Other prospectus matters
In addition to the various prospectus requirements, some types of offerings have specific requirements or involve additional considerations. We have outlined the most common scenarios below, though this is not a comprehensive list. If an issuer has any doubt about its prospectus, we recommend pre-filing the prospectus to have an opportunity to discuss the specifics with OSC staff.
A prospectus must include detailed disclosure about an issuer’s business and capital structure. The OSC has prepared additional guidance and clarification to market participants about indirect offering structures both in the context of initial public offerings and on a continuing basis. In general, an indirect offering is one where the interests in the operating entity are not offered directly to the public but are acquired by a separate entity; for example, a trust. It is the securities of this separate entity that are offered to the public under a prospectus.
These concerns are articulated in National Policy 41-201 Income Trusts and Other Indirect Offerings.
In an indirect offering structure, our concerns relate to the quality and nature of prospectus disclosure and continuous disclosure records, including accountability, liability, and compliance with insider reporting obligations. These principles can apply more generally to issuers offering securities that entitle holders to the net cash flow generated by the issuer’s business or its properties.
Emerging market issuers
The OSC completed a selected review of Canadian public companies with significant business operations in emerging market jurisdictions. The purpose of the review included an assessment of the quality and adequacy of emerging market issuers’ disclosure and corporate governance practices, as well as the adequacy of the gatekeeper roles played by auditors, underwriters and the exchanges. We identified significant concerns in each of these areas. Our findings and recommendations were published in OSC Staff Notice 51-719 Emerging Markets Issuer Review and in a companion guide, OSC Staff Notice 51-720 Issuer Guide for Companies Operating in Emerging Markets.
The guide highlights potential areas of risk or red flags that may warrant further scrutiny and sets out questions that directors and management of emerging market issuers should consider when deciding how to address risks of doing business in emerging markets. It also outlines our expectations regarding compliance with existing disclosure requirements.
At-the-market (ATM) distributions
On August 31, 2020, amendments to Part 9 of National Instrument 44-102 Shelf Distributions (NI 44-102) to facilitate ATM distributions became effective. An ATM distribution is a form of prospectus offering where a registered dealer sells equity securities on behalf of an issuer directly over a marketplace at current market prices. The amendments facilitate ATM distributions by providing statutory exemptions to issuers and underwriters within the shelf prospectus regime.
An issuer and underwriters that have previously obtained exemptive relief may continue to distribute securities in reliance on the decision until it is no longer effective or on the statutory exemptions in Part 9 of NI 44-102. For further guidance please refer to Part 5 of Companion Policy 44-102CP Shelf Distributions.
Blank cheque preferred shares
Blank cheque preferred shares are shares carrying unspecified rights or restrictions or where the terms of the shares do not have a specific purpose. Issuers who plan to offer “blank cheque” preferred shares should provide OSC staff with reasonable prior notice. Preferred shares may further restrict the rights of the existing class of restricted shares, especially when preferred shares will be offered with greater voting rights than those of the existing class of restricted shares. OSC staff will determine if additional disclosure should be made to the future offering document.
Non-GAAP financial measures
Many issuers include non-generally accepted accounting principles (GAAP) financial measures in marketing materials, prospectus filings, and documents incorporated by reference, as issuers believe this information provides additional insight into their overall performance.
When providing non-GAAP financial information, issuers should clearly identify the information as such and not disclose information in a manner that may be misleading to investors or obscure the issuer’s GAAP results by giving excess prominence to non-GAAP disclosures. For further information, refer to:
- CSA Staff Notice 52-306 Non-GAAP Financial Measures
- OSC Staff Notice 52-722 Report on Staff’s Review of Non-GAAP Financial Measures and Additional GAAP Measures
- OSC Staff Notice 51-728 Corporate Finance Branch 2016-2017 Annual Report, Part B Continuous Disclosure Review Program – Trends and Guidance
- OSC Staff Notice 52-723 OCA Financial Reporting Bulletin 2016 (Section entitled Non-GAAP Financial Measures)
Forward-looking information (FLI) is generally any disclosure by an issuer about possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action. Many issuers disclose FLI in marketing materials, prospectus filings, and management's discussion and analysis (MD&A) filings. FLI should provide valuable insight about a reporting issuer’s business and how the issuer intends to attain its corporate objectives and targets.
When disclosing FLI in a prospectus, issuers should only include a financial outlook that is based on reasonable assumptions, which typically would not extend beyond the end of the next fiscal year. We may raise comments in respect to the reasonableness of the time period of FLI presented. If an FLI is presented for multiple years and not sufficiently supported by reasonable qualitative and quantitative assumptions, we may ask issuers to limit the disclosure of FLI to a shorter period (for example, one or two years).
Issuers must update their previously disclosed FLIs when circumstances are likely to cause their actual results to differ from the projections.
For more information, refer to:
- Part 4A – Forward-Looking-Information and Part 4B – FOFI and Financial Outlooks of National Instrument 51-102 Continuous Disclosure Obligations
- Section 5.8 of National Instrument 51-102 Continuous Disclosure Obligations
- OSC Staff Notice 51-721 Forward-Looking Information Disclosure
Audit committees in IPOs
Issuers filing an IPO prospectus must have an audit committee in place that meets the composition requirements prescribed in National Instrument 52-110 Audit Committees no later than the date of the receipt for the final prospectus.
Non-venture issuers must have an audit committee composed of at least three members, all of whom are independent and financially literate.
A venture issuer must have an audit committee composed of at least three members, a majority of whom are not executive officers, employees, or control persons of the issuer or of an affiliate.
We encourage issuers to review all contracts entered into within the last financial year, or before the last financial year if the contract is still in effect, to determine whether the contract is a "material contract" that must be filed on SEDAR. Material contracts entered into in the ordinary course of business are generally exempt, but issuers should note that any material contract on which the issuer's business is substantially dependent must be filed.
Special purpose acquisition corporations
The Toronto Stock Exchange (TSX) and Aequitas NEO Exchange have rules for the IPO and listing of an issuer that has no operating business but was formed for the purpose of raising money through an IPO and then purchasing an existing business (a “Special Purpose Acquisition Corporation” or “SPAC”).
IPO purchasers do not have statutory liability rights for a misrepresentation about the acquired business (as that information is only disclosed in a non-offering prospectus at the time of the qualifying acquisition). To address this concern, the OSC requires a contractual right of action for rescission or damages to be provided to all IPO purchasers for a misrepresentation at the time of filing a non-offering prospectus.