Canada: Revisions To Offering Memorandum Rules Across Canada

Last Updated: April 11 2016
Article by Rhea Solis

Effective January 13, 2016, issuers in Ontario were able to take advantage of the offering memorandum prospectus exemption (the "OM Exemption"). This new OM Exemption will facilitate capital-raising by allowing issuers in Ontario to access a wider range of investors, as is currently available to issuers in each of the other jurisdictions in Canada.

Along with this new OM exemption in Ontario, effective April 30, 2016, the Securities Regulatory Authorities in each of Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia are amending their existing offering memorandum exemptions such that the new OM Exemption will be substantially harmonized across Ontario and each of these provinces.

This will mean that in Canada, there will effectively be three offering memorandum regimes:

  • Alberta, Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia - the OM Exemption rules which will be discussed in more detail below;
  • British Columbia and Newfoundland and Labrador – no changes to the current offering memorandum exemption available in these provinces.  Investors will be able to purchase securities so long as they sign a risk acknowledgement form after receiving an offering memorandum; and
  • Manitoba, Prince Edward Island, Nunavut, Northwest Territories and Yukon – no changes to the current offering memorandum exemption available in these provinces.  Investors will be able to purchase more than $10,000 of securities only if they meet the definition of an "Eligible Investor."

The key features of the OM Exemption include the following:

Investment Limits

The OM Exemption is subject to investment limits for individuals, both eligible and non-eligible.  The acquisition cost of all securities acquired under the OM exemption in any jurisdiction, within a 12-month period shall not exceed:

  • For individuals who are not "Eligible Investors" -  $10,000;
  • For individuals who are "Eligible Investors" -  $30,000; and
  • For individuals who are "Eligible Investors" but have received advice from a portfolio manager, investment dealer or exempt market dealer that the investment is suitable  - $100,000.

There are no changes to the current definition of "Eligible Investor."

Marketing Materials

Marketing materials used by issuers will be deemed to incorporated by reference into the offering memorandum and will need to be filed with the securities regulatory authority within 10 days of being delivered or made available to a prospective purchaser.  As a result, marketing materials will be subject to the same liability and rights of action for a misrepresentation as other disclosure in the offering memorandum.  Marketing materials are very broadly defined to mean any written communication, other than an "OM standard term sheet" (i.e., a standard document containing only prescribed information regarding the issuer, the securities, and the offering), intended for prospective purchasers regarding a distribution of securities under an offering memorandum that contains material facts relating to an issuer, securities, or an offering.

Ongoing Disclosure

Non-reporting issuers that rely on the OM Exemption will be required to provide audited annual financial statements as well as a Notice of Use of Proceeds, in the prescribed form, within 120 days of each financial year end.  The Notice of Use of Proceeds describes: 1) the opening proceeds raised under the OM Exemption; 2) how the proceeds have been used; and 3) the closing unused proceeds.  Issuers must also make such financial statements and Notice of Use of Proceeds reasonably available to investors.  In New Brunswick, Nova Scotia and Ontario, non-reporting issuers will also be required to file and make reasonably available to investors a Notice of Specified Key Events, in the prescribed form, within 10 days of the following events: (i) a discontinuance of the issuer's business; (ii) a change in the issuer's industry; or (iii) a change of control of the issuer.

Risk Acknowledgment Form and Schedules

There will be no change to the current Risk Acknowledgment Form that all investors are required to complete under the OM Exemption.  To the Risk Acknowledgment Form, there will be two new Schedules added for individuals:

  • Schedule 1 asks investors to confirm their status as an eligible investor, non-eligible investor, accredited investor or an investor who would qualify to purchase securities under the family, friends and business associates exemption; and
  • Schedule 2 asks the investor to confirm that they are aware of the investment limits and have complied with them.  This schedule must also be completed by the registrant if suitability advice was provided to the investor.

Reliance on the OM Exemption does not prevent an issuer from using other prospectus exemptions such as the accredited investor, family, friends, and business associates exemptions or the minimum amount investment exemption.

For full details regarding the OM Exemption, please consult the Multilateral CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions Relating to the Offering Memorandum 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.

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