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CSA Announces Amendments to Streamline Disclosure By Venture Issuers

  • Michael Varabioff
  • Morgan Hay

The Canadian Securities Administrators announced amendments to National Instrument 51-102 Continuous Disclosure Obligations, National Instrument 52-110 Audit Committees and National Instrument 41-101 General Prospectus Requirements pertaining to continuous disclosure and governance obligations of venture issuers (collectively, the “Amendments”).

The Amendments, which were originally proposed in May of 2014, are designed to focus disclosure of venture issuers on information that reflects the needs and expectations of venture issuer investors and eliminate disclosure obligations that may be less valuable to investors. The Amendments are also intended to streamline the disclosure requirements for venture issuers to allow management to focus on the growth of their business. The Amendments also include enhancements to the governance requirements of venture issuers.

A summary of the Amendments is set out below.

Quarterly Highlights

The Amendments provide venture issuers with the option of meeting the requirement to provide interim management’s discussion & analysis in respect of a financial year beginning on or after July 1, 2015, by instead preparing “quarterly highlights”. The quarterly highlights would include an analysis of the issuer’s financial condition, financial performance and cash flows and any significant factors that have caused period to period variations in those measures; known trends, risks or demands; major operating milestones; commitments or uncertainties that have materially affected the issuer’s operations, liquidity and capital resources in the interim period or are reasonably likely to do so going forward; any significant changes from disclosure previously made about how the issuer was going to use proceeds from any financing and an explanation of variances; and any significant transactions between related parties that occurred in the interim period.

Executive Compensation Disclosure

Venture issuers now have the option of preparing their annual executive compensation disclosure using a new Form 51-102F6V Statement of Executive Compensation – Venture Issuers (the “Optional Venture Issuer Form”) instead of Form 51-102F6 Statement of Executive Compensation (“Form 51-102F6”).

The material differences between the Optional Venture Issuer Form and Form 51-102F6 are as follows:

  • the Optional Venture Issuer Form combines director and named executive officer (“NEO”) compensation into one table, and only two years of disclosure is required under the Optional Venture Issuer Form, as opposed to three years for NEOs and one year for directors under Form 51-102F6;
  • disclosure under the Optional Venture Issuer Form is required for a maximum of three NEOs (the chief executive officer (“CEO”), the chief financial officer (“CFO”) and the most highly compensated executive officer other than the CEO and the CFO whose total annual compensation was more than $150,000), as opposed to a maximum of five NEOs under Form 51-102F6; and
  • under the Optional Venture Issuer Form, there is no requirement to calculate and disclose grant date fair value of stock options and other share-based awards in the summary compensation table.

The Amendments also clarify that for financial years beginning on or after July 1, 2015, venture issuers will be required to file executive compensation disclosure within 180 days after the end of the issuer’s most recently completed financial year, while non-venture issuers will be required to file such disclosure within 140 days after their financial year-end.

Audit Committee Composition Requirements

Consistent with the requirements of the TSX Venture Exchange, venture issuers will be required to have an audit committee composed of at least three directors, a majority of whom cannot be executive officers, employees or control persons of the venture issuer or an affiliate of the venture issuer. The audit committee composition requirements are subject to certain exceptions, such as for events beyond the control of the issuer and for the death, incapacity or resignation of an audit committee member. These obligations will apply to venture issuers in respect of financial years beginning on or after January 1, 2016.

Business Acquisition Reporting

The Amendments will reduce the circumstances in which a venture issuer will be required to file a business acquisition report (“BAR”), as the significance threshold for the BAR requirement has been increased from 40% to 100% for venture issuers.

Prospectus Changes

The Amendments reduce the number of years of historical audited financial statements required in a venture issuer’s initial public offering prospectus from three to two years.