On December 20, 2012, the Canadian Securities Administrators issued Multilateral CSA Notice 45-311 - Exemptions from Certain Financial Statement-Related Requirements in the Offering Memorandum Exemption to Facilitate Access to Capital by Small Businesses (Notice 45-311).
Notice 45-311 announced a harmonized interim local order issued or to be issued from each of the securities regulatory authorities in each of Yukon, Alberta, Saskatchewan, Northwest Territories, Nunavut, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador, which provides exemption (OM - Form Exemption) from certain requirements of Form 45-106F2 - Offering memorandum for non-qualifying issuers (Form 45-106F2). Form 45-106F2 is required under the offering memorandum prospectus exemption (OM Exemption) in section 2.9 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). The OM Exemption is available in all jurisdictions other than Ontario. Comments on Notice 45-311 were accepted up to February 20, 2013.
The objective of the OM - Form Exemption for early stage businesses and other small and medium sized enterprises is to facilitate capital raising while maintaining appropriate investor protection. The OM Exemption was intended to provide a variety of issuers, including small businesses, with a cost-effective capital-raising option. Some consider the OM Exemption too costly, mostly attributable to the requirement to prepare audited financial statements.
Not being one of the participating authorities of Notice 45-311, on February 9, 2013, the British Columbia Securities Commission (BCSC) published a Notice and Request for Comment in connection with Notice 45-311. Comments were received by the BCSC up to April 12, 2013.
In addition, in December 2012, the Ontario Securities Commission published OSC Staff Consultation Paper 45-710, a consultation paper seeking comment on proposals for different prospectus exemptions, including an offering memorandum exemption. This comment period expired on March 8, 2013.
Unlike the OM Exemption, the OM - Form Exemption requires an issuer to include only unaudited financial statements prepared using private enterprise GAAP in the offering memorandum and to comply with certain conditions, including the following:
- The issuer and related issuers raise no more than $500,000;
- No investor subscribes for more than $2,000 of securities of the issuer in any 12-month period;
- The issuer is not a reporting issuer, investment fund, mortgage investment entity or real estate issuer;
- The issuer does not distribute complex securities; and
- The offering memorandum contains a bold warning on the front page.
“Complex securities” include an asset-backed security, a derivative and a security linked to a derivative. The OM - Form Exemption does not include any exemption from dealer or advisor registration requirements.
The BCSC is expected to amend the OM Exemption as it applies in British Columbia to be uniform with the OM - Form Exemption, except that the BCSC will require an issuer to identify use of the exemption when filing Form 45-106F6.
The OM - Form Exemption orders cease to have effect after December 20, 2014. Until then, the securities regulatory authorities are to review comments received from market participants and monitor the use of the Orders to determine whether to pursue further regulatory amendments and, if so, the nature and extent of any such amendments.