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
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
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
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;
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,
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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The British Columbia Court of Appeal has recently considered whether the doctrine of unconscionability can be invoked to set aside a contractual clause providing for the payment by one party to the other...
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