National Instrument 51-102 – Continuous Disclosure Obligations and its related Companion Policy have been amended effective March 17, 2008 to expand the obligation of reporting issuers to file material contracts on SEDAR (the "Amendments"). 

Obligation to File Material Contracts

Reporting issuers are required to file all material contracts not previously filed which were entered into within the most recently completed financial year or, if they are still in effect, on or after January 1, 2002. Such material contracts must generally be filed with an issuer's Annual Information Form ("AIF") or, if an issuer is not required to file an AIF, within 120 days of its financial year-end. If the entering into of the material contract constitutes a material change for the issuer, the contract must be filed no later than the time the reporting issuer files a material change report.

The Amendments define a material contract as any contract that an issuer or any of its subsidiaries is a party to, that is material to the issuer. The Companion Policy now provides that a material contract generally includes a schedule, side letter or exhibit referred to in a material contract and any amendment to a material contract.

Changes to the Ordinary Course of Business Exemption

Material contracts are not generally required to be filed if entered into in the ordinary course of business. However, the Amendments require that the following types of material contracts must be filed even if entered into in the ordinary course of business:

(a) a contract to which directors, officers, or promoters are parties other than a contract of employment. The Companion Policy indicates that one way for reporting issuers to determine whether a contract is a contract of employment is to consider whether the contract contains payment or other provisions that are required disclosure under Form 51-102F6 as if the individual were a named executive officer or director of the reporting issuer;

(b) 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;

(c) a franchise or licence or other agreement to use a patent, formula, trade secret, process or trade name

(d) a financing or credit agreement with terms that have a direct correlation with anticipated cash distributions;

(e) an external management or external administration agreement. The Companion Policy provides that these include agreements between the reporting issuer and a third party, the reporting issuer's parent entity, or an affiliate of the reporting issuer, under which the latter provides management or other administrative services to the reporting issuer; and

(f) a contract on which the reporting issuer's business is substantially dependent. The Companion Policy states that these are generally contracts which are so significant that the reporting issuer's business depends on the continuance of the contract, for example, a financing or credit agreement providing a majority of the reporting issuer's capital requirements for which alternative financing is not readily available at comparable terms, a contract calling for the acquisition or sale of substantially all of the reporting issuer's property, plant and equipment, long-lived assets, or total assets, or an option, joint venture, purchase or other agreement relating to a mining or oil and gas property that represents a majority of the reporting issuer's business.

Limited Redaction of Material Contracts

If an executive officer of a reporting issuer reasonably believes that disclosure of a provision in a material contract would be seriously prejudicial to the interests of the reporting issuer or would violate confidentiality provisions, the provision in question may be omitted, redacted, or otherwise marked to be unreadable.

The Amendments provide, however, that the following types of provisions in a material contract that is filed may not be omitted or redacted despite the fact that their disclosure may be seriously prejudicial or may violate confidentiality provisions:

(a) debt covenants and ratios in financing or credit agreements;

(b) events of default or other terms relating to the termination of the material contract; and

(c) other terms necessary for understanding the impact of the material contract on the business of the reporting issuer. The Companion Policy provides that these may include the duration and nature of a patent, trademark, license, franchise, concession, or similar agreement, disclosure about related party transactions and contingency, indemnification, anti-assignability, take-or-pay clauses and change-of-control clauses.

In certain circumstances, issuers may apply for an exemption from the obligation to disclose the types of provisions listed above contained in contracts that were negotiated but not filed prior to March 17, 2008.

The Amendments also provide that where a provision has been omitted or redacted, the SEDAR-filed copy of the material contract must include a description of the type of information that has been omitted or redacted. The Companion Policy confirms that a brief one-sentence description immediately following the omitted or redacted provision will generally be sufficient.

Practical Considerations

Reporting issuers should consider whether any existing contracts (entered into since January 1, 2002) not previously filed must now be filed as a result of the Amendments. Issuers should also note the new rules governing redaction and omission of certain types of provisions when filing any material contracts. For issuers with financial years ending on December 31, 2007, material contracts must be filed on or before March 31, 2008 in the case of issuers filing an AIF and April 29, 2008 in the case of venture issuers.

As before, reporting issuers filing an AIF are required to include in that document particulars regarding material contracts. Issuers should be mindful of any additional or amended AIF disclosure that may be required as a result of the Amendments.