The Canadian Securities Administrators
("CSA") recently published for comment a
revised National Instrument 51-103 Ongoing Governance and
Disclosure Requirements for Venture Issuers ("NI
51-103"). The revisions to NI 51-103 are said to take
into account comments received in response to earlier proposals. NI
51-103 is intended to replace, for venture issuers only, the
disclosure and governance requirements currently found in various
other securities law instruments.
Purpose Of The Proposed Instrument
Consistent with the original proposals, the revised proposals
are designed to: a) improve access to key information and
facilitate informed decision-making through improved disclosure
requirements; b) allow management more time to focus on the growth
of their company by streamlining and reducing disclosure
requirements; c) enhance investor confidence in the venture market
by introducing substantive governance standards; and d) enhance the
ability of securities regulators to focus on the unique challenges
associated with the venture market when creating new rules.
Key Changes To The Proposed Materials
A few of the proposed changes to NI 51-103 are as follows.
Eliminating Three And Nine Month Interim Financial Reports
Originally, the CSA proposed to eliminate three and nine month
interim financial reports, and instead only require a mid-year
interim report. Commenters supporting the original proposal noted
that venture issuers would benefit from cost-savings and time and
that investors would be able access sufficient alternative
information from other sources. Commenters opposed to the original
proposal felt that the time period between the mid-year and annual
financial reports would be too long, and may affect the perception
of venture issuers, their governance, liquidity and comparability
to more senior issuers.
The CSA now proposes that venture issuers be required to file
interim financial reports for each of the 3, 6 and 9 month interim
periods. The MD&A accompanying the interim financial statements
will consist of "quarterly highlights" which will include
a short discussion of the venture issuer's operations and
In the original proposals, the CSA proposed to modify the test
for determining when an acquisition is consider
"significant", and to eliminate the requirement for pro
forma financial statements in connection with a major
The revised instrument modifies the test for determining a major
acquisition so that both the venture issuer's market
capitalization and the estimated value of the business to be
acquired are determined prior to the announcement of the
transaction. Additionally, pro forma financial statements will not
be required for major acquisitions.
Executive Compensation Disclosure
The CSA originally proposed to have executive compensation
disclosure in both the annual report and the information circular.
However, the majority of commenters supported having executive
compensation disclosure only in the information circular, arguing
that investors are aware of where this information is located. In
response to the comments received, the CSA is now proposing to
require executive compensation disclosure only in the information
circular. Furthermore, the CSA now proposes to require executive
compensation disclosure for only the top three, rather than top
five, named executive officers.
To increase investor confidence in the venture market, the CSA
has introduced substantive corporate governance requirements and
enhanced guidance for related party transactions, conflicts of
interest and insider trading.
The original proposals required a venture issuer audit committee
to be composed of at least three directors, a majority of whom are
not executive officers or employees. The CSA now proposes to
enhance the requirements for impartiality by including
"control persons" to the list of individuals not
permitted to make up the majority.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
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