On March 8, 2023, staff of the Canadian Securities Administrators (other than Ontario), published revised Multilateral CSA Staff Notice 45-309 (the Notice), first published in 2012, which provides guidance for preparing and filing an offering memorandum (an OM) under National Instrument 45-106 – Prospectus Exemptions (NI 45-106). The Notice is relevant to issuers that rely on the offering memorandum prospectus exemption (the OM Exemption) and summarizes common deficiencies that have been observed in OMs prepared in accordance with Form 45-106F2. The Notice also discusses potential consequences of non-compliance with the terms of the OM Exemption.

The Notice was published in conjunction with the effective date of the amendments to NI 45-106 applicable to issuers relying on the OM Exemption that are “collective investment vehicles” and “real estate issuers” (the Amendments). We wrote about the Amendments in our January bulletin.

The CSA remind issuers that an OM must comply with the requirements of the OM Exemption when it is prepared, when it is delivered to prospective purchasers and when the issuer accepts an agreement to purchase the security from the purchaser. This means 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.

Staff have observed issuers making distributions under the OM Exemption using an OM that no longer meets the requirements, which is not permitted. This can occur if an issuer fails to update the OM to reflect a material change or to include more recent financial statements. If distributions under the OM Exemption are ongoing, the OM is required to be amended to include annual audited financial statements for the issuer’s most recently completed financial year no later than 120 days after the issuer’s financial year-end. For ongoing distributions to Ontario residents, the OM must be amended to include financial statements for the issuer’s most recently completed six-month interim period no later than 60 days after the end of that period, unless the issuer qualifies for the exemption set out in the Amendments.

The CSA also remind issuers that disseminating material forward-looking information (such as expected returns) to prospective purchasers during the course of a distribution without disclosing such information in the OM is prohibited.

Other common issues with OMs discussed in the Notice include the following:

  • Failing to file an OM on time;
  • Failing to provide balanced disclosure;
  • Inadequately disclosing available funds and use of available funds;
  • Omitting key terms of material agreements;
  • Omitting compensation disclosure;
  • Omitting key elements of financial statements;
  • Omitting required interim reports;
  • Failing to obtain required audits; and
  • Improperly certifying the OM.

Issuers relying on the OM Exemption should ensure that their OM complies with the requirements of NI 45-106. Now that the Amendments are in effect, any update to an OM will require a “form check” to ensure the OM complies with the Amendments. An updated OM must be filed with the regulators no later than 10 days after the first distribution under that OM. If you have any questions or would like our assistance with reviewing your OM, please contact us.

March 31, 2023