Changes to National Instrument 51-102 Continuous Disclosure Obligations will come into force on March 17, 2008, and will affect certain filing requirements of reporting issuers with respect to material contracts. These changes were made in conjunction with comprehensive changes to the national prospectus requirements in National Instrument 41-101 General Prospectus Requirements. A material contract is a contract to which a reporting issuer or any of its subsidiaries is a party that is material to the reporting issuer and generally includes a schedule, side letter or exhibit referred to in the material contract as well as any amendment to the material contract.
Currently, material contracts entered into "in the ordinary course of business" do not have to be filed on SEDAR by reporting issuers. Whether a reporting issuer entered into a contract in the ordinary course of business is a question of fact the reporting issuer should consider in the context of its business and industry.
The changes will modify the current practice and require the filing of certain material contracts, even if entered into in the ordinary course of business, namely:
- a contract to which directors, officers, or promoters are parties other than a contract of employment;
- a continuing contract to sell the majority of the reporting issuer’s products or services or to purchase the majority of the reporting 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 reporting issuer’s business is substantially dependent (i.e., a contract so significant that the reporting issuer’s business depends on the continuance of the contract).
A provision may be omitted or marked unreadable (in which case a brief one-sentence description of the type of information omitted or redacted must be included) if an executive officer of the reporting issuer reasonably believes that disclosure of that provision would be seriously prejudicial to the interests of the reporting issuer or would violate confidentiality provisions. However, no omission or redaction is possible if the provision relates to:
- 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 reporting issuer.
When negotiating material contracts with third parties, reporting issuers should consider this new filing requirement, including with respect to any confidentiality obligations in such contracts. For material contracts entered into prior to March 17, 2008, and subject to this new filing requirement, regulators may consider granting an exemption to permit certain provisions to be redacted if the disclosure of that provision would violate a confidentiality provision. Regulators will take into consideration the following factors, among others, in deciding whether to grant an exemption:
- whether an executive officer of the reporting issuer reasonably believes the disclosure of the provisions would be prejudicial to the interests of the reporting issuer; and
- whether the reporting issuer is unable to obtain a waiver of the confidentiality provision from the other party.
Material contracts entered into on or after January 1, 2002, and still in effect, will be subject to this new filing requirement if not previously filed.
Material contracts must be filed at the earlier of the time of filing of a material change report, if any, that relates to the material contract and the time of filing of the annual information form (AIF) of a reporting issuer. Reporting issuers with a December 31 year-end should therefore take into account this new filing requirement for applicable material contracts if they file their AIF for fiscal 2007 on or after March 17, 2008.