I seem to recall that you get a misleading "out of memory" exception when
the format of the image file is wrong, so make sure you can load a smaller
image of the exact same type, and if not, look for other causes of the
problem.

I found a few problems that might be causing this:
 
   1.
      The program does not have permissions to access the image file. (Yes, you _
        can get an out of memory exception even if the problem is permission _
        related)
   2.
      The BackgroundImage propery is set directly from the Bitmap.FromFile _
        method.
   3.
      You are reading an image that is currently being written to. Make sure _
        all file handles with a write lock to that image with write access are _
        closed.
 
Though I have read some people have had problems with the TIFF format before, _
  it might be a problem with the framework.

Tiff ist nicht gleich Tiff. Das  Tagged Image File Format erlaubt eine Vielzahl _
  möglicher Einstellungen, die selten von einem Programm komplett abgedeckt _
  werden.
 
Ich vermute, dass das Tif-Bild, das die Exception wirft, mittels _
  Jpeg-Komprimierung komprimiert wurde. GDI+ unterstützt bis heute nur _
  verlustfreihe Kompression wie beispielsweise die LZW-Kompression.
 
.NET unterstützt tatsächlich nicht besonders viele Grafik-(Unter-)Formate. Im _
  Zweifel musst du auf die Bibliothek eines Drittanbieters ausweichen.

The MSDN says "If the file does not have a valid image format or if GDI+ does" & _
  "not support the pixel format of the file, this method throws an" & _
  "OutOfMemoryException exception."

Just a hint. You are using GDI+. It is known for throwing an OutOfMemory
exception when something is wrong with image files. Most recently I had one
when I tried to open a multi-paged tiff file with pages in different format.