Privately held companies that enter into contracts with Canadian reporting issuers (public companies) may be surprised to learn that those contracts may become publicly available through the Internet. Recent changes to National Instrument 51-102 Continuous Disclosure Obligations now require reporting issuers to publicly file certain "material contracts" entered into "in the ordinary course of business" on SEDAR. Material contracts entered into on or after January 1, 2002 and still in effect will also be subject to this new filing requirement if they were not previously filed.

Before these changes came into effect on March 17, 2008, reporting issuers were not required to file on SEDAR material contracts entered into "in the ordinary course of business." 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. It generally includes a schedule, side letter or exhibit referred to in the contract, as well as any amendment to the material contract.

Now, reporting issuers must file certain types of material contracts which are entered into in the ordinary course of business. These contracts include franchise, licence or other agreements to use a patent, formula, trade secret, process or trade name. In addition, material contracts on which the reporting issuer's business is substantially dependent are also subject to the new filing requirement. Thus, material technology licensing agreements and outsourcing agreements may need to be filed and could therefore become publicly available.

The National Instrument permits redacting or omitting certain contractual provisions if an executive officer of the reporting issuer reasonably believes the disclosure of that provision would be seriously prejudicial to the interests of the reporting issuer or would violate confidentiality provisions. A one-sentence description of the type of information omitted or redacted must be included.

It should be noted, however, that no omission or redaction is possible if a 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.

For material contracts entered into prior to March 17, 2008, regulators may consider granting an exemption to redact certain provisions if the disclosure of that provision would violate a confidentiality provision. In considering whether to grant an exemption, regulators will take into consideration a number of factors, including:

  • 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.

McCarthy Tétrault Notes:

Privately held companies may want to include confidentiality provisions in their contracts that include a right to approve any redaction of the contract. While any approval right will always be subject to the requirements of applicable law (including those of the National Instrument), such a provision would give privately held companies some ability to review what sensitive contractual provisions are publicly available.

Reporting issuers will need to carefully review material contracts still in effect that were entered into on or after January 1, 2002 and that have not been previously filed. As part of this review, close attention should be paid to any existing confidentiality obligations in the agreements. Before posting the contracts on SEDAR, confidential or prejudicial information in the contracts and the schedules should be redacted or omitted (if permitted by the National Instrument) and a one-sentence description added. In addition, reporting issuers must be careful not to disclose personal information in contravention of privacy legislation.

Reporting issuers should also be mindful of the new filing requirements when negotiating material contracts. In particular, they should ensure that the confidentiality provisions permit filing the contract on SEDAR. In adapting to the new requirement, reporting issuers should also identify standard form material contracts and establish a systematic review process for those contracts.

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