On March 17, 2008, amendments to the continuous disclosure and prospectus rules relating to material contract disclosure and filing requirements will come into force.

Current Requirements

Currently, a reporting issuer filing a prospectus or annual information form is required to file a copy of any contract that it, or any of its subsidiaries, is party to and is:

  • material to this issuer;
  • not entered into in the ordinary course of business; and
  • entered into:
    • before the last financial year, but after January 1, 2002, and is still in effect; or
    • within the last financial year.

These contracts must be filed on SEDAR although in some cases the issuer may redact portions of the contract where disclosure would violate confidentiality provisions or be seriously prejudicial to the issuer's interests.

Amendments

The amendments introduce a number of significant changes to the material contract disclosure obligations. These include:

Material Contracts

The amendments to the companion policy confirm that a material contract is defined as a contract that a reporting issuer or any of its subsidiaries is a party to, that is material to the reporting issuer, and includes any schedule, side letter or exhibit referred to in the material contract and any amendment to the material contract.

Ordinary Course of Business

Pursuant to the amendments, the following contracts will not be considered contracts entered into in the ordinary course of business and will therefore have to be disclosed and filed:

  • a contract to which directors, officers, or promoters are parties, other than a contract of employment (to determine whether a contract is a contract for employment, the issuer must consider whether the contract contains payment or other provisions that must be disclosed as executive compensation in a management information circular);
  • a continuing contract to sell the majority of the issuer's products or services or to purchase the majority of the issuer's requirements of goods, services or raw materials;
  • a franchise or licence or other agreement to use a patent, formula, trade secret, process or trade name;
  • a financing or credit agreement with terms that have a direct correlation with anticipated cash distributions;
  • an external management or external administration agreement; or
  • a contract on which the issuer's business is substantially dependent.

This last point refers generally to contracts that are so significant that the issuer's business depends on the continuance of that contract. Examples include:

  • a financing or credit agreement providing a majority of the issuer's capital requirements (for which alternative financing is not readily available on comparable terms);
  • a contract for the acquisition or sale of substantially all of the issuer's property, plant and equipment, long-lived assets or total assets; and
  • an option, joint venture, purchase or other agreement relating to a mining or oil and gas property that represents a majority of the issuer's business.

Redactions With the introduction of these amendments, limitations on what may be redacted from a filed material contract will come into effect. Provisions may, in certain circumstances, be redacted if an executive officer of the issuer reasonably believes that disclosure of that provision would be seriously prejudicial to the interests of the issuer or would violate confidentiality provisions. However, the following information may not be redacted (even if disclosure violates confidentiality provisions, unless an exemption is obtained):

  • debt covenants and ratios in financing or credit agreements;
  • events of default or other terms relating to the termination of the material contract; or
  • other terms necessary for understanding the impact of the material contract on the business of the issuer, including:
    • the duration and nature of a patent, trade-mark, licence, franchise, concession or similar agreement;
    • disclosure about related party transactions; and
    • contingency, indemnification, anti-assignability, take-or-pay clauses or change of control clauses.

If a redaction is permissible, the amendments require the issuer to include a short description of the type of information redacted immediately after the provision in the copy of the contract filed.

Conclusion

Issuers who file AIFs after March 17 will need to review the amendments to determine whether additional material contracts must be listed in the AIF and filed on SEDAR.