Canada: CSA Introduces Proposed Amendments For Disclosure Practices By Venture Issuers

On May 22, 2014, the Canadian Securities Administrators (the "CSA") released proposed amendments to National Instruments 51-102 – Continuous Disclosure Obligations ("NI 51-102"), 41-101 – General Prospectus Requirements ("NI 41-101") and 52-110 – Audit Committees ("NI 52-110") with the intention of streamlining disclosure requirements for venture issuers. The CSA had previously proposed a stand-alone consolidated disclosure instrument for venture issuers, but the feedback received was not supportive of its adoption. As such, the new proposals consist of targeted amendments to existing rules that will tailor disclosure requirements for venture issuers (the "Proposed Amendments"). The CSA believes that the Proposed Amendments will reduce venture issuers' burden of preparing required disclosure documents, while making it easier for investors to read and understand the disclosure documents without eliminating information that would detrimentally affect their ability to make informed investment decisions.

Amendments to NI 51-102

Quarterly Highlights

The Proposed Amendments would provide the option to venture issuers without significant revenue to substitute quarterly management's discussion and analysis with a more streamlined disclosure document, referred to as "quarterly highlights," in their place. Quarterly highlights are intended to consist of a short discussion of the venture issuer's operations and liquidity, and would be excepted to be no more than one to two pages in length.

Business Acquisition Reports ("BARs")

In order to reduce the number of BARs that a venture issuer must file, the Proposed Amendments will increase the value threshold pursuant to which a determination is made as to whether an acquisition is "significant" in NI 51-102 from the current rate of an amount in excess of 40% of the issuer's consolidated assets to an amount in excess of 100%. As well, the Proposed Amendments would eliminate the requirement for venture issuers to file pro forma financial statements along with BARs.

Executive Compensation Disclosure

The Proposed Amendments would introduce a new form pursuant to which venture issuers must disclose executive compensation ("Proposed Form 51-102F6V"). Proposed Form 51-102F6V is meant to tailor disclosure relevant to venture issuers and would (i) reduce the number of individuals for whom disclosure is required from five to three, including the CEO, CFO and one additional highest-paid executive officer; (ii) reduce the number of years for which disclosure is required from three to two; and (iii) eliminate the requirement for venture issuers 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 would disclose detailed information about stock options and other equity-based awards issued, held and exercised.

For each of the above amendments to NI 51-102, venture issuers would be able to choose between complying with the Proposed Amendments or following the current rules.

Additional changes included in the Proposed Amendments which would be applicable to both venture issuers and non-venture issuers include an amendment to Item 5.4 of Form 51-102F2 – Annual Information Form to conform with changes made to National Instrument 43-101 – Standards of Disclosure for Mineral Projects in 2011.

As well, the Proposed Amendments would require that (i) non-venture issuers that are required to file an information circular must also file Form 51-102F6 – Statement of Executive Compensation ("Form 51-102F6") not later than 140 days after their most recently completed financial year; (ii) venture issuers that are required to file an information circular file must also file either Form 51-102F6 or Proposed Form 51-102F6V not later than 140 or 180 days after their most recently completed financial year; and (iii) the requirements in section 11.6 of NI 51-102 regarding disclosure of executive compensation for certain issuers would only be applicable to issuers that do not have a requirement to send an information circular and do not send an information circular.

Amendments to NI 52-110

The Proposed Amendments would require venture issuers to have an audit committee consisting of at least three members, the majority of whom could not be executive officers, employees or control persons of the issuer. This would not be a new requirement for TSX Venture Exchange listed issuers, which are already required to meet an almost identical requirement under that exchange's policies.

Amendments to NI 41-101

Audited Financial Statements

The Proposed Amendments would reduce the number of years of audited annual financial statements which must be included in an IPO prospectus from three to two for an issuer that will become a venture issuer upon completion of an IPO.

Description of Business and History

The Proposed Amendments would reduce the number of years for which a venture issuer must provide a description of its business and history from three to two years.

Conforming Proposed Amendments in Prospectus Disclosure

The above changes noted in regards to NI 51-102 would also be conformed into the prospectus requirements for venture issuers.

The 90-day comment period on the Proposed Amendments and certain other specific questions posed by the CSA ends on August 20, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Sean Williamson
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