4th Annual Disclosure and Governance Seminar · Leading 500 lawyers in Canada. In 2005, she was a finalist in the Réseau des femmes d’affaires du Québec (Quebec business women’s

4th Annual Disclosure andGovernance Seminar

January 11th, 2007 4:00 p.m. ET

TABLE OF CONTENTS

4th Annual Disclosure and Governance Seminar

January 11, 2007

Tab Materials

1. Introduction

Lorna Telfer

Presenter profiles

2.

Annual Meetings Back in Fashion

Shea Small

PowerPoint: Annual Meetings Back in Fashion

• 2007 Proxy Circular Checklist

• Blacklined version of Form 51-102 F5 Information Circular published October 13, 2006

• Blacklined version of Form 51-102 F6 Statement of Executive Compensation published October 13, 2006

• Suggested Majority Voting Policy Statement from the Canadian Coalition of Good Governance

• Canadian Coalition for Good Governance Summary of the Majority Voting Policies and Procedures Implemented by the Major Canadian Banks

• General Overview of Reporting Obligations of Insiders including proposed amendments to NI 55-101

Tab

3. Certification Procedures

Michael Urbani

PowerPoint: Certification Procedures • Form 52-109F1 - "Full" Annual Certificate

• Form 52-109F2 - "Full" Interim Certificate

• CSA Staff Notice 52-313

• CSA Staff Notice 52-316

• SEC Press Release (December 13, 2006) (Proposed Guidance on Internal Controls over Financial Reporting)

• SEC Press Release (December 15, 2006) (Extension of SOX 404 Compliance Dates)

• PCAOB Press Release (December 19, 2006) Proposed new Auditing Standard No. 2

• Examples of current MD&A disclosure

4.

Bullet Proof Your Disclosure Practices

Roger Chouinard & James Farley

PowerPoint: Bullet Proof Your Disclosure Practices

• Paper: Bullet Proof your Disclosure Practices

5. Trends in Executive Compensation

Ken Hugesson (HCI Consulting) & Phil Moore

PowerPoint: Trends in Executive Compensation

• HCI Firm Overview

6. Governance Performance in the Public Eye Mark Eade & Clemens Mayr

PowerPoint: What do the Institutions Think?

PowerPoint: The Globe and Mail: Board Games 2006

McCarthy Tétrault LLP

Lawyer Profile

LORNA J. TELFER

OFFICE TITLE LAW SCHOOL Partner Montréal McGill University,

BCL, 1977

DIRECT LINE 514-397-4184

BAR ADMISSIONS Québec, 1978

E-MAIL [email protected]

Biography

Lorna J. Telfer is a partner in our Business Law Group in Montréal.

Ms. Telfer joined the firm in 1978 and practises in the areas of international and domestic corporate finance, mergers and acquisitions and securities law, including corporate governance matters, corporate reorganizations and privatizations.

Ms. Telfer’s recent experience includes:

counsel to Molson Inc. in connection with the merger of Molson Inc. and Adolph Coors Company

(US$6 billion);

counsel to LoJack Corporation in connection with its acquisition of Boomerang Inc. ($65 million);

counsel to the Independent Committee of the Board of Bombardier Inc. in the sale of Bombardier

Recreational Products Division ($1.1 billion);

counsel to the Special Committee of the Board of Directors of B2B Trust in connection with its

privatization ($59 million);

acted for Cartier Partners Financial Group Inc. in the sale of its common shares to Dundee Wealth

Management Inc. ($121.5 million);

acted for Mega Bloks in its IPO as well as in the secondary offerings of common shares by The

Blackstone Group ($372.6 million);

acted for BCE in connection with a series of transactions completed by Bell Canada International

($670 million);

acted for Tembec Inc. and Tembec Industries Inc. in connection with cross border debt offerings

(US$950 million);

Lawyer Profile

LORNA J. TELFER

acted for IFPT Management in connection with the launch of International Finance Participation

Trust ($575.2M);

acted for the underwriter in connection with the class A subordinate voting share offering of G.T.C.

Transcontinental ($138 million); and

acted for the underwriting syndicate in connection with the secondary offering of Rogers Sugar

Income Fund ($111.7 million).

Ms. Telfer has spoken at various conferences on public company related matters including for the American Bar Association, the Barreau du Québec, the University of Western Ontario, the University of Windsor and Dalhousie University and lectures at the Conference Board of Canada and DeGroote School of Business’ Directors College. She is a member of the Committee on Negotiated Acquisitions of the American Bar Association. She co-authored an article entitled Controlled Auctions: Strategy and Managing the Process with Neil H. Brockmeyer and Thomas W. VanDyke for the Committee Forum held in Seattle, Washington in April 2004.

Ms. Telfer appears in all editions of the Canadian Legal Lexpert Directory, a guide to the leading law firms and practitioners in Canada, as a leading lawyer in the areas of corporate finance, mergers and acquisitions, corporate and commercial law and investment management. She is listed in the 2006 Lexpert/American Lawyer Guide to the Leading 500 lawyers in Canada. In 2005, she was a finalist in the Réseau des femmes d’affaires du Québec (Quebec business women’s network) awards.

A graduate of McGill University (BA in 1974 and BCL in 1977), Ms. Telfer was called to the Québec bar in 1978. In 1982, she was seconded to the Québec Securities Commission.

Page 2

Lawyer Profile

Lawyer Profile SHEA T. SMALL

Biography

Shea Small is a partner in our Corporate Finance and Mergers and Acquisitions Group in Toronto. He has a corporate and securities practice that focuses on public, private and cross-border corporate finance, commercial transactions, mergers and acquisitions and securities regulation.

Mr. Small acts for a broad range of clients, including public companies, financial institutions and investment dealers and advisers. His recent experience includes:

• acting for GE Capital and Wells Fargo in establishing, renewing and maintaining their medium term note

programs in Canada and offering over $13.7 billion of notes;

• acting for GE Capital in updating and maintaining its commercial paper program in Canada;

• acting for a syndicate of investment dealers in Goldman Sachs’ private placement of $1.25 billion of

maple bonds;

• acting for syndicates of investment dealers in establishing a medium term note program for Brookfield

Power and offering $800 million of notes and debentures;

• acting for Rio Tinto in its US1.5 billion investment in Ivanhoe Mines;

• acting for Smithfield Foods in its US$378 million sale of Schneider to Maple Leaf Foods;

• acting for Outokumpu in its $102 million sale of mining assets to Inmet Mining;

• acting for Creststreet in completing four initial public offerings totalling more than $180 million of flow-

through limited partnership units;

• acting for Creststreet Power & Income Fund LP in completing three public offerings totalling $100 million

of units and $30 million of convertible debentures;

TITLE Partner

OFFICE Toronto

LAW SCHOOL University of British Columbia, LLB, 1996


BAR ADMISSIONS Ontario, 1998



Lawyer Profile SHEA T. SMALL

Page 2

Lawyer Profile

• acting for Creststreet in several wind power joint ventures;

• acting for Diageo in the sale of Pillsbury to General Mills, the sale of the Gibson whisky brand to William

Grant, the sale of several other alcohol beverage brands to White Rock and the entering into of co-pack

and distribution agreements with Pernod-Ricard and Sleeman; and

• acting for FP Newspapers Income Fund in its initial public offering of $65.7 million of units.

Mr. Small received his BA (Economics) from Wilfred Laurier University in 1993. He received an LLB from the University of British Columbia in 1996 and was called to the Ontario bar in 1998. Mr. Small is a member of the Canadian Bar Association, the Law Society of Upper Canada and the OBA Securities Law Subcommittee.

McCarthy Tétrault LLP An Ontario Limited Liability Partnership

Lawyer Profile

MICHAEL URBANI

TITLE Partner

OFFICE Vancouver



LAW SCHOOL University of Victoria, LLB, 1996

BAR ADMISSIONS British Columbia, 1997

Biography

Michael G. Urbani is a partner in the Business Law Group. His practice is focussed in the areas of corporate finance, securities and mergers and acquisitions and involves acting for private and public entities and investment dealers in public financings and private placements in Canada and the United States and take-over bids, mergers and acquisitions involving public corporations.

Mr. Urbani acts for investment banks and clients in various industries including hospitality, communications, biotech, high tech, petrochemicals and forest products.

His recent experience includes:

advising on initial public offerings by companies and income funds in the financial services, marine transportation, gaming, agriculture, distribution, food services, consumer products, forest products and communications industries;

advising on cross-border, U.S. and domestic public and private offerings of debt and equity, including bought deal financings, secondary offerings, high yield note and structured finance issues, by companies in the forest products, petrochemicals, wireless communications, hospitality, fuel cell and alternative energy and financial services industries;

advising acquirors, targets and special committees in respect of take-over bids, issuer bids, insider bids, related party and going private transactions; and

advising on issuer bids and merger and acquisition transactions in the high tech, real estate, forest products and hospitality industries.

He joined the firm in 1995. He received a BA in Political Science from the University of British Columbia in 1992 and his LLB from the University of Victoria in 1996. Mr. Urbani was called to the British Columbia bar in 1997.

Mr. Urbani is a member of the Canadian Bar Association, the Vancouver Bar Association and the Vancouver Board of Trade.

Lawyer Profile ROGER J. CHOUINARD

Biography

Roger J. Chouinard is a partner in the firm’s Business Law Group in Toronto with a corporate and securities practice focused on corporate finance and mergers and acquisitions. Mr. Chouinard advises public and private corporations and other entities, including income trusts, in a variety of industries in connection with securities, business law, corporate governance and compliance matters.

Mr. Chouinard’s recent transactional experience includes acting for:

• InStorage Real Estate Investment Trust in connection with over $100 million in private placement

securities offerings and over $120 million in asset acquisitions;

• SCOSS Capital Corp. on its conversion to become InStorage Real Estate Investment Trust;

• Noranda Inc. and Falconbridge Limited in connection with the successful completion their US$12 billion

merger;

• Noranda Inc. in the context of (i) its issuer bid to exchange US$1.25 billion in outstanding common shares

for junior preference shares, and (ii) its $3.0 billion take-over bid to acquire the outstanding minority

interest in Falconbridge Limited;

• People’s Communications Inc. in connection with its $26 million acquisition by Amtelecom Income Fund;

• SCOSS Capital Corp. in connection with its qualifying transaction to graduate from the capital pool

company (CPC) program of the TSX Venture Exchange and become a Tier 1 issuer on that Exchange;

• Molson Canada in connection with the reorganization of its Canadian brewing business and its $8 billion

merger of equals with Adolph Coors Company;

TITLE Partner

OFFICE Toronto

LAW SCHOOL Osgoode Law School, LMM, 2004 University of Victoria, LLB (Common Law), 1999 Laval University, LLB (Civil Law), 1998


BAR ADMISSIONS Ontario, 2002 Alberta, 2000



Lawyer Profile ROGER J. CHOUINARD

Page 2

Lawyer Profile

• Arriscraft International Income Fund on its $67 million initial public offering and its private placement of

$16 million in convertible debentures;

• The underwriters in the cross-border US$252 million initial public offering of Income Deposit Securities

(IDS) by Centerplate, Inc. (formerly Volume Services America Holdings, Inc.); and

• The underwriters on the $135 million initial public offering of Sleep Country Canada Income Fund.

Mr. Chouinard speaks English and French and is educated in the common and civil law judicial systems in Canada. He received his B.Comm. from McGill University in 1995, his LLB (Civil Law) from Université Laval in 1998, his LLB (Common Law) from the University of Victoria in 1999 and his LLM from Osgoode Hall Law School in 2004. He was called to the Alberta bar in 2000 and the Ontario bar in 2002.

Lawyer Profile JAMES FARLEY

Biography

The Honourable James Farley, Q.C. was appointed to the Superior Court, then named the Supreme Court of Ontario, in 1989. Since its inception in 1991 and until his retirement on May 1, 2006, he acted as supervising judge of the Commercial List in Toronto. The Commercial List deals with complex corporate / commercial litigation in addition to its insolvency foundation. He also took a periodic rotation in the Criminal List. He is a graduate of the University of Western Ontario (B.A. 1962), University of Oxford (Rhodes Scholar; B.A. 1964; M.A. 1968) and the University of Toronto (LL.B. 1966). He was called to the Ontario bar in 1968 and practised as a corporate / commercial solicitor.

He has returned to the bar in August 2006 as Senior Counsel to McCarthy Tétrault LLP. He will work with our business law, bankruptcy and restructuring and litigation groups on a firm-wide basis, including work on our cross-border initiatives, and will provide our clients with strategic business, litigation and insolvency-related advice.

He is a member of the International Insolvency Institute, Insolvency Institute of Canada, Insol International, American Law Institute, American College of Bankruptcy, American Bankruptcy Institute, International Bar Association and International Law Association. He has participated in the American Law Institute NAFTA transnational insolvency project, the INSOL / UNCITRAL judicial colloquia and the World Bank insolvency practices project. As well he has delivered papers on various topics including insolvency, corporate law, commercial courts, ADR, WTO and law practice management in Canada, the USA, England, China, Nigeria, Bermuda, Germany, France, the Bahamas, Jamaica, Brazil, Austria, Tanzania, New Zealand, Argentina and Australia.

TITLE Senior Counsel

OFFICE Toronto

LAW SCHOOL University of Toronto, LLB, 1966 Oxford University, BA (Jurisprudence), MA, 1964, 1968




Ken Hugessen

Ken is a recognized expert in consulting to Compensation Committees, Boards and top management on executive compensation and related corporate governance. Based in Toronto, he has over 30 years experience consulting in Canada, the US and the UK. Ken's work is predominantly for Compensation Committees (Remuneration Committees). He is at the leading edge of change in the governance of executive compensation, and has written and spoken extensively on the role of the Board, and the Compensation Committee and its Chair in executive compensation.

Experience

Extensive experience consulting to the Compensation (Remuneration) Committee and management.

Employment

Prior to founding Hugessen Consulting Inc in June 2006 Ken was a worldwide partner with Mercer. He joined Mercer in 1974. In 1981, he was appointed leader of the firm's Executive Compensation Practice in Canada, and became Director of the Canadian Company in 1983. He became a Managing Director of Mercer Inc. (New York) in October 1985. In the mid '90s Ken established Mercer's Executive Compensation practice in Chicago.

Education

Ken holds an Honours BSc from Sir George Williams University, a MA from Dalhousie University, and an MSc from the University of Chicago. He is a Killam and National Research Council Scholar, and is a fellow of the Society of Actuaries and of the Canadian Institute of Actuaries.

Lawyer Profile PHILIP C. MOORE

Biography

Philip Moore is a partner in our Business Law Group in Toronto. He joined the firm in 1988 after practising with firms in Sydney, Australia and in Toronto.

Mr. Moore advises on a broad range of corporate and securities matters. He regularly acts on mergers and acquisitions, corporate finance and corporate reorganizations. Mr. Moore provides ongoing corporate and commercial advice to a number of public and private corporations and their boards of directors, and in that role is actively involved in advising on strategic issues.

His recent transactional experience includes representing The Toronto-Dominion Bank on its acquisition of VFC Inc., advising Fairmont Hotels on its takeover by private investors, and numerous Canadian and cross-border public debt and equity securities offerings.

He is a member of the board of directors of Neenah Paper Inc., a NYSE-listed Company, and is a member of the audit committee and chairs the compensation committee of that board.

Mr. Moore received his BA from McMaster University in 1978 and his LLB from Queen’s University in 1981. He was called to the Ontario bar in 1983.

TITLE Partner

OFFICE Toronto

LAW SCHOOL Queen's University, LLB, 1981


BAR ADMISSIONS Ontario, 1983



Lawyer Profile MARK EADE

Biography

Mark Eade is a partner in our Calgary Corporate, Securities and Finance Department. His practice is broadly based, with an emphasis on corporate financings, commercial transactions and other general corporate matters.

Mr. Eade earned a B.Comm (Hons) degree and his LLB from the University of Saskatchewan. He was called to the Alberta bar in 1994.

TITLE Partner

OFFICE Calgary

LAW SCHOOL University of Saskatchewan, LLB, 1993


BAR ADMISSIONS Alberta, 1994



Lawyer Profile

CLEMENS MAYR

Biography

Clemens Mayr is a partner in our Business Law Group in Montréal. His practice focuses on corporate finance, international financings and mergers and acquisitions.

Mr. Mayr has substantial visibility in the Québec market and legal community. Since his call to the Québec bar in 1991, he has practiced in the areas of securities and corporate law, more particularly in mergers and acquisitions, take-over bids, public financings and corporate governance.

He has also been involved in numerous Canadian and cross-border public financings (including initial public offerings) acting for both issuers and underwriters, in various industry segments including high technology, biotechnology and communications.

Mr. Mayr was named one of Canada’s Top 40 Lawyers Under 40 in the September 2002 issue of Lexpert magazine. He is rated by Martindale-Hubbell and is listed in the Canadian Legal Lexpert Directory.

Mr. Mayr received his LLB from the University of Montréal in 1990 and was called to the Québec bar in 1991.

TITLE Partner

OFFICE Montréal

LAW SCHOOL University of Montreal, LLB, 1990


BAR ADMISSIONS Québec, 1991



Shea T. Small

Annual Meetings Back In Fashion

Proxy Rule Update – What’s New?

No major changes this year – amendments to National Instrument 51-102 in force December 29, 2006

•Delivery of Financial Statements•New Disclosure Item – Director Penalties and

Sanctions•New Disclosure Item – External Management

Companies•Disclosure Exemptions for Special Meetings

2.1-2

Proxy Rule Update – Delivery of Financial Statements

Issuers are now expressly permitted to send their financial statements with their proxy materials. If they do so, they are exempt from the requirement to send a request form and their financial statements on request

2.1-3

Proxy Rule Update – Director Penalties and Sanctions

Issuers must now describe any penalties or sanctions imposed andthe grounds on which they were imposed, or the terms of the settlement agreement and the circumstances that gave rise to thesettlement agreement, if a proposed director has been subject to:

•any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

•any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed director.

2.1-4

Proxy Rule Update – External Management Companies

If an issuer’s executive management is employed or retained by an external management company and the issuer has entered into an understanding, arrangement or agreement of any kind for the provision of executive management services by the external management company to the issuer directly or indirectly, the issuer must disclose:•compensation payable by the issuer to executive management•compensation payable by the external management company to executive management that can be attributed to services renderedto the issuer•the entire compensation paid by the external management company to executive management

2.1-5

Proxy Rule Update – Exemptions for Special Meetings

• Items 8 and 10 (Executive Compensation and Indebtedness of Directors and Executive Officers) of Form 51-102F5 do not apply if the meeting is not an annual general meeting, there is no vote on executive compensation and directors are not being elected.

• Item 9 (Securities Authorized for Issuance under Equity Compensation Plans) of Form 51-102F5 does not apply in the same circumstances, provided there is no matter being voted on that involves the issuer issuing securities.

2.1-6

Proxy Rule Update – Materials

• Proxy Checklist

• Blackline of Form 51-102F5 Information Circular

• Blackline of Form 51-102F6 Statement of Executive Compensation

2.1-7

Majority Voting for Directors – Background

• Voting of directors for most issuers is still based on a plurality voting standard

• Canadian corporate law provides for shareholders to vote or withhold from voting for shareholders

• Absent competing nominees, management slate is elected no matter how many votes withheld for any directors

• As a result of institutional shareholder action, momentum in US and Canada has been gathering for issuers to change to majority voting standard in their articles/by-laws and/or to adopt director resignation policies

2.1-8

Majority Voting for Directors – Proposed Solutions

• Provide access to company proxy solicitation materials to have other nominees proposed alongside the management slate

• Require any director who does not receive majority support to resign

• Change corporate law to require majority voting standard

2.1-9

Majority Voting for Directors – CCGG Proposal

Canadian Coalition for Good Governance has proposed that issuers adopt a director resignation policy as follows:

• All votes to elect directors taken by ballot and separate votes tallied for each director

• If more votes are withheld than voted for a director, that director must tender his or her resignation

• Board must accept the resignation within 90 days or explain why it has not done so

• Board may leave the vacancy unfilled or appoint a new director in its discretion or call a special meeting to fill thevacancy

• Policy will not apply in contested elections

2.1-10

Majority Voting for Directors – Implementation

• Banks• BCE• Nortel• Expect that most major issuers will adopt this measure

eventually• Issuers who have not given consideration to the concept

should be prepared to answer questions related to it from shareholders at upcoming annual meetings this proxy season

2.1-11

Majority Voting for Directors – Materials

• CCGG Suggested Form of Policy Statement

• CCGG Summary of Policies and Procedures Implemented

2.1-12

2007 Proxy Circular Checklist

2007 PROXY CIRCULAR CHECKLIST

Proxy Circular Disclosure (and related matters)1

I. Primary Sources

1. NI 51-102

• general disclosure rules (including for the form of proxy): Part 9 of the Instrument, Part 9 of the related Companion Policy, Form 51-102 F5 (Information Circular) and Form 51-102 F6 (Statement of Executive Compensation)2 3 4 5.

• for specific disclosure on “retirement benefits”: see CSA Staff Notice 51-314 (January 14, 2005).

• for OSC releases on executive compensation disclosure: see OSC Staff Notice 51-304 (November, 2002) and OSC Staff Report on Executive Compensation and Indebtedness Disclosure (February 17, 1995); see also OSC Staff Notice 51-706 – Corporate finance Report

1 For reporting issuers governed by the Canada Business Corporations Act (“CBCA”) and listed on the Toronto Stock Exchange

(“TSX”) (but not on the TSX Venture Exchange for which different rules may apply).

2 The CSA instituted a “harmonized” continuous disclosure review program in 2004 pursuant to which regulators review and

comment on the continuous disclosure documents (including proxy circulars) of reporting issuers on a regular basis; the

largest issuers, with a market capitalization in excess of $750 million, will be reviewed on average once every three years:

see CSA Staff Notice 51-312.

3 Pursuant to recent amendments to Form 51-102F5 effective as of December 29, 2006, disclosure on executive compensation,

equity compensation plan information and indebtedness of directors and executive officers will only be required in

information circulars for annual general meetings, meetings where directors are to be elected or meetings where

securityholders will be asked to vote on a matter relating to executive compensation or a transaction involving the issue of

securities.

4 Form 51-102F6, as amended effective December 29, 2006, now requires specific disclosure in circumstances where the issuer’s

executive management is employed by an external management company.

5 New sections 7.2.1 and 7.2.2 of Form 51-102F5, effective as of December 29, 2006, now require in the information circular

disclosure regarding certain regulatory sanctions and penalties imposed on the issuer. This is the same information presently

required under section 10.2(2) of Form 51-102F2 (AIF).

(Updated - December 29, 2006)

Page 1


Page 2

(2005) (Paragraphs H and I of Part 2) and OSC Staff Notice 51-706 – Corporate Finance Report (2006) (Paragraph K of Part 11).

• if the issuer has or is changing its auditor, s. 4.11(5)(c) requires that the “reporting package” be annexed to the information circular, with a summary thereof in the circular itself.

• note that proxy circulars must use “plain language”, may incorporate by reference any other document (provided such document is filed concurrently with the proxy circular if it has not already been filed) and must be dated; the information in the proxy circular must be given as of a date not more than 30 days prior to the date of circular is first mailed.

• reporting issuers (other than “venture issuers”) must “promptly” following a meeting of securityholders file a report disclosing the voting results: s. 11.3 of the instrument.

2. CBCA and CBCA Regulations (“CBCA Regs”)

• general disclosure rules (including for the form of proxy and dissident’s proxy circular): ss. 54 to 66 CBCA Regs; note in particular the following disclosure items:

• indemnification payments made to officers and directors and disclosure re D&O insurance: ss. 57(h) and (i) CBCA Regs;

• disclosure re material financial assistance given to certain persons: s. 57(z.7) CBCA Regs;

• proxy circular must contain a statement indicating the final date by which the corporation must receive a proposal for any matter that a person entitled to vote at an annual meeting proposes to raise at the next meeting: s. 57(z.9) CBCA Regs;

• proxy circular must contain a statement, signed by a director or an officer of the corporation, that the contents and the sending of the circular have been approved by the directors: s. 57(z.8) CBCA Regs.

• proxy circular must set out any proposal validly submitted under s. 137(1) CBCA and, if so requested by the person who submitted the proposal, a statement in support thereof not exceeding 500 words: s. 137(2) and (3) CBCA, ss. 46 to 53 CBCA Regs.

• proxy materials may specify a time, not exceeding 48 hours preceding the meeting or any adjournment, before which proxies must be deposited: s. 148(5) CBCA.

• related matters:


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• the notice of meeting and proxy circular must be sent not less than 21 days and not more than 60 days before the meeting: s. 135(1) CBCA and s. 44 CBCA Regs; for notice of an adjourned meeting, see s. 135(3) and (4) CBCA;

• annual meeting must be “called” not later than 15 months after the previous meeting and not than 6 months after the corporation’s preceding financial year; the directors must place before shareholders at every annual meeting, financial statements for the last completed financial year ended not more than 6 months before the meeting: s. 133(1)(b) CBCA, s. 155(1)(a) CBCA;

• the record date to receive notice of the meeting must be not less than 21 days and not more than 60 days before the date of the meeting: s. 134(1) CBCA, s. 43 CBCA Regs;

• since under the CBCA a record date may be fixed for entitlement to vote at a meeting (s. 134(1(d) CBCA), reporting issuers governed by the CBCA must establish such a record date pursuant to NI 54-101: see below under “Other Sources – NI 54-101”;

• notice of the record date must be published in the newspaper and given to the relevant stock exchange at least 7 days before the record date: s. 134(3) CBCA, s. 43(3) CBCA Regs.

II. Other sources

1. TSX

(a) TSX Company Manual

• general requirements: ss. 455 to 465.

• A listed issuer must disclose annually in its proxy circular the terms of its security based compensation arrangements (with reference to the items in 613(d)) and the nature of any amendments that were adopted in the last fiscal year: s. 613(g); Staff Notice #2005-0001.

• Issuers have until June 30, 2007 to adopt proper amendment procedures in their security based compensation arrangements pursuant to 613(d) and submit it for securityholder approval; after such date, issuers with “general amendment” provisions in their plans will no longer be able to make any amendments to their plans without securityholder approval, even amendments of a “housekeeping nature”. See Staff Notices #2006-0001 and #2004-0002.


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• if a meeting is held to approve a security based compensation arrangement or any amendment thereto, the proxy circular must disclose the items in 613(d)6: s. 613(d); Staff Notice #2005-0001.

• A listed issuer that has filed a notice for a normal course issuer bid must include a summary thereof in its next annual report, annual proxy circular, quarterly report or other document mailed to shareholders: s. 6-501(6)(e) of Appendix F.

• A listed issuer must describe the voting rights of listed “restricted securities” in its proxy circulars: s.624(i).

• A listed issuer must “hold” its annual meeting within 6 months of the end of its fiscal year: ss. 464 and 465.

(b) Other

• See the “TSX Guide to Good Disclosure” (as of January 2006)

2. NI 54-101 (Communication with Beneficial Owners)

• disclosure requirements:

• reporting issuers that use NOBO lists to send proxy materials directly to NOBOs must include certain prescribed disclosure: s. 2.11(1) and (2);

• proxy circulars sent to beneficial owners must explain, in plain language, how the beneficial owner may exercise voting rights attached to the securities, including the right to attend and vote directly at the meeting: s. 2.16.

• other relevant provisions:

• a reporting issuer must fix a date for the meeting, a record date for the notice of the meeting which is no less than 30 days7 and no more than 60 days before the meeting date and, if required or permitted by corporate law, a record date for voting at the meeting: s. 2.1;

• At least 25 days7 before the record date for a notice of a meeting, the reporting issuer must send a notification of the meeting and a record date to various entities: s. 2.2;

6 Such disclosure must be pre-cleared by the TSX.


Page 5

• A reporting issuer that sends a notice of adjournment or other change in respect of a meeting must concurrently send that notice to various parties: s. 2.15; s. 3.2 of the related Companion Policy;

• A reporting issuer must send proxy materials either directly to NOBOs at least 21 days before the meeting date, or indirectly to beneficial owners by sending proxy materials to each intermediary at least 3 business days before the 21st day before the meeting day (or at least 4 business days before the 21st day before the meeting date if the materials are sent other than by 1st class mail): ss. 2.9 and 2.12.

3. MI 52-110 (Audit Committees)

• Proxy circulars must contain a cross-reference to the sections in the issuer’s AIF that contains the audit committee disclosure required by form 52-110 F1: s. 5.2.

4. NI 58-101 (Disclosure of Corporate Governance Practices)

• This instrument requires issuers to disclose their corporate governance practices as set forth in Form 58-101F1 in proxy circulars for any meeting called for the purposes of electing directors.

5. Canadian Coalition for Good Governance8

• see “Best Practices in Shareholder Communication 2006”9 and “Good Governance for Principled Executive Compensation”, Working Paper June 2006, on the Coalition’s website (www.ccgg.ca).

6. By-laws of the Issuer

7 This time period may be abridged provided that the proxy materials are sent in compliance with the instrument to beneficial

owners at least 21 days before the meeting date and the reporting issuer files a certificate containing prescribed disclosure:

s. 2:20.

8 The Canadian Coalition for Good Governance is made up of 50 of Canada’s leading institutional investors with combined

assets under management in excess of $975 billion, with the mission of representing Canadian institutional shareholders

through the promotion of best corporate governance practices.

9 This includes “best practices” (with examples) on voting for directors (with an appropriate proxy form and voting instruction

form) and disclosure in proxy circulars of director information including director selection and orientation, director

background, director share ownership, director compensation and director performance assessment.


Page 6

• these should be reviewed to ensure compliance (in particular, the delays for notice of meeting, etc.).

III. Special Disclosure for “Business Combinations”

• NI 51-102: see item 14 (and in particular 14.2)10 of Form 51-102F5.

• CBCA: see ss. 57(z.1) to (z.6) CBCA Regs.

• OSC Rule 61-501: see:

• s. 4.2 (general disclosure); ss. 4.2 and 6.1 of the related Companion Policy;

• ss. 6.2, 6.5, 6.7 and 6.8 (disclosure of formal valuation and prior valuations); s. 5.1 of the related Companion Policy;

• ss. 4.4(5)(d) and 8.2(f) re disclosure in the case of “second-step business combinations”;

• s. 1.1, definition of “collateral benefit”, para. c(iii) and c(iv)(B)(III);

• see also s. 16 of OSC Staff Notice 51-715 (October, 2004).

• Staff Notice of L’Autorité des marchés financiers (“AMF”) dated June 29, 200111.

• TSX Company Manual: see ss. 462 and 463.

10 Section 14.2 of Form 51-102F5 requires prospectus level disclosure in certain circumstances, including in particular in share-

exchange transactions. As amended effective December 29, 2006, this section will require prospectus level disclosure of the

acquiror which is issuing securities, but will not generally require prospectus level disclosure of the “target” issuer which is

not issuing securities (but the securities of which are being “exchanged” for those of the acquiror). Recent discussions we

have had with staff at the AMF has confirmed this interpretation.

11 Staff of the AMF stated therein that, as regards the language of proxy circulars in business combinations, it would like issuers

to consider the number of beneficial holders in Quebec and its degree of attachment to Quebec; it also stated that it was of

the opinion that a proxy circular would be “deemed to contain sufficient details to permit holders to form a reasoned

judgment” concerning a business combination if it contained, in addition to the disclosure prescribed for proxy circulars, the

disclosure required for take-over bids, to the extent applicable and with the necessary modifications.

McCarthy Tétrault Memorandum

McCarthy Tétrault LLP Suite 2500 1000 De La Gauchetière Street West Montréal (Québec) H3B 0A2 CANADA Telephone : 514 397-4100

December 4, 2006 (updated January 4, 2007)

Re: General Overview of Reporting Obligations of Insiders in Québec and Proposed

Amendments to National Instrument 55-101 – Insider Reporting Exemptions (“NI 55-101”) and Companion Policy 55-101CP – Insider Reporting Exemptions (“55-101CP”).

A. REPORTING OBLIGATION OF INSIDERS IN QUÉBEC – GENERAL

OVERVIEW

1. Relevant Statutory Provisions, Instruments, Policies and Notices

Relevant Statutory Provisions in Québec1:

Chapter IV, Sections 89-103 of the Securities Act (Québec) (the “QSA”).

NOTE: When in force, Sections 36 to 38 of An Act to amend the Securities Act and other legislative provisions (S.Q. 2006, chapter 50) (“Bill 29”), which was assented to on December 14, 2006, will amend certain of the aforementioned provisions of the QSA. Sections 36 to 38 of Bill 29 are not yet in force. Section 143 of Bill 29 provides that Sections 36 to 38 of Bill 29 will come into force on the date to be set by the Government. Relevant extracts of Bill 29 are reproduced in Schedule A hereto.

Chapter IV, Sections 171-174 of the Regulation Respecting Securities (Québec) (the “QSR”).

Relevant Instruments, Policies and Notices:

National Instrument 55-101 – Insider Reporting Exemptions (“NI 55-101”); Companion Policy 55-101CP – Insider Reporting Exemptions (“55-101CP”); CSA Notice 55-308 – Questions on Insider Reporting, dated November 15, 2002 (“CSA Notice 55-308”).

1 For Ontario, corresponding provisions are found in Part XXI, Sections 106-121.1 of the Securities Act (Ontario) (the “OSA”).

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National Instrument 55-102 – System for Electronic Disclosure by Insiders (SEDI) (“NI 55-102”); Companion Policy 55-102CP - System for Electronic Disclosure by Insiders (SEDI) (“55-102CP”); Revised CSA Notice 55-310 – Questions and Answers on the System for Electronic Disclosure by Insiders (SEDI), dated April 25, 2003, revised August 19, 2005.

Multilateral Instrument 55-103 – Insider Reporting for Certain Derivative Transactions (Equity Monetization); Companion Policy 55-103CP to Multilateral Instrument 55-103 – Insider Reporting for Certain Derivative Transactions (Equity Monetization); CSA Notice 55-312 – Insider Reporting Guidelines for Certain Derivative Transactions (Equity Monetization).

See also OSC Staff Notice 55-701 – Automatic Securities Disposition Plans and Automatic Securities Purchase Plans, June 2, 2006.

See also Part 5 (Section 5.4) and Part 9 of National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues.

2. Who is an “insider”?

Definition of “insider (s. 89 QSA).

89. The insiders of a reporting issuer that are subject to the disclosure requirements established in this chapter are

1) the issuer itself, its subsidiaries, its senior executives and the senior executives of its subsidiaries;

2) any person who exercises control over more than 10% of a class of shares of a reporting issuer to which are attached voting rights or an unlimited right to a share of the profits and in its assets in case of winding-up, other than securities that were the object of a firm underwriting and are in the course of distribution;

3) the senior executives of a person contemplated in paragraph 2.

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NOTE: When in force, Section 36 of Bill 29 will amend the definition of “insider” at Section 89 QSA by replacing Section 89 QSA by the following:

“89. “Insider” means

(1) every director or officer of an issuer;

(2) every director or officer of a subsidiary of an issuer;

(3) a person that exercises control over more than 10% of the voting rights attached to all outstanding voting securities of an issuer other than securities underwritten in the course of a distribution;

(4) an issuer that holds any of its securities; or

(5) a person prescribed by regulation or designated as an insider under section 272.2.

“Insider” also means a director or officer of an insider of an issuer.

Section 36 of Bill 29 is not yet in force and, according to Section 143 of Bill 29, Section 36 of Bill 29 will come into force on the date to be set by the Government. Relevant extracts of Bill 29 are reproduced in Schedule A hereto.

Ownership of Securities, Exercise of Control and Presumption of Exercise of Control (s. 10, s. 90 and s. 91 QSA).

10. Whenever the question of the ownership of securities arises, any agreement by the effect of which the ownership of the securities is ascribed to a holder other than their true owner is disregarded.

90. The person who is the owner of securities or has direction over them is the person who exercises control over them.

91. Every person who may exercise as he sees fit voting rights attaching to securities he does not own is deemed to exercise control over those securities.

Definition of “senior executive” (s. 5 QSA)

5. “senior executive” means any person exercising the functions of a director, or of a president, vice-president, secretary, treasurer, controller or general manager, or similar functions.

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NOTE: Section 3(2) of Bill 29 amends Section 5 QSA by replacing the definition of “senior executive” (reproduced above) by the following definition:

“officer” means the chair or vice-chair of the board of directors, the chief executive officer, the chief operating officer, the chief financial officer, the president, the vice-president, the secretary, the assistant secretary, the treasurer, the assistant treasurer or the general manager of an issuer or of a registrant, or any natural person designated as such by the issuer or the registrant or acting in a similar capacity;

Section 3(2) of Bill 29 came into force on December 14, 2006. However, Section 142 of Bill 29 contains the following transitional provision:

Unless the context indicates otherwise, the definition of “senior executive” as it read before 14 December 2006 continues to apply, despite paragraphs 1 and 2 of section 3, to any statutory instrument under the Securities Act and any document under such an instrument, until the statutory instrument is amended by a decision or regulation of the Autorité des marchés financiers.

Relevant extracts of Bill 29 are reproduced in Schedule A hereto.

3. Reporting Obligations of Insiders

Reporting obligations of insiders are in addition to the provisions of the QSA prohibiting an insider of a reporting issuer having privileged information relating to the securities of the issuer from the trading in the securities of such reporting issuer and from disclosing such information (s. 187 QSA and s. 188 QSA).

A person who becomes an insider of a reporting issuer must disclose his control over the securities of such reporting issuer, by filing an initial insider report via SEDI (using Form 55-102F2) within 10 days of becoming an insider (s. 96 QSA and s. 171 QSR).

An insider of a reporting issuer must disclose any change in his control over the securities of such reporting issuer, by filing an insider report via SEDI (using Form 55-102F2) within 10 days of such change (s. 97 QSA and s. 174 QSR).

An insider of a reporting issuer who acquires or disposes of a derivative financial instrument in respect of a security of that issuer is deemed to effect a change in his control of the security (s. 92 QSA).

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NOTE: When in force, Section 37 of Bill 29 will amend Section 92 QSA by replacing “derivative” in the first line of the first paragraph by “related”. Section 37 of Bill 29 is not yet in force and, according to Section 143 of Bill 29, Section 37 of Bill 29 will come into force on the date to be set by the Government. Relevant extracts of Bill 29 are reproduced in Schedule A hereto.

An insider who registers or causes to be registered any securities in the name of a third party must file a report in paper format in accordance with Form 55-102F6 within 10 days following the date of registration of the securities in the name of the third party (s. 102 QSA, s. 172 QSR and s. 3.2 of NI 55-102). If the insider fails to file such a report, the third party must file the report himself on becoming aware of the failure (s. 103 QSA).

Relevant provisions of QSA:

102. An insider of a reporting issuer who registers or causes to be registered any securities of that issuer in the name of a third person shall file a report prepared in the form prescribed by regulation, except in the case of a bona fide transfer in guarantee.

103. Where an insider fails to file the report provided for in section 102, the third person shall file the report himself on becoming aware of the failure.

Relevant provisions of QSR:

172. The report prescribed by section 102 of the Act must be filed not later than the tenth day following the date of the registration of the securities in the name of a third party.

National Instrument 55-102 – System for Electronic Disclosure by Insiders (SEDI) (“NI 55-102”).

Pursuant to NI 55-102, insiders of all reporting issuers in Canada are required to file electronically:

an insider profile using Form 55-102F1; and

insiders reports using Form 55-102F2.

Insider profiles and insider reports must contain the information outlined in Form 55-102F1 and in Form 55-102F2, respectively.

A senior executive deemed to be an insider under Section 94 QSA or under Section 95 QSA must file the report that Section 96 QSA or Section 97 QSA would have required

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for the period contemplated by the presumption, within the first 10 days of the month following the start of the presumption (s. 98 QSA and s. 171.1 QSR).

94. When an issuer, reporting or not, becomes an insider of a reporting issuer, a senior executive of the former issuer is deemed to have been an insider of the other reporting issuer for the previous 6 months or for such shorter period as he has been a senior executive of the former issuer.

If the former issuer is a reporting issuer, the senior executives of the latter issuer are also deemed to be insiders of the former issuer, and the same conditions apply.

95. The amalgamation of issuers or the purchase by an issuer of all or substantially all of the assets of another issuer or of a subsidiary thereof, gives rise, in respect of senior executives, to the presumptions set forth in section 94.

Section 94 applies only when at least one reporting issuer was a party to the amalgamation or reorganization.

No insider report is required to be filed under Sections 96 and 97 QSA when disclosure has already been made under Sections 147.11 to 147.17 QSA (s. 99 QSA). This includes an increase of interest in voting securities of any class of a reporting issuer to 10% or more (s. 147.11 QSA) and any subsequent increase of interest of 2% of more (s. 147.12 QSA). The exemption in Section 99 QSA only applies in Québec; therefore, the analogous requirements of other provincial securities legislation would need to be complied with.

99. A report under sections 96 and 97 is not required where the facts to be reported have already been disclosed in a report under sections 147.11 to 147.16.

Specific penalty for failure to file insider reports : 100$ for each day during which such failure to report occurs, up to a maximum amount of $5,000 (s. 271.14 QSR).

271.14. Any insider or senior executive deemed to be an insider who contravenes a provision of any of sections 96 to 98 or 102 of the Act for failure to disclose control or a change in control over securities is liable to an administrative monetary penalty of $100 for each day during which such failure to report occurs, to a maximum amount of $5,000.

See also AMF Notice entitled Avis du personnel – Les sanctions administratives pécuniaires imposées aux initiés – Motifs de révision irrecevables, in Bulletin de l’Autorité des marchés financiers: section Valeurs mobilières (2006-09-29 Vol. 3 n° 39), in which the AMF indicates certain reasons as being inadmissible grounds for revision of penalties for failure to file insider reports.

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NOTE: When in force, Section 38 of Bill 29 will repeal Sections 94 to 100, 102 and 103 of the QSA and the following Section 89.3 will be added by Section 36 of Bill 29:

89.3. An insider of a reporting issuer other than a mutual fund shall, in accordance with the conditions determined by regulation, file a report disclosing, in particular, any control exercised by the insider over the reporting issuer’s securities, any interest in, or right or obligation associated with, a related financial instrument of the issuer’s securities and make other disclosure prescribed by regulation.

Sections 36 and 38 of Bill 29 are not yet in force and, according to Section 143 of Bill 29, Sections 36 and 38 of Bill 29 will come into force on the date to be set by the Government. Relevant extracts of Bill 29 are reproduced in Schedule A hereto.

Multilateral Instrument 55-103 – Insider Reporting for Certain Derivative Transactions (Equity Monetization) (“MI 55-103”).

Section 2.1 of MI 55-103 provides that if an insider of a reporting issuer: (a) enters into, materially amends or terminates an agreement, arrangement or understanding of any nature or kind, the effect of which is to alter, directly or indirectly, i) the insider’s economic interest in a security of the reporting issuer, or ii) the insider’s economic exposure to the reporting issuer; and (b) the insider is not otherwise required to file an insider report in respect of such event under any provision of Canadian securities legislation, then the insider shall, subject to certain exemptions contained in Section 2.2 of MI 55-103, file a report in accordance with Section 3.1 of MI 55-103 disclosing the existence and material terms of the agreement, arrangement or understanding. Section 2.4 of MI 55-103 provides for a similar reporting obligation in respect of agreements, arrangements and understandings to which Section 2.1 of MI 55-103 apply and which existed before, and remain in effect when, an insider becomes an insider.

Definition of “economic interest in a security” (s. 1.1 of MI 55-103).

“economic interest in a security” means (a) a right to receive or the opportunity to participate in a reward, benefit or return from the security, or (b) exposure to a loss or a risk of loss in respect to the security;

Definition of “economic exposure” (s. 1.1 of MI 55-103).

“economic exposure” in relation to a reporting issuer means the extent to which the economic or financial interests of a person or company are aligned with the trading price of securities of the reporting issuer or the economic or financial interests of the reporting issuer;

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Definition of “security of a reporting issuer” (s. 1.1 of MI 55-103).

“security of a reporting issuer” is deemed to include (a) a put, call, option or other right or obligation to purchase or sell securities of the reporting issuer; and (b) a security, the value or market price of which are derived from, referenced to or based on the value, market price or payment obligations of a security of the reporting issuer;

4. National Instrument 55-101 – Insider Reporting Exemptions

Part 2 – Exemptions for Certain Directors and Senior Officers.

The insider reporting requirement does not apply to:

a director of a subsidiary of a reporting issuer;

a senior officer of a reporting issuer or of a subsidiary of the reporting issuer;

a director or senior officer of an insider issuer2 or of a subsidiary of the insider issuer

if such person:

does not in the ordinary course receive or have access to information as to material facts or material changes concerning the reporting issuer before the material facts or material changes are generally disclosed; and

is not an “ineligible insider” in relation to the reporting issuer.

Definition of “ineligible insider” (s. 1.1 of NI 55-101):

“ineligible insider” in relation to a reporting issuer means

(a) an individual performing the functions of the chief executive officer, the chief operating officer or the chief financial officer for the reporting issuer;

(b) a director of the reporting issuer;

(c) a director of a major subsidiary of the reporting issuer;

(d) a senior officer in charge of a principal business unit, division or function of the i) the reporting issuer or ii) a major subsidiary of the reporting issuer;

2 According to Section 1.1 of NI 55-101, “insider issuer” in relation to a reporting issuer means an issuer that is an insider of the reporting issuer.

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(e) other than in Québec, a person that has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of, and control or direction over, securities of the reporting issuer carrying more than 10 percent of the voting rights attached to all the reporting issuer's outstanding voting securities; or

(f) in Québec, a person who exercises control over more than 10 percent of a class of shares of the reporting issuer to which are attached voting rights or an unlimited right to a share of the profits of the reporting issuer and in its assets in case of winding-up;

Definition of major subsidiary:

“major subsidiary” means a subsidiary of a reporting issuer if

(a) the assets of the subsidiary, on a consolidated basis with its subsidiaries, as included in the most recent annual audited balance sheet of the reporting issuer, are 10 percent or more of the consolidated assets of the reporting issuer reported on that balance sheet, or

(b) the revenues of the subsidiary, on a consolidated basis with its subsidiaries, as included in the most recent annual audited income statement of the reporting issuer, are 10 percent or more of the consolidated revenues of the reporting issuer reported on that statement;

NOTE: If and when the proposed amendments to NI 55-101 come into force, the definition of “major subsidiary” will be changed to increase the relevant percentages from 10% to 20%. See Section 2 of Part B of this memorandum for more details.

The availability exemptions under Part 2 of NI 55-101 is currently subject to “Part 4 – Insider Lists and Policies” of NI 55-101, which requires:

an insider to notify the reporting issuer that the insider intends to rely on an exemption in Part 2 or 3;

the reporting issuer to maintain a list of insiders who are relying on exemptions from the insider reporting requirements and a list of insiders who are not relying on the exemptions or file an undertaking with the securities regulatory authorities that it will make those lists available to the regulatory authorities on request; and

the reporting issuer to advise its insiders that the reporting issuer has established policies and procedures relating to insider trading and that, as part of those policies and procedures, the issuer is required to maintain the lists of insiders referred to above.

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NOTE: If and when the proposed amendments to NI 55-101 come into force, “Part 4 – Insider Lists and Policies” will be repealed. See Section 2 of Part B of this memorandum for more details.

Part 3 – Exemption for Directors and Senior Officers of Affiliates of Insiders of a Reporting Issuer.

Because of differences in the current insider reporting requirements, Part 3 of NI 55-101 does not apply in Québec (s. 3.1 of NI 55-101).

Subject to certain limitations similar to those found in Part 2 of NI 55-101, Section 3.2 of NI 55-101 provides that the insider reporting requirement does not apply to a director or senior officer of an affiliate of an insider of a reporting issuer in respect of the securities of the reporting issuer.

Part 5 – Reporting of Acquisitions Under Automatic Securities Purchase Plans.

The exemption in Section 5.1 of NI 55-101 allows to defer the reporting, in certain specific circumstances, of:

acquisitions of securities made under an “automatic securities purchase plan”; or

dispositions of securities is a “specified disposition of securities” under an “automatic securities purchase plan”.

The exemption in Section 5.1 of NI 55-101 does not apply to a person who exercises control over more than 10 percent of a class of shares of the reporting issuer to which are attached voting rights or an unlimited right to a share of the profits of the reporting issuer and in its assets in case of winding-up (s. 5.2 of NI 55-101).

Pursuant to Section 5.1 of NI 55-101, the insider reporting requirement does not apply to a director or senior officer of a reporting issuer or of a subsidiary of the reporting issuer for :

the acquisition of securities of the reporting issuer under an “automatic securities purchase plan”, other than the acquisition of securities under a “lump-sum provision” of the plan; or

a “specified disposition of securities” of the reporting issuer under an “automatic securities purchase plan”.

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Pursuant to Section 5.3(1) of NI 55-101, an insider must file a report disclosing, on a transaction-by-transaction basis or in acceptable summary form, each acquisition of securities under the automatic securities purchase plan, and each specified disposition of securities under the automatic securities purchase plan:

for any securities acquired under the automatic securities purchase plan that have been disposed of or transferred (other than securities that have been disposed of or transferred as part of a specified disposition of securities), within the time required by securities legislation for filing a report disclosing the disposition or transfer; and

for any securities acquired under the automatic securities purchase plan during a calendar year that have not been disposed of or transferred, and any securities that have been disposed of or transferred as part of a specified disposition of securities, within 90 days of the end of the calendar year.

Relevant definitions (s. 1.1 of NI 55-101):

“automatic securities purchase plan” means a dividend or interest reinvestment plan, a stock dividend plan or any other plan of a reporting issuer or of a subsidiary of a reporting issuer to facilitate the acquisition of securities of the reporting issuer if the timing of acquisitions of securities, the number of securities which may be acquired under the plan by a director or senior officer of the reporting issuer or of the subsidiary of the reporting issuer and the price payable for the securities are established by written formula or criteria set out in a plan document;

“dividend or interest reinvestment plan” means an arrangement under which a holder of securities of an issuer is permitted to direct that the dividends, interest or distributions paid on the securities be applied to the purchase, from the issuer or an administrator of the issuer, of securities of the issuer's own issue;

“stock dividend plan” means an arrangement under which securities of an issuer are issued by the issuer to holders of securities of the issuer as a stock dividend or other distribution out of earnings or surplus.

“lump-sum provision” means a provision of an automatic securities purchase plan that allows a director or senior officer to acquire securities in consideration of an additional lump-sum payment, including, in the case of a dividend or interest reinvestment plan that is an automatic securities purchase plan, a cash payment option;

“cash payment option” means a provision in a dividend or interest reinvestment plan under which a participant is permitted to make cash payments to purchase from the issuer, or from an administrator of the issuer, securities of the issuer's own issue, in addition to the securities

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(a) purchased using the amount of the dividend, interest or distribution payable to or for the account of the participant; or

(b) acquired as a stock dividend or other distribution out of earnings or surplus;

A disposition or transfer of securities acquired under an automatic securities purchase plan is a “specified disposition of securities” if

(a) the disposition or transfer is incidental to the operation of the automatic securities purchase plan and does not involve a discrete investment decision by the director or senior officer; or

(b) the disposition or transfer is made to satisfy a tax withholding obligation arising from the distribution of securities under the automatic securities purchase plan and either

(i) the director or senior officer has elected that the tax withholding obligation will be satisfied through a disposition of securities, has communicated this election to the reporting issuer or the plan administrator not less than 30 days prior to the disposition and this election is irrevocable as of the 30th day before the disposition; or

(ii) the director or senior officer has not communicated an election to the reporting issuer or the plan administrator and, in accordance with the terms of the plan, the reporting issuer or the plan administrator is required to sell securities automatically to satisfy the tax withholding obligation. (s. 5.4 of NI 55-101)

“acceptable summary form”, in relation to the alternative form of insider report described in section 5.3, means an insider report that discloses as a single transaction, using December 31 of the relevant year as the date of the transaction, and providing an average unit price,

(a) the total number of securities of the same type acquired under an automatic securities purchase plan, or under all such plans, for the calendar year, and

(b) the total number of securities of the same type disposed of under all specified dispositions of securities under an automatic securities purchase plan, or under all such plans, for the calendar year;

Part 6 – Reporting for Normal Course Issuer Bids.

Modifies the insider reporting obligations of an issuer for acquisitions of securities of its own issue under a “normal course issuer bid”.

Definition of “normal course issuer bid” (s. 1.1 of NI 55-101)

“normal course issuer bid” means

(a) an issuer bid that is made in reliance on the exemption contained in securities legislation from certain requirements relating to issuer bids that is available if the number of securities acquired by the issuer within a period of twelve months does not

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exceed 5 percent of the securities of that class issued and outstanding at the commencement of the period, or

(b) a normal course issuer bid as defined in the policies of The Montreal Exchange, The TSX Venture Exchange or The Toronto Stock Exchange, conducted in accordance with the policies of that exchange;

An issuer must file a report disclosing each acquisition of securities by it under a normal course issuer bid within 10 days of the end of the month in which the acquisition occurs (s. 6.2 of NI 55-101).

Part 7 – Reporting for Certain Issuer Events.

Modifies the insider reporting obligations of an insider of a reporting issuer whose control over securities of the reporting issuer changes as a result of an “issuer event” of the issuer.

Definition of “issuer event” (s. 1.1 of NI 55-101):

“issuer event” means a stock dividend, stock split, consolidation, amalgamation, reorganization, merger or other similar event that affects all holdings of a class of securities of an issuer in the same manner, on a per share basis (s. 1.1 of NI 55-101)

An insider must report changes resulting from an “issuer event” only at the time when such insider is required to file an insider report for a subsequent change in his control over securities of the reporting issuer (s. 7.2 of NI 55-101; see also Section 1.26 of CSA Notice 55-308).

B. PROPOSED AMENDMENTS TO NATIONAL INSTRUMENT 55-101 AND COMPANION POLICY 55-101CP

1. General Overview

NI 55-101 came into force on April 30, 2005.

“Request for Comment – Proposed Amendments to NI 55-101 Insider Reporting Exemptions and Companion Policy 55-101CP Insider Reporting Exemptions”

Published for comment by the Canadian Securities Administrators (the “CSA”) on October 27, 2006.

Comments need to be submitted on or before January 25, 2007.

Since recent amendments, CSA has received comments from issuers:

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indicating that the present record-keeping requirements (in Part 4 of NI 55-101) are unduly onerous, particularly for larger issuers that have a large number of subsidiaries; and

expressing the concern that Canadian securities legislation continues to require too many persons to file insider reports, particularly when compared to the requirements of various foreign jurisdictions.

In view of these comments and further consideration of these requirements, CSA proposes to delete the record-keeping requirements in Part 4 of NI 55-101 and instead include these record-keeping functions as an example of a best practice in 55-101CP. By doing so, the CSA recognizes that issuers may choose to adopt different record-keeping practices that are tailored to their particular circumstances.

2. Proposed Amendments to NI 55-101 and 55-101CP

Three substantive changes are proposed to NI-55-101 and 55-101CP:

Changes to the definition of “major subsidiary” in Section 1.1 of NI 55-101:

The definition of “major subsidiary” in Section 1.1 of NI 55-101 will be changed to increase the relevant percentages from 10 to 20%.

This change means that a subsidiary would be a major subsidiary of a reporting issuer only if its assets are 20% or more of the consolidated assets of the reporting issuer or its revenues are 20% or more of the consolidated revenues of the reporting issuer.

This change may increase the number of insiders able to rely on the exemptions in Parts 2 and 3 of NI 55-101 because directors or senior officers of a subsidiary that represents more than 10% but less than 20% of the assets or revenues of the reporting issuer will no longer be “ineligible insiders” as defined in section 1.1.

Repeal of “Part 4 – Insider Lists and Policies”:

“Part 4 – Insider Lists and Policies” will be repealed. This change is expected to make it easier for eligible insiders to rely on the exemptions in Parts 2 and 3 of NI 55-101.

“Part 4 – Insider Lists and Policies” currently requires:

an insider to notify the reporting issuer that the insider intends to rely on an exemption in Part 2 or 3;

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the reporting issuer to maintain a list of insiders who are relying on exemptions from the insider reporting requirements and a list of insiders who are not relying on the exemptions or file an undertaking with the securities regulatory authorities that it will make those lists available to the regulatory authorities on request; and

the reporting issuer to advise its insiders that the reporting issuer has established policies and procedures relating to insider trading and that, as part of those policies and procedures, the issuer is required to maintain the lists of insiders referred to above.

Automatic Securities Purchase Plans Exemption for Stock Option Grants:

CSA proposes to add to “Part 5 – Automatic Securities Purchase Plans” of NI-55-101 a new Subsection 5.2(3) to make it clear that certain insiders can rely on the automatic securities purchase plan (ASPP) exemption for grants of stock options and similar securities only if the reporting issuer has publicly previously disclosed in a news release filed on SEDAR the existence and material terms of the grant, including without limitation:

the date the options or other securities were issued or granted;

the number of options or other securities issued or granted to each insider who is an executive officer or director referred to above;

the price at which the options or other securities were issued or granted and the exercise price; and

the number and type of securities issuable on the exercise of the options or other securities.

This will allow those insiders to defer filing insider reports about these transactions, while still ensuring that the information is available to the market on a timely basis.

3. Proposed Changes to 55-101CP

55-101CP will be revised in two ways:

“Part 4 Insider Lists and Policies” will recommend the following best practices for reporting issuers relating to insider lists and trading policies.

CSA recommends that issuers adopt the best practices for disclosure and information containment articulated in National Policy 51-201 Disclosure Standards. CSA believes that adopting the CSA best practices as a standard for

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issuers would assist issuers to ensure that they take all reasonable steps to contain inside information.

CSA recommends that issuers adopt written disclosure policies in order to:

assist directors, officers and employees and other representatives in discharging timely disclosure obligations; and

provide guidance on how to maintain the confidentiality of corporate information and to prevent improper trading on inside information.

List of persons who have access to material facts or material changes.

Reporting issuers should also consider preparing and periodically updating a list of the persons working for them or their affiliates who have access to material facts or material changes concerning the reporting issuer before those facts or changes are generally disclosed.

This type of list may allow reporting issuers to control the flow of undisclosed information and help them to ensure that insiders are not violating insider trading prohibitions.

Alternatively, the issuer could undertake to provide these lists promptly after receiving a request for them from a securities regulatory authority.

Subsection 5.1(4) will be added to “Part 5 Automatic Securities Purchase Plans” in order to provide additional guidance on the ASPP exemption.

SCHEDULE A

EXTRACTS OF BILL 29

“BILL 29

AN ACT TO AMEND THE SECURITIES ACT AND OTHER LEGISLATIVE PROVISIONS.

THE PARLIAMENT OF QUÉBEC ENACTS AS FOLLOWS:

[…]

3. Section 5 of the Act, amended by section 5 of chapter 38 of the statutes of 2001 and by section 3 of chapter 37 of the statutes of 2004, is again amended

(1) by inserting the following definition in alphabetical order:

““director” means a director of a legal person, or a natural person acting in a similar capacity for another person;”;

(2) by replacing the definition of “senior executive” by the following definition:

““officer” means the chair or vice-chair of the board of directors, the chief executive officer, the chief operating officer, the chief financial officer, the president, the vice-president, the secretary, the assistant secretary, the treasurer, the assistant treasurer or the general manager of an issuer or of a registrant, or any natural person designated as such by the issuer or the registrant or acting in a similar capacity;”;

[…]

(5) by inserting the following definitions in alphabetical order:

[…]

““insider” means an insider within the meaning of section 89;”;

[…]

36. Section 89 of the Act is replaced by the following sections:

“89. “Insider” means

(1) every director or officer of an issuer;

(2) every director or officer of a subsidiary of an issuer;

(3) a person that exercises control over more than 10% of the voting rights attached to all outstanding voting securities of an issuer other than securities underwritten in the course of a distribution;

(4) an issuer that holds any of its securities; or

McCarthy Tétrault

- 2 -

(5) a person prescribed by regulation or designated as an insider under section 272.2.

“Insider” also means a director or officer of an insider of an issuer.

“89.1. “Economic interest” means a right to receive or the opportunity to participate in a reward, benefit or return from a security, or exposure to a risk of a financial loss in respect of a security.

“89.2. “Related financial instrument” means

(1) any instrument, agreement or security whose value, market price or payment obligations are based on the value, market price or payment obligations of a security; and

(2) any other instrument, agreement or understanding that affects, directly or indirectly, a person’s economic interest in a security

“89.3. An insider of a reporting issuer other than a mutual fund shall, in accordance with the conditions determined by regulation, file a report disclosing, in particular, any control exercised by the insider over the reporting issuer’s securities, any interest in, or right or obligation associated with, a related financial instrument of the issuer’s securities and make other disclosure prescribed by regulation.”

37. Section 92 of the Act is amended by replacing “derivative” in the first line of the first paragraph by “related”.

38. Sections 94 to 100, 102 and 103 of the Act are repealed.

[…]

86. The Act is amended by inserting the following section after section 272.1:

“272.2. Of its own initiative or on application by an interested person, the Authority may designate a person to be a non-redeemable investment fund, a mutual fund, an insider or a reporting issuer for the purposes of this Act or decide that a person does not have such a status, if it considers it to be in the public interest to do so.”

[…]

108. Section 331.1 of the Act, amended by section 38 of chapter 37 of the statutes of 2004, is again amended

[…]

(11) by replacing paragraph 20.1 by the following paragraph:

McCarthy Tétrault

- 3 -

“(20.1) determine the rules applicable to insiders for the purposes of Chapter IV of Title III;”;

[…]

142. Unless the context indicates otherwise, in any Act, statutory instrument or other document, “management company”, “investment fund management company” and “manager”, when pertaining to an investment fund within the meaning of this Act, mean an investment fund manager.

Unless the context indicates otherwise, the definition of “senior executive” as it read before 14 December 2006 continues to apply, despite paragraphs 1 and 2 of section 3, to any statutory instrument under the Securities Act and any document under such an instrument, until the statutory instrument is amended by a decision or regulation of the Autorité des marchés financiers.

[…]

143. This Act comes into force on 14 December 2006, except sections 2, 11, 16 to 24 and 26, paragraph 3 of section 28, paragraph 2 of section 30, sections 33 and 34, section 35 to the extent that it repeals sections 84 and 85 of the Securities Act (R.S.Q., chapter V-1.1), sections 36 to 39, 41, 56 and 58, paragraphs 2, 3 and 4 of section 61, paragraph 1 of section 62, section 65, paragraph 2 of section 66, paragraphs 1 and 3 of section 67, section 68, paragraph 3 of section 70, section 71, paragraph 2 of section 72, sections 73 and 74, paragraphs 1 and 2 of section 78, sections 80, 88 and 89 and paragraphs 4, 5, 9, 10, 13 and 14 of section 108, which come into force on the date or dates to be set by the Government.”

* * * * * * *

Certification Procedures

Michael Urbani

CEO/CFO Certifications - Update

• Status of Certifications under MI 52-109• Internal control certifications

• Canada• US (for foreign private issuers)

• Auditor reports on internal controls• Canada• US (for foreign private issuers)

• MD&A Disclosure – Recent Examples

3.1-2

CEO/CFO Certifications - Update• Canadian rules on CEO & CFO certifications

first came into effect in 2004• Patterned off of the SOX 302 certifications• Specific matters to be certified have come into

effect on a staggered basis

• Last certification matter to come into effect –resulting in the so-called “full” certificate requirements – are now in effect• Apply for FYE on or after June 30, 2006• Issuers must now deal with “internal controls over

financial reporting” (“ICFR”)

3.1-3


• “Full” certificates (Forms 52-109F1 and 52-109F2) deal with:• Review of the filing• No untrue statement of, or omission of, a material fact• Fair presentation of financial condition• Statement of responsibility for establishing and maintaining

disclosure controls and procedures and ICFR• Design of controls (both disclosure & ICFR)• Disclosure of conclusions in MD&A regarding effectiveness of

disclosure controls

• Have caused disclosure in MD&A of any material changes in ICFR

3.1-4


• Canadian certifications with respect to ICFR are now more onerous than US certifications for small issuers• SOX 302 certificates do not require

statements regarding internal controls until FYE on or after December 15, 2007, for “non-accelerated” issuers

3.1-5


• Guidance from Canadian regulators on internal control certifications:• CSA Staff Notice 52-316• CSA Staff Notice 52-313

• 52-316 ~ What CEO/CFO can say when they are aware of a weakness in the design of internal controls• Design certification can still be given if the issuer’s

disclosure about the weakness presents an accurate and complete description of the state of ICFR

3.1-6

CEO/CFO Certifications - Update• 52-313 ~ CSA not proceeding with MI 52-111

(Canadian answer to SOX 404 rules)• Annual management report evaluating effectiveness

of ICFR and auditor attestation to management’s assessment

• Rule withdrawn, but stay tuned• CSA plans to publish revised MI 52-109 to provide for

certification and MD&A disclosure on effectiveness of ICFR, BUT no auditor attestation

• Earliest might apply is for FYE on or after December 31, 2007

• Will apply to all issuers (including venture issuers)

3.1-7

CEO/CFO Certifications - Update• SOX 404 disclosure requirements apply to foreign

private issuers• On December 15, 2006, SEC established new

compliance dates for certifications of ICFR• “Non-accelerated filers” will not be required to

provide:• Management’s report on effectiveness of ICFR until annual

report for first FYE on or after December 15, 2007• Auditor’s attestation until annual report for first FYE on or

after December 15, 2008• Certifications as to changes in ICFR and design of ICFR may be

omitted until annual report containing management’s report is filed

3.1-8


• “Non-accelerated filers” are those that are neither “accelerated filers” nor “large accelerated filers”• World-wide market value < US$75 million

• “Accelerated filers” filing on Form 20-F or 40-F will “furnish” management’s report, rather than “file”• Management’s report requirement in effect now• No auditor attestation report required until a year after first

complying with the management report requirement (FYE on or after July 15, 2007)

• “Large accelerated filers” must now fully comply with SOX 404 requirements, including auditor attestation (FYE on or after July 15, 2006)

3.1-9


• SEC proposed guidance on internal control evaluation (December 13, 2006)• Identification of risks to reliable reporting and the

related controls which address those risks• Evaluation of the operating effectiveness of controls• Reporting the overall results of management’s

evaluation• Documentation

• PCAOB proposed new Auditing Standard No. 2 (December 19, 2006) ― done in coordination with SEC

3.1-10


• MD&A disclosure – see recent examples in the materials

3.1-11

Form 52-109F1 Certification of Annual Filings I, ‹identify the certifying officer, the issuer, and his or her position at the issuer›, certify that: 1. I have reviewed the annual filings (as this term is defined in Multilateral Instrument 52-

109 Certification of Disclosure in Issuers’ Annual and Interim Filings) of ‹identify issuer› (the issuer) for the period ending ‹state the relevant date›;

2. Based on my knowledge, the annual filings do not contain any untrue statement of a

material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the annual filings;

3. Based on my knowledge, the annual financial statements together with the other financial

information included in the annual filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the annual filings;

4. The issuer’s other certifying officers and I are responsible for establishing and

maintaining disclosure controls and procedures and internal control over financial reporting for the issuer, and we have:

(a) designed such disclosure controls and procedures, or caused them to be designed

under our supervision, to provide reasonable assurance that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the annual filings are being prepared;

(b) designed such internal control over financial reporting, or caused it to be designed

under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP; and

(c) evaluated the effectiveness of the issuer’s disclosure controls and procedures as of

the end of the period covered by the annual filings and have caused the issuer to disclose in the annual MD&A our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by the annual filings based on such evaluation; and

5. I have caused the issuer to disclose in the annual MD&A any change in the issuer’s

internal control over financial reporting that occurred during the issuer’s most recent interim period that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.

Date: ............... _______________________ [Signature] [Title]

Form 52-109F2 Certification of Interim Filings I ‹identify the certifying officer, the issuer, and his or her position at the issuer›, certify that: 1. I have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-

109 Certification of Disclosure in Issuers’ Annual and Interim Filings) of ‹identify the issuer›, (the issuer) for the interim period ending ‹state the relevant date›;

2. Based on my knowledge, the interim filings do not contain any untrue statement of a

material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings;

3. Based on my knowledge, the interim financial statements together with the other

financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the interim filings;

4. The issuer's other certifying officers and I are responsible for establishing and

maintaining disclosure controls and procedures and internal control over financial reporting for the issuer, and we have:

(a) designed such disclosure controls and procedures, or caused them to be designed

under our supervision, to provide reasonable assurance that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the interim filings are being prepared; and

(b) designed such internal control over financial reporting, or caused it to be designed

under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP; and

5. I have caused the issuer to disclose in the interim MD&A any change in the issuer’s

internal control over financial reporting that occurred during the issuer’s most recent interim period that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.

Date: ............... _______________________ [Signature] [Title]

Home | Previous Page

SEC Votes to Propose Interpretive Guidance for Management to Improve Sarbanes-Oxley 404 Implementation

FOR IMMEDIATE RELEASE 2006-206

Washington, D.C., Dec. 13, 2006 - The Securities and Exchange Commission today voted to propose for public comment interpretive guidance for managements regarding their evaluations of internal control over financial reporting. The Commission also proposed amendments to Rules 13a-15 and 15d-15 that would make it clear that a company choosing to perform an evaluation of internal control in accordance with the interpretive guidance would satisfy the annual evaluation required by those rules. Finally, the Commission proposed amendments to Regulation S-X to clarify the auditor's reporting requirement pursuant to Section 404(b) of the Sarbanes-Oxley Act.

"We are proposing this interpretative guidance to help management make their evaluation process more efficient and cost-effective," said SEC Chairman Christopher Cox. "In the absence of guidance, management has looked to the PCAOB's auditing standard to conduct their evaluations, which is not what was intended. With this guidance, management will be able to scale and tailor their evaluation procedures to fit their facts and circumstances, and investors will benefit from reduced compliance costs. While the guidance is intended to help public companies of all sizes, smaller companies should particularly benefit from its scalability and flexibility. We believe that today's proposed guidance, along with the Public Company Accounting Oversight Board's new auditing standard to be proposed next week, will result in significant improvements in the implementation of Sox 404."

"The guidance proposed today is an important step in the roadmap the Commission laid out in May for improving the implementation of Section 404 for all issuers," said John W. White, Director of the SEC's Division of Corporation Finance. "The proposed interpretive guidance should reduce uncertainty about what constitutes a reasonable approach to management's evaluation while maintaining flexibility for companies that have already developed their own assessment procedures and tools that serve the company and its investors well. Companies will be able to continue using their existing procedures if they choose, provided of course that those meet the standards of Section 404 and our rules. At the same time, the guidance maintains the important investor protection objectives of bringing information about material weaknesses into public view and fostering the preparation of reliable financial statements in an effective and efficient manner."

"Our proposed guidance is focused on risk and materiality. We have worked hard to ensure that the proposed guidance will not disrupt best practices already in place, or that may be evolving, while at the same time ensuring that it would be scalable to companies of all sizes," said Conrad Hewitt, Chief Accountant. "In particular, the top-down, risk-based guidance would allow for effective, and, importantly, efficient, methods and procedures for conducting evaluations at smaller companies. It is also intended to rebalance control over the process by providing management with its own guidance — without the need to look to auditing standards — for evaluating internal control over financial reporting. Although our guidance is directed to management and the expected proposal from the PCAOB is directed to auditors, we encourage respondents to take advantage of the proposals' overlapping comment periods to consider whether the proposals, if adopted, will ensure an appropriate balance between management's evaluation process and the audit process. We encourage feedback on all aspects of our proposal."

Introduction

Section 404(a) of the Sarbanes-Oxley Act directed the Commission to adopt rules requiring each annual report of a company, other than a registered investment company, to contain (1) a statement of management's responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) management's assessment, as of the end of the company's most recent fiscal year, of the effectiveness of the company's internal controls structure and procedures for financial reporting.

Page 1 of 3Press Release: SEC Votes to Propose Interpretive Guidance for Management to Improve Sarbanes-Oxley ...

12/13/2006http://www.sec.gov/news/press/2006/2006-206.htm

On June 5, 2003, the Commission adopted such rules implementing Section 404(a) with regard to management's obligations to report on its internal control over financial reporting. The final rules did not prescribe any specific method or set of procedures for management to follow in performing its evaluation.

Today's proposal would amend the Commission's rules adopted in 2003 to state that an evaluation conducted in accordance with the interpretive guidance would satisfy the Commission's rules. However, in order to retain the flexibility that was desired by the 2003 rules, the amendments proposed today would afford management the latitude to either follow the interpretive guidance or to develop and use other methods that achieve the objectives of the Commission's 2003 rules.

Proposed Interpretive Guidance for Evaluating Effectiveness of Internal Control over Financial Reporting

The proposed guidance is principles-based guidance that is organized around two important principles:

First, management should evaluate the design of the controls that it has implemented to determine whether there is a reasonable possibility that a material misstatement in the financial statements would not be prevented or detected in a timely manner. This principle promotes efficiency by allowing management to focus on those controls that are needed to prevent or detect material misstatement in the financial statements. Second, management should gather and analyze evidence about the operation of the controls being evaluated based on its assessment of the risk associated with those control. The principle allows management to align the nature and extent of its evaluation procedures with those areas of financial reporting that pose the greatest risks to reliable financial reporting.

By following these two principles, we believe that companies of all sizes and complexities will be able to implement our rules more effectively and efficiently. As smaller public companies often have less complex internal control systems than larger public companies, this proposed approach would enable smaller public companies in particular to scale and tailor their evaluation methods and procedures to fit their own facts and circumstances.

The proposed guidance describes a risk-based approach and addresses many of the concerns that have been raised to the Commission including: excessive testing of controls generally; excessive documentation of processes, controls, and testing; and the ability to scale the evaluation to smaller companies. The guidance addresses four specific areas including:

1. Identification of risks to reliable financial reporting and the related controls that management has implemented to address those risks. The proposed guidance describes a risk-based approach that would require the use of judgment to determine those areas that are both material and which pose a risk to reliable financial reporting. Management then would identify the controls that address those risks, including the risk of material misstatement due to fraud. The guidance would not require that every control in a process be identified. Once those controls are identified that adequately address the risk of material misstatement in the financial statements, it would be unnecessary to include additional controls within management's evaluation.

2. Evaluation of the operating effectiveness of controls. Once management has determined the controls within the scope of its evaluation, management would then gather and analyze evidence about the operation of those controls. The proposed guidance provides for a risk-based approach that would require the use of judgment to direct management's evaluation efforts towards those areas that pose greatest risk to reliable financial reporting based on the company's unique facts and circumstances. The proposed guidance would allow management to support its evaluation in a variety of ways and illustrates how management can consider and utilize its existing daily interaction with its business, self-assessment, and other ongoing monitoring activities to support its evaluation.

3. Reporting the overall results of management's evaluation. Once management has completed its evaluation, management must decide if any identified control deficiencies are material weaknesses. The proposed guidance provides management with a framework, outside of the auditing literature, for making these judgments and includes situations that are considered strong indicators that a material weakness exists. The guidance describes the factors that management should consider to evaluate the severity of a deficiency. If the deficiency is a material weakness, consistent with the Commission's existing rules, management must conclude that internal control over financial reporting is not effective and management has reporting responsibilities surrounding that material weakness. In addition, the guidance



addresses the disclosure requirements for internal control reports in situations such as scope limitations and restatements.

4. Documentation. The proposed guidance explains the nature and extent of evidential matter that management must maintain in support of its assessment including how management has flexibility in approaches to documentation. The proposed guidance indicates that such documentation can take many forms, can be presented in a number of ways, and does not need to include all controls within a process that impacts financial reporting. The proposed guidance provides that the evidential matter maintained in support of the assessment would also include the methods and procedures it utilizes to gather and evaluate evidence and the basis for its conclusions about the controls related to individual financial reporting elements. The proposed guidance indicates that in those situations in which management is able to rely on its daily interaction with its controls as a basis for its assessment, management may have limited documentation created specifically for the evaluation beyond documentation regarding how its interaction provided it with sufficient evidence.

Coordination with the Public Company Accounting Oversight Board

Although today's issuance of the proposed interpretive release is a major milestone in the improvement of the implementation of Section 404, the Commission remains committed to all of the steps set forth in the roadmap that was released entitled "Next Steps for Sarbanes-Oxley Implementation" (SEC Press Release 2006-75, May 17, 2006). In that regard, the Commission and its staff have also been working closely with the Public Company Accounting Oversight Board over the past few months in their work to develop a new auditing standard that would supersede Auditing Standard No. 2, the Board's existing auditing standard on internal control over financial reporting. The proposed standard is expected to provide for more efficient, risk-based, scalable audits of internal control over financial reporting while retaining the important investor protection benefits. Today's proposed amendments to Regulation S-X are intended to clarify the auditor reporting requirement in a consistent manner with the anticipated proposed new auditing standard. The Board has announced that it intends to consider proposing the new auditing standard at the Board's open meeting to be held next week on Tuesday, Dec. 19, 2006.

Comments on the proposed interpretive guidance and rule amendments should be received by the Commission within 60 days of their publication in the Federal Register.

* * *

The full text of the proposed interpretive guidance and rules will be posted to the SEC Web site as soon as possible.

http://www.sec.gov/news/press/2006/2006-206.htm

Home | Previous Page Modified: 12/13/2006



Home | Previous Page

Further Relief From the Section 404 Requirements for Smaller Companies and Newly Public Companies

FOR IMMEDIATE RELEASE 2006-210

Washington, D.C., Dec. 15, 2006 - The Commission is adopting an extension proposed in August to further postpone the date by which smaller public companies must comply with the internal control reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002. Previously, non-accelerated filers (companies that do not meet the Exchange Act definition of either an accelerated filer or a large accelerated filer) were scheduled to begin including both management's assessment and an auditor's attestation to management's assessment on the effectiveness of the filers' internal control over financial reporting in their annual reports for fiscal years ending on or after July 15, 2007. The Commission is extending the date so that a non-accelerated filer will provide management's assessment regarding internal control over financial reporting in its annual reports for fiscal years ending on or after December 15, 2007.

The Commission also is extending the date by which a non-accelerated filer must begin to comply with the auditor attestation requirement. Due to the extension, non-accelerated filers must begin to comply in their annual reports filed for fiscal years ending on or after Dec. 15, 2008. Deferred implementation of the auditor's attestation report requirement will provide smaller public companies and their auditors with additional time to consider the anticipated revisions to Auditing Standard No. 2, as well as any implementation guidance that the PCAOB plans to issue for auditors of smaller companies. The extension also should enable management of smaller public companies to focus on the internal assessment process during the first year of compliance with the internal control reporting provisions.

The extension for smaller public companies is consistent with the "next steps for Sarbanes-Oxley implementation" (SEC Press Release 2006-75) announced on May 17, 2006.

As part of the same release, the Commission is granting relief from the Section 404 requirements for companies that are new to Exchange Act reporting. The final rules provide all newly public companies with a transition period that prevents them from having to comply with the Section 404 requirements in the first annual report that they file after becoming an Exchange Act reporting company. The transition period applies to a company that has become public through an initial public offering (equity or debt) or a registered exchange offer or that otherwise has become subject to the Exchange Act reporting requirements. It also includes a foreign private issuer that is listing on a U.S. exchange for the first time. The transition period is intended to permit newly public companies to concentrate on their initial securities offerings, in cases where they become subject to Exchange Act reporting as a result of such an offering, and to prepare for their first annual report without the additional burden of having to comply with the Section 404 requirements at the same time.

###

"Smaller public companies, both foreign and domestic, along with newly public companies are all vital participants in the U.S. capital markets. The extensions and transition relief announced today reflect the Commission's understanding of the special burdens that Section 404 may pose for these issuers," said John W. White, Director of the Division of Corporation Finance at the SEC. "Section 404 plays a critical role for investors and our markets by enhancing the reliability of financial reporting but its implementation needs to be more efficient and cost-effective for the companies that must comply with it. The measures the Commission has adopted, along with other efforts underway at the Commission and at the Public Company Accounting Oversight Board, will advance those goals and should therefore also reduce the costs and increase the attractiveness of participating in our capital markets for a variety of companies."

Below is a chart which summarizes the revised compliance dates and final rules that will be in place after the effective date (dollar amounts refer to the worldwide market value of outstanding voting and non-voting common equity held by non-affiliates):

###

Additional materials: Final Rule Release No. 33-8760

http://www.sec.gov/news/press/2006/2006-210.htm

Accelerated Filer Status

Revised Compliance Dates and Final Rules Regarding the Internal Control

Over Financial Reporting Requirements

Management's Report

Auditor's Attestation

U.S. Issuer

Large Accelerated Filer OR

Accelerated Filer ($75MM or more)

Already complying (Annual reports for fiscal years ending on or after

November 15, 2004)

Already complying (Annual reports for

fiscal years ending on or after November

15, 2004)

Non-accelerated Filer (less than

$75MM)

Annual reports for fiscal years ending on or after

December 15, 2007

Annual reports for fiscal years ending on

or after December 15, 2008

Foreign Issuer

Large Accelerated Filer ($700MM or

more)


July 15, 2006

Annual reports for fiscal years ending on or after July 15, 2006

Accelerated Filer ($75MM or more

and less than $700MM)


July 15, 2006

Annual reports for fiscal years ending on or after July 15, 2007

Non-accelerated Filer (less than

$75MM)


December 15, 2007

Annual reports for fiscal years ending on

or after December 15, 2008

U.S. or Foreign Issuer

Newly Public Company

Second Annual Report Second Annual Report

Modified: 12/15/2006

Board Proposes Revised Auditing Standard on Internal Control over Financial Reporting Washington, DC, December 19, 2006 – The Public Company Accounting Oversight Board today voted unanimously to propose for publiccomment a new standard on auditing internal control over financial reporting and other related proposals. The proposed standard wouldreplace the Board’s existing internal control standard, Auditing Standard No. 2.

The proposed new standard on internal control is a principles-based standard designed to focus the auditor on the most important matters,increasing the likelihood that material weaknesses will be found before they cause material misstatement of the financial statements. Theproposed standard also eliminates audit requirements that are unnecessary to achieve the intended benefits, provides direction on how toscale the audit for a smaller and less complex company, and simplifies and significantly shortens the text of the standard.

“Today’s proposal is the result of the PCAOB’s experience with the first two years of auditors’ implementation of the internal controlprovisions of the Sarbanes-Oxley Act,” said PCAOB Chairman Mark Olson. “The Board’s goal has been to apply the feedback we’vereceived and our observations of implementation to create an auditing standard that preserves the intended benefits without resulting inunnecessary effort and costs. We believe the new standard will result in audits that are more efficient, risk-based and scaled to the size andcomplexity of each company. We look forward to comments on the proposal.”

In addition to the proposed internal control standard, the Board also proposed for public comment a new auditing standard on consideringand using the work performed by internal auditors, management and others in an integrated audit of financial statements and internalcontrol, or in an audit of financial statements only. This proposed standard is intended to further clarify how and to what extent anindependent auditor may use that work to reduce the work the auditor otherwise would have to perform. In addition, the Board proposed torevise the independence requirement that currently is embedded in the text of AS No. 2, which requires the auditor to seek specific pre-approval by the audit committee of any internal control related service. Finally, the Board also proposed certain changes to its otherstandards to conform to the changes being brought about by this rulemaking.

“A principal focus in developing this proposal was to retain and strengthen the substantial benefits investors have received from improvedinternal control over financial reporting," said Tom Ray, PCAOB Chief Auditor and Director of Professional Standards. "I believe we haveproposed a standard that will achieve that objective while reducing audit effort, especially for smaller companies."

The proposed standard and related documents are available on the Board’s Web site under Rulemaking Docket 21.

The Board will seek comments on the proposed standard and other proposals for 70 days and will carefully consider all comments received. Comments will be posted on the Board’s Web site under Rulemaking. Following the close of the comment period on February 26, 2007, theBoard will determine whether to adopt a final standard. Any final standard adopted will be submitted to the Securities and ExchangeCommission for approval.

A more detailed discussion of the matters proposed for public comment follows.

At today’s meeting the Board also adopted a rule temporarily adjusting the minimum frequency with which the Board inspectsregistered public accounting firms that have 100 or fewer issuer audit clients. Public comment is also being sought on the question ofwhether to make this temporary adjustment permanent. Following the close of this comment period on February 16, 2007, the Board willdetermine whether to make this rule permanent. Any final rule adopted will be submitted to the Securities and Exchange Commission forapproval. The Board also adopted technical amendments to correct non-substantive points in other Board inspections rules. The adoptedrule and related documents are available on the Board’s Web site under Rulemaking Docket 22.

Webcast Archive

Background In June 2003, the Securities and Exchange Commission ("SEC") implemented Section 404 of the Sarbanes-Oxley Act of 2002 (the "Act") byadopting rules requiring issuers to include in their annual reports an assessment of the company's internal control over financial reporting aswell as an auditor's report on that assessment. Soon after, as required by Sections 404(b) and 103 of the Act, the Board adopted AuditingStandard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements ("ASNo. 2"), to apply to the newly required audits. The SEC approved AS No. 2 on June 17, 2004.

Two annual financial reporting cycles have been completed since public company auditors began applying AS No. 2 to audits of the largestpublic companies. During this time, the PCAOB has closely monitored implementation of the standard and the progress auditors have madein complying with its requirements. The PCAOB's monitoring has included gathering information during inspections of registered publicaccounting firms; participating, along with the SEC, in two roundtable discussions with representatives of issuers, auditors, investor groups,and others; meeting with its Standing Advisory Group; receiving feedback from participants in the Board’s Forums on Auditing on the SmallBusiness Environment; and reviewing academic, government, and other reports and studies.

From all of these sources of information, two basic propositions have emerged. First, the audit of internal control over financial reportinghas produced significant benefits. Issuers and auditors have described a focus on corporate governance that had not existed in the past andimprovements in the quality and efficiency of important corporate processes and controls. Corporate board members have noted animprovement in audit committee oversight, while investors have found public company financial reporting to be of higher quality andenhanced transparency.

Second, these benefits have come with significant cost. Over the last two years, the Board has heard a consistent message that compliancewith the internal control provisions of the Act has required greater effort and resulted in higher costs than expected. The Board agrees that

report on internal control. With this in mind, the Board has evaluated every significant aspect of the audit of internal control to determinewhether the existing standard encourages auditors to perform procedures that are not necessary in order to achieve the intended benefits. The proposals result from that evaluation.

Proposed Auditing Standard - An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of FinancialStatements. The proposed standard would supersede AS No. 2 and is designed to focus the auditor on the matters most important tointernal control; eliminate unnecessary procedures; simplify and shorten the standard by reducing detail and specificity; and make the auditmore scalable for smaller and less complex companies. Among other things, the proposed standard would:

Direct the auditor to the most important controls and emphasize the importance of risk assessment; Revise the definitions of significant deficiency and material weakness, as well as the "strong indicators" of a material weakness; Clarify the role of materiality, including interim materiality, in the audit; Remove the requirement to evaluate management's process; Permit consideration of knowledge obtained during previous audits; Direct the auditor to tailor the audit to reflect the attributes of smaller and less complex companies; Refocus the multi-location testing requirements on risk rather than coverage; and Recalibrate the walkthrough requirement.

The Board is also seeking comment on certain related proposals that would facilitate the Board’s efforts to make audits of internal control more effective and efficient. These related proposals are described below. Proposed Auditing Standard - Considering and Using the Work of Others. The proposed standard would supersede AU sec. 322 and the direction currently contained in AS No. 2 regarding using the work of others. Among other things, the proposed standard would:

Allow the auditor to appropriately use the work of others, and not just internal auditors, for both the internal control audit and the financial statement audit, eliminating a barrier to integration of the two audits; Encourage greater use of the work of these others by requiring auditors to evaluate whether and how to use their work to reduce auditor testing; Require the auditor to understand the relevant activities of these others and determine how the results of that work may affect the audit; Provide a single framework for using the work of others based on the auditor's evaluation of the combined competence and objectivity of others and the subject matter being tested; and Eliminate the explicit principal evidence provision previously included in AS No. 2.

Proposed Rule 3525 – Audit Committee Pre-approval of Services Related to Internal Control – The proposed new independence rulewould replace direction currently contained in AS No. 2 regarding independence and internal control-related services. The proposed rule isintended to ensure that audit committees are provided relevant information for them to make an informed decision on how the performanceof internal control-related services may affect independence. The new rule would also recognize that audit committees may pre-approve the provision by their independent auditor of internal control-related services on an ad hoc (i.e., specific to each request) basis, or pursuant tocommittee-approved policies and procedures.

Proposed Amendments to the Board's Interim Standards – The Board is proposing amendments that, among other things, would:

Simplify the internal control standard by moving certain information currently contained in AS No. 2 to other existing interim standards. For example, the proposed amendments would move the auditor's responsibilities for management's internal control certifications under Section 302 of the Act into AU sec. 722, Interim Financial Information; and Change the existing requirement that "generally, the date of completion of the field work should be used as the date of the independent auditor's report" to "the auditor should date the audit report no earlier than the date on which the auditor has obtained sufficient competent evidence to support the auditor's opinion."

Media Inquiries: Public Affairs, 202-207-9227

The PCAOB is a private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independentaudit reports.

Roger Chouinard & James Farley


Secondary Market Civil Liability Regime –General Overview• Private statutory civil right of action for purchasers

and sellers of securities who buy or sell securities during a period that an uncorrected misrepresentation is included in various categories of publicly filed documents or public oral statements

• Private statutory civil right of action for purchasers and sellers of securities who buy or sell securities during a period that a responsible issuer fails to disclose a material change that should have been disclosed under securities laws

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Secondary Market Civil Liability Regime –General Overview (Continued)• Action for misrepresentation in publicly filed document - potential

defendants include responsible issuer, directors, officers involved in a decision to release document and influential persons who knowingly influenced release of document

• Action for misrepresentation in public oral statement - potential defendants include responsible issuer, person making statement, directors and officers involved in decision to release statement and influential persons who knowingly influenced release of statement

• Action for failure to disclose material change - potential defendants include responsible issuer and officers, directors and influential persons who knowingly influenced non-disclosure

• The relevant period of liability starts on the date that disclosure is made containing a misrepresentation or responsible issuer should havedisclosed a material change and ends when proper disclosure is made correcting the misrepresentation or omission

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Secondary Market Civil Liability Regime –Application of Regime

• Secondary market liability applies in respect of “responsible issuers”, i.e. reporting issuers in Ontario or issuers with a real and substantial connection to Ontario and publicly traded securities

• Shareholders of non-Canadian issuers may pursue actions in Ontario courts

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Secondary Market Civil Liability Regime –Application of Regime (Continued)• U.S. issuers should be aware that secondary market

liability differs from a Rule 10b-5 action for misrepresentation in several respects:i. Secondary market liability does not require proof of

“Scienter” (i.e. mental state embracing intent to deceive, manipulate or defraud including recklessness)

ii. Canadian securities laws impose a general obligation to make timely disclosure of all material changes

iii. Secondary market liability does not require proof of a causal connection between misrepresentation or failure to disclose and damages

iv. Liability caps exist under secondary market liability regime

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Secondary Market Civil Liability Regime -Core Documents v. Non-Core Documents• “Core documents” for all potential defendants

include prospectuses, all types of circulars, MD&A, AIFs and annual and interim financial statements

• Material change reports are only “core documents” for responsible issuer and officers

• “Non-core documents” include press releases and, in the case of potential defendants other than responsible issuer and officers, material change reports

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Secondary Market Civil Liability Regime –Burdens of Proof

• For “core documents”, plaintiff need not prove that there was fraud or negligence in making misrepresentation/failure to disclose – onus is on defendant to establish due diligence (i.e. reasonable investigation) or other defence

• For “non-core documents”, plaintiff must show that misrepresentation/failure to disclose was made knowingly or recklessly or otherwise as a result of “gross misconduct”

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Recommendations - Written Disclosure Policy and Disclosure Procedures• Policies and procedures will assist in avoiding

misrepresentations and failures to make timely disclosure

• Policies and procedures will assist in establishing due diligence defence: person or company conducted or caused to be conducted a reasonable investigation and no reasonable grounds to believe that the document contained the misrepresentation

• Important for Multi-lateral Instrument 52-109

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Recommendations - Presentations and Public Oral Statements• Calls and other presentations should be scripted and

reviewed after delivery and any misrepresentations or selective disclosure should be corrected

• Keep records of presentations and oral statements

• For forward-looking information, must have a reasonable basis for making a forecast or projection

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Recommendations - Forward-looking information• In addition to having a reasonable basis:

i. include reasonable cautionary language

ii. identify information as forward-looking and identify material factors which could cause actual results to differ materially from forecast or projection

iii. state material factors or assumptions applied in drawing conclusion or making a forecast or projection

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Recommendations – Reviewing New Developments and Competitors’ Disclosure

• Policies and procedures should assign responsibility to person(s) for keeping informed regarding developments in case law and securities commission enforcement proceedings affecting disclosure practices as well as reviewing disclosure of competitors

• Responsible person(s) should report to disclosure committee (or in the absence of such a committee, to CEO and CFO) periodically and promptly in event of any major development in the law or practices

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Recommendations – Documenting Document Preparation Process

• In order to establish reasonable investigation, procedures establishing steps to be taken should be in place and there should be some record that they were followed, and the process conducted in connection with preparation of disclosure documents should be documented

• Consider having documents reviewed, prior to release, by someone uninvolved with preparation who can look at it the way it will be looked at by the public

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Recommendations – Role of External Advisors• Some but not all existing disclosure polices and procedures

require external counsel review and approval of disclosure documents

• Issuers should clarify role of external counsel as part of theirdisclosure controls and procedures

• External counsel may take on a greater role in due diligence, review and signoff on disclosure documents as this expanded rolemay assist in establishing reasonable investigation

• Existing disclosure policies and procedures provide that independent auditors of issuer review disclosure documents such as information circulars and annual information forms prior to publishing

• Issuers should clarify role of external auditors in the preparation of core documents and describe this role in the written disclosure procedures

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Bullet Proof Your Disclosure Practices1

Introduction and Overview

The provisions of the Securities Act (Ontario) (the “Securities Act”) in respect of liability for continuous disclosure (Part XXIII.1 of the Securities Act) came into force on December 31, 2005. These amendments are complex and created new causes of action for secondary market investors against a wide range of potential defendants with respect to misleading continuous disclosure filings and other documents, public oral statements and omitted material disclosure in Ontario. They facilitate class action lawsuits by investors who buy or sell securities of a public issuer that is a reporting issuer in Ontario or has a real and substantial connection to Ontario (a “responsible issuer”) during the period beginning when a misrepresentation about the issuer is made by persons associated with the issuer in public documents or orally, or when the issuer fails to make timely disclosure of a material change, and ending when the disclosure is corrected or made. The legislation includes caps on potential liability, unless it can be shown that the defendant authorized, permitted or acquiesced in the making of a misrepresentation or failure to make timely disclosure while knowing it was a misrepresentation or failure.

Virtually identical provisions have been enacted in Manitoba (in effect as of January 1, 2007) and Alberta (not yet proclaimed), and have been put forward in Saskatchewan (first reading on November 6, 2006). British Columbia previously enacted a similar regime, with certain key differences, as part of its Securities Act, 2004, but that act has not been proclaimed, and there is some question about whether British Columbia will instead adopt a regime that is more uniform with the regime adopted in the other provinces.

The key to avoiding liability is to provide timely and accurate continuous disclosure. In addition, issuers should have in place disclosure and document preparation procedures to ensure that defences in the legislation that are based on reasonable investigation by defendants are available in case misrepresentations are made or there is a failure to make timely disclosure of a material change.

Summary Checklist

(a) Written disclosure policies and procedures: All responsible issuers should have written disclosure policies and procedures that are in line with the specifics of the regime.

(b) Procedures for verification: Issuers should have disclosure policies that stress the importance of accurate public disclosures and processes to verify accuracy. Issuers

1 By James Farley, Roger J. Chouinard and Alasdair Federico


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should consider internal certification procedures for all “core” documents which expose potential defendants to the greatest possibility of litigation.

(c) Spokespersons and public oral statements: Strict controls should be placed on who may speak for the issuer.

(d) Influence of control persons, insiders and promoters: “Influential” persons such as control persons, insiders and promoters of a responsible issuer should be informed that they are exposed to liability, along with others, for: (i) misrepresentations in disclosure documents and public oral statements and failures to make timely disclosure of material changes that they seek to influence; and (ii) misrepresentations in disclosure documents and public oral statements relating to a responsible issuer that they themselves release or make. Issuers should include in their disclosure policies: (i) a statement as to the role that such persons play in document preparation and release and materiality assessments; and (ii) further to the discussion under (c) above, a statement that such persons should not speak or release disclosure on behalf or in relation to the issuer other than through the issuer’s authorised spokespersons or after vetting by the issuer. In addition, issuers should specify in their disclosure procedures: (i) how influential persons participate in the disclosure preparation and release and materiality assessment processes and to what extent; and (ii) methods for monitoring “influential” persons generally as well as during disclosure preparation and release and materiality assessment processes.

(e) Expert review of procedures: There may be utility to issuers in being able to demonstrate that a review of the adequacy of steps taken to implement and/or enhance disclosure procedures and policies was completed with the assistance of external legal counsel.

(f) Forward-looking information: Issuers should consider whether they want to continue to provide earnings guidance and, if so, whether guidance will be given with respect to annual or quarterly performance. There is a safe harbour for forward-looking information but it requires that the basis for any forward-looking information be reasonable. To rely on the safe harbour, it will not be sufficient to use familiar boilerplate cautionary language. In order to determine whether the basis for any forward-looking information is “reasonable”, consideration must be given to who internally or externally is needed to make credible judgments about what is reasonable and will require a reconsideration of how the assumptions and “material factors” underlying such information are arrived at and expressed.


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Written disclosure policy and disclosure procedures

In the secondary civil liability context, written disclosure policies and procedures are critical for two reasons: (i) they will assist in avoiding the incidence of misrepresentations or failures to make timely disclosure; and (ii) they will assist defendants in establishing the due diligence defence provided in subsection 138.4(6) of the Securities Act.

A person or company may avoid liability for a misrepresentation in disclosure documents or oral statements if, before the release of the document or making of the oral statement, the person or company conducted or caused to be conducted a reasonable investigation and at the time of the release of the public document or the making of the oral statement, the person or company had no reasonable grounds to believe that the document or statement contained the misrepresentation. Similarly, in the case of a failure to make timely disclosure, a person or company may have a defence if before the failure to make timely disclosure first occurred, the person or company conducted or caused to be conducted a reasonable investigation and the person or company had no reasonable grounds to believe that the failure to make timely disclosure would occur.

Factors to be considered by a judge in determining whether an investigation was reasonable are set out explicitly in subsection 138.4(7) of the Securities Act. One of the factors is “the existence, if any, and the nature of any system designed to ensure that the responsible issuer meets its continuous disclosure obligations.” A separate factor is whether the reliance on the compliance disclosure policy and on the persons responsible for knowing relevant facts was reasonable. The judge will have to consider not just what is written down in the policy but how the system actually works in practice. Defendants’ conduct will be assessed with reference to their specific responsibility for disclosure as well as their position within the organization. Managers will likely be held to a higher standard of due diligence investigation than outside directors.

Core documents

The Securities Act distinguishes between “core documents” and other documents (“non-core documents”). Public oral statements are treated the same way as non-core documents. Core documents are, generally speaking, more comprehensive filings that are submitted to the board of directors for review and approval. It is more difficult to sue for misrepresentations in non-core documents and public oral statements than in core documents. Failures to make timely material disclosure also benefit from this more defendant-friendly regime.

For misrepresentations in non-core documents and public oral statements and failures to make timely disclosure of material changes in an issuer’s affairs, a plaintiff must show that the misrepresentation or failure to make timely disclosure of a material change was made knowingly or recklessly, or otherwise as a result of “gross misconduct.”


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In the case of core documents, a plaintiff need not prove that there was fraud or negligence on the part of the defendant in making the misrepresentation or failure to make timely disclosure of a material change. The onus will be on the defendant to establish a due diligence or other defence.

When used in relation to a responsible issuer or an officer of such an issuer, “core documents” are: prospectuses, take-over bid circulars, issuer bid circulars, directors’ circulars, rights offering circulars, management’s discussion and analysis, annual information forms, information circulars, annual financial statements, interim financial statements, material change reports and other documents as may be prescribed by the regulation. When used in relation to a non-management director, the list is the same except that material change reports and other documents as may be prescribed by the regulations are not included.

a) Responsible issuer and officers

MI 52-109 requires CEOs and CFOs of public issuers to file interim and annual certificates confirming that disclosure controls and procedures are in place and that the effectiveness of such controls has been evaluated. CEOs and CFOs should in turn request certificates from managers with similar statements with respect to their areas and expertise, if necessary, in order for the CEO and CFO to make their public certifications. If this process is established appropriately, it should form the basis for the due diligence defence under Part XXIII.1 of the Securities Act with respect to the above documents. Public issuers should examine the feasibility of extending these procedures, with appropriate modifications, to all core documents.

In evaluating disclosure controls and procedures, issuers and their officers should consider the following:

• Accuracy: Typically, disclosure policies and procedures emphasize techniques for evaluating the materiality of developments but take the accuracy of disclosures for granted. Verification of facts is critical in the context of the secondary market civil liability regime and policies and procedures should be implemented or amended, as the case may be, to cover the accuracy of disclosure specifically and explicitly.

• Effectiveness: Before disclosure procedures are memorialized in a written document, their effectiveness should be evaluated. The procedures must both capture all material information and make sure that it is accurate. Are there “checks and balances” in the procedures to validate information? Is the same information checked by different persons with different functions? If information is included in disclosure which is not derived from the issuer’s internal controls for financial reporting, procedures to substantiate the information should be considered. For example, if an issuer asserts that it is has become the second largest supplier of widgets, can it point to adequate back-up? If the information is technical, for example, related to a subject that is normally the subject of expert knowledge, have the appropriate internal or external subject matter experts signed off on it?


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• Interactive process: Is the process interactive, involving sufficient dialogues regarding material information and events within the issuer, and are rounds of revisions considered by the persons involved?

• Reliable and timely information: Do the issuer’s systems gather information in a reliable and timely manner? Has the disclosure process worked to date?

MI 52-109 does not require responsible issuers and their officers to file certificates with respect to material change reports. However, establishing procedures to ensure their accurate and timely preparation and filing are key to establishing a due diligence defence under secondary market civil liability in respect of any misrepresentations that they may contain. While a particular material change report may be drafted and filed by investor relations persons or internal or external counsel, it should, in all cases, receive sign off from a business person with first hand knowledge of the material change.

b) Non-management directors

Non-management directors must establish a due diligence defence with respect to the core documents listed above other than material change reports. However, what a non-management director must do to establish such a defence is likely different from what an officer, who is directly involved in document preparation, must do. The decided corporate law cases on the role of non-management directors and the list of factors in Part XXIII.1 of the Securities Act direct a judge to consider both the role and responsibility of any particular defendant in determining how the defendant may establish a due diligence defence. Directors would be expected to ensure appropriate and effective procedures are in place but would not necessarily be expected to have any involvement with disclosure preparation.

The Danier Leather case, decided in the context of primary market prospectus civil liability, contains an important and relevant discussion on the role of management versus non-management directors in the due diligence process. The Danier Leather decision recognizes that senior management of an issuer is pivotal in the information gathering process and in ensuring adequate disclosure. Members of senior management are obliged to know or obtain knowledge of all significant information about the issuer, and obliged to disclose it to other participants in the process (in this case the prospectus preparation process) including non-management directors. This discussion suggests that in the secondary market civil liability context, it may also be reasonable for non-management directors of an issuer to rely on senior management to bring significant information about the issuer to their attention. It would be useful to memorialize the foregoing principles about information gathering and sharing in the policies and procedures.

In determining whether the “reasonable investigation” element of the due diligence defence has been satisfied, a judge must consider the role and responsibility of the person in the preparation and release of the disclosure document, or in ascertaining the facts contained therein. Accordingly, non-management directors may not want to get “too close” to the preparation of disclosure documents. If


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they get involved in the preparation and release of disclosure, they are likely to be held to a higher standard in determining whether they conducted a reasonable investigation.

Non-management directors are specifically allowed to rely on others in certain contexts; that is, directors are not liable for breach of their statutory duty of care under corporate law if they rely in good faith upon financial statements of a corporation represented to them by an officer or in a written report of the auditor to present fairly the financial position of the corporation in accordance with GAAP, or a report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.2 Non-management directors may be able support a due diligence defence for secondary market civil liability by showing that they have discharged their duties under corporate law and that the procedures that are in place are appropriate ones.

Directors should consider the pros and cons of taking notes of meetings or decisions in which they participate. Taking notes may be a useful way for a director to establish that a director made a reasonable investigation. In that respect, the notes should focus on the process involved, but note-takers should take care that note-taking does not become a matter of formality replacing actual diligence. On the other hand, having notes could open up the director to greater scrutiny in the event of a lawsuit. Note-takers should be particularly cautious of the information they capture in notes and the implications of that information. A judge considering notes taken by a director could decide, by inference based on information recorded in notes, that the director did not have reasonable grounds for a belief that there were no misrepresentations, or potentially that the director had knowledge of a misrepresentation, which could remove the director’s liability cap.

Non-core documents

A plaintiff must establish overt misconduct on the part of the defendant or prove that the defendant was aware of or reckless as to the existence of the misrepresentation or the failure to make timely disclosure in order to succeed in an action under Part XXIII.1 of the Securities Act regarding non-core documents such as press releases.

As with material change reports, while a particular press release may be prepared by investor relations persons or internal or external counsel, it should in all cases receive sign off from a business person with first hand knowledge of the subject matter of the press release.

Presentations and oral statements

Presentations and oral statements, such as speeches at annual meetings, earnings calls and quarterly calls should be scripted (to the extent possible) and reviewed after delivery to identify and correct any misrepresentations or selective disclosure. Records of presentations and oral statements should be kept.

2 See Business Corporations Act (Ontario), subsection 135(4).


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To the extent that forward-looking information is included, there must be a reasonable basis for making a forecast or projection and it will be important to: (i) include reasonable cautionary language; (ii) identify the forward-looking information as such and identify material factors which could cause actual results to differ materially from the forecast or projection; and (iii) state material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection.

In light of recent Ontario Securities Commission (“OSC”) settlements, including ATI Technologies, some issuers are re-evaluating the use of earnings guidance. If an issuer decides to continue to provide guidance, it will be necessary to consider how the “material factors” and “assumptions” will be expressed. “Material factors” and “assumptions” are not synonymous and both must be set out. Material factors will include “risk factors” but may go beyond conventional risk factors. For example, an issuer’s results could be affected by a material acquisition or disposition and these could occur without any of the risks to the business coming to pass. The safe harbour depends on setting out information about factors and assumptions proximate to the forward-looking information. Incorporation by reference does not appear to be permitted to satisfy this requirement.

Assigning specific responsibility for portions of disclosure on the basis of expertise

An issuer should establish definitive personal responsibility for verifying the accuracy and completeness of the various portions of disclosure documents based on subject matter expertise. For example, officers in charge of specific areas such as litigation, environmental matters, regulatory matters, intellectual property, insurance and risk management, and finance should be sent their portions of the document for review and should also be encouraged to prepare disclosure as issues arise in their areas of expertise. The heads of business units should be assigned to review the descriptions of their specific units.

An issuer should assign specific responsibility for reviewing boilerplate language, risk factor disclosure and forward-looking statement disclosure in disclosure documents. Risk factor disclosure and forward-looking statement disclosure should be assigned to a senior officer who will likely have the best feel for the true risks in the business taken as a whole. Any risk factor section and forward-looking statements warning should be reviewed and updated, where appropriate, regularly (i.e. quarterly).

Assigning responsibility for reviewing developments in case law, securities commission settlements and disclosures of competitors

Issuers should assign responsibility to a person or a small group of persons for keeping informed regarding developments in case law and securities commission enforcement proceedings affecting disclosure practices. Such person(s) should also review relevant notices, reports and policies/rules issued by the OSC. Reviewing the disclosure of competitors will likely be of interest as well, as it will assist in arriving at materiality judgments. The person(s) assigned this responsibility should report to


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the issuer’s disclosure committee (or in the absence of such a committee, to the CEO and CFO) periodically and promptly in the event of any major development in the law or practices.

Documenting the process conducted in connection with the preparation of disclosure documents to establish reasonable investigation defence

Issuers should consider appointing a person responsible for documenting the review process for each filing. This could be in the form of a chronology specifying the names of individuals and dates they reviewed draft reports as well as a record of meetings of the committees involved in the preparation of the report, but as a practical matter, producing a chronology and summaries takes company resources and could become an unwieldy process if it is too detailed or covers too many documents. Alternatively, the appointed person could be responsible for maintaining the disclosure policy and ensuring that the policy is always followed, so that the person could verify that it would have been followed in the case of the document in question (even though he/she potentially had no recollection or notes of the precise actions taken).

Issuers may also consider implementing a practice of having a person uninvolved in the preparation of a document review it as a proxy for the average reader. The role of this person would be to identify areas of confusion or ambiguity and to ask questions to ensure that those responsible for preparing the document have not overlooked something obvious because of their familiarity with the material.

Foreign/international issuers

The secondary market civil liability regime in Part XXIII.1 of the Securities Act applies not only to reporting issuers in Ontario, but also to “any other issuer with a real and substantial connection to Ontario, the securities of which are publicly traded.” The definition of “document” includes documents that are available and filed in foreign jurisdictions. It also includes “any communication the content of which would reasonably be expected to affect the market price or value of a security.” It is possible that shareholders of non-Canadian companies will pursue actions in Ontario courts under Part XXIII.1 of the Securities Act once it is in force.

U.S. issuers may feel that they are adequately prepared for the implementation of the secondary market civil liability regime as they are already complying with disclosure procedure requirements under the Sarbanes-Oxley Act of 2002 and are subject to U.S. Rule 10b-5. U.S. issuers should be advised that Part XXIII.1 of the Securities Act differs from Rule 10b-5 in several respects. First, in a Rule 10b-5 action for a misrepresentation, a plaintiff is required to prove “scienter” which is defined by the U.S. Supreme Court as a “mental state embracing intent to deceive, manipulate or defraud.” Recklessness has also been found to constitute “scienter.” In the case of core documents, Part XXIII.1 creates a presumption of liability in the case of a misrepresentation. No mental state such as “scienter” is required to be proved. Second, there is no general obligation to make timely disclosure of all material changes under U.S. securities laws. Third, there is no requirement in Canadian law to


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prove a causal connection between the misrepresentation and the damage, whereas this is required under U.S. law. Fourth, there are liability caps imposed under Part XXIII.1 of the Securities Act. These differences should be considered by international issuers with a real and substantial connection to Ontario.

Forward-Looking Information

On December 1, 2006 the Canadian Securities Administrators published for comment proposed amendments to several national instruments and forms to implement requirements for forward-looking information, including future-oriented financial information and financial outlooks such as earnings guidance.

a. Preparation and disclosure required upon initial publication.

Under the proposed requirements disclosure requirements will mirror the safe-harbour provisions for forward looking information: issuers will be required to have a reasonable basis for forward-looking information and must include broad disclosure; specifically, an issuer should:

• identify forward-looking information as such,

• caution users that actual results will vary,

• disclose the material factors or assumptions used to develop the information, and

• disclose the issuer's policy for updating the information if it includes procedures in addition to those described below.

b. Updating

An issuer will be required to discuss in its MD&A events and circumstances that occurred during the MD&A period that are reasonably likely to cause actual results to differ materially from previously released material forward-looking information, including earnings guidance.

An issuer should consider whether the events and circumstances that are reasonably likely to cause actual results to differ materially from previously released forward-looking information trigger the material change reporting requirements.

c. Comparing to actual

An issuer will be required to disclose in its MD&A material differences between actual results and previously released FOFI or financial outlooks for the period to which the MD&A relates.

d. Withdrawal


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An issuer will be required to discuss in its MD&A a decision made during the MD&A period to withdraw previously released material forward-looking information. This would include a discussion of the assumptions underlying the forward-looking information that are no longer valid.

An issuer should consider whether the events and circumstances relating to a withdrawal decision trigger the material change reporting requirements. As well, in order to properly effect a withdrawal, an issuer should promptly communicate its withdrawal decision.

Ken Hugessen, Hugessen ConsultingPhilip Moore, McCarthy Tétrault

Executive Compensation DisclosureWhat’s New for 2007?

Executive Compensation Disclosure – What’s New for 2007

• Few regulatory changes; great expectation changes• Changes in Canadian regulation reflect and reinforce changes in

expectations:• Statement of Executive Compensation to be interpreted with

regard to the purpose of disclosure, to give priority to substance over form

• Clarifications to a couple of other areas of limited application• Changes effective December 29, 2006, announced October 13,

2006

5.1-2


• Changes in expectations for disclosure of:• All amounts of compensation, including pension entitlements• Basis for compensation paid• Independence of compensation committee members• Compensation committee processes

• Clarity of disclosure expected to be better

5.1-3


• Expectations for disclosure of amount and basis for compensation:• All amounts of compensation to be clearly stated, including

perks• Increased interest in disclosure of ‘single number’ of

compensation of the CEO• Pension entitlements, changes in liabilities, to be more clearly

disclosed• Basis for incentive compensation to be clearly outlined; tie to

performance metrics, strategy of company to be clear• Comparator group disclosure to be clearer, indicating who in

group, why chosen, how information used

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Executive Compensation Disclosure – What’s New for 2007?

• Expectations for disclosure of compensation committee processes:• Independence of committee members very important• Ability of committee to act independently stressed• Use of compensation consultants to committee, separate from

consultants to issuer, increasingly common• Expanded disclosure wanted of selection and use of

consultants, basis for independence from issuer, fees for work done for the committee and separately fees, if any, for work done by the committee’s consultants for management of the company

5.1-5


• CCGG taking lead in changing expectations with two publications:• “Good Governance Guidelines for Principal Executive

Compensation” (June, 2006)• “Best Practices in Compensation Disclosure 2006” (December,

2006)• CCGG assesses executive compensation disclosure in light of five

recommendations:• Build an independent compensation committee• Develop an independent point of view• Test pay to performance linkages• Establish share ownership guidelines• Disclose all facets of the compensation regime

5.1-6


• Looking ahead:• Options backdating thus far appears to be a U.S. issue• OSC/CSA review expected to result in working paper and

proposed amendments in 2007 – watch to see if the U.S. rules will come to Canada?

• U.S. changes in disclosure requirements will have significant impacts on Canadian disclosure, but few are expected to adopt U.S.-style ‘Compensation Disclosure and Analysis’ in 2007

• U.S. rules and practices still in flux. For example, in late December, 2006, further changes announced to disclosure requirements for the value of equity grants to align with accounting requirements – these changes will affect various compensation disclosures

5.1-7


• Review U.S. disclosures, especially of CD&A, to prepare for 2008 (Florida Rock Industries, Inc. an early filer in December, 2006; see its disclosure on www.flarock.com)

• Monitor CCGG web site for further articulation of expectations by institutional investors

• Follow Globe and Mail’s “Board Games” for further commentary

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Firm Overview

Introduction

HCI was created by Ken Hugessen in June 2006 to provide compensation committees and executive teams with independent advice on executive compensation and related matters. Ken has since been joined by two founding partners Georges Soaré and Ruth Woods, both of whom bring relevant senior experience.

Our leadership team here at HCI has unequalled depth and scope of executive compensation, pay-for-performance, Board/Committee and general management and financial experience to service the needs of our client base. We have deliberately built a team of senior professionals who are uniquely qualified to provide the most relevant and practical advice to clients in the increasingly demanding field of executive compensation, and related governance.

Mission

Hugessen Consulting (HCI) is an independent consulting firm dedicated to meeting the executive compensation consulting requirements of boards, compensation committees and senior management.

The firm's mission is to be the leading provider of advice on executive compensation, performance measurement and assessment, and related governance to the compensation committees and top management of medium and large companies in Canada, the US, and the UK. We advise our clients on compensation policy, appropriate levels and forms of compensation, related performance conditions and requirements, and on associated governance and shareholder issues. For the firm as a whole, and for the majority of its clients and projects, the compensation committee of the company will be the client. The firm is primarily a provider of advice and counsel, and will typically work with the client in the selection of third-party providers to conduct technical, performance and proxy analysis, and to provide survey data as required.

Our clients, company directors and senior management, have the difficult task of balancing the interests and expectations of executives and institutional investors. The need to attract talented executives and maintain their natural motivation, while responding to increasing shareholder demands for a moderation in levels of executive pay, and closer alignment of pay with performance. We support directors and their executive team working together to get this job done. Our services support good governance in executive compensation by bringing unconflicted, independent expertise directly to the compensation committee, the board, and the executive team.

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Approach to Executive Compensation Consulting

Empowering the Client Through Unbiased Information and Independent Advice

The goal of executive compensation is to provide fair remuneration that will attract and retain the best leadership talent available-this is one goal all stakeholders can agree on. Yet this is not an easy task for compensation committees. The recent book Pay Without Performance (Harvard, 2004) by Lucien Bebchuk and Jesse Fried shows how power and social relationships have undermined the independence of the compensation committee.

HCI's raison d'etre is to empower compensation committees so they can fulfill their mandate. We do this through:

Advice on governance to increase the independence of the committee Education to increase the competence of the committee Research to inform the committee Counsel on disclosure to enhance communication with shareholders

Empowerment breaks the damaging social dynamic identified in Bebchuk and Fried's book. HCI facilitates independent thinking by the compensation committee so they can make wise judgments on complex compensation matters, while recognizing the committee's need to keep management engaged and supportive of committee decisions.

Our approach to consulting is characterized by:

A broad and carefully researched understanding of each client's business situation. A thorough understanding of board / top management dynamics and the ability to

work effectively with board members and senior executives under the increasingly intense light of shareholder scrutiny.

Recognition that in the final analysis, it is the directors who must decide on executive compensation and that formulas and "best practices" are no substitute for good and independently informed judgment.

A "clients first" approach to everything the firm does.

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History of Hugessen Consulting Inc.

The issues in executive compensation are driving a change in how executive compensation consulting is done. That is the reason why Hugessen Consulting Inc. (HCI) was launched. While the firm is new, the forces that led to its creation arose over the past two decades. Ken Hugessen has been a leading voice over that time in assisting compensation committees understand and respond to the issues they face.

Ken has had a long career as a leader of one of North America's premier compensation practices with Mercer. He began his career in pension consulting, but in the early 1980's did increasing amounts of executive compensation consulting. Since the late 80's, when executive pay came into the shareholder and public arena in a big way, Ken devoted all his time to executive compensation consulting.

In 1995 Ken worked in Chicago, and wrote on the role of the board in executive compensation; the ideas were relatively gentle by today's standards, but it marked the beginning of the belief that the board, not management, was the client that compensation consultants should be serving.

Throughout, there continues to be the same two issues of concern to the board: getting the right talent and paying the right amount. With the boom in the stock market in the late 90's, and the 'war for talent', the focus shifted dramatically from worrying about excessive pay to worrying about how to attract and retain the best leadership. With the subsequent market melt down, the emphasis swung sharply back to a concern about appropriate pay levels, with compensation committees being accused of being asleep at the switch-which in some cases appears to have been true.

By 2005 the consultants advising the board on executive pay had become very common, but under serious scrutiny. The question was: were they really working for the board or were they working for management? Did they provide unbiased advice or were they hampered by conflicts of interest? Ken Hugessen's seminal 2002 article Raising the Bar was shown to be prescient in identifying these important issues. By 2006 the market was demanding that executive compensation consultants be completely and visibly free of conflicts of interest. The situation parallels what happened to auditing firms who had to part with their consulting functions to avoid any appearance of conflict of interest.

Recognizing these issues Hugessen Consulting Inc. was set up as a new and independent business.

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Contact Information: Hugessen Consulting Inc. 161 Bay Street, 27th Floor, BCE Place Toronto, ON M5J 2S1 Phone: 416-868-1288 Fax: 416-572-4074 Web Address: www.hugessenconsulting.com Partners: Ken Hugessen email: [email protected] Georges Soaré email: [email protected] Ruth Woods email: [email protected]

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http://www.hugessenconsulting.com/

mailto:[email protected]



What do the Institutions think?

Mark G. EadeClemens Mayr

Governance Performancein the Public Eye

Background

• ISS is considered to be the world’s authority on proxy issues and corporate governance

• ISS 2007 Canadian Proxy Voting Guidelines recently published: effective for meetings Feb. 1, 2007

• Guidelines are widely read and followed by institutional investors

• Provide Guidance on shareholder votes in respect of a variety of matters, including boards of directors, shareholder rights, proxy contests and executive and director compensation

• Can be viewed at www.issproxy.com

6.1-2

Board of Directors

• ISS continues to promote the independence of the board as a whole• No significant changes from 2006 Guidelines• The continuing prevalence (between 40% and 50% of TSX issuers) of

slate ballots is considered by ISS as providing a significant impediment to the evolution of a more meaningful director election process

• Votes on director nominees on a case-by-case basis considering various factors including independence, attendance, executive compensation levels, corporate governance provisions

• Generally WITHHOLD votes from any insider on the audit, compensation or nominating committee / If directors are presented as a slate, ISS will recommend that shareholders withhold votes from entire slate

• May WITHHOLD support from director nominees who have attended less than 75% of the board and committee meetings held during the last year without a valid reason

6.1-3

Board of Directors (cont’d)

• Generally WITHHOLD votes from any director on the audit or compensation committee who has ever been CEO or has been CFOwithin the past three years

• View of best practice is that CEOs sit on no more than 2 outside public company boards in addition to their own

• Support the separation of the Chair and CEO positions• Generally vote FOR binding resolutions seeking a majority vote

requirement• Generally vote FOR shareholder proposals that a majority or up

to 2/3 of directors be independent and for proposals asking thatboard, audit, compensation and/or nominating committees be entirely independent

6.1-4

Shareholder Rights Issues

• No significant changes from 2006 Guidelines• Generally vote AGAINST proposals requiring a supermajority

shareholder vote at a level above that required by statute• On balance, support cumulative voting, however, circumstances may

warrant otherwise• Generally vote FOR resolutions to appoint additional directors between

annual meetings provided that governing law permits removal of directors by simple majority vote, no more than 1/3 of additional directors may be appointed and such appointments must be approved at the next AGM

6.1-5

Share-Based Compensation Plans

• ISS has revised its policy in response to recent TSX rule changes• New TSX rules (see Staff Notices #2004-0002 and # 2006-0001) remove

the requirements for shareholder approval for certain types of amendments to share-based compensation plans

• Issuers have until June 30, 2007 to adopt new amendment procedures• After such date, issuers who have only old style “general amendment”

provisions in their plans will no longer be able to make any amendments without shareholder approval (including simple “housekeeping” changes)

6.1-6

Share-Based Compensation Plans (cont’d)

• Only the following types of amendments will continue to be subject to shareholder approval under the new TSX rules:

• Any increase in the number of shares reserved• Any reduction in the exercise price which benefits an insider• Any amendment that extends the term of an award beyond its original term

and which benefits an insider

6.1-7

Share-Based Compensation Plans (cont’d)

• ISS will generally recommend AGAINST the approval of proposed amendment procedures that do not require shareholder approval for the following types of amendments:

• Any increase in the number of shares reserved • Any reduction in the exercise price or cancellation and reissue of options

(not just those which benefit insiders)• Any amendment that extends the term of an award beyond its original term

(whether or not it benefits an insider)• Amendments to eligible participants that may permit the introduction or

increased participation of non-employee directors• Amendments that permit transfers other than for normal estate settlement

purposes

6.1-8

Summary

• No major new trends or changes expected for 2007 proxy season

• Issuers who choose to update the amendment procedures of share-based compensation plans to benefit from the greater flexibilityafforded by the new TSX rules should carefully consider the additional ISS requirements

6.1-9

The Globe and Mail: Board Games 2006

Mark G. EadeClemens Mayr

Governance Performancein the Public Eye

Background• Continuing focus on objective, publicized standards and criteria

for ‘best practices’ of good governance continues interest in public measurement of achievement against those standards and criteria

• Toronto’s Globe and Mail newspaper continued with its major effort to rank publicly governance performance against its criteria for good governance; “Board Games 2006” is the Globe’s fifth annual ranking

• Widely read by market participants, regulators, other media and board members

• Demanding criteria designed to go far beyond mandatory regulatory requirements

• Recent reforms reflect past promotion of best practices, e.g., greater emphasis on the quality of compensation disclosure for executives and directors based on Canadian Coalition for Good Governance “best practice” guides

6.2-2

Good Governance According to the Globe

Globe report reviews corporate governance disclosures and measures performance of corporations and internally and externally managed income trusts in 4 key areas:

• Board Composition – 37 out of 100 marks

• Shareholding and Compensation – 25 out of 100 marks

• Shareholder Rights – 28 out of 100 marks

• Disclosure Issues – 10 out of 100 marks

6.2-3

Board Composition

• Independence the most important criterion, with points given for independence from both management and a controlling shareholder

• Board meeting without management at every meeting important

• Continued importance to splitting the role of CEO and Chair, particularly if the Chair is fully independent

• Gender a criterion, but not as important to the Globe as others;inclusion of minorities is not a criterion

• Having a board performance evaluation system in place has increased in importance

6.2-4

Shareholding and Compensation

• Shareholdings by directors and CEO measured; to see how aligned their economic interests are with the shareholders’ interests

• Stock option holdings do not count as shareholdings• Marks given if no loans are given to senior executives (or, if a

bank, the loans are at consumer rates)• Disclosure of CEO bonus calculation criteria, with more points

given if details of criteria are disclosed; drives CEO bonus calculation to objective, measurable, criteria

• Increased emphasis on public disclosure of CEO and top executive compensation, including total compensation, annual pension liability and total value of CEO’s accumulated shares, DSUs or other equity holdings

6.2-5

Shareholder Rights Issues

• Rights measured are voting rights and ‘right’ not to be diluted excessively under stock option plan

• Ability to vote for individual directors and not just a slate continues to be important, with zero marks if a slate is nominated

• 10 marks given (the largest single point category) if the corporation has no subordinate voting shares

• Focus on stock option plan reflects concern about potential for dilution, and interest in seeing option holders ‘earn’ compensation under objective, performance-based criteria

• Introduction of majority voting policies into criteria, asking directors to resign if they do not receive a majority of votes

6.2-6

Disclosure Issues

• Criteria measure director qualification and background; to enable shareholders to vote for directors with experience thought to berelevant to role

• Detailed biographies showing relevant experience applauded• Basis for determining if directors are related or unrelated to be

disclosed in detail• Removal of directors with poor attendance now important (zero

points if any director misses more than one-quarter of meetings and is put up for re-election)

• Increased emphasis on disclosing director compensation• Disclosure of audit and non-audit services of auditors also

important

6.2-7

Ways to Improve Rankings

• Ensure board is comprised of at least 2/3 independent members as this is worth four marks more than having over 50% independent

• Ensure independent board members meet without management at every board meeting

• Require directors to own at least 3x their annual retainer in stock or units (options excluded)

• Improve compensation disclosure for CEOs and directors in light of increased standards imposed by Globe

6.2-8

Summary

• Globe report continues to focus on status of directors (independence and relation to corporation and management)

• Some attention paid to processes followed by board, but more points given to attendance records than to whether a system is in effect to measure performance of boards or individual directors

• Report reflects difficulty of measuring the impact of objective criteria of good governance on actual corporate governance practices and corporate performance

• 5 year return to shareholders noted, but little correlation of good performance and adherence to governance best practices; there may be a correlation of poor governance and risk of poor performance or, at least, unpleasant surprises

• Most boards are more independent from management than ever before• One-third of income trusts entered into significant deals with related

parties during the last year. Trusts also criticized for outdated corporate governance practices and lack of legislative governance

6.2-9