Over a decade after the “offering memorandum” prospectus exemption (the OM exemption) was first introduced elsewhere in Canada, the Canadian Securities Administrators (CSA) have announced that the OM exemption will be available (albeit in different forms) in all jurisdictions in Canada, as of January 2016.
On October 29, 2015, the securities regulatory authorities in Alberta, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan (the participating jurisdictions) published amendments (the final amendments) that will introduce an OM exemption in Ontario, and will modify the existing OM exemption in the rest of the participating jurisdictions to strengthen investor protection.
For background on the OM exemption and the related CSA review of the regulatory regime applicable to the Canadian exempt market more generally, please see our July bulletin.
The following are some of the key investor protection measures included in the new OM exemption:
- Investment funds. Investment funds are excluded from being able to distribute securities in reliance on the OM exemption in Ontario, New Brunswick and Quebec.
- Additional requirements for non-reporting issuers. Non-reporting issuers will be required to provide investors with:
- audited annual financial statements
- an annual “use of proceeds” notice in prescribed Form 45-106F16 Notice of Use of Proceeds, describing how the proceeds raised under the OM exemption were used
- Requirement to incorporate marketing materials by reference. Any marketing materials will be required to be incorporated by reference in the offering memorandum so that they are subject to the same liability as the disclosure provided in the offering memorandum in the event of a misrepresentation.
- Investment limits for individual investors. Individual investors relying on the OM exemption (other than those that would qualify as accredited investors or investors that would qualify to invest under the family, friends and business associates exemption) will be subject to investment limits:
- investment limits will be based on whether the individual investor qualifies as an eligible investor and whether the individual investor is receiving suitability advice from a registrant
- investment limits will not apply to non-individuals, whether those non-individuals are eligible or non-eligible investors
- Risk acknowledgement form. All investors will be required to sign an existing risk acknowledgement form (Form 45-106F4), and individual investors will be required to complete two new schedules to the risk acknowledgement form:
- a schedule asking an investor to confirm whether and how the investor meets the criteria of an eligible investor
- a schedule asking an investor to confirm that the investor is investing within the appropriate investment limit or is not subject to an investment limit, as applicable
Other notable amendments include:
- Notice of discontinuation of the issuer’s business, change of industry or change of control. In New Brunswick, Nova Scotia and Ontario, non-reporting issuers will be required to provide notice to investors of a streamlined list of events within 10 days of the event occurring, as follows:
- a discontinuation of the issuer’s business
- a change in the issuer’s industry
- a change in control of the issuer
As a result of the amendments, and provided all government approvals are obtained, the OM exemption will come into force in Ontario on January 13, 2016 and in Alberta, New Brunswick, Nova Scotia, Quebec and Saskatchewan on April 30, 2016.
Note that the final amendments do not modify the OM exemption that exists in any CSA jurisdiction other than the participating jurisdictions.