Canada: Part I – Offering Memorandum Exemption Finally Proposed In Ontario! Other Regulators Also Mulling Changes

Last Updated: April 28 2014
Article by Brian P. Koscak

On March 20, 2014, the Ontario Securities Commission (the OSC) published for comment a long awaited proposal for a new offering memorandum exemption in Ontario based on a variant of the Alberta model as set out in Section 2.9 of National Instrument 45-106 Prospectus and Registration Exemptions (the OM Exemption). On the same date, Canadian securities regulators in Alberta, Quebec, Saskatchewan and New Brunswick also published for comment proposed amendments to their respective OM Exemptions.

Part I of this article provides a basic primer on the OM Exemption, Part II discusses the proposed Ontario OM model and Part III discusses the proposed amendments to the Alberta model contemplated by Alberta, Quebec and Saskatchewan (the "Participating Jurisdictions") while New Brunswick is proposing to align with the new Ontario model. Part IV of this article discusses some of the issues and concerns that capital markets participants may have in connection with these complex and inter-related changes to the OM Exemption across the jurisdictions.

I. The Offering Memorandum Exemption – A Basic Primer

There are two existing models of the OM Exemption in Canada: the 'British Columbia model' and the 'Alberta model'. The British Columbia model is currently in effect in the Provinces of British Columbia, New Brunswick, Nova Scotia and Newfoundland and Labrador. The Alberta model is currently in effect in the Provinces of Alberta, Manitoba, Prince Edward Island, Québec, Saskatchewan and the Northwest Territories, Nunavut and the Yukon. Ontario does not currently have an OM Exemption but is considering implementing a variant of the Alberta model.

The graphic below set out the availability of the OM Exemption and different models across Canada today.

Under both of these existing models, a purchaser buys a security as principal and at the same time, or before the purchaser signs the purchase agreement, the issuer:

(a)   delivers a prescribed form of offering memorandum (OM) to the purchaser;

(b)   obtains a signed risk acknowledgement form from the purchaser; and

(c)   satisfies other requirements (as discussed below).

Under both models, issuers can sell securities to the public with no limit on the amount of capital that can be raised by an issuer or the amount invested by an investor. The key difference is that under the Alberta model any investor who does not qualify as an "eligible investor" is limited to a maximum of $10,000, while "eligible investors" have no investment limits.

An "eligible investor" is a person who has:

(a)   net assets, alone or with a spouse, in the case of an individual, that exceed $400,000;

(b)   net income before taxes that exceeded $75,000 in each of the two most recent calendar years and who reasonably expects to exceed that income level in the current calendar year; or

(c)   net income before taxes, alone or with a spouse, in the case of an individual, that exceeded $125,000 in each of the two most recent calendar years and who reasonably expects to exceed that income level in the current calendar year.

Generally, reliance on the OM Exemption requires satisfying the following requirements:

(a)  Commission and finder's fee – no commission or finder's fee may be paid to any person, other than a registered dealer, in connection with a distribution to a purchaser in the Northwest Territories, Nunavut or the Yukon. It is permitted in the other jurisdictions.

(b)  Prescribed form of OM – an OM must be in compliance with the prescribed form requirements, as set out in Form 45-106 F2 – Offering Memorandum for Non-Qualifying Issuers, which describes the form requirements for private issuers. There is a separate form for public issuers.

(c)  Audited financial statements – issuers are required to include audited financial statements and interim financial statements for the most recently completed interim period that ended more than 60 days before the date of the OM, subject to a number of requirements.

(d) Cancellation right and holding funds in trust– an OM must provide the purchaser with a contractual right to cancel the agreement to purchase the security (if the securities legislation where the purchaser is resident does not provide a comparable right) by delivering a notice to the issuer not later than midnight on the second business day after the purchaser signs the agreement to purchase the security. Accordingly, the issuer must: (a) hold in trust all consideration received from the purchaser in connection with a distribution of a security until midnight on the second business day after the purchaser signs the agreement to purchase the security; and (b) return all consideration to the purchaser promptly if the purchaser exercises the right to cancel the agreement to purchase the security.

(e)  Statutory rights of action – the OM must contain a prescribed contractual right of action against the issuer for rescission or damages if the securities legislation where the purchaser is resident does not provide a statutory right of action in the event of a misrepresentation in an OM delivered to a purchaser.

(f)  Certificate– the OM must contain a certificate page that states the OM does not contain a misrepresentation which must be signed by individuals holding certain titles within an issuer, which varies depending on the type of legal entity that is offering the securities. This certificate must be true at the date the certificate is signed and delivered to a purchaser. If a certificate ceases to be true after it is delivered to a purchaser, the issuer cannot accept an agreement to purchase the security from a purchaser unless: (a) the purchaser receives an updated OM; (b) the updated OM contains a newly dated and signed certificate; and (c) the purchaser resigns the agreement to purchase the security.

(g)  Risk acknowledgement form – an investors risk acknowledgement form must be in the required form and an issuer relying on it must retain the signed document for eight years after the distribution.

(h)  Filing the OM and any updated OM – the issuer must file a copy of an OM delivered to a purchaser and any update of a previously filed OM with the local securities regulatory authority on or before the 10th day after the distribution of the OM or updated OM.

II. Big Step Forward in Capital Raising in Ontario – OSC Proposes a Form of OM Exemption

Finally, after many years of lobbying by various capital markets participants, the OSC has announced a significant step forward by proposing to adopt a form of the OM Exemption in Ontario. Many industry voices believe that adopting the OM Exemption in Ontario will noticeably improve capital raising opportunities at a time when many issuers are struggling to raise capital – particularly in Ontario.

Under the proposed Ontario form of OM Exemption (the Ontario model), the OSC is proposing to adopt the Alberta model with the following modifications:

(a)   changing the definition of "eligible investor" and introducing investment limits for all investors (see below);

(b)   excluding novel and complex products, such as specified derivatives and structured finance products;

(c)   prohibiting registrants that are related to an issuer from participating as a dealer in a distribution; and

(d)   imposing limited ongoing continuous disclosure requirements on private non-reporting issuers including:

  • the delivery of audited financial statements within 120 days after the end of a non-reporting issuer's financial year, in addition to a notice on the use of the aggregate proceeds raised in all distributions involving the OM Exemption in accordance with the audit requirements for reporting issuers; and
  • an 'event notice' upon the occurrence of certain specified events.

Under the Ontario model, the OSC proposes that:

(a)   if the purchaser is an "eligible investor", they are limited to investing $30,000 in the preceding 12-months, unless the person is also qualified as an "accredited investor"; if the investor is not an "eligible investor" then they will be limited to $10,000 in the preceding 12-months;

(b)   the definition of "eligible investor" be amended to:

  • exclude an individual's primary residence;
  • remove the "net income" test for non-individuals (e.g., companies);
  • reduce the net asset test for individuals from $400,000 to $250,000 (having removed the principal residence for the calculation) and for  non-individual investors, the net asset test would remain at $400,000.

To make things a little more complicated, as Ontario proposes to implement a modified Alberta model, there is now a movement led by Alberta, to change the Alberta model OM Exemption.

III. Alberta also making Proposed Changes to the Offering Memorandum Exemption

At the same time as Ontario published the Ontario model for comment, Alberta, Quebec and Saskatchewan have also proposed further amendments to the OM Exemption (the Modified Alberta model), including changes which would:

(a)   impose investment limits on eligible investors such that the acquisition cost to a purchaser:

  • who is an individual cannot exceed $30,000 in the preceding 12-months except a purchaser who is an accredited investor or person in s. 2.5(1) of NI 45-106 [family, friends and business associates]; or
  • $10,000 if a non-eligible investor in the preceding 12-months.

(b)   investments by non-eligible investors would be limited to no more than $10,000 in a 12-month period and not per distribution.

If adopted, Alberta, Quebec and Saskatchewan would be moving from the Alberta model to this new Modified Alberta model.

Part II will posted in my next blog which discusses Issues and concerns about the proposed changes to the OM Exemption

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions