Proposed National Instrument: NI - 45-101 - Rights Offerings
Proposed National Instrument: NI - 45-101 - Rights Offerings
NATIONAL INSTRUMENT 45-101
RIGHTS OFFERINGS
TABLE OF CONTENTS
PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION
1.1 Definitions
1.2 Interpretation
1.3 Application
PART 2 REMOVAL OF RIGHTS OFFERING PROSPECTUS EXEMPTION
2.1 General
2.2 Restricted Offerings
PART 3 PROSPECTUS EXEMPT OFFERINGS
3.1 Deliveries to the Securities Regulatory Authority or Regulator
3.2 Requests for Additional Information
3.3 Delivery to Securityholders
3.4 Amendments
PART 4 PROSPECTUS OFFERINGS
4.1 Reliance on Registration Exemption
4.2 Prospectus
4.3 Compliance with Instrument
4.4 Amendment
PART 5 PRICING REQUIREMENTS
5.1 Subscription Price Restriction if Market Price Exists
5.2 Subscription Price if no Market Price Exists
PART 6 STAND-BY COMMITMENTS
6.1 Stand-By Commitments
PART 7 ADDITIONAL SUBSCRIPTION PRIVILEGE
7.1 Additional Subscription Privilege
7.2 Stand-by Commitment
7.3 Number or Amount of Securities
7.4 Price of Securities
PART 8 APPOINTMENT OF DEPOSITORY
8.1 Depository
8.2 Release of Funds from Depository
PART 9 EXEMPTION
9.1 Connection Test
9.2 Exemption
9.3 Form of Approval of Securities Regulatory Authority
FORM 45-101F
NATIONAL INSTRUMENT 45-101
RIGHTS OFFERINGS(1)
PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION(2)
1.1 Definitions - In this Instrument
"additional subscription privilege" means a right, granted to a holder of a right, to subscribe for securities not subscribed for under a basic subscription privilege;
"basic subscription privilege" means a right to exercise the number of rights held by a holder of a right;
"class" includes a series of a class of securities;
"managing dealer" means a dealer that has entered into an agreement with an issuer under which the dealer has agreed to organize, and participate in, thesolicitation of the exercise of rights issued by the issuer;
"market price" means for securities of a class for which there is a published market on a day
(a) except as provided in paragraph (b)
(i) if the published market provides a closing price, an amount equal to the simple average of the closing price of securities of that class on the published marketfor each day on which there was a closing price for the 20 trading days immediately before the day as of which the market price is being determined, and
(ii) if the published market does not provide a closing price, but provides only the highest and lowest prices of securities traded, an amount equal to the averageof the simple averages of the highest and lowest prices of securities of the class for each of the trading days on which there were highest and lowest prices for the20 trading days immediately before the day as of which the market price is being determined, or
(b) if there has been trading of securities of the class in the published market on fewer than 10 of the immediately preceding 20 trading days, the average of thefollowing amounts established for each of the 20 trading days immediately before the day as of which the market price is being determined
(i) the simple average of the bid and ask prices for each day on which there was no trading, and
(ii) either
(A) the simple average of the closing price of securities of the class for each day that there has been trading, if the published market provides a closing price, or
(B) the simple average of the highest and lowest prices of securities of that class for each day that there has been trading, if the published market provides onlythe highest and lowest prices of securities traded on a day;
"prospectus requirement" means the requirement in securities legislation(3) that prohibits a person or company from distributing a security unless a preliminaryprospectus and prospectus for the security have been filed and receipts obtained for them;(4)
"published market" means, for a class, a market on which the securities of that class are traded that is
(a) an exchange; or
(b) an over the counter market, if the prices at which securities of the class have traded on that market are regularly published in a publication of general andregular paid circulation;
"related party"(5) of an issuer, means a person or company
(a) that holds, alone or jointly or in concert with others, securities of the issuer sufficient to affect materially the control of the issuer, but excludes an arm'slength lender to the issuer, or to a related party of the issuer, that holds the securities solely as collateral for a loan or an assignee of the loan who holds thesecurities as collateral for the loan,
(b) of which a person or company referred to in paragraph (a), alone or jointly or in concert with others, holds a sufficient number of securities to affectmaterially the control of the first person or company mentioned in this paragraph (b),
(c) of which the issuer, alone or jointly or in concert with others, holds a sufficient number of securities to affect materially its control,
(d) that holds voting securities of the issuer carrying more than 10 percent of the voting rights attached to all issued and outstanding voting securities of theissuer but excludes an arm's length lender to the issuer, or to a related party of the issuer, that holds the securities solely as collateral for a loan or an assignee ofthe loan who holds the securities as collateral for the loan,
(e) that is a director or senior officer of the issuer or of any related party of the issuer,
(f) that manages or directs the affairs or operations of the issuer under an agreement, arrangement or understanding between the person or company and theissuer and includes the general partner of an issuer that is a limited partner, or
(g) that is an affiliate of a person controlling or a company controlled by any person or company referred to in paragraphs (a) to (f);
"rights offering prospectus exemption" means the exemption in securities legislation from the prospectus requirement, under which an issuer may issue to itssecurityholders
(a) a right to purchase additional securities of the issuer's own issue, and
(b) securities on exercise of the right;
"rights offering registration exemption" means the exemption in securities legislation from the trading registration requirement, under which an issuer may issueto its securityholders
(a) a right to purchase additional securities of the issuer's own issue, and
(b) securities on exercise of the right;
"soliciting dealer"(6) means a person or company the interest of which in a rights offering is limited to participating in the solicitation of the exercise of rights byholders of rights and to receiving the usual and customary solicitation fee payable by the issuer for the solicitation of the exercise of the rights by holders ofrights;
"stand-by commitment" means an agreement by a person or company to acquire securities of the issuer of rights not issued under the basic subscription privilegeor the additional subscription privilege;
"subscription price" means the price at which the securities issuable on the exercise of rights may be subscribed for under a rights offering; and
"trading registration requirement" means the requirement in securities legislation that prohibits a person or company from trading in a security unless the personor company is registered in the appropriate category of registration under securities legislation.(7)
1.2 Interpretation
(1) For the purpose of the definition of "market price", if there is more than one published market for a security,
(a) if only one of the published markets is in Canada, the market price shall be determined solely by reference to that market;
(b) if there is more than one published market in Canada, the market price shall be determined solely by reference to the published market in Canada on which thegreatest volume of trading in the particular class of securities occurred during the 20 trading days immediately before the date as of which the market price isbeing determined; and
(c) if there is no published market in Canada, the market price shall be determined solely by reference to the published market on which the greatest volume oftrading in the particular class of securities occurred during the 20 trading days immediately before the date on which the market price is being determined.
(2) Despite the definitions of "rights offering prospectus exemption" and "rights offering registration exemption" in section 1.1, in British Columbia
(a) "rights offering prospectus exemption" means the exemption in securities legislation from the prospectus requirement under which the issuer may grant to itssecurityholders a right to purchase additional securities of the issuer's own issue; and
(b) "rights offering registration exemption" means the exemption in securities legislation from the trading registration requirement under which the issuer maygrant to its securityholders a right to purchase additional securities of the issuer's own issue.
(3) In British Columbia, for the purposes of this Instrument, excluding Part 9, the expression "securities regulatory authority or regulator" must be read asreferring only to the regulator.
(4) In Alberta, for the purposes of this Instrument, excluding Part 9, the expression "securities regulatory authority or regulator" must be read as referring only tothe regulator.
(5) For the purpose of the definition of "related party" "to hold" a security means to beneficially own or exercise control or direction over the security and"holders" and "held" and similar words have similar meanings.
1.3 Application
(1) This Instrument applies to an issuer that distributes, by way of a rights offering, securities of its own issue to a holder of its securities who is resident in thelocal jurisdiction(8).
(2) This Instrument applies to rights offerings whether made by way of a prospectus or in reliance upon the rights offering prospectus exemption.
PART 2 REMOVAL OF RIGHTS OFFERING PROSPECTUS EXEMPTION
2.1 General - The rights offering prospectus exemption is not available to an issuer unless the issuer and the rights offering comply with the requirements ofParts 3, 5, 6, 7 and 8 of this Instrument.
2.2 Restricted Offerings - The rights offering prospectus exemption is not available to an issuer for a rights offering in any of the following circumstances:
1. There would be an increase of more than 25 percent in the number, or, in the case of debt, the principal amount, of the outstanding securities of the class to beissued upon the exercise of the rights, resulting from the exercise of all rights issued under the offering and the exercise of any other rights issued by the issuerunder the rights offering prospectus exemption during the 12 months immediately preceding the later of the date that is 10 days after the notice referred to in therights offering prospectus exemption is given to the securities regulatory authority or regulator and the date the issuer receives a written notice from thesecurities regulatory authority or regulator that it does not object to the use of the rights offering prospectus exemption.
2. The rights issued under the offering are exercisable for securities of a class of securities none of which were outstanding before the date of issuance of therights.
3. The issuer has entered into an agreement to compensate a person or company for soliciting the exercise of rights issued under the offering that provides forpayment of a higher fee for soliciting the exercise of rights by holders of rights that were not securityholders of the issuer immediately before the rights offeringthan the fee payable for soliciting the exercise of rights by holders of rights that were securityholders at that time.
4. The offering is conditional on a minimum amount of proceeds being raised to allow the issuer to carry out the purpose for which funds are being sought andthe offering is open for more than 30 days from the later of the date that is 10 days after the notice referred to in the rights offering prospectus exemption isgiven to the securities regulatory authority or regulator and the date the issuer receives a written notice from the securities regulatory authority or regulator thatit does not object to the use of the rights offering prospectus exemption.(9)
5. The issuer is not a reporting issuer in the local jurisdiction and the offering is open for more than 45 days from the later of the date that is 10 days after thenotice referred to in the rights offering prospectus exemption is given to the securities regulatory authority or regulator and the date the issuer receives a writtennotice from the securities regulatory authority or regulator that it does not object to the use of the rights offering prospectus exemption.(10)
6. The issuer is a reporting issuer in the local jurisdiction and the offering is open for more than 90 days from the later of the date that is 10 days after the noticereferred to in the rights offering prospectus exemption is given to the securities regulatory authority or regulator and the date the issuer receives a written noticefrom the securities regulatory authority or regulator that it does not object to the use of the rights offering prospectus exemption.(11)
7. The issuer is not a reporting issuer in the local jurisdiction but is a reporting issuer in another jurisdiction and
(i) the issuer has not filed with the securities regulatory authority all continuous disclosure documents for the 12 month period before the date the draft rightsoffering circular is sent to the securities regulatory authority or regulator in accordance with section 3.1 that the issuer was required to file under Canadiansecurities legislation of another jurisdiction in which the issuer is a reporting issuer, and
(ii) the offering is open for more than 90 days from the later of the date that is 10 days after the notice referred to in the rights offering prospectus exemption isgiven to the securities regulatory authority or regulator and the date the issuer receives a written notice from the securities regulatory authority or regulator thatit does not object to the use of the rights offering prospectus exemption.
8. The issuer appears on the list of defaulting reporting issuers maintained by the securities regulatory authority.
PART 3 PROSPECTUS EXEMPT OFFERINGS
3.1 Deliveries to the Securities Regulatory Authority or Regulator - An issuer that intends to effect a rights offering in reliance on the rights offeringprospectus exemption shall send(12) to the securities regulatory authority(13) or regulator(14) the following documents:
1. A draft and final rights offering circular prepared in accordance with the required form.(15),(16)
2. A copy of the preliminary prospectus or, if prepared, the prospectus submitted or to be submitted for acceptance in another jurisdiction, if the rights offering isbeing made in another jurisdiction by way of a prospectus.
3. If not filed under National Instrument 13-101 System for Electronic Document Analysis and Retrieval, the issuer's financial statements for its most recentlycompleted financial year for which statements have been prepared and any interim financial statements prepared and filed, or required to be filed, for a periodafter that financial year.
4. If not filed under National Instrument 13-101 System for Electronic Document Analysis and Retrieval, the notice of meeting and the information circularprepared and filed, or required to be filed, for the most recently held annual meeting of shareholders of the issuer.
5. If not filed under National Instrument 13-101 System for Electronic Document Analysis and Retrieval, the notice of meeting and the information circularprepared and filed, or required to be filed, for any special meeting of shareholders of the issuer held after the most recently held annual meeting.(17)
6. A copy of any agreement entered into by the issuer with a managing dealer.(18)
7. A copy of a report on the issuer's property and its development prepared in accordance with National Policy Statement No. 2-A or National Policy StatementNo. 2-B or any successor instrument or rule to those Policies, in the following circumstance:
(a) the issuer is a natural resource company or natural resource issuer;
(b) the issuer has no securities listed on The Toronto Stock Exchange, The Montreal Exchange or the senior board of the Vancouver Stock Exchange;
(c) the issuer is not an Exempt Company under Alberta Stock Exchange Circular #6, as amended or replaced; and
(d) the proceeds from the rights offering are to be used to fund a specific program on the property.(19)
8. The details of any other rights offering completed by the issuer within the 12 months before the date of filing of the draft rights offering circular.
3.2 Requests for Additional Information - An issuer that intends to effect a rights offering under the rights offering prospectus exemption shall send such otherinformation to the securities regulatory authority or regulator as the securities regulatory authority or regulator may require to allow the securities regulatoryauthority or regulator to determine whether to object to the use of the rights offering prospectus exemption.(20), (21)
3.3 Delivery to Securityholders - An issuer that intends to effect a rights offering in reliance on the rights offering prospectus exemption shall send
(a) to each securityholder, to the extent otherwise required by securities legislation and not already sent to each securityholder entitled to receive the document, acopy of each of the documents listed in paragraphs 3, 4 and 5 of section 3.1;
(b) to each securityholder entitled to receive rights under the rights offering and to each registered rights holder, a copy of any amendment under section 3.4; and
(c) to each securityholder entitled to receive rights under the rights offering
(i) a rights offering circular to which the securities regulatory authority or the regulator has not objected or has confirmed its acceptance,
(ii) concurrently with sending the rights offering circular, a copy of the prospectus, if any, referred to in paragraph 2 of subsection 3.1, and
(iii) concurrently with sending the rights offering circular, if not otherwise required by securities legislation, a copy of each of the items listed in paragraph 3 ofsubsection 3.1.
3.4 Amendments
(1) An issuer that has sent to its securityholders a rights offering circular under section 3.1 to which the securities regulatory authority or regulator has notobjected or has confirmed its acceptance may amend the rights offering circular, for the purpose of updating information, by sending to the securities regulatoryauthority or regulator a draft and final amendment to the rights offering circular or a draft and final amended rights offering circular blacklined to the previouslyfiled rights offering circular.(22)
(2) The securities regulatory authority or regulator shall notify the issuer within four days of the filing of a draft amendment to the rights offering circular or draftamended rights offering circular if changes are required to the document.
(3) Despite subsection (1), an issuer shall not amend a rights offering circular to change the terms of the rights offering.
PART 4 PROSPECTUS OFFERINGS
4.1 Reliance on Registration Exemption - An issuer that intends to effect a rights offering under a prospectus and intends to rely on the rights offeringregistration exemption shall state that it intends to rely on the exemption in a letter accompanying the filing of the preliminary prospectus.
4.2 Prospectus
(1) An issuer shall not file a prospectus for a rights offering, unless
(a) in addition to qualifying the distribution of the rights, the prospectus qualifies the distribution of the securities issuable on the exercise of the rights (23); and
(b) if there is a managing dealer, the managing dealer has signed the underwriter's certificate in the prospectus(24).
(2) A prospectus for a rights offering shall disclose that in addition to qualifying the distribution of the rights, the prospectus qualifies the distribution ofsecurities issuable on the exercise of the rights.
4.3 Compliance with Instrument - An issuer shall not file a prospectus or an amendment to a prospectus for a rights offering unless the issuer and the rightsoffering comply with the requirements of Parts 5, 6, 7 and 8 of this Instrument.
4.4 Amendment - An issuer shall not file an amendment to a prospectus for a rights offering to change the terms of the rights offering.
PART 5 PRICING REQUIREMENTS(25)
5.1 Subscription Price Restriction if Market Price Exists - If there is a market price for securities of the class that is issuable on the exercise of the rights, theissuer shall confirm to the securities regulatory authority or regulator in writing at the time the final materials under which the rights are to be issued are sent tothe securities regulatory authority or regulator that the subscription price is not greater than the market price of the securities on the day before the date onwhich the subscription price is established.
5.2 Subscription Price if no Market Price Exists
(1) If there is no market price for securities of the class of securities issuable on the exercise of the rights, no person or company that, to the knowledge of theissuer, is a related party of the issuer shall be permitted to increase its proportionate interest in the issuer through the exercise of the rights under the rightsoffering or through a stand-by commitment.
(2) An issuer shall make reasonable inquiry to determine if the person or company referred to in subsection (1) is a related party of the issuer.
(3) Subsections (1) and (2) do not apply if the issuer, at the time that the final materials under which the rights are to be issued are sent to the securitiesregulatory authority or regulator, by notice in writing confirms to the securities regulatory authority or regulator that the subscription price for the securitiesissuable on the exercise of the rights is not greater than the fair value of the securities on the day before the date the subscription price is established.
PART 6 STAND-BY COMMITMENTS
6.1 Stand-By Commitments - If there is a stand-by commitment for a rights offering, the issuer shall deliver to the securities regulatory authority or regulator atthe time the rights offering circular is sent to the securities regulatory authority or regulator evidence that the person or company providing the stand-bycommitment has the financial ability to carry out the stand-by commitment.
PART 7 ADDITIONAL SUBSCRIPTION PRIVILEGE
7.1 Additional Subscription Privilege - An issuer shall not grant an additional subscription privilege to a holder of a right unless the issuer grants the additionalsubscription privilege to all holders of rights.
7.2 Stand-by Commitment - If there is a stand-by commitment for a rights offering, the issuer shall grant an additional subscription privilege(26).
7.3 Number or Amount of Securities - Under an additional subscription privilege, each holder of a right shall be entitled to receive, on exercise of theadditional subscription privilege, the number or amount of securities that is the lesser of the number or amount of securities
(a) subscribed for by the holder under the additional subscription privilege; and
(b) equal to x(y/z) where
x = the aggregate number or amount of securities available through unexercised rights,
y = the number of rights previously exercised by the holder under the rights offering, and
z = the aggregate number of rights previously exercised under the rights offering by holders of rights that have subscribed for securities under the additionalsubscription privilege(27).
7.4 Price of Securities - The subscription price under an additional subscription privilege or a stand-by commitment shall be the same as the subscription priceunder the basic subscription privilege.
PART 8 APPOINTMENT OF DEPOSITORY(28)
8.1 Depository - If an issuer has specified in a rights offering circular or prospectus for a rights offering that a minimum amount of proceeds from the rightsoffering is necessary to carry out the purpose for which the funds are being sought under the rights offering and that no securities will be issued on the exerciseof the rights unless proceeds in an amount not less than the specified minimum amount are received by the issuer under the rights offering, the issuer shall
(a) appoint a Canadian chartered bank or trust company to hold, as depository, all money received on the exercise of the rights until that specified minimumamount is received; and
(b) identify the Canadian chartered bank or trust company in the rights offering circular or prospectus.
8.2 Release of Funds from Depository - The agreement between the depository and the issuer under which the depository referred to in section 8.1 isappointed shall provide that, if the specified minimum amount referred to in section 8.1 is not received by the depository during the period during which therights may be exercised, the money held by the depository will be returned in full to the holders of rights that have subscribed for securities under the rightsoffering.(29)
PART 9 EXEMPTION
9.1 Connection Test(30)
(1) Parts 2, 3, 5, 6, 7 and 8 do not apply to a rights offering by an issuer if
(a) the number of holders of the class of securities for which the rights are issued whose last address as shown on the books of the issuer is in Canada, and, ascertified by the issuer under subsection (2), the number of beneficial holders of the class resident in Canada, constitutes, in the aggregate, less than 10 percent ofall holders of that class;
(b) the number of securities of the issuer of the class of securities for which the rights are issued held by securityholders whose last address as shown on thebooks of the issuer is in Canada, and, as certified by the issuer under subsection (2), held beneficially by holders resident in Canada, constitutes, in the aggregate,less than 10 percent of the outstanding securities of that class;
(c) the number of holders of the class for which the rights are issued whose last address as shown on the books of the issuer is in the local jurisdiction, and, ascertified by the issuer under subsection (2), the number of beneficial holders of the class resident in the local jurisdiction constitutes, in the aggregate, less thanfive percent of all holders of that class;
(d) the number of securities of the issuer of the class for which the rights are issued held by securityholders whose last address as shown on the books of theissuer is in the local jurisdiction, and, as certified by the issuer under subsection (2), held beneficially by holders resident in the local jurisdiction constitutes, in theaggregate, less than five percent of the outstanding securities of that class(31); and
(e) all materials sent to any other securityholders for the rights offering are concurrently sent to the securities regulatory authority or regulator and to eachsecurityholder of the issuer resident in the jurisdiction.
(2) An issuer relying on the exemption in subsection (1) shall send to the securities regulatory authority or the regulator a written notice that it is relying on theexemption and a certificate of an officer or director of the issuer that to the knowledge of the directors or senior officers of the issuer, after reasonable inquirythat
(a) the number of beneficial holders of the class for which the rights are issued resident in Canada does not constitute 10 percent or more of all holders of thatclass;
(b) the number of securities of the issuer of the class for which the rights are issued beneficially held by securityholders resident in Canada does not constitute, inthe aggregate, 10 percent or more of the outstanding securities of that class;
(c) the number of beneficial holders of the class for which the rights are issued resident in the local jurisdiction does not constitute five percent or more of allholders of that class; and
(d) the number of securities of the issuer of the class for which the rights are issued beneficially held by securityholders resident in the local jurisdiction does notconstitute, in the aggregate, five percent or more of the outstanding securities of that class.
9.2 Exemption
(1) The regulator or the securities regulatory authority may grant an exemption to this Instrument, in whole or in part, subject to such conditions or restrictionsas may be imposed in the exemption.
(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.
9.3 Form of Approval of Securities Regulatory Authority - Without limiting the manner in which an exemption under section 9.2 may be evidenced, theissuance by the securities regulatory authority or regulator of a receipt for the prospectus or acceptance of the rights offering circular is evidence of the grantingof the exemption if
(a) the person or company that sought the exemption delivered to the regulator on or before the date the preliminary prospectus or draft rights offering circularwas sent to the securities regulatory authority or regulator, a letter or memorandum describing the matters relating to the exemption application, and indicatingwhy consideration should be given to the granting of the exemption; and
(b) the regulator has not sent written notice to the contrary to the person or company that sought the exemption before or concurrently with the issuance of thereceipt for the prospectus or acceptance of the rights offering circular by the securities regulatory authority or the regulator.
Footnotes
1. This proposed National Instrument is derived from policies and administrative practices of Canadian securities regulatory authorities relating to rightsofferings including Uniform Act Policy No. 2-05, in British Columbia, Local Policy Statement No. 3.05, in Alberta, Alberta Securities Commission PolicyStatement No. 5.2 and in Ontario, Ontario Securities Commission Policy Statement No. 6.2. This proposed National Instrument is expected to be adopted as arule in British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in all other jurisdictions represented bythe CSA.
2. A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain terms used in more than onenational instrument. National Instrument 14-101 also provides that a term used in a national instrument and defined in the statute relating to securities of theapplicable jurisdiction, the definition of which is not restricted to a specific portion of the statute, will have the meaning given to it in the statute relating tosecurities of that jurisdiction. National Instrument 14-101 also provides that a provision in a national instrument that specifically refers by name to a jurisdiction,other than the local jurisdiction shall not have any effect in the local jurisdiction, unless otherwise stated in the provision.
3. The term "securities legislation" is defined in National Instrument 14-101 Definitions as meaning the particular statute and legislative instruments of the localjurisdiction set out in an appendix to that instrument and will generally include the statute, regulations and, in some cases, rules, rulings, orders and forms relatingto securities in the local jurisdiction. The term "local jurisdiction" is defined in the National Instrument 14-101 Definitions. The definition is "in a nationalinstrument adopted or made by a Canadian securities regulatory authority, the jurisdiction in which the Canadian securities regulatory authority is situate".
4. 0 This term is proposed to be moved to National Instrument 14-101 Definitions as the concept is used in more than one proposed national instrument.
5. 0 This definition is derived from the proposed Ontario local rule 61-501 reformulating Ontario Securities Commission Policy 9.1 and will be updated if thatproposed Ontario local rule changes.
6. The above provision has been conformed from the definition of "selling group member" in section 204 of the Regulation to the Securities Act (Ontario).
7. This term is proposed to be moved to National Instrument 14-101 Definitions as the concept is used in more than one proposed national instrument.
8. The term "jurisdiction" is defined in National Instrument 14-101 Definitions as a province or territory of Canada, except when used in the term foreignjurisdiction. Given the extensive use of book-based systems to register securities, a "residency" test has been imposed.
9. If there is a minimum amount of proceeds required, the Canadian securities regulatory authorities wish to limit the amount of time during which arightholder and other securityholder will not know if the transaction will proceed.
10. In the case of an issuer with no continuous disclosure requirements the amount of time during which a rightholder should be required to rely on thedisclosure contained in the circular and any other information provided by the issuer to its securityholders must be limited. In other circumstances, it is importantthat the rights offering not be left open indefinitely.
11. It is important that the rights offering not be left open indefinitely.
12. The language has been changed to "send" to avoid conflicts among jurisdictions that require filing and those that require delivery.
13. The term "securities regulatory authority" is defined in National Instrument 14-101 Definitions. The definition is the securities commission or similarregulatory authority in the local jurisdiction listed in an appendix to that instrument.
14. In some jurisdictions, notably British Columbia and Alberta, it is the regulator and not the securities regulatory authority that has the discretion to object toa rights offering proceeding in reliance on the rights offering prospectus exemption. The term "regulator" is defined in National Instrument 14-101 Definitions asmeaning, in a jurisdiction, the person listed in an appendix to that instrument. See subsections 1.2(3) and (4).
15. Form 45-101F is the required form. The form is designed to serve as a simple checklist for issuers and their advisors for the preparation of a rights offeringcircular. The form mandates the disclosure currently required by the rights offering prospectus exemption and items (4) through (7) of Uniform Act Policy No.2-05. The disclosure required by the form relates principally to the securities being offered and the procedure for exercise of the rights. This is consistent with thepolicy rationale underlying the rights offering prospectus exemption, which is that existing shareholders of the issuer do not need further disclosure about theissuer, but do require disclosure about the securities being offered, the procedures under the rights offering and the use of the proceeds to be obtained on theexercise of the rights issued under the rights offering.
17. This provision is based on a requirement of the rights offering regime under Canadian securities legislation and Canadian securities directions in BritishColumbia and improves the quality of the information before the securities regulatory authority or regulator, allowing staff to better assess the quality of thedisclosure previously provided to securityholders and the appropriateness of proceeding on a prospectus exempt basis in light of recent activity of the issuer.
18. The Canadian securities regulatory authorities are of the view that staff will be in a better position after reviewing this agreement to determine the basis onwhich the managing dealer and the soliciting dealers, if any, will be compensated and that the compensation has been appropriately described in the rightsoffering circular. Staff may also wish to confirm that there is no greater incentive for dealers to solicit the exercise of rights by new securityholders than byexisting securityholders on the basis that such remuneration would offend the spirit of the exemption, which is intended to permit existing securityholders (asopposed to new securityholders) to receive the securities issuable on the exercise of rights and protect themselves against dilution. This principle currentlyappears in item (10) of Uniform Act Policy Statement No. 2.05 and is continued in Section 2.2 of this Instrument.
19. This provision is based upon a requirement of the British Columbia rights offering regime and allows staff to assess if the form of financing is appropriategiven the intended use of proceeds.
20. Additional circumstances in which the securities regulatory authority or regulator may object to the use of the rights offering prospectus exemption are setout in the proposed Companion Policy 45-101CP to this Instrument.
21. In Ontario, the Ontario Securities Commission has delegated its power to object to use of the exemption or confirm acceptance of a rights offering circularto the Director under section 6 of the Securities Act (Ontario).
22. In Quebec an amendment to a rights offering circular is required if a material change occurs after the circular has been accepted.
23. Given that consideration is not typically paid in connection with the issuance of rights but rather at the time the rights are exercised, to ensure theapplicability of the statutory rights of action under Canadian securities legislation the prospectus must qualify the distribution of securities issuable on theexercise of the rights. This will require the issuer to keep the prospectus current for the period of time up to the earlier of the exercise of all the rights and theexpiry of the rights.
24. This provision formalizes the practice of the Ontario Securities Commission as set out in its notice entitled "Rights Offerings Under a Prospectus" (1989),12 OSCB 1463.
25. Concerns about pricing exist if the pricing of an offering could assist a related party in its efforts to consolidate its holdings of an issuer by discouragingnon-related parties from participating in the offering. The pricing provisions are intended to address such concerns. If consolidation is not an issue, an issuershould not be restricted by the securities regulatory authority or regulator in the issuer's decision as to the pricing of an offering. However, if the rights offering ispriced above the market price, the issuer must establish that it has valid business reasons for so doing. See section 3.1 of 45-101CP the Companion Policy to thisInstrument.
26. This provision codifies practice of staff of Canadian securities regulatory authorities that requires an additional subscription privilege even in circumstancesin which the stand-by commitment is not provided by a related party.
27. This provision amends the formula prescribed in Ontario Securities Commission Policy Statement No. 6.2 Part VI paragraph (4) in order to moreefficiently permit the exercise of all unexercised rights. In the amended formula, the denominator of the fraction used in the calculation properly references thenumber of rights previously exercised by those exercising the additional subscription privilege rather than the aggregate number of rights exercised by all holdersof rights under the basic subscription privilege.
28. This requirement formalizes the practice of Canadian securities regulatory authorities concerning the appointment of a depository.
29. 0 Issuers and registrants are referred to proposed National Instrument 33-105 Underwriting Conflicts for disclosure requirements for related and connectedissuers.
30. The purpose of the exemption from this National Instrument is to permit a rights offering to be made to residents of a local jurisdiction without the need tocomply with the provisions of the proposed Instrument if there is little connection of the issuer to the jurisdiction.
31. Historically, residents in some jurisdictions have been excluded from some rights offerings by the issuers not located in that jurisdiction for reasons relatingto the cost of compliance and timing concerns. Typically, Canadian securities regulatory authorities have exempted an issuer on the basis that the connection ofthe issuer to the jurisdiction is minor. For example see the exemption in Ontario Securities Commission Policy Statement No. 6.2 Part III paragraph (5).