April 24th, 2017
Ontario Offering Memorandum is NOT the Same as the Offering Memorandum Exemption
The term “offering memorandum” has two meanings under securities laws in Canada. In Canadian jurisdictions other than Ontario, an offering memorandum is a document prepared in the prescribed form under National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106 OM) to enable an issuer to rely on the offering memorandum exemption set out in section 2.9 of NI 45-106 (the OM exemption). This OM exemption is available in every province and territory in Canada except for Ontario. In Ontario, an offering memorandum is defined under section 1(1) of the Ontario Securities Act as:
“a document, together with any amendments to that document, purporting to describe the business and affairs of an issuer that has been prepared primarily for delivery to and review by a prospective purchaser so as to assist the prospective purchaser to make an investment decision in respect of securities being sold in a distribution to which section 53 [of the Act] would apply but for the availability of one or more of the exemptions contained in Ontario securities law, but does not include a document setting out current information about an issuer for the benefit of a prospective purchaser familiar with the issuer through prior investment or business contacts.” (emphasis added)
There is no prescribed form for an offering memorandum in Ontario (the Ontario OM). There is also no private placement exemption associated with an Ontario OM unlike a NI 45-106 OM.
People often confuse using an “offering memorandum” when raising capital in Ontario with the OM exemption under NI 45-106. An Ontario OM and NI 45-106 OM are very different in form and purpose. This article explores what is an Ontario OM, Ontario OM regulatory requirements and how the Ontario OM relates to the OM exemption.
What is an Ontario OM?
As defined above, an Ontario OM captures a wide variety of written offering materials that may not immediately be considered an offering memorandum by the average person.
For something to be considered an Ontario OM, it must have the following three elements:
- It must be a document – Only documents are considered offering memorandums in Ontario. An Ontario OM may be a print or electronic document, and include a power-point presentation, on-line web material, an email or a document in any other written form. Note: Oral statements are not considered an Ontario OM, however, a written transcript of an oral statement or video could be construed as an OM.
- It must describe the business and affairs of the issuer – Any document that describes the business and affairs of the issuer may be considered on Ontario OM
- It must have been “primarily prepared” for the purpose to sell the issuer’s securities – Only documents “primarily prepared” in contemplation of soliciting an investment from a prospective investor will be considered an Ontario OM. Documents such as green sheets, term sheets (see exception below), investor presentations, investment summaries and private placement or offering memoranda, including NI 45-106 OMs (if provided to Ontario investors in reliance on another prospectus exemption), are considered Ontario OMs. What the document is called is irrelevant. Note: Product sales brochures, technical reports, internal reports etc., if primarily prepared for other purposes, are generally not considered an Ontario OM as these materials are primarily prepared to sell product or advance the business of the company.
Documents not considered an Ontario OM
The following documents are not considered an Ontario OM:
1. documents prepared for the benefit of:
- existing investors of an issuer such as quarterly or annual reports; or
- a prospective investor familiar with the issuer through prior business contacts. Arguably, this means an individual who has had sufficient prior business dealings with a director, executive officer, founder or control person of an issuer to be in a position to assess their capabilities and trustworthiness, and
2. a term sheet. The Companion Policy to NI 45-106 defines a term sheet as a document that “represents a skeletal outline of the features of a distribution without dealing extensively with the business or affairs of the issuer of the securities being distributed.” Issuers are reminded that just because a document is called a ‘term sheet’ does not mean it is. It could in fact be an Ontario OM as a matter of law in circumstances where the document goes beyond a skeletal outline and describes the business and affairs of an issuer. [Footnote 1]