(1) Definition – Under subsection 1.1(1) of the Instrument, a material contract is defined as a contract that a reporting issuer or any of its subsidiaries is a party to, that is material to the reporting issuer. A material contract generally includes a schedule, side letter or exhibit referred to in the material contract and any amendment to the material contract. The redaction and omission provisions in subsections 12.2(3) and (4) of the Instrument apply to these schedules, side letters, exhibits or amendments.
(2) Filing Requirements – Subject to the exceptions in paragraphs 12.2(2)(a) through (f) of the Instrument, subsection 12.2(2) of the Instrument provides an exemption from the filing requirement for a material contract entered into in the ordinary course of business. Whether a reporting issuer entered into a contract in the ordinary course of business is a question of fact that the reporting issuer should consider in the context of its business and industry.
Paragraphs 12.2(2)(a) through (f) of the Instrument describe specific types of material contracts that are not eligible for the ordinary course of business exemption. Accordingly, if subsection 12.2(1) of the Instrument requires a reporting issuer to file a material contract of a type described in these paragraphs, the reporting issuer must file that material contract even if the reporting issuer entered into it in the ordinary course of business.
(3) Contract of Employment – Paragraph 12.2(2)(a) of the Instrument provides that a material contract with certain individuals is not eligible for the ordinary course of business exemption, unless it is a “contract of employment”. 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.
(4) External Management and External Administration Agreements – Under paragraph 12.2(2)(e) of the Instrument, external management and external administration agreements are not eligible for the ordinary course of business exemption. External management and external administration agreements 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.
(5) Material Contracts on which the Reporting Issuer’s Business is Substantially Dependent – Paragraph 12.2(1)(f) of the Instrument provides that a material contract on which the “reporting issuer’s business is substantially dependent” is not eligible for the ordinary course of business exemption. Generally, a contract on which the reporting issuer’s business is substantially dependent is a contract so significant that the reporting issuer’s business depends on the continuance of the contract. Some examples of this type of contract include:
(a) 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;
(b) 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; and
(c) 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.
(6) Confidentiality Provisions – Under subsection 12.2(3) of the Instrument, a reporting issuer may omit or redact a provision of a material contract that is required to be filed if an executive officer of the reporting issuer has reasonable grounds to believe that disclosure of the omitted or redacted provision would violate a confidentiality provision. A provision of the type described in paragraphs 12.2(4)(a), (b) or (c) of the Instrument may not be omitted or redacted even if disclosure would violate a confidentiality provision, including a blanket confidentiality provision covering the entire material contract.
When negotiating material contracts with third parties, reporting issuers should consider their disclosure obligations under securities legislation. A regulator or securities regulatory authority may consider granting an exemption to permit a provision of the type listed in subsection 12.2(4) of the Instrument to be redacted if:
(a) the disclosure of that provision would violate a confidentiality provision; and
(b) the material contract was negotiated before the adoption of the exceptions in subsection 12.2(4) of the Instrument.
The regulator may consider the following factors, among others, in deciding whether to grant an exemption:
(c) whether an executive officer of the reporting issuer reasonably believes that the disclosure of the provisions would be prejudicial to the interests of the reporting issuer; and
(d) whether the reporting issuer is unable to obtain a waiver of the confidentiality provision from the other party.
(7) Disclosure Seriously Prejudicial to Interests of Reporting Issuer – Under subsection 12.2(3) of the Instrument, a reporting issuer may omit or redact certain provisions of a material contract that is required to be filed if an executive officer of the reporting issuer reasonably believes that disclosure of the omitted or redacted provision would be seriously prejudicial to the interests of the reporting issuer. One example of disclosure that may be seriously prejudicial to the interests of the reporting issuer is disclosure of information in violation of applicable Canadian privacy legislation. However, in situations where securities legislation requires disclosure of the particular type of information, applicable privacy legislation generally provides an exemption for the disclosure. Generally, disclosure of information that a reporting issuer or other party has already publicly disclosed is not seriously prejudicial to the interests of the reporting issuer.
(8) Terms Necessary for Understanding Impact on Business of Reporting Issuer – A reporting issuer may not omit or redact a provision of a type described in paragraph 12.2(4)(a), (b), or (c) of the Instrument. Paragraph 12.2(4)(c) of the Instrument provides that a reporting issuer may not omit or redact “terms necessary for understanding the impact of the material contract on the business of the reporting issuer”. Terms that may be necessary for understanding the impact of the material contract on the business of the reporting issuer include the following:
(a) the duration and nature of a patent, trademark, license, franchise, concession, or similar agreement;
(b) disclosure about related party transactions; and
(c) contingency, indemnification, anti-assignability, take-or-pay clauses, or change-of-control clauses.
(9) Summary of Omitted or Redacted Provisions – Under subsection 12.2(5) of the Instrument, a reporting issuer must include a description of the type of information that has been omitted or redacted in the copy of the material contract filed by the reporting issuer. A brief one-sentence description immediately following the omitted or redacted information is generally sufficient.