Changes to Offering Memorandum Exemption Regime
On October 29, the securities regulatory authorities in Alberta, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan (collectively, the “Participating Jurisdictions”) published Multilateral CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions Relating to the Offering Memorandum Exemption (the “OM Exemption”) to make the offering memorandum exemption, found in section 2.9 of National Instrument 45-106 available in all jurisdictions of Canada.
The OM Exemption allows an issuer to offer securities to certain categories of investors without the requirement of a prospectus. The investments permitted under this exemption, in the Participating Jurisdictions where it is already available, are currently limited to $10,000 except for eligible investors.
The purpose of securities regulatory authorities of the Participating Jurisdictions was to harmonize it as much as possible and they believe these changes will enhance access to capital while strengthening investor protection.
Notable changes include the following additional protection measures:
- Additional investment limits applying to individuals (other than those qualifying as accredited investor or under the family, friends and business associates exemption).
- A $10,000 investment limit per 12 month period for non-eligible investors
- A $30,000 investment limit per 12 month period for eligible investors
- A $100,000 investment limit per 12 month period for eligible investors who receive advice from a portfolio manager, investment dealer or exempt market dealer confirming the investment above $30,000 is suitable
Let us recall that eligible investors include individuals whose net assets, alone or with a spouse exceed $400,000 or whose net income before taxes exceeded $75,000 (or, if combined with that of a spouse, exceeded $125,000) in each of the 2 most recent calendar years and who reasonably expect to exceed that income level in the current calendar year.
In addition, all investors using the OM Exemption will have to complete a modified form 45-106F4 Risk Acknowledgment requiring that such investors confirm their status (eligible investor, non-eligible investor, accredited investor or investor that would qualify under the family, friends and business associates exemption) and that such investors are within the investment limit.
- Requirement that non-reporting issuers provide to investors (i) audited annual financial statements, (ii) annual notice describing how the proceeds raised under the OM Exemption have been used and (iii) a notice in the event of a discontinuation of the issuer’s business, a change in the issuer’s industry or an change of control of the issuer (New Brunswick, Nova Scotia and Ontario only)
- Requirement that marketing material be incorporated by reference into the offering memorandum. This aims at providing investors with the same rights of action in the event of a misrepresentation in connection with all disclosure under the offering memorandum.
These changes follow a comment period held in the Participating Jurisdictions from March 20, 2014 to June 18, 2014 (except for Nova Scotia, whose comment period went from May 7, 2015 to July 6). Some of the changes that were first contemplated have been revised to take into account the comments received, with a view to strike a balance between access to capital and investor protection. It is interesting to note that the Participating Jurisdictions have harmonized their position on the investment limits since March 2014. The companion policy guidance proposed in the March materials has been modified to reflect the changes since then.
Final amendments will come into force in Ontario on January 11, 2016 and in the other Participating Jurisdictions on April 30, 2016, allowing the issuers to complete their ongoing investments and reflect on whether they wish to continue using the offering memorandum exemption. Consequential amendments are made to National Instrument 52-107 Accounting Principles and Auditing Standards, National Instrument 45-102 Resale of Securities and to Multilateral Instrument 11-102 Passport System.
exempt market National Instrument 45-106 offering memorandum