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Certain disclosure is required to be included in a prospectus which is set out in:
In addition to the various prospectus content requirements outlined in the prospectus forms, there are other requirements that may apply in connection with a prospectus filing, some of which are as follows:
A prospectus must include detailed disclosure about an issuer’s business and capital structure. Issues may arise in circumstances where the structure of an offering invokes the policy concerns articulated in National Policy 41-201 Income Trusts and Other Indirect Offerings. The policy provides guidance and clarification to market participants about income trusts and other indirect offering structures both in the context of initial public offerings and on a continuing basis.
This policy expresses our view about how the existing regulatory framework applies to non-corporate issuers (such as income trusts) and to indirect offering structures. The purpose of the policy is to minimize inconsistent interpretations and to better ensure that the principles underlying the requirements are preserved.
In an indirect offering structure, our concerns relate to the quality and nature of prospectus disclosure and continuous disclosure records, including accountability and liability for prospectus disclosure and compliance with insider reporting obligations. As well, the principles can apply more generally to issuers that offer securities which entitle holders of those securities to the net cash flow generated by the issuer’s business or its properties. For more information:
In response to questions and concerns involving Canadian public companies with significant business operations in emerging market jurisdictions, OSC staff completed a selected review (the Review) of these issuers. The purpose of the Review was to assess the quality and adequacy of the issuers’ compliance with disclosure and other regulatory requirements, as well as the adequacy of the gatekeeper roles played by their auditors and underwriters and the exchanges on which the issuers had listed. Our findings and recommendations were published in OSC Staff Notice 51-719 Emerging Markets Issuer Review.
Following the completion of the Review, OSC staff also published guidance in OSC Staff Notice 51-720 Issuer Guide for Companies Operating in Emerging Markets (the Guide). We believe directors and management of all market issuers will benefit from specific guidance that helps them meet the regulatory and investor expectations in Ontario’s capital markets. We published the Guide to provide assistance to emerging market issuers and their directors and management on their governance and disclosure practices in light of the unique challenges they face.
Specifically, the Guide:
For more information:
An ATM distribution is essentially an offering of securities under a base shelf prospectus into an existing market such as the TSX. It allows the issuer to sell securities through the TSX as if the issuer were an ordinary secondary market seller. To effect an ATM distribution, issuers and underwriters have sought relief from certain prospectus requirements. For more information:
Where an issuer has a class of restricted shares issued and outstanding and its authorized share capital includes "blank cheque" preferred shares (i.e. preferred shares issuable in series, having such rights, restrictions and conditions as may be determined by the issuer's board prior to the issuance) there is a concern that a future issuance of preferred shares may further restrict the rights of the existing class of restricted shares. In these circumstances, we will ask the issuer for an undertaking to provide staff with reasonable prior notice in the event that the issuer intends to issue a series of preferred shares with greater voting rights than those of the existing class of restricted shares. This will provide staff with sufficient time to consider what, if any, additional disclosure should be made to the future offering document.
Many issuers include non-GAAP financial measures in marketing materials, prospectus filings and documents incorporated by reference such as the Management's Discussion and Analysis (MD&A), as issuers believe this information provides additional insight into their overall performance. Staff’s expectations for non-GAAP disclosures are outlined in CSA Staff Notice 52-306 Non-GAAP Financial Measures.
When providing non-GAAP financial information, issuers should clearly identify the information as non-GAAP 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 more information:
Issuers should monitor new communications from the OSC on this topic as they may arise from time to time.
Many issuers disclose FLI in marketing materials, prospectus filings and 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.
Some issuers disclose FLI in their prospectus or CD documents for a period beyond the issuer's next fiscal year end without providing reasonable and sufficient assumptions to support the FLI beyond the fiscal year end. Part 4B of National Instrument 51-102 Continuous Disclosure Obligations states that an issuer must not disclose a financial outlook unless the financial outlook is based on assumptions that are reasonable in the circumstances. It further states that the financial outlook that is based on assumptions that are reasonable in the circumstances must, without limitation, be limited to a period for which the information in the financial outlook can be reasonably estimated. In many cases, that time period will not go beyond the end of the reporting issuer's next fiscal year. We may raise comments in respect of the reasonableness of the time period of FLI presented. Where FLI is presented for multiple years and is 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), for which reasonable support exists. For investors to assess whether the assumptions underlying the issuer's FLI are reasonable, the issuer should disclose those assumptions in the prospectus and CD documents (as applicable), both quantitatively and qualitatively. For example, an issuer projecting aggressive growth targets without the benefit of historical experience should be able to show (i) a reasonable basis for those targets, including the key drivers behind the projected growth with reference to specific plans and objectives that support the projected growth, and (ii) why management believes that each of the targets/FLI are reasonable.
We also remind issuers that under section 5.8 of National Instrument 51-102 Continuous Disclosure Obligations, the issuer’s MD&A must:
For more information:
Where an issuer files an IPO prospectus, it must have an audit committee in place that meets the composition requirements prescribed in National Instrument 52-110 Audit Committees (NI 52-110) no later than the date of the receipt for the final prospectus.
This means that a non-venture issuer, subject to exemptions that are set out in NI 52-110, must have an audit committee in place that is composed of at least three members, all of whom are independent and financially literate as defined in NI 52-110. A venture issuer must have an audit committee in place that is 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 of the issuer.
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. While material contracts entered into in the ordinary course of business are generally exempt, we remind issuers that any material contract on which the issuer's business is substantially dependent must be filed.
Canadian Marijuana Industry
We expect that the growth of the marijuana industry will continue given the Canadian federal government's introduction of legislation to legalize the recreational use of marijuana. Canadian licensed medical marijuana producers have conducted significant public equity financings over the last year and are investing heavily in production capacity expansion projects, the scale of which would likely only be utilized in the event of a legalized recreational marijuana market. If issuers publicly state that they are funding construction projects to expand their current production growth facilities in anticipation of the legalization of recreational marijuana in Canada, such disclosure should be qualified, as appropriate, by specific risk factor disclosure.
As issuers in the Canadian medical marijuana industry operate in a complex legal and regulatory framework, these issuers should consider filing on SEDAR their Health Canada licenses, and leases for facilities associated with those licenses, on which their business is substantially dependent.
For more information:
U.S. Marijuana Industry
Issuers that have, or are in the process of developing, marijuana-related activities in the U.S. should also review our specific disclosure expectations set out in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities. Issuers with marijuana-related activities in the U.S. assume certain risks due to conflicting state and federal laws. While some U.S. states have authorized the use and sale of marijuana, it remains illegal under federal law. The federal law relating to marijuana could be enforced at any time, and this would put issuers with U.S. marijuana-related activities at risk of being prosecuted and having their assets seized. We expect issuers with marijuana-related activities in the U.S. to address the current legal and regulatory environment in their disclosures, including any related risks that result from government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation.
The CSA’s specific disclosure expectations apply to all issuers with U.S. marijuana-related activities, including those with direct and indirect involvement in the cultivation and distribution of marijuana, as well as issuers that provide goods and services to third parties involved in the U.S. marijuana industry.
We expect these disclosures to be clearly and prominently disclosed in prospectus filings and other required documents such as an issuer’s Annual Information Form, marketing materials, and MD&A. In the context of a prospectus, such disclosure should include bold boxed cover page disclosure about the illegal nature of marijuana under U.S. federal law and the potential risks associated with this circumstance. We also expect issuers with U.S. marijuana-related activities who enter our capital markets through a reverse takeover or spinoff transaction to include these disclosures in their listing statement, or other documents, as applicable.
For more information:
In fiscal 2015, we received the first IPO prospectus filed by a SPAC pursuant to Part X Special Purpose Acquisition Corporations of the Toronto Stock Exchange (TSX) Company Manual (TSX SPAC Rules). The TSX SPAC Rules, which were adopted in 2008, provide the framework for the IPO and listing of an issuer that has no operating business.
Aequitas NEO Exchange adopted similar rules for SPACs in fiscal 2017.
We note that 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, we have required SPACs at the time of filing a non-offering prospectus to provide a contractual right of action for rescission or damages to all IPO purchasers for a misrepresentation in the non-offering prospectus.