CSA Provides Guidance for Preparing and Filing
an Offering Memorandum Under NI 45-106
By Brian Koscak, EMDA Chairman and Partner, Cassels Brock & Blackwell LLP
Afzal Hasan, Articling Student, Cassels Brock & Blackwell LLP
Capital markets participants often struggle with trying to
comply with the form requirements for preparing and filing an
offering memorandum (OM) in connection with the offering
memorandum exemption (the OM Exemption) under section
2. 9 of National Instrument 45-106 Prospectus and Registration
Exemptions (NI 45-106). Although there are prescribed form
requirements (the Forms), one for qualifying issuers and one
for non-qualifying issuers, it appears issuers are struggling to
get it right.
The Saskatchewan Financial Services Commission (the
SFSC) has previously issued a staff notice commenting on its
review of OMs in SFSC Staff Notice 45-704 – Review of Offering
Memorandums under NI 45-106 Prospectus and Registration
Exemptions. The SFSC found material disclosure deficiencies in
all OMs that were reviewed, noting that “in general, the OMs were
poorly prepared and did not provide the disclosure required” by
Based on a review of the number of cease trade orders that
have been issued in British Columbia and Alberta for materially
deficient OMs, the quality of OMs prepared in other provinces
does not seem to be substantially better.
On April 26, 2012, the CSA published Multilateral CSA Staff
Notice 45-309 – Guidance for Preparing and Filing an Offering
Memorandum under NI 45-106 (the Notice). The Notice offers
guidance to issuers that intend to rely on the OM Exemption in
s. 2. 9 of NI 45-106 by discussing common deficiencies. This is
particularly helpful and long overdue since unlike a prospectus
that is reviewed and receipted by the securities regulators, OMs
generally are not receipted or reviewed by securities regulators
(see Pre-Filing of OMs – Help from Certain CSA Members below).
Responsibility for compliance with the NI 45-106 rests
with the issuer and not, for example, the exempt market dealer.
However, EMDs need to be familiar with and understand the
financial and non-financial disclosure of any OM as part of their
“Know Your Product” and “suitability obligations” under National
Instrument 31-103 Registration Requirements, Exemptions and
Ongoing Registrant Obligations.
The Notice states that the OM must be in the correct form,
not contain any misrepresentations and provide sufficient
information to enable a prospective purchaser to make an
informed investment decision.
The sufficiency of information requirement goes beyond
the prescribed form requirements whereby issuers must add
any other information to enable a prospective purchaser to
make an informed investment decision. In contrast, this is not
a requirement in preparing an OM that is not made in reliance
on the OM Exemption. For example, a voluntary OM provided
to an accredited investor who is purchasing securities under the
accredited investor exemption in NI 45-106.
The Notice largely provides 19 common deficiencies in
connection with an OM prepared in accordance with Form
45-106F2 - Offering Memorandum for Non-Qualifying Issuers. The
common deficiencies are summarized below.
Top 19 Common OM Deficiencies
1. Failing to file an OM on time – Some issuers have not filed
an OM within the applicable filing deadlines; some have
not filed one at all. An OM must be filed no later than 10
days after the first distribution of that OM unless the OM is
updated and used in a subsequent distribution, in which case
it must be re-filed (the amended or amended and restated
OM) within 10 days of that subsequent distribution date.
2. Failing to update the OM when distributions are ongoing
– A number of issuers have used “stale-dated” OMs. To
rely on the OM Exemption, the OM must not contain a
misrepresentation as of the date the OM certificate is signed
and the date it is delivered to prospective purchases. For
example, in a continuous distribution, there are instances
where an issuer’s most recent annual financial statements
and/or interim financial statements have not been included in
the OM at the date it was delivered to a purchaser.
3. Using an incorrect form of update – Issuers should follow
the guidance in s. 3. 8( 3) of Companion Policy 45-106CP –
Prospectus and Registration Exemptions when updating an