On October 29, 2015, the securities regulatory authorities in Alberta, Saskatchewan, Ontario, Québec, New Brunswick and Nova Scotia (the Jurisdictions) collectively published final amendments to National Instrument 45-106 Prospectus Exemptions that will (i) introduce an offering memorandum prospectus exemption (OM Exemption) in Ontario beginning January 2016, and (ii) amend the existing OM Exemption in the other Jurisdictions. These amendments do not change the existing offering memorandum exemption rules in the other provinces. As a result, the offering memorandum exemption will be available across Canada, with certain differences.
Previously, an offering memorandum exemption was not available in Ontario. This new OM Exemption is intended to allow small and medium-sized businesses greater access to capital from investors than had been previously permitted in Ontario. In the other Jurisdictions, the amendments introduce new requirements the securities regulatory authorities believe will address investor protection concerns observed with the existing offering memorandum exemption. The following are some of the key features of the OM Exemption applicable in the Jurisdictions:
(a) Investment Limits for Individuals
Individual investors (other than those that qualify as “accredited investors” or investors that qualify to invest under the “family, friends and business associates” exemption) will be subject to investment limits, which vary depending on whether the individual qualifies as an “eligible investor” and if suitability advice is received. An individual can qualify as an eligible investor if the individual’s pre-tax net income exceeded $75,000 (or $125,000 together with a spouse) in each of the two most recent calendar years, or has net assets (either alone or with a spouse) that exceed $400,000.
The aggregate investment limits for all securities acquired under the OM Exemption (whether by different issuers or multiple offerings by the same issuer) are:
- for an individual who does not qualify as an eligible investor, $10,000 in any 12 month period;
- for an eligible investor, $30,000 in any 12 month period; and
- for an eligible investor who receives suitability advice from a portfolio manager, investment dealer or exempt market dealer about exceeding the $30,000 limit, up to a maximum of $100,000 in any 12 month period.
(b) Risk Acknowledgement Form and Schedules for Investors
All investors will be required to sign Form 45-106F4 Risk Acknowledgement. In addition, individual investors will be required to complete two new schedules to the Form. Schedule 1 requires individual investors to confirm their status to purchase under the OM Exemption. Schedule 2 requires individual investors to confirm whether their investment falls within or is not subject to an investment limit.
(c) Additional Disclosure and Notices for Non-Reporting Issuers
Non-reporting issuers will be required to provide investors:
- in the Jurisdictions, audited annual financial statements along with a new prescribed Form 45-106F16Notice of Use of Proceeds, which describes how funds raised under the OM Exemption were used; and
- in Ontario, New Brunswick and Nova Scotia, a notice in a new prescribed Form 45-106F17 Notice of Specified Key Events, within 10 days of the occurrence, of a discontinuation of the issuer’s business, a change in the issuer’s industry or a change of control of the issuer.
(d) Marketing Materials
Any marketing materials used under the OM Exemption will be required to be incorporated by reference into the issuer’s 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. These marketing materials will be required to be filed, along with the offering memorandum, with the applicable securities regulatory authority within 10 days after a distribution.
(e) Applicability to Investment Funds
The OM Exemption:
- in Alberta, Saskatchewan and Nova Scotia, will continue to be available to investment funds which are either non-redeemable investment funds or mutual funds that are reporting issuers; and
- in Ontario, Québec and New Brunswick, will not be available to any investment funds.
(f) Commencement Dates
Provided that all government approvals are obtained, the OM Exemption will come into force:
- in Ontario, on January 13, 2016; and
- in Alberta, Saskatchewan, Québec, New Brunswick and Nova Scotia, on April 30, 2016.
If an offering is initiated or expanded into Ontario once the OM Exemption is available in Ontario, the issuer will be required to comply with all of the Ontario requirements, despite the later effective date in the other Jurisdictions.