The Canadian Securities Administrators announced yesterday that they are implementing amendments to the continuous disclosure and corporate governance obligations of venture issuers, which include increasing the BAR threshold to 100%, reducing historical financial statement disclosure in IPO prospectuses to 2 years and permitting for the use of quarterly “highlights” to replace interim MD&A.

The amendments were originally proposed in May of 2014, after the CSA abandoned an earlier attempt to completely overhaul the venture issuer disclosure regime in July of 2013. While primarily aimed at easing the disclosure burden for venture issuers, the amendments also include certain changes that will impact all issuers.

Quarterly highlights in lieu of interim MD&A

One of the most important changes will be to permit venture issuers to provide quarterly disclosure in the form of a “highlights” rather than a full interim MD&A. The quarterly highlights would be comprised of a brief discussion of the venture issuer’s operations, liquidity and capital resources. The discussion would include an analysis of the issuer’s financial condition, financial performance and cash flows and any significant factors that have caused fluctuations in these figures; emerging trends, risks or demands; major operating milestones; commitments and events that have materially affected the issuer or may do so going forward; significant changes from certain prior disclosures; and significant related party transactions. The option to provide quarterly highlights disclosure will apply to financial years beginning on or after July 1, 2015.

Significant acquisition threshold increased to 100%

Currently, all issuers must file a business acquisition report (“BAR”) within 75 days of a “significant” acquisition. For a venture issuer, an acquisition is deemed to be “significant” if the asset or investment test in Part 8 of NI 51-102 is satisfied at the 40% level. The significance threshold for the BAR requirement will now be increased to 100% for venture issuers, thereby significantly reducing the circumstances in which venture issuers will be required to file BARs. The same 100% threshold will also apply to prospectus disclosure of significant acquisitions as well as the “prospectus level disclosure” that is required for information circulars.

Executive Compensation Disclosure

Venture issuers will now have the option to use a new Form 51-102F6V Statement of Executive Compensation – Venture Issuers that varies from the requirements of Form 51-102F6 as follows:

  • The number of individuals for whom disclosure is required is reduced from a maximum of five individuals to a maximum of three individuals. Disclosure is now required for the CEO, the CFO and one additional executive officer.  
  • Only two years of executive compensation disclosure (rather than three years) is now required of venture issuers.  
  • There is no longer a requirement to calculate and disclose the grant date fair value of stock options and other share-based awards in the summary compensation table. Instead, venture issuers are required to disclose certain particulars about stock options and other equity-based awards issued, held and exercised.

In addition, two amendments were made which impact all issuers. First, non-venture issuers that are required to file an information circular are now required to file Form 51-102F6 Statement of Executive Compensation no later than 140 days after their most recently completed financial year. Venture issuers, on the other hand, are required to file executive compensation disclosure within 180 days after financial year-end. The amendments to executive compensation filing deadlines apply for financial years beginning on or after July 1, 2015. Second, housekeeping amendments, which affect both venture and non-venture issuers, were made to Item 5.4 of Form 51-102F2 Annual Information Form. These amendments were made to conform Form 51-102F2 to amendments made to NI 43-101 Standards of Disclosure for Mineral Projects in 2011.

Amendments to NI 52-110 Audit Committees

Venture issuers are now required to have an audit committee of at least three persons with the majority of the audit committee prohibited from being executive officers, employees or control persons of the issuer. While venture issuers have historically been exempted from the independence requirements of NI 52-110, this would not be a new requirement for venture issuers listed on the TSX Venture Exchange as such issuers are subject to a similar requirement under section 21 of Policy 3.1 Directors, Officers, Other Insiders & Personnel and Corporate Governance of the TSX Venture Exchange Corporate Finance Manual.

The audit committee composition requirement is subject to certain exceptions such as for events outside of the control of the audit committee member and for death, disability or resignation of a member. These obligations apply to a venture issuer for financial years beginning on or after January 1, 2016.

Amendments to NI 41-101 General Prospectus Requirements

Venture issuers are also provided with additional relief from certain prospectus requirements. The amendments reduce the number of years of audited financial statements that are required to be disclosed in an IPO prospectus from three years to two years. Correspondingly, only two years of business and history would be required to be disclosed in the prospectus. Finally, the prospectus disclosure requirements have also been amended to conform to the amendments made to the continuous disclosure regime described above.

Amendments will be made to National Instrument 51-102 Continuous Disclosure Obligations and its companion policy, NI 41-101 General Prospectus Requirements and its companion policy and NI 52-110 Audit Committees. Other than the transition provisions noted above, the amendments are set to come into force on June 30, 2015.