on the issuer and accordingly, the involvement of a dealer and the delivery of a prospectus is not necessary. However, securityholders generally are able to sell the rights and accordingly, the rights may be exercised by a holder that was not a securityholder at the time the rights were issued. In recognition of this, the proposed National Instrument imposes certain minimum disclosure requirements on the issuer and requires the issuer to deliver a rights offering circular in the required form to securityholders.
Rights offerings can be used inappropriately by related parties as a means to increase their proportionate interest in the issuer at the expense of minority securityholders. To address these concerns, the proposed National Instrument imposes certain requirements that all rights offerings must comply with to ensure the rights offering is fair and equitable and has not been structured for the purpose of allowing a related party to increase its proportionate ownership interests in the issuer’s securities. These requirements apply regardless of whether the offering is made under the exemptions or by prospectus.
The proposed Companion Policy is designed to provide a regulatory background and context for the proposed National Instrument and brings certain matters to the attention of the industry.
The proposed National Instrument and Companion Policy implement, in part, the recommendation of the CSA Task Force on Operational Efficiencies that Canadian securities regulatory authorities increase the co-ordination of regulation, including standardization of requirements.
Terms used in the proposed Companion Policy that are defined or interpreted in the National Instrument or a definition instrument in force in the jurisdiction should be read in accordance with the National Instrument or definition instrument, unless the context otherwise requires.
Summary of the Proposed National Instrument, Companion Policy and Form
The proposed National Instrument would apply to an issuer that intends to distribute its securities, by way of a rights offering, to existing securityholders resident in the local jurisdiction, whether by way of a prospectus or in reliance on the rights offering prospectus exemption available under securities legislation.
The proposed National Instrument prescribes the basis on which an issuer may conduct a rights offering, including:
- setting out the circumstances where the rights offering prospectus exemption is unavailable;
- prescribing the documents and other information required to be filed with the executive director where an issuer is seeking to rely on the rights offering prospectus exemption to effect the distribution of the rights, which information may be used to determine whether to object to the rights offering;
- requiring the issuer to prepare and deliver to its securityholders a rights offering circular in the required form where the issuer relies on the rights offering prospectus exemption to effect the distribution of the rights;
- requiring an issuer intending to conduct a rights offering by prospectus to qualify, in addition to the rights, the securities that may be issued upon the exercise of the rights under the prospectus;
- requiring the terms of the rights offering to comply with certain requirements, including requirements regarding stand-by commitments, pricing, additional subscription privileges and the use of a depository;
- restricting issuers from paying higher fees to dealers for soliciting the exercise of rights by holders that were not existing securityholders at the time of the rights offering; and
- providing an exemption from the rule for offerings where the issuer has little connection to the local jurisdiction and to Canada, determined by the number of securityholders and percentage of capital held by securityholders in the Province and in Canada.
For rights offerings made in reliance on a rights offering prospectus exemption, the most significant change to the regulatory regime is the requirement to prepare, certify and deliver to the executive director a rights offering circular in accordance with a required form.
For rights offerings made under a prospectus, the most significant change to the regulatory regime is the codification of the requirement that the prospectus qualify the distribution of securities issuable upon the exercise of rights as well as the rights issued under the prospectus.
The proposed National Instrument also harmonizes the practice of some of the Canadian securities regulatory authorities on the availability of the rights offering prospectus exemption, stand-by commitments, pricing of rights offerings, the additional subscription privilege and the appointment of a depository for a rights offering. With respect to these practices, the most significant change for issuers in British Columbia is the prohibition imposed on the use of the rights offering prospectus exemption where the offering may result in an increase of more than 25% in the number of outstanding securities of the class of securities of the issuer to be issued upon the exercise of the rights under the rights offering. The current restriction in LPS 3-05 is 50%. The restriction in OSC Policy 6.2 is 25%. The threshold has been lowered to harmonize the Commission’s requirements with the OSC’s requirements and in recognition that where an issuer is intending a major financing, the issuer should provide fuller disclosure and accordingly, the offering should be conducted by way of a prospectus.
The proposed Companion Policy also provides guidelines as to the CSA’s interpretation and application of certain provisions in the National Instrument and the relationship between the rights offerings exemptions and the National Instrument. It also provides information as to factors that the executive director will consider in determining whether to object to the offering proceeding under the rights offering prospectus exemption or to refuse to issue a receipt for a prospectus used for a rights offering.
The proposed Form requires disclosure of the name of the issuer, a summary of the offering, a brief description of the business of the issuer, details of the rights and securities being offered, details of the registration and delivery of security certificates under the offering, identification of the subscription agent and the transfer agent, a description of how to exercise the rights, a description of any stand-by commitments and escrowing of 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 of proceeds, statements relating to transferability of rights, a description of any material changes in the business of the issuer and other material facts. Finally, the proposed Form requires that statutory rights be set out and that the Form be certified.
Alternatives Considered
For those offerings that are made in reliance on the rights offering prospectus exemption, the CSA considered enacting no rule at all but rather leaving UPS 2-05 and the various local policies and administrative practices of the Canadian securities regulatory authorities in place and relying on the power of Canadian securities regulatory authorities to object to the use of the rights offering prospectus exemption contained in Canadian securities legislation. The CSA was of the view that the approach adopted will provide more useful guidance to issuers by further defining the matters of concern to the CSA and to the extent practicable providing harmonization of approach by the Canadian securities regulatory authorities.
Anticipated Costs and Benefits
The principal benefit of the proposed National Instrument, Companion Policy and Form will be to harmonize the approach of Canadian securities regulatory authorities and provide more certainty of regulatory issues about the various aspects of rights offerings.
The costs associated with the proposed National Instrument and Companion Policy are the costs associated with having a prospectus for a rights offering also qualify the securities underlying the rights and maintaining its currency while rights are outstanding. Issuers may also incur increased costs in the preparation of the rights offering circular in accordance with a required Form.
In the view of the CSA the benefits outweigh the costs.
Comments
Interested parties are invited to make written submissions with respect to the proposed National Instrument, Companion Policy and Form. Submissions received by February 19, 1998 will be considered.
In particular, comment is encouraged on
(a) the definition of "related party" including the level of inquiry necessary to determine if a party is related;
(b) the removal of the rights offering prospectus exemption in Section 2.2 of the National Instrument and for the matters described in paragraphs 1.2(1)(a), 1.2(1)(b) and 1.3(1) of the Companion Policy that set out circumstances where the executive director may object to the use of the rights offering prospectus exemption;
(c) the appropriateness of the limits established in Section 2.2 of the National Instrument regarding the number of securities that may be issued in reliance on the rights offering prospectus exemption;
(d) the necessity of providing guidance on, or defining, when an issuer is being "reactivated" for the purposes of paragraphs 1.2(1)(a) of the Companion Policy;
(e) the language used in paragraph 1.2(1)(b) of the Companion Policy as a replacement for the term "major new undertaking";
(f) the pricing requirements in Part 5 of the Instrument and Part 3 of the Companion Policy;
(g) the appropriateness of including the securities identified in section 1.3(1)(b) of the Companion Policy in the calculation of the number of securities permitted to be issued in reliance on the rights offering prospectus exemption;
(h) the guidance provided in section 6.1(2) of the Companion Policy regarding the determination of beneficial ownership; and
(i) the appropriateness of the Form requirements relating to a description of the business of the issuer and certification by the issuer and its directors.
Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, as indicated below.
British Columbia Securities Commission
Alberta 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
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territoryc/o Daniel P. Iggers, 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:
Jacques Labelle, General Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Quèbec H4Z 1G3
A diskette containing the submissions (in DOS in Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submission cannot be maintained.
Questions may be referred to any of
Lata Casciano
Senior Policy Advisor
British Columbia Securities Commission
(604) 899-6640
David Sheridan
Legal Counsel
Alberta Securities Commission
(403) 297-2630
Barbara Shourounis
Director
Saskatchewan Securities Commission
(306) 787-5645
Margo Paul
Legal Counsel
Ontario Securities Commission
(416) 593-8136
Daniel Laurion
Chief of Regulations
Commission des valeurs mobilières du Québec
(514) 873-5326
DATED at Vancouver, British Columbia, on November 20, 1997
Douglas M. Hyndman
Chair