Legal Updates

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Friday, September 2, 2016

As previously summarized in our November 2015 securities law update, the Canadian Securities Administrators (the “CSA”) published CSA Notice of Amendments Relating to Rights Offerings which announced amendments (the “CSA Amendments”) to Canada’s prospectus-exempt rights offering regime for reporting issuers. The CSA Amendments came into effect on December 8, 2015.

While the CSA Amendments eliminated the regulatory review of a rights offering circular by the CSA (the “CSA Review”), both the Toronto Stock Exchange (the “TSX”) and the TSX Venture Exchange (the “TSXV”) took a different approach as outlined in their respective guidance to listed issuers released earlier this year in response to the new rights offering regime published by the CSA. Both the TSX and the TSXV announced their intention, subject to all required regulatory approvals, to formally incorporate this new guidance into their respective manuals of rules for listed issuers.

In May 2016, the TSX formally amended Section 614 – Rights Offerings of the TSX Company Manual (the “TSX Manual”) to reflect the staff notice it released at the beginning of the year. On August 11, 2016, the TSXV published a notice in its Corporate Finance Bulletin (the “Bulletin”) advising that amendments to TSXV Policy 4.5 – Rights Offerings (the “TSXV Amendments”) are now in effect, substantially reflecting the guidance released by the TSXV earlier this year.

Pre-clearance of Rights Offerings Documents

On January 18, 2016, the TSX announced in its TSX Staff Notice 2016-0002 (the “Staff Notice”) that, despite the elimination of the CSA Review, the TSX still requires pre- clearance of the rights offering notice (Form 45-106F14) together with the rights offering circular (Form 45- 106F15) or rights offering prospectus (collectively, the “Rights Offering Documents”). The Staff Notice outlines that the Rights Offering Documents should be filed with the TSX in draft form at least five trading days prior to finalization. The TSX will use this time to review the pricing, mechanics and timing of the rights offering in order to maintain an orderly market for the trading of the listed securities and the rights.

On January 18, 2016, the TSXV also announced in its Bulletin that the TSXV still requires pre-clearance of the Rights Offering Documents by filing the documents with the TSXV in draft form. In contrast to the Staff Notice, neither of the TSXV’s notices published in its Bulletin on January 18, 2016 nor August 11, 2016 specifies a minimum number of days in advance of finalization that the Rights Offering Documents should be filed; however, the TSXV’s guidance to issuers is that they provide the TSXV with “sufficient time” to review the pricing, mechanisms and timing of the rights offering.

Determination of Record Date

Section 614 – Rights Offerings of the TSX Manual currently requires that all deficiencies raised by the TSX during the pre-clearance processes be resolved at least seven trading days prior to the record date. The Staff Notice outlined that, effective immediately, the TSX would reduce the advance notification period to set the record date for all rights offerings from seven trading days to five trading days.

Policy 4.5 – Rights Offerings of the TSXV Corporate Finance Manual (the “TSXV Manual”) also previously required at least seven trading days for deficiency resolution in the pre-clearance process. However, further to the TSXV Amendments, Policy 4.5 – Rights Offerings was amended so that the date by which all deficiencies in the Rights Offering Documents must be resolved is now five trading days prior to the record date.

Both the TSX and TSXV believe that five trading days is sufficient time to advise market participants of the commencement of ex-rights trading in the listed securities as ex-rights trading typically begins two trading days prior to the record date.

Additional TSXV Guidance

The TSXV Amendments are summarized below.

Minimum Rights Subscription Price - $0.01

The TSXV amended Subsection 4.3, now Subsection 1.6, of Policy 4.5 of the TSXV Manual such that the subscription price for securities to be acquired on the exercise of rights cannot, in any case, be less than $0.01.

Fractional Rights

The TSXV amended Subsection 1.6 of Policy 4.5 of the TSXV Manual such that fraction of rights may be issued, provided that the number of rights required to purchase a security must be whole.

Minimum Warrant Exercise Price and Term

The TSXV amended Subsection 4.4, now Subsection 1.7, of Policy 4.5 of the TSXV Manual such that the minimum exercise price of a warrant forming part of a unit to be acquired on the exercise of a right must not be less than the market price prior to the news release announcing the rights offering and must not be less than $0.05. Any warrant forming part of a unit must not expire later than five years after the date of the right expires.

Optional Listing of Rights

The TSXV has amended Policy 4.5 of the TSXV Manual to expressly provide that rights may be, but are not required to be, listed for trading on the TSXV, at the election of the issuer. However, all rights must be transferable.

New Large Shareholders

The TSXV has amended Policy 4.5 of the TSXV Manual such that shareholder approval of the creation of any new control person of the issuer as a consequence of a stand-by commitment for a rights offering generally will not be required, provided that (i) the rights are listed for trading on the TSXV, and (ii) the subscription price for the rights is at a prescribed discount to the market price. If one or both of these criteria are not satisfied, the TSXV may first require shareholder approval of the creation of the new control person.

If, upon completion of a rights offering, an individual may own or control, beneficially or as nominee, directly or indirectly, securities representing more than 10% of the voting rights attached to all outstanding voting securities of an issuer (and, where the securityholder is not an individual, any director, officer or insider of that securityholder), the TSXV requires the individual to file a duly completed Personal Information Form (Form 2A) or, if applicable, a Declaration (Form 2C1) with the TSXV prior to the TSXV accepting a rights offering that includes a stand-by commitment.


The TSX and TSXV have each amended the TSX Manual and the TSXV Manual, as applicable, in order to incorporate the guidance with respect to rights offerings outlined in the Staff Notice and Bulletin, respectively. If you have any questions with respect to the guidance in the Staff Notice or the Bulletin, the amendments to the TSX Manual, the TSXV Amendments, or rights offerings in general, please contact Jeff Hergott or any other member of our Corporate Finance practice group.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.