Ontario is expected to adopt the offering memorandum (OM) exemption on January 13, 2016. Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia (together with Ontario, the Participating Jurisdictions) are amending their existing OM exemptions so that they are substantially harmonized with Ontario’s OM exemption. The other Participating Jurisdictions expect to adopt their amendments on April 30, 2016.
Summary of the OM Exemption
The OM exemption will be available across Canada once Ontario adopts its OM exemption. Ontario’s new OM exemption and the amendments in the other Participating Jurisdictions have new conditions including new investment limits, certain continuous disclosure obligations, and rules on marketing material.
New Investment Limits
Individual investors will be limited in the amount that they can invest in any 12 month period in the Participating Jurisdictions. The limits are as follows:
• an investor who is not an “eligible investor” may invest a maximum of $10,000. An “eligible investor” is someone whose (i) net assets, alone or with a spouse, exceed $400,000; or (ii) net income before taxes exceeds $75,000 (or $125,000 with a spouse) for the two previous calendar years, and a reasonable expectation of exceeding those levels in the current calendar year;
• an investor who is an “eligible investor” may invest a maximum of $30,000; and
• an investor who is an “eligible investor” and receives suitability advice from a registered professional may invest a maximum of $100,000.
If, for example, an eligible investor invests $15,000 under the OM exemption in a Participating Jurisdiction, that investor may invest a maximum of an additional $15,000 in any other issuer under the OM exemption during the following year.
There will be no investment limits on non-individual investors such as companies or investors who satisfy other prospectus exemptions such as the accredited investor exemption or the family, friends and business associates exemption.
Please note that in British Columbia and Newfoundland, there is no limit on investment by non-eligible investors whereas in Manitoba, PEI, and the Territories, the investment limit is different from the Participating Jurisdictions.
Continuous Disclosure Obligations
Other than Nova Scotia, non-reporting issuers that use the OM exemption must file with or deliver to the securities regulator in the Participating Jurisdiction annual audited financial statements within 120 days of that issuer’s year-end together with a notice that describes how the money raised under the OM exemption has been used. These issuers must make the audited annual financial statements “reasonably available” to investors.
In New Brunswick, Nova Scotia and Ontario, non-reporting issuers will also be required to provide notice to investors of a discontinuation of the issuer’s business, a change in the issuer’s industry, or a change of control of the issuer, within 10 days of the event occurring.
Marketing materials used by issuers in distributions under the OM exemption must be incorporated by reference into the OM. The purpose of incorporating by reference is to give investors a right of action against the issuer in the event of a misstatement in the marketing materials.
Issuers will have to file with or deliver to the securities regulator of the Participating Jurisdiction these marketing materials.
Risk Acknowledgement Form
Two new schedules have been added to the risk acknowledgement form. One schedule asks investors to confirm their status, as an eligible investor, a non-eligible investor, an accredited investor, or an investor who would qualify to purchase securities under the family, friends and business associates exemption. The other schedule requires confirmation that the investment is within the limits, where applicable. Non-individual investors do not have to complete these schedules.
Issuers will be not be able to use the OM exemption to distribute specified derivatives or structured finance products in the Participating Jurisdictions. In Alberta, Nova Scotia and Saskatchewan, the OM exemption will continue to be available to investment funds only if they are non-redeemable investment funds or mutual funds that are reporting issuers. In New Brunswick, Ontario and Québec, the OM exemption will not be available to investment funds.
This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer or compliance advisor for matters related to your situation before relying on any of the statements made in this article.