Final Rule and Companion Policy: OSC Rule - 61-501, 61-501CP - Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions

OSC Rule

February 11, 2000

NOTICE OF RULE AND COMPANION POLICY
UNDER THE SECURITIES ACT
RULE 61-501
AND COMPANION POLICY 61-501CP
INSIDER BIDS, ISSUER BIDS, GOING PRIVATE TRANSACTIONS
AND RELATED PARTY TRANSACTIONS

Notice of Rule and Companion Policy

The Commission has made Rule 61-501 Insider Bids, Issuer Bids, Going Private Transactions andRelated Party Transactions (the "Rule") under section 143 of the Securities Act (the "Act").

The Rule and the material required by the Act to be delivered to the Minister of Finance weredelivered on February 3, 2000. If the Minister does not approve the Rule, reject the Rule orreturn it to the Commission for further consideration, or if the Minister approves the Rule, theRule will come into force on May 1, 2000.

The Commission has adopted Companion Policy 61-501CP (the "Companion Policy") undersection 143.8 of the Act. The Companion Policy will come into force on the date that the Rulecomes into force.

Concurrently with making the Rule, the Commission revoked section 182 of the Regulation andsubsection 46(1) of Schedule 1 of the Regulation and amended subsection 203.2(2) of theRegulation and subsections 1(1) and 46(2) of Schedule 1 of the Regulation. The revocations andamendments come into force at the time that the Rule comes into force.

The Rules of the Commission In the Matter of Going Private Transactions (1997), 20 OSCB1219, as amended and In the Matter of Insider Bids, Issuer Bids and Take-over Bids inAnticipation of Going Private Transactions (1997), 20 OSCB 1219, as amended, expire on thecoming into force of the Rule.

Substance and Purpose of Rule and Companion Policy

The substance and purpose of the Rule and the Companion Policy are to reformulate OSC PolicyStatement No. 9.1 ("Policy 9.1") with respect to the regulation of insider bids, issuer bids, goingprivate transactions and related party transactions. The protections afforded by Policy 9.1,including independent valuations, majority of minority approval and enhanced disclosure alsoform the basis of the Rule and the Companion Policy. The Companion Policy sets out theCommission's views on certain matters relating to the subject matter of the Rule.

For additional information concerning the background of the Rule and the Companion Policy,reference should be made to (1999), 22 OSCB 7835, (1999), 22 OSCB 493 and (1996) 19 OSCB2981, which contain notices published with earlier drafts of the Rule and Companion Policypublished for comment.

Summary of Written Comments Received by the Commission

A proposed version of the Rule and Companion Policy was first published by the Commission forcomment on May 31, 1996 ((1996), 19 OSCB 2981) (the "May 1996 Version").

As a result of staff's consideration of the comment letters received on the May 1996 Version, itsrecommendations to the Commission and the deliberations of the Commission, the Commissionrepublished the Rule and Companion Policy for comment on January 22, 1999 ((1999), 22 OSCB493) (the "January 1999 Version").

As a result of staff's consideration of the comment letters received on the January 1999 Version,its recommendations to the Commission and the deliberations of the Commission, the Commissionrepublished the Rule and Companion Policy for comment on December 10, 1999 ((1999) 22OSCB 7835) (the "December 1999 Version").

The Commission received two comment letters on the December 1999 Version. A summary ofthe comments received and the Commission's response to those comments is contained inAppendix A.

As a result of these comments and further consideration and deliberation by the Commission, theCommission has made the following changes to the December 1999 Version, none of whichchanges are material.

The definitions of "holder" and "securityholder" in subsection 1.1(1) of the Rule have beendeleted. The interpretation of such terms will be apparent from the usage of those terms in theRule itself.

The definition of "participating security" in subsection 1.1(1) of the Rule has been amended. Asecurity will have to carry a residual right to participate in both earnings and upon liquidation orwinding up to constitute a participating security. Such definition will conform with the definitionof "equity security" in the Act.

The Commission has deleted paragraph (a) in its entirety from the definition of "prior valuation"in subsection 1.1(1) of the Rule in order to eliminate any inappropriate inferences. Subparagraph(b)(ii) (formerly (c)(ii) in the December 1999 Version) of the definition has been amended toclarify that an internal valuation or appraisal is not disclosable as a prior valuation in the case of anissuer bid as a result of such internal valuation having been made available to or prepared with theparticipation of a director who is also a senior officer of the issuer.

The word "affect" has been changed to "increase" in clauses (e)(ii) and (f)(ii) of paragraphs2.4(1)3 and 4.5(1)2 of the Rule. This is the effect that is relevant for purposes of reliance on theprevious arm's length negotiation valuation exemption.

Clause (b) of paragraph 4.5(1)3 of the Rule has been amended to clarify that equal access musthave been provided to all proponents of the transactions referred to in the clause for the auctionvaluation exemption to apply.

Subparagraph 5.2(1)(d)(i) has been amended to clarify which interested parties' interests in arelated party transaction must be disclosed in a material change report. This change has beenmade as a result of the breadth of the definition of interested party.

Paragraph 5.6.6(a) of the Rule has been amended by changing the words "an interested party in"to "a party to". This change has been made as a result of the breadth of the definition ofinterested party.

Paragraph 5.6.10(b) of the Rule has been amended to clarify the security holding being referred toin such paragraph.

Paragraph 6.3(2)(d) of the Rule has been amended to correctly refer to either an issuer or anofferor.

Subparagraph 8.1(3)(c)(ii) has been amended to clarify that a related party of an interested partywill not be included in the minority for purposes of minority approval where the related party is acontrolling shareholder of more than one party to the related party transaction.

Section 10.1 has been added to the Rule in order to provide that the Rule comes into force onMay 1, 2000.

Subsection 2.9(1) of the Companion Policy has been amended to refer to "arm's length" operatingcorporations. Reference is made to Appendix A for the reason for this change.

Section 2.11 of the Companion Policy has been revised to clarify that the arm's length relationshiprequired for the arm's length valuation exemption is between the selling securityholder and allpersons or companies that negotiated with the selling securityholder.

Section 5.2 of the Companion Policy has been revised to clarify that prior performance offinancial advisory work for an issuer, which was not carried out at the direction or request of aninterested party or paid for by an interested party, other than the issuer, does not create seriousconcern for the Commission in regard to valuator independence.

Subsection 6.1(3) of the Companion Policy has been amended to refer to potential Commissionintervention.

Regulations Revoked or Amended

The Commission has, by regulation, revoked section 182 of the Regulation and subsection 46(1)of Schedule 1 of the Regulation. The Commission has amended subsection 203.2(2) of theRegulation and subsections 1(1) and 46(2) of Schedule 1 of the Regulation to replace referencesto Policy 9.1 with references to the Rule. The revocations and amendments come into force atthe time that the Rule comes into force.

Text of Rule and Companion Policy

The text of the Rule and Companion Policy follows.

DATED: February 11, 2000.

APPENDIX A

SUMMARY OF WRITTEN COMMENTS RECEIVED
ON THE DECEMBER 1999 VERSION
AND RESPONSES OF THE COMMISSION

The Commission received 2 submissions on the December 1999 Version. Comments werereceived from RBC Dominion Securities by letter dated January 7, 2000, and from SimonRomano by letter dated January 10, 2000.

The Commission has considered the submissions received and thanks the commenters forproviding their views.

The following is a summary of the comments received, together with the Commission's responses.Unless otherwise provided, references to section numbers are to section numbers in the December1999 Version.

A. GENERAL COMMENTS

1. Regulatory Treatment of Related Party Transactions

Comment

One commenter was of the opinion that the treatment of related party transactions under the Rulewas extremely broad, vague and complex, and that the costs of compliance with the Rule wouldoutweigh its benefits. The commenter suggested that a saving provision similar to that ofsubsection 16(3) of the Canada Business Corporations Act (the "CBCA"), which provides thatno act of a corporation, including any transfer of property to or by a corporation, is invalid byreason only that the act or transfer is contrary to its articles or the CBCA, would be appropriate inthe Rule. The commenter was concerned that the Rule might otherwise render illegal andunenforceable transactions that the parties thereto considered entirely reasonable and appropriate,due to the Rule's length, breadth, complexity and vagueness.

Response

The Commission disagrees with the commenter and is of the view that the Rule as drafted is theappropriate manner in which to regulate related party transactions. In taking the approachreflected in the Rule and Companion Policy, the Commission had due regard to the commentsreceived (many of which supported the approach taken), the purpose and principles section of theAct and the costs and benefits involved. The Commission is of the view that the business andregulatory costs and other restrictions on the business and investment activities of marketparticipants imposed by the Rule are proportionate to the significance of the regulatory objectivessought to be realized.

The Commission does not believe that a saving provision is necessary at this time. TheCommission is not convinced that a breach of the Rule would necessarily render a transactioninvalid. The effect of a breach of the Rule would require case by case consideration.

2. Valuation Exemption for Previous Arm's Length Negotiations

In the context of insider bids and going private transactions, the Rule provides an exemption fromthe valuation requirement where the consideration for the particular type of transaction is equal invalue to, and in the same form as, that agreed to in arm's length negotiations with one or moreselling securityholders. In order to rely upon the exemption, one of the selling securityholdersmust beneficially own or exercise control or direction over at least 10 percent (5 percent in certaincircumstances) of the outstanding securities of the class of offeree securities, and one or more ofthe selling securityholders must beneficially own, or exercise control or direction over, in theaggregate, at least 20 percent of the outstanding securities of the class of offeree securitiesbeneficially owned, or over which control or direction is exercised, by persons or companies otherthan the interested party and persons or companies acting jointly or in concert with the interestedparty.

Comment

One commenter felt that the 20 percent test may be inappropriate. The commenter felt that whilea 10 percent holder clearly has a substantial stake and can therefore reasonably be presumed to bewilling to protect its interests, the 20 percent requirement produces a wide variety of results. Forexample, where the interested party holds 20 percent of the outstanding securities, this willeffectively require agreements with holders of 16 percent of the outstanding securities. Where theinterested party holds 40 percent of the outstanding securities, the 20 percent requirement willeffectively require agreements with holders of 12 percent of the outstanding securities. Where theinterested party holds 60 percent or more of the outstanding securities, nothing further than anagreement with the 10 percent holder is necessary. The commenter felt that a simple stand-alonerequirement of negotiation with a 10 percent holder (or 5 percent where the interested party holdsmore than 80 percent of the outstanding securities) would be preferable.

Response

The 20% test has been a constant feature of the arm's length negotiation exemption since the Rulewas first published for comment in 1996. Although the application of the test gives rise todifferent results depending on the size of the public float, the Commission does not believe thatthis is inappropriate as the number of outstanding shares constituting the public float will bereduced, all other things being equal, as the related party's shareholding increases. Accordingly,the Commission has made no change to the Rule in this regard.

3. Harmonization with Québec

Comment

One commenter encouraged the Commission to use its best efforts to attempt to harmonize theRule and Companion Policy with changes to Policy Q-27 of the Commission des valeursmobilières du Québec wherever possible.

Response

The Commission agrees and is optimistic that harmonization will be achieved.

4. Aggregation Relief

Comment

As noted in the Commission response to general comment B.3. of the Notice that accompaniedthe December 1999 Version, the Commission decided that relief from calculation of beneficialownership, control or direction was unnecessary, because it was remote that there would be asituation where such aggregation relief would be appropriate in the context of the Rule.

One commenter suggested that this position be reconsidered for two reasons: first, becausepersons such as financial institutions holding or managing securities through different businessunits who are not in a position to aggregate these various holdings may be deemed to be relatedparties without knowing it, and therefore might enter into related party transactions withoutanyone being aware of it in order to determine whether any exemptions from related partytransaction requirements may or may not be available; and second, because under section 8.1 ofthe Rule which relates to minority voting , an aggregated group might end up being a relatedparty of an interested party without knowing it, and therefore their holdings of an issuer might beincapable of being counted towards minority approval of a transaction if the interested party is notbeing treated identically to other securityholders.

Response

The Commission believes that in the majority of cases, related parties will be identifiable. In casesof exceptional complexity, relief could be sought.

B. SPECIFIC COMMENTS

5. Subsection 1.1(1) of the Rule - Definition of Prior Valuation

Comment

One commenter was of the view that the exclusion of certain limited types of draft reports,namely those prepared for the issuer by an independent valuer which draft resulted in a valuationor appraisal by that valuator, implies that other types of draft reports are prior valuations. Thecommenter felt that this was inappropriate and unworkable.

Response

The Commission has deleted paragraph (a) in its entirety from the definition of "prior valuation"in the Rule in order to eliminate any inappropriate inferences.

6. Subsection 2.4(2) of the Rule - Valuation Exemption where Insider Offeror has Lackof Knowledge and Representation

Comment

In the Notice that accompanied the December 1999 Version, comment number 26 included asuggestion that the valuation exemption for lack of knowledge and access in connection withinsider bids should relate to actual access and recognize the fiduciary responsibilities of targetdirectors. The Commission response was that this exemption turns on actual access and not thepotential for access, and that the Commission does not believe it would be appropriate to makethe inability to use information because of a director's fiduciary duties grounds for an automaticexemption.

One commenter questioned whether this response suggests that a director's fiduciary dutieswould be grounds for a discretionary exemption in appropriate circumstances.

Response

The Commission does not believe that reliance on fiduciary duties would generally be appropriatefor a discretionary exemption.

7. Subsections 2.4(2), 2.4(3), 4.5(2) and 4.5(3) of the Rule - Determination ofOutstanding Securities

Comment

Subsections 2.4(2), 2.4(3), 4.5(2) and 4.5(3) of the Rule provide that, for the purposes of certainexemptions, the number of outstanding securities of an issuer is either that number known to theinterested party as at the date of the relevant agreement, or if not known to the interested party, isbased upon information provided by the issuer in its most recent material change report or reportunder National Instrument 62-102. One commenter noted that this approach fails to take intoaccount that for previously agreed transactions, National Instrument 62-102 will not have beenoperative prior to March 15, 2000.

Response

The Commission agrees. If a person is affected by this interim timing anomaly, relief can besought from the Director under Section 9.1 of the Rule, if necessary, where the person calculatesthe number of outstanding securities based on the best available information otherwise reasonablyavailable to the person.

8. Paragraph 5.1(2)(c) of the Rule - De Minimis Exception

Comment

One commenter felt that, given the extraordinary impact of the related party transactionrequirements, the 2 percent de minimis exception in paragraph 5.1(2)(c) of the Rule appearsinappropriately low. The commenter recommended a 5, 10 or 20 percent test instead for therelated party transaction requirements exception, and preferably for the rule generally.

Response

The Commission does not propose to change the 2 percent de minimis test at this time. Such testis analogous to the de minimis test used for take-over bids and issuer bids. The Commission willgive further consideration to this matter in the context of the increasing globalization of securitiesmarkets and the creation of CDNX.

9. Paragraph 12 of section 5.6 of the Rule - Valuation Exemption for Amalgamationwith No Adverse Effect on Issuer or Minority

Comment

One commenter felt that the exemption from related party transaction requirements foramalgamations with no adverse effects should be extended to share exchange transactionsfollowed by short-form amalgamations or a winding up, which represent a similar way ofachieving the same result.

Response

The Commission has not made any change to the Rule in this regard. Relief will be considered ona case by case basis.

10. Paragraph 6.4(1)(d) of the Rule - Preparation of Formal Valuation in respect ofSecurities

Comment

One commenter felt that, despite the requirement in paragraph 6.4(1)(d) of the Rule, securitiesshould generally be valued at their minority and liquidity-adjusted price. The commenter felt thatit would be inappropriate to value securities offered at their intrinsic value if it would make anunfair transaction seem fair.

Response

The Commission has not amended paragraph 6.4(1)(d) of the Rule. The Commission notes thatpursuant to subsection 6.3(2) of the Rule, non-cash consideration does not have to be valued ifcertain criteria are met and the valuator is of the opinion that a valuation is not required. TheCommission also notes that it is always open to a valuator that has complied with the Rule toprovide as a supplement to the valuation an analysis as to why a different value, taking intoaccount adjustments, would be appropriate.

11. Subsection 8.2(b) of the Rule - Multi-Step Transactions

Comment

Section 8.2 of the Rule provides that the votes attached to securities tendered to a formal bid maybe counted in favour of a subsequent going private transaction in the determination of whether therequisite minority approval has been obtained if, among other things, the going private transactionis completed within 120 days after the date of the expiry of the formal bid. One commentersuggested that this approach was unworkable, and suggested that the 120 day time period bemeasured to the date of the mailing of the circular or the date of the vote, as opposed to the dateof the completion of the subsequent going private transaction. The commenter noted that ifunexpected delays arose, a new vote would be required to be held. The commenter suggestedthat if the minority that can vote must be described, the date of the circular seems the appropriatedate for determination. In such case, the commenter also suggested that a 90 day time limit couldbe appropriate.

Response

The Commission has not made any change to the Rule in this regard. From a securityholderperspective, if multi-step transactions are to be treated as linked transactions it is important to thesecurityholder to receive its consideration in the second step within a reasonable period of time ofcompletion of the first step. It is for this reason that the Commission believes that the timing ofcompletion of the second step is important as compared to the date of the vote or sending of thecircular in connection with the second step, as suggested by the commenter. The Commissionbelieves that the timing set forth in the Rule should be achievable in the majority of cases. Inexceptional circumstances, relief could be sought.

12. Section 2.8 of the Companion Policy - Persons or Companies Involved in aTransaction

Comment

One commenter suggested that the Commission's view that a director or senior officer of anissuer is not involved in a transaction merely because the director or senior officer is acting in thatcapacity in negotiating or approving the transaction should also refer to a director or officer whoholds securities but is being equally treated or receiving normal course employment-relatedbenefits.

Response

The Commission does not believe that such a change is necessary. The significance of equaltreatment and effect of receipt of normal course employment-related benefits are dealt withdirectly in the Rule in paragraph (e) of the definition of "going private transaction" andparagraphs (b) and (c) of subsection 8.1(3) and paragraph (a) of subsection 8.2, all as commentedupon by section 2.13 of the Companion Policy.

13. Section 2.9 of the Companion Policy - Amalgamations

Comment

Subsection 2.9(1) of the Companion Policy provides the Commission's view that in a normalsituation, an amalgamation of two operating companies is not a going private transaction whereshareholders of the amalgamating corporations receive non-redeemable participating securities ofthe amalgamated corporation because a beneficial owner's interest in a participating security isnot being terminated. One commenter asked whether, by this rationale, a share exchange"squeeze-out" amalgamation between a parent and its partly-owned subsidiary in whichshareholders of the subsidiary receive shares of the parent would not be a going privatetransaction for a similar reason.

Response

A share exchange "squeeze-out" amalgamation between a parent and its partly-owned subsidiarywould be a going private transaction under the Rule. Section 2.9 of the Companion Policy hasbeen clarified in this regard.

14. Subsection 5.2(b) of the Companion Policy - Independent Valuators

Comment

In subsection 5.2 of the Companion Policy, the Commission points out a number of factors thatmay be relevant in determining the independence of a valuator or person or company from theinterested party. One commenter asked whether it is appropriate for reference to be made to theissuer in paragraph 5.2(b)(iv) of the Companion Policy, when references to the issuer wereremoved from paragraphs 5.2(b)(ii) and 5.2(b)(iii) of prior drafts of the Companion Policy.Furthermore, the commenter felt that the words "other than the issuer" should be added at the endof paragraph 5.2(b)(i) for clarity.

Response

The requested change has been made in subparagraph (b)(i) of section 5.2 of the CompanionPolicy and clarifying changes have been made generally to section 5.2 of the Companion Policy.

15. Subsection 6.1(3) of the Companion Policy

Comment

Subsection 6.1(3) of the Companion Policy states that the Commission will intervene if it believesthat exemptions are being improperly relied upon or if a transaction is being structured or carriedout in stages in order to take advantage of individual exemptions that could not be relied upon ifthe transaction were carried out in one step. One commenter felt that this section was too broad,and that surely the Commission would only intervene where abuse was taking place and there wasno other remedy. Therefore the commenter suggested that this section be modified or deleted, asit may lead to too much reliance upon the Commission's potential intervention.

Response

Section 6.1(3) of the Companion Policy has been modified slightly as a result of this comment, torefer to the Commission's potential intervention.

ONTARIO SECURITIES COMMISSIONRULE 61-501
INSIDER BIDS, ISSUER BIDS, GOINGPRIVATE TRANSACTIONS
AND RELATED PARTY TRANSACTIONS

TABLE OF CONTENTS

PART TITLE

PART 1 GENERAL PROVISIONS

1.1 Definitions

1.2 Application of Part XX of theAct

1.3 Liquid Market in a Class ofSecurities

1.4 Arm's Length Dealings

1.5 Interpretation

PART 2 INSIDER BIDS

2.1 Application

2.2 Disclosure

2.3 Formal Valuation

2.4 Exemptions from FormalValuation Requirement

PART 3 ISSUER BIDS

3.1 Application

3.2 Disclosure

3.3 Formal Valuation

3.4 Exemptions from FormalValuation Requirement

PART 4 GOING PRIVATETRANSACTIONS

4.1 Application

4.2 Meeting and InformationCircular

4.3 Conditions for Relief fromTiming for OBCA InformationCircular

4.4 Formal Valuation

4.5 Exemptions from FormalValuation Requirement

4.6 Conditions for Relief fromOBCA Valuation Requirement

4.7 Minority Approval

4.8 Exemptions from MinorityApproval Requirement

4.9 Conditions for Relief fromOBCA Minority ApprovalRequirement

PART 5 RELATED PARTYTRANSACTIONS

5.1 Application

5.2 Disclosure: News Release andMaterial Change Report

5.3 Copy of Material ChangeReport

5.4 Meeting and InformationCircular

5.5 Formal Valuation

5.6 Exemptions from FormalValuation Requirement

5.7 Minority Approval

5.8 Exemptions from MinorityApproval

PART 6 FORMAL VALUATIONS ANDPRIOR VALUATIONS

6.1 Independence

6.2 Disclosure Re Valuator

6.3 Subject Matter of FormalValuation

6.4 Preparation of FormalValuation

6.5 Summary of Formal Valuation

6.6 Filing of Formal Valuation

6.7 Valuator's Consent

6.8 Disclosure of Prior Valuation

6.9 Filing of Prior Valuation

PART 7 INDEPENDENT DIRECTORS

7.1 Independent Directors

PART 8 MINORITY APPROVAL

8.1 From Holders of AffectedSecurities

8.2 Multi-Step Transactions

PART 9 EXEMPTION

9.1 Exemption

PART 10 EFFECTIVE DATE

10.1 Effective Date

ONTARIO SECURITIES COMMISSIONRULE 61-501
INSIDER BIDS, ISSUER BIDS, GOINGPRIVATE TRANSACTIONS
AND RELATED PARTY TRANSACTIONS

PART 1 DEFINITIONS AND

INTERPRETATION

1.1 Definitions

(1) In this Rule

"affected security" means,

(a) for a going private transaction ofan issuer, a participating securityof the issuer in which the interestof a beneficial owner would beterminated by reason of thetransaction, and

(b) for a related party transaction ofan issuer, a participating securityof the issuer;

"bona fide lender" means a person orcompany that

(a) holds securities sufficient to affectmaterially the control of an issuer

(i) solely as collateral for debtunder a written pledgeagreement entered into by theperson or company as alender, or

(ii) solely as collateral acquiredunder a written agreement bythe person or company as anassignee or transferee of thedebt and collateral referred toin subparagraph (i),

(b) is not yet legally entitled todispose of the securities for thepurpose of applying proceeds ofrealization in repayment of thesecured debt, and

(c) was not a related party of theissuer at the time the pledgeagreement referred to insubparagraph (a)(i) or theassignment or transfer referred toin subparagraph (a)(ii) wasentered into;

"class" includes a series of a class;

"disclosure document" means,

(a) for an insider bid,

(i) a take-over bid circular sentto holders of offereesecurities, or

(ii) if the insider bid takes theform of a stock exchangeinsider bid, the disclosuredocument sent to holders ofofferee securities that isdeemed to be a take-over bidcircular under subsection131(10) of the Act,

(b) for an issuer bid,

(i) an issuer bid circular sent toholders of offeree securities,or

(ii) if the issuer bid takes theform of a stock exchangeissuer bid, the disclosuredocument sent to holders ofofferee securities that isdeemed to be an issuer bidcircular under subsection131(10) of the Act,

(c) for a going private transaction, aninformation circular sent toholders of affected securities, or,if no information circular isrequired, another documentsent to holders of affectedsecurities in connection witha meeting of holders ofaffected securities, and

(d) for a related party transaction,

(i) an information circular sentto holders of affectedsecurities,

(ii) if no information circular isrequired, another documentsent to holders of affectedsecurities in connection witha meeting of holders ofaffected securities, or

(iii) if no information circular ordocument is required, amaterial change report filedfor the transaction;

"fair market value" means, except asprovided in paragraph 6.4(1)(d), themonetary consideration that, in anopen and unrestricted market, aprudent and informed buyer wouldpay to a prudent and informed seller,each acting at arm's length with theother and under no compulsion to act;

"formal valuation" means, for atransaction, a valuation prepared inaccordance with Part 6 that contains aqualified and independent valuator'sopinion as to a value or range ofvalues representing the fair marketvalue of the subject matter of thevaluation;

"freely tradeable" means, in respect ofsecurities, that

(a) the securities are not non-transferable,

(b) the securities are not subject toany escrow requirements,

(c) the securities do not form part ofthe holdings of any person orcompany or combination ofpersons or companies referred toin paragraph (c) of the definitionof "distribution" in the Act,

(d) the securities are not subject toany cease trade order imposed bya Canadian securities regulatoryauthority,

(e) all hold periods imposed byCanadian securities legislationbefore the securities can be tradedwithout a prospectus or inreliance on a prospectusexemption have expired, and

(f) any period of time for which theissuer has to have been areporting issuer before thesecurities can be traded without aprospectus or in reliance on aprospectus exemption has passed;

"independent committee" means, foran issuer, a committee consistingexclusively of one or moreindependent directors of the issuer;

"independent director" means, for anissuer in respect of a transaction, adirector of the issuer who

(a) is not an interested party in thetransaction, and

(b) is independent, as determined inaccordance with section 7.1;

"independent valuator" means, for atransaction, a valuator that isindependent of all interested parties inthe transaction, as determined inaccordance with section 6.1;

"interested party" means,

(a) for an insider bid, the offeror,

(b) for an issuer bid,

(i) the issuer, and

(ii) any person or company, otherthan a bona fide lender, that,whether alone or jointly or inconcert with others, holds orwould reasonably be expectedto hold, upon successfulcompletion of the issuer bid,securities of the issuersufficient to affect materiallyits control,

(c) for a going private transaction, arelated party of the issuer that isthe subject of the going privatetransaction, if the related partywould

(i) be entitled to receive, directlyor indirectly, consequentupon the transaction

(A) a consideration persecurity that is notidentical in amount andtype to that paid to allother beneficial owners inCanada of affectedsecurities of the sameclass, or

(B) consideration of greatervalue than that paid to allother beneficial ownersof affected securities ofthe same class, or

(ii) upon completion of thetransaction, beneficially own,or exercise control ordirection over, participatingsecurities of a class otherthan affected securities, and

(d) for a related party transaction inrespect of the issuer, a relatedparty of the issuer, that is a partyto or is involved in the relatedparty transaction,

"issuer insider" means, for an issuer

(a) every director or senior officer ofthe issuer,

(b) every director or senior officer ofa company that is itself an issuerinsider or subsidiary entity of theissuer, and

(c) a person or company whobeneficially owns, directly orindirectly, voting securities of theissuer or who exercises control ordirection over voting securities ofthe issuer, or a combination ofboth, carrying more than 10percent of the voting rightsattached to all voting securities ofthe issuer for the time beingoutstanding other than votingsecurities beneficially owned bythe person or company asunderwriter in the course of adistribution;

"market capitalization" of an issuermeans, for a transaction, the aggregatemarket price of all outstandingsecurities of all classes of equitysecurities of the issuer, the marketprice of the outstanding securities of aclass being

(a) in the case of equity securities ofa class for which there is apublished market, the product of

(i) the number of securities ofthe class outstanding as at theclose of business on thelast business day of thecalendar month precedingthe calendar month inwhich the transaction isagreed to or, if nosecurities of the classwere outstanding on thatday, on the first businessday after that day thatsecurities of the classbecame outstanding, solong as that day precedesthe date the transaction isagreed to, and

(ii) the market price of thesecurities on the publishedmarket on which the class ofsecurities is principally tradedat the business day referred toin subparagraph (i), asdetermined in accordancewith subsections 183(1), (2)and (4) of the Regulation,

(b) in the case of equity securities ofa class for which there is nopublished market but that arecurrently convertible into a classof equity securities for whichthere is a published market, theproduct of

(i) the number of equitysecurities into which theconvertible securities wereconvertible as at the close ofbusiness on the last businessday of the calendar monthpreceding the calendar monthin which the transaction isagreed to or, if no convertiblesecurities were outstanding orconvertible on that day, onthe first business day afterthat day that the convertiblesecurities became outstandingor convertible, so long as thatday precedes the date thetransaction is agreed to, and

(ii) the market price of thesecurities into which theconvertible securities wereconvertible, on the publishedmarket on which the class ofsecurities is principallytraded, at the business dayreferred to in subparagraph(i), as determined inaccordance with subsections183(1), (2) and (4) of theRegulation, and

(c) in the case of equity securities ofa class not referred to inparagraphs (a) or (b), the amountdetermined by the issuer's boardof directors in good faith torepresent the market price of theoutstanding securities of thatclass;

"minority approval" means, for agoing private transaction or relatedparty transaction in respect of anissuer, approval of the proposedtransaction by a majority of the votescast by holders of each class ofaffected securities specified by section8.1 at a meeting of securityholders ofthat class called to consider thetransaction;

"OBCA" means the BusinessCorporations Act;

"offeree security" means a securitythat is subject to an insider bid or anissuer bid;

"participating security" means asecurity of an issuer that carries aresidual right to participate in theearnings of the issuer and, upon theliquidation or winding up of theissuer, in its assets;

"prior valuation" means a valuation orappraisal of an issuer or its securitiesor material assets, whether or notprepared by an independent valuator,that, if disclosed, would reasonably beexpected to affect the decision of abeneficial owner to vote for or againsta transaction, or to retain or disposeof affected securities or offereesecurities, other than

(a) a report of a valuation orappraisal prepared for the issuerby another person or company, if

(i) the report was not solicitedby the issuer, and

(ii) the person or companypreparing the report did sowithout knowledge of anymaterial non-publicinformation concerning theissuer, its securities or any ofits material assets,

(b) in respect of a transactioninvolving an issuer, an internalvaluation or appraisal preparedfor the issuer in the ordinarycourse of business that has notbeen made available to, and hasbeen prepared without theparticipation of

(i) the board of directors of theissuer, or

(ii) any director or senior officerof an interested party, excepta person who is a seniorofficer of the issuer in thecase of an issuer bid,

(i) has been prepared by or forand at the expense of aperson or company other thanthe issuer, an interested party,or an associate or affiliatedentity of the issuer or aninterested party, and

(ii) is either generally available toclients of the analyst or of theanalyst's employer or of anaffiliated entity or associateof the analyst's employer or,if not, is not based, so far asthe person or companyrequired to disclose a priorvaluation is aware, on anymaterial non-publicinformation concerning theissuer, its securities or any ofits material assets,

(d) a valuation or appraisal preparedby a person or company or aperson or company retained bythe person or company, for thepurpose of assisting the person orcompany in determining the priceat which to propose a transactionthat resulted in the person orcompany becoming an issuerinsider, if the valuation orappraisal is not made available toany of the independent directorsof the issuer, or

(e) a valuation or appraisal preparedby an interested party or a personor company retained by theinterested party, for the purposeof assisting the interested party indetermining the price at which topropose a transaction that, ifpursued, would be an insider bid,going private transaction orrelated party transaction, if thevaluation or appraisal is not madeavailable to any of theindependent directors of theissuer;

"related party" of an issuer or of aninterested party in connection with atransaction, as the case may be, meansa person or company, other than abona fide lender, that, at the relevanttime and after reasonable inquiry, isknown by the issuer, the interestedparty or a director or senior officer ofthe issuer or interested party to be

(a) a person or company, whetheralone or jointly or in concert withothers, that holds securities of theissuer or of the interested partysufficient to affect materially thecontrol of the issuer or of theinterested party,

(b) a person or company in respect ofwhich a person or companyreferred to in paragraph (a),whether alone or jointly or inconcert with others, holdssecurities sufficient to affectmaterially the control of the first-mentioned person or companyreferred to in this paragraph (b),

(c) a person or company in respect ofwhich the issuer or the interestedparty, whether alone or jointly orin concert with others, holdssecurities sufficient to affectmaterially the control of theperson or company,

(d) a person or company thatbeneficially owns, or exercisescontrol or direction over, votingsecurities of the issuer or of theinterested party carrying morethan 10 percent of the votingrights attached to all of the issuedand outstanding voting securitiesof the issuer or of the interestedparty,

(e) a director or senior officer

(i) of the issuer or of theinterested party, or

(ii) of a related party within themeaning of paragraph (a), (b)(c), (d), (f) or (g) of the issueror of the interested party,

(f) a person or company thatmanages or directs, to anysubstantial degree, the affairs oroperations of the issuer or theinterested party under anagreement, arrangement orunderstanding between the personor company and the issuer or theinterested party, including thegeneral partner of an issuer orinterested party that is a limitedpartnership, and

(g) an affiliated entity of, a personcontrolling, or a companycontrolled by, any of the personsor companies described inparagraphs (a) through (f);

"stock exchange insider bid" means aninsider bid described in subclause(b)(i) of the definition of "formal bid"in subsection 89(1) of the Act;

"stock exchange issuer bid" means anissuer bid described in subclause (b)(i)of the definition of "formal bid" insubsection 89(1) of the Act; and

"valuation date" means, in respect ofa transaction, the effective date of aformal valuation for the transaction.

(2) For the purposes of this Rule, aperson or company, whether alone orjointly or in concert with others, thatbeneficially owns, or exercises controlor direction over, voting securities towhich are attached more than 20percent of the votes attached to all ofthe outstanding voting securities ofanother person or company, isconsidered, in the absence ofevidence to the contrary, to holdsecurities sufficient to affectmaterially the control of thatperson or company.

(3) For the purposes of the Act, theregulations and the rules,

"going private transaction" means anamalgamation, arrangement,consolidation, amendment to theterms of a class of participatingsecurities of the issuer or any othertransaction with or involving a personor company that is a related party ofthe issuer at the time the transaction isagreed to, as a consequence of whichthe interest of a beneficial owner of aparticipating security of the issuer inthat security may be terminatedwithout the beneficial owner's consent,other than

(a) an acquisition of a participatingsecurity of an issuer under astatutory right of compulsoryacquisition,

(b) a share consolidation that doesnot have the effect of terminatingthe interests of the beneficialowners of participating securitiesof an issuer in those securitieswithout their consent except to anextent that is nominal in thecircumstances,

(c) a redemption of, or othercompulsory termination of, abeneficial owner's interest in aparticipating security of an issuerin accordance with and under theterms attached to the class ofsecurities of which theparticipating security forms apart,

(d) a proceeding under the liquidationor dissolution provisions of thestatute under which the issuer isorganized or is governed as tocorporate law matters, or

(e) a transaction in which the relatedparty or an affiliated entity of therelated party

(i) is only entitled to receive,directly or indirectly,consequent upon thetransaction a considerationper security that is identicalin amount and type to thatpaid to all other beneficialowners in Canada of affectedsecurities of the same class,

(ii) is not entitled to receive,directly or indirectly,consequent upon thetransaction consideration ofgreater value than that paid toall other beneficial owners ofaffected securities of the sameclass, and

(iii) upon completion of thetransaction does notbeneficially own or exercisecontrol or direction overparticipating securities of aclass other than affectedsecurities;

"insider bid" means a take-over bidmade by

(a) an issuer insider of the offereeissuer,

(b) an associate or affiliated entity ofthe issuer insider,

(d) an offeror acting jointly or inconcert with a person or companyreferred to in paragraphs (a), (b)or (c); and

"related party transaction" means, inrespect of an issuer, a transactionbetween or involving the issuer and aperson or company that is a relatedparty of the issuer at the time thetransaction is agreed to, whether ornot there are also other parties to thetransaction, as a consequence ofwhich, either by itself or together withother related transactions between orinvolving the issuer and the relatedparty or a person or company actingjointly or in concert with the relatedparty, whether or not there are alsoother parties to the transaction, theissuer directly or indirectly

(a) purchases or acquires an assetfrom the related party forvaluable consideration,

(b) purchases or acquires, jointly orin concert with the related party,an asset from a third party if theproportion of the asset acquiredby the issuer is less than theproportion of the considerationpaid by the issuer,

(d) sells, transfers or disposes of anasset to the related party,

(e) sells, transfers or disposes of,jointly or in concert with therelated party, an asset to a thirdparty if the proportion of theconsideration received by theissuer is less than the proportionof the asset sold, transferred ordisposed of by the issuer,

(f) leases property to or from therelated party,

(g) issues a security to the relatedparty or subscribes for a securityof the related party,

(h) amends or agrees to theamendment of the terms of asecurity of the issuer if thesecurity is beneficially owned oris one over which control ordirection is exercised by therelated party, or agrees to theamendment of the terms of asecurity of the related party if thesecurity is beneficially owned bythe issuer or is one over which theissuer exercises control ordirection,

(i) borrows money from or lendsmoney to the related party,

(j) releases, cancels or forgives adebt or liability owed by therelated party,

(k) provides a guarantee or collateralsecurity for a debt or liability ofthe related party, or amends oragrees to the amendment of theterms of the guarantee or security,

(l) is a party to an amalgamation,arrangement or merger with therelated party, other than atransaction referred to inparagraph (m), or

(m) participates in a transaction withthe related party that is a goingprivate transaction in respect ofthe related party or would be agoing private transaction inrespect of the related party exceptthat it comes within the exceptionin paragraph (e) of the definitionof going private transaction.

1.2 Application of Part XX of the Act

(1) For the purposes of this Rule,

(a) "formal bid" and "offeror" havethe respective meanings ascribedto those terms in subsection 89(1)of the Act; and

(b) "acting jointly or in concert" hasthe meaning ascribed to thatphrase in section 91 of the Act.

(2) For the purposes of the definition ofrelated party and subsection 1.1(2),section 90 of the Act applies indetermining beneficial ownership ofsecurities.

1.3 Liquid Market in a Class of Securities

(1) For the purposes of this Rule, a liquidmarket in a class of securities of anissuer in respect of a transactioninvolving an issuer exists at aparticular time only

(a) if

(i) there is a published marketfor the class of securities,

(ii) during the period of 12months before the date thetransaction is agreed to in thecase of a related partytransaction or 12 monthsbefore the date an insider bid,issuer bid, or going privatetransaction is announced, inthe case of an insider bid,issuer bid, or going privatetransaction

(A) the number ofoutstanding securities ofthe class was at all timesat least 5,000,000,excluding securitiesbeneficially owned,directly or indirectly, orover which control ordirection was exercised,by related parties andsecurities that were notfreely tradeable,

(B) the aggregate tradingvolume of the class ofsecurities on thepublished market onwhich that class isprincipally traded was atleast 1,000,000securities,

(C) there were at least 1,000trades in securities of theclass on the publishedmarket on which thatclass is principallytraded, and

(D) the aggregate tradingvalue based on the priceof the trades referred toin clause (C) was at least$15,000,000, and

(iii) the market value of the classof securities on the publishedmarket on which that class isprincipally traded, asdetermined in accordancewith subsections (2) and (3),was at least $75,000,000 forthe calendar month precedingthe calendar month

(A) in which the transactionis agreed to, in the caseof a related partytransaction, or

(B) in which the transactionis announced, in the caseof an insider bid, issuerbid or going privatetransaction, or

(b) if the test set out in paragraph (a)is not met,

(i) there is a published marketfor the class of securities,

(ii) a qualified person orcompany that is independentof all interested parties to thetransaction, as determined inaccordance with section 6.1,provides an opinion to theissuer that there is a liquidmarket in the class at the datethe transaction is agreed to inthe case of a related partytransaction or at the date thetransaction is announced inthe case of an insider bid,issuer bid or going privatetransaction, and

(iii) the opinion is included in adisclosure document for thetransaction, together with astatement that the publishedmarket on which the class isprincipally traded has sent aletter to the Directorindicating concurrence withthe opinion or providing asimilar opinion.

(2) For the purpose of determiningwhether an issuer satisfies the marketvalue requirement of subparagraph(1)(a)(iii), the market value of a classof securities for the calendar month iscalculated by multiplying

(a) the number of securities of theclass outstanding as at the closeof business on the last businessday of the calendar month; by

(b) if

(i) the published market providesa closing price for thesecurities, the arithmeticaverage of the closing pricesof the securities of that classon the published market onwhich that class is principallytraded for each of the tradingdays during the calendarmonth, or

(ii) the published market does notprovide a closing price, butprovides only the highest andlowest prices of securitiestraded on a particular day,the arithmetic average of thesimple averages of the highestand lowest prices of thesecurities of that class on thepublished market on whichthat class is principally tradedfor each of the trading daysfor which the securitiestraded during the calendarmonth.

(3) For the purposes of subsection (2), incalculating the number of securities ofthe class, an issuer shall exclude thosesecurities of the class that werebeneficially owned, directly orindirectly, or over which control ordirection was exercised, by relatedparties and securities that were notfreely tradeable.

(4) An issuer that relies on an opinionreferred to in paragraph (1)(b) shallcause the letter referred to insubparagraph (1)(b)(iii) to beprovided promptly to the Director.

1.4 Arm's Length Dealings

(1) It is a question of fact whether two ormore persons or companies act,negotiate or deal with each other atarm's length.

(2) Despite subsection (1), an issuer doesnot act, negotiate or deal at arm'slength with a related party of theissuer and an interested party does notact, negotiate or deal at arm's lengthwith a related party of the interestedparty.

1.5 Interpretation

(1) In this Rule, a person or company isconsidered to be an affiliated entity ofanother person or company if one is asubsidiary entity of the other or if bothare subsidiary entities of the sameperson or company, or if each of themis controlled by the same person orcompany.

(2) In this Rule, a person or company isconsidered to be a subsidiary entity ofanother person or company if

(a) it is controlled by

(i) that other, or

(ii) that other and one or morepersons or companies, eachof which is controlled by thatother, or

(iii) two or more persons orcompanies, each of which iscontrolled by that other; or

(b) it is a subsidiary entity of aperson or company that is thatother's subsidiary entity.

(3) In this Rule for the purposes ofinterpreting the terms "subsidiaryentity" and "affiliated entity", a personor company is considered to becontrolled by another person orcompany if

(a) in the case of a person orcompany

(i) the other person or companybeneficially owns or exercisescontrol or direction overvoting securities of the first-mentioned person or companycarrying more than 50percent of the votes for theelection of directors, and

(ii) the votes carried by thesecurities are entitled, ifexercised, to elect a majorityof the directors of the first-mentioned person orcompany;

(b) in the case of a partnership thatdoes not have directors, other thana limited partnership, the otherperson or company beneficiallyowns or exercises control ordirection over more than 50percent of the interests in thepartnership; or

(4) For the purposes of this Rule, aperson or company is considered to bea wholly-owned subsidiary entity ofan issuer if the issuer owns, directly orindirectly, all the voting and equitysecurities and securities convertible orexchangeable into voting and equitysecurities of the person or company.

PART 2 INSIDER BIDS

2.1 Application

(1) This Part applies to every insider bid,except an insider bid that is exemptfrom Part XX of the Act under

(a) clause 93(1)(a) of the Act, unlessit is a stock exchange insider bid;

(b) clauses 93(1)(b) through (f) of theAct; or

(2) Despite subsection (1), this Part doesnot apply to a take-over bid that is aninsider bid by reason solely of theapplication of section 90 of the Act toan agreement between the offeror anda securityholder of the offeree issuerthat offeree securities beneficiallyowned by the securityholder, or overwhich the securityholder exercisescontrol or direction, will be tenderedto the bid, if

(a) the securityholder is not actingjointly or in concert with theofferor; and

(b) the general nature and materialterms of the agreement to tenderare disclosed in a news releaseand report filed under section 101of the Act or are otherwisegenerally disclosed.

(3) Despite subsection (1), this Part doesnot apply to an MJDS take-over bidcircular, an MJDS directors' circular,or an MJDS director's or officer'scircular, in respect of an insider bid,unless securityholders of the offereeissuer whose last address as shown onthe books of the issuer is in Canada,as determined in accordance withsubsections 12.1(2) through (4) ofNational Instrument 71-101 TheMultijurisdictional Disclosure System,hold 20 percent or more of the class ofsecurities that is the subject of the bid.

(4) For the purpose of subsection (3), theterms "MJDS take-over bid circular","MJDS directors' circular" and"MJDS director's or officer'scircular" have the meaning ascribed tothose terms in National Instrument 71-101.

2.2 Disclosure

(1) An offeror shall disclose in adisclosure document for an insider bid

(a) the background to the insider bid;and

(b) in accordance with section 6.8,every prior valuation in respect ofthe offeree issuer

(i) that has been made in the 24months before the date of theinsider bid, and

(ii) the existence of which isknown after reasonableinquiry to the offeror or anydirector or senior officer ofthe offeror.

(2) An offeror shall include in therequired disclosure document for astock exchange insider bid thedisclosure required by Form 33 of theRegulation, appropriately modified.

(3) The board of directors of an offereeissuer shall

(a) disclose in the directors' circularfor an insider bid in accordancewith section 6.8 every priorvaluation in respect of the offereeissuer not disclosed in thedisclosure document for theinsider bid

(i) that has been made in the 24months before the date of theinsider bid, and

(ii) the existence of which isknown after reasonableinquiry to the offeree issueror to any director or seniorofficer of the offeree issuer;

(b) disclose in the directors' circulara description of the background tothe insider bid to the extent thebackground has not beendisclosed in the disclosuredocument for the insider bid;

(c) disclose in the directors' circularany bona fide prior offer thatrelates to the offeree securities oris otherwise relevant to the insiderbid, which offer was received bythe issuer during the 24 monthsbefore the insider bid waspublicly announced, and adescription of the offer and thebackground to the offer; and

(d) include in the directors' circular adiscussion of the review andapproval process adopted by theboard of directors and theindependent committee, if any, ofthe offeree issuer for the insiderbid, including any materiallycontrary view or abstention by adirector and any materialdisagreement between the boardand the independent committee.

2.3 Formal Valuation

(1) Subject to section 2.4, the offeror inan insider bid shall

(a) obtain, at its own expense, aformal valuation;

(b) provide the disclosure required bysection 6.2;

(c) disclose, in accordance withsection 6.5, a summary of theformal valuation in the disclosuredocument for the insider bid,unless the formal valuation isincluded in its entirety in thedisclosure document; and

(d) comply with the other provisionsof Part 6 applicable to it relatingto formal valuations.

(2) An independent committee of theofferee issuer shall, and the offerorshall enable the independentcommittee to

(a) determine who the valuator willbe; and

(b) supervise the preparation of theformal valuation.

2.4 Exemptions from Formal ValuationRequirement

(1) Section 2.3 does not apply to anofferor in connection with an insiderbid in any of the followingcircumstances if the facts supportingreliance upon an exemption aredisclosed in the disclosure documentfor the insider bid:

1. Discretionary Exemption - The offerorhas been granted an exemption fromsection 2.3 under section 9.1.

2. Lack of Knowledge andRepresentation - The offeror does nothave and has not had within thepreceding 12 months any board ormanagement representation in respectof the offeree issuer and has noknowledge of any material non-publicinformation concerning the offereeissuer or its securities.

3. Previous Arm's Length Negotiations -If

(a) the consideration under the insiderbid is at least equal in value toand is in the same form as thehighest consideration agreed towith one or more sellingsecurityholders of the offereeissuer in arm's length negotiations

(i) in connection with the makingof the insider bid,

(ii) in connection with anothertransaction involvingsecurities of the class ofofferee securities, if theagreement was entered intonot more than 12 monthsbefore the date of the firstpublic announcement of thebid, or

(iii) in connection with two ormore transactions or acombination of transactionsreferred to in subparagraphs(i) and (ii),

(b) at least

(i) one of the sellingsecurityholders party to anagreement referred to insubparagraph (a)(i) or (ii)beneficially owns or exercisescontrol or direction over, orbeneficially owned orexercised control or directionover, and agreed to sell,

(A) at least five percent ofthe outstanding securitiesof the class of offereesecurities, as determinedin accordance withsubsection (2), if theofferor beneficiallyowned, directly orindirectly, 80 percent ormore of the outstandingsecurities of the class ofofferee securities, asdetermined in accordancewith subsection (2), or

(B) at least 10 percent of theoutstanding securities ofthe class of offereesecurities, as determinedin accordance withsubsection (2), if theofferor beneficiallyowned, directly orindirectly, less than 80percent of theoutstanding securities ofthe class of offereesecurities, as determinedin accordance withsubsection (2), and

(c) one or more of the sellingsecurityholders party to any of thetransactions referred to inparagraph (a) beneficially ownsor exercises control or directionover, or beneficially owned orexercised control or directionover, and agreed to sell, in theaggregate, at least 20 percent ofthe outstanding securities of theclass of offeree securities, asdetermined in accordance withsubsection (3), beneficiallyowned, or over which control ordirection is exercised, by personsor companies other than theofferor and persons or companiesacting jointly or in concert withthe offeror,

(d) the offeror reasonably believes,after reasonable inquiry, that atthe time of each of the agreementsreferred to in paragraph (a)

(i) each selling securityholderparty to the agreement hadfull knowledge and access toinformation concerningthe offeree issuer and itssecurities, and

(ii) any factors peculiar to aselling securityholder party tothe agreement, including non-financial factors, that wereconsidered relevant by thatselling securityholder inassessing the considerationdid not have the effect ofreducing the price that wouldotherwise have beenconsidered acceptable by thatselling securityholder,

(e) at the time of each of theagreements referred to inparagraph (a), the offeror did notknow, and to the knowledge of theofferor, after reasonable inquiry,no selling securityholder party tothe agreement knew, of anymaterial non-public information inrespect of the offeree issuer or theofferee securities that,

(i) was not disclosed generally,and

(ii) if disclosed, could havereasonably been expected toincrease the agreedconsideration,

(f) any of the agreements referred toin paragraph (a) was entered intowith a selling securityholder by aperson or company other than theofferor, the offeror reasonablybelieves, after reasonable inquiry,that at the time of that agreement,the person or company did notknow of any material non-publicinformation in respect of theofferee issuer or the offereesecurities that

(i) was not disclosed generally,and

(ii) if disclosed, could havereasonably been expected toincrease the agreedconsideration, and

(g) the offeror does not know, afterreasonable inquiry, of anymaterial non-public information inrespect of the offeree issuer or theofferee securities since the time ofeach of the agreements referred toin paragraph (a) that has not beendisclosed generally and couldreasonably be expected toincrease the value of the offereesecurities.

4. Auction - If

(a) the insider bid is publiclyannounced or made while

(i) one or more formal bids forsecurities of the same classthat are the subject of theinsider bid have been madeand are outstanding,

(ii) one or more going privatetransactions for securities ofthe same class that are thesubject of the insider bid andascribe a per security value tothose securities areoutstanding, or

(iii) one or more transactions areoutstanding that

(A) would be going privatetransactions in respect ofsecurities of the sameclass that are the subjectof the insider bid exceptthat they come within theexception in paragraph(e) of the definitionof going privatetransaction, and

(B) ascribe a per securityvalue to those securities,

(b) at the time the insider bid is made,the offeree issuer has providedequal access to the offeree issuerand information concerning theofferee issuer and its securities, tothe offeror in the insider bid, allother offerors and all otherpersons or companies thatproposed the transactionsdescribed in subparagraph (ii) or(iii) of paragraph (a), and

(i) includes all material non-public informationconcerning the offeree issuerand its securities that isknown to the offeror afterreasonable inquiry but hasnot been generally disclosed,together with a description ofthe nature of the offeror'saccess to the issuer; and

(ii) states that the offeror doesnot know, after reasonableinquiry, of any material non-public information concerningthe offeree issuer and itssecurities other thaninformation that has beendisclosed under subparagraph(i) or that has otherwise beengenerally disclosed.

(2) For the purpose of paragraph 3(b) ofsubsection (1), the number ofoutstanding securities of the class ofofferee securities

(a) is calculated at the time of theagreement referred to insubparagraph 3(a)(i) or (ii) ofsubsection (1), if the offerorknows the number of securities ofthe class outstanding at that time;or

(b) if paragraph (a) does not apply, isdetermined based upon theinformation most recentlyprovided by the offeree issuer in amaterial change report or undersection 2.1 of National Instrument62-102 Disclosure of OutstandingShare Data, immediatelypreceding the date of theagreement referred to insubparagraph 3(a)(i) or (ii) ofsubsection (1).

(3) For the purpose of paragraph 3(c) ofsubsection (1), the number ofoutstanding securities of the class ofofferee securities

(a) is calculated at the date of the lastof the agreements referred to inparagraph 3(a) of subsection (1),if the offeror knows the number ofsecurities of the class outstandingat that time; or

(b) if paragraph (a) does not apply, isdetermined based upon theinformation most recentlyprovided by the offeree issuer in amaterial change report or undersection 2.1 of National Instrument62-102, immediately precedingthe date of the last of theagreements referred to inparagraph 3(a) of subsection (1).

PART 3 ISSUER BIDS

3.1 Application

(1) This Part applies to every issuer bid,except an issuer bid that is exemptfrom Part XX of the Act under

(a) clauses 93(3)(a) through (d) and(f) through (i) of the Act;

(b) clause 93(3)(e) of the Act, unlessit is a stock exchange issuer bid;or

(2) Despite subsection (1), this Part doesnot apply to a MJDS issuer bidcircular, unless securityholders of theofferee issuer whose last address asshown on the books of the issuer is inCanada, as determined in accordancewith subsections 12.1(2) through (4)of National Instrument 71-101, hold20 percent or more of the class ofsecurities that is the subject of the bid.

(3) For the purpose of subsection (2), theterm "MJDS issuer bid circular" hasthe meaning ascribed to that term inNational Instrument 71-101.

3.2 Disclosure

(1) An issuer shall

(a) include in a disclosure documentfor an issuer bid the disclosurerequired by item 16 of Form 32 ofthe Regulation, to the extentapplicable;

(b) disclose in the disclosuredocument a description of thebackground to the issuer bid;

(c) disclose in the disclosuredocument in accordance withsection 6.8 every prior valuationin respect of the offeree issuer

(i) that has been made in the 24months before the date of theissuer bid, and

(ii) the existence of which isknown after reasonableinquiry to the issuer or to anydirector or senior officer ofthe issuer;

(d) disclose in the disclosuredocument any bona fide prioroffer that relates to the offereesecurities or is otherwise relevantto the issuer bid, which offer wasreceived by the issuer during the24 months before the issuer bidwas publicly announced, and adescription of the offer and thebackground to the offer;

(e) include in the disclosure documenta discussion of the review andapproval process adopted by theboard of directors and theindependent committee, if any, ofthe issuer for the issuer bid,including any materially contraryview or abstention by a directorand any material disagreementbetween the board and theindependent committee; and

(f) include in the disclosure document

(i) a statement of the intention, ifknown to the issuer afterreasonable inquiry, of everyinterested party to accept ornot to accept the issuer bid;and

(ii) a description of the effect thatthe issuer anticipates theissuer bid, if successful,will have on the direct orindirect voting interest inthe issuer of everyinterested party.

(2) An issuer shall include in the requireddisclosure document for a stockexchange issuer bid the applicabledisclosure required by Form 33 of theRegulation.

3.3 Formal Valuation

(1) Subject to section 3.4, an issuer thatmakes an issuer bid shall

(a) obtain a formal valuation;

(b) provide the disclosure required bysection 6.2;

(c) disclose, in accordance withsection 6.5, a summary of theformal valuation in the disclosuredocument for the issuer bid,unless the formal valuation isincluded in its entirety in thedisclosure document;

(d) if there is an interested party otherthan the issuer, state in thedisclosure document who will payor has paid for the valuation; and

(e) comply with the other provisionsof Part 6 applicable to it relatingto formal valuations.

(2) The board of directors of the issuer oran independent committee of the boardshall

(a) determine who the valuator willbe; and

(b) supervise the preparation of theformal valuation.

3.4 Exemptions from Formal ValuationRequirement - Section 3.3 does notapply to an issuer in connection with anissuer bid in any of the followingcircumstances if the facts supportingreliance upon an exemption are disclosedin the disclosure document for the issuerbid:

1. Discretionary Exemption - Theissuer has been granted anexemption from section 3.3 undersection 9.1.

2. Bid for Non-ConvertibleSecurities - The issuer bid is forsecurities that are notparticipating securities and thatare not, directly or indirectly,convertible into or exchangeablefor participating securities.

3. Liquid Market - The issuer bid ismade for securities for which

(a) a liquid market exists,

(b) it is reasonable to concludethat, following the completionof the bid, there will be amarket for beneficial ownersof the securities who do nottender to the bid that is notmaterially less liquid than themarket that existed at thetime of the making of the bid,and

(c) if an opinion referred to insubparagraph (b)(ii) ofsubsection 1.3(1) is provided,the person or companyproviding the opinion reachesthe conclusion described insubparagraph 3(b) of thissection 3.4 and so states in itsopinion.

PART 4 GOING PRIVATE TRANSACTIONS

4.1 Application

(1) Subject to subsection (2), this Partapplies to every going privatetransaction.

(2) This Part does not apply to a goingprivate transaction

(a) if the issuer is not a reportingissuer;

(b) if the issuer is a mutual fund;

(i) persons or companies

(A) whose last address asshown on the books ofthe issuer is in Ontario donot hold more than twopercent of each class ofthe outstanding affectedsecurities of the issuer, or

(B) who are in Ontario andwho beneficially ownaffected securities of theissuer do not beneficiallyown more than twopercent of each class ofthe outstanding affectedsecurities of the issuer,and

(ii) all documents concerning thetransaction that are sentgenerally to other holders ofaffected securities of theissuer are concurrently sent toall holders of the securitieswhose last address as shownon the books of the issuer isin Ontario; or

(d) if the transaction

(i) was announced before thecoming into force of thisRule,

(ii) has not been completedbefore the coming into forceof this Rule,

(iii) is being carried out inaccordance with theguidelines of OntarioSecurities Commission Policy9.1, and

(iv) is completed substantially inaccordance with the termsgenerally disclosed at the timethe transaction wasannounced or thereafterbefore the coming into forceof this Rule.

4.2 Meeting and Information Circular

(1) If minority approval is required to beobtained for a going privatetransaction, the issuer shall

(a) call a meeting of holders ofaffected securities; and

(b) send an information circular toholders of affected securities.

(2) An issuer shall include in theinformation circular referred to inparagraph (1)(b)

(a) the disclosure required by Form33 of the Regulation, to the extentapplicable and with necessarymodifications;

(b) the disclosure required by item 16of Form 32 of the Regulation, tothe extent applicable, togetherwith a description of rights thatmay be available tosecurityholders opposed to thetransaction and of legaldevelopments, if any, relatingto the type of transaction;

(d) disclosure in accordance withsection 6.8 of every priorvaluation in respect of the issuer

(i) that has been made in the 24months before the date of theinformation circular, and

(ii) the existence of which isknown after reasonableinquiry to the issuer or to anydirector or senior officer ofthe issuer;

(e) disclosure of any bona fide prioroffer that relates to the subjectmatter of or is otherwise relevantto the transaction, which offerwas received by the issuer duringthe 24 months before thetransaction was publiclyannounced, and a description ofthe offer and the background tothe offer; and

(f) a discussion of the review andapproval process adopted by theboard of directors and theindependent committee, if any, ofthe issuer for the transaction,including any materially contraryview or abstention by a directorand any material disagreementbetween the board and theindependent committee.

(3) If, after sending the informationcircular referred to in paragraph(1)(b) and before the date of themeeting, a change occurs that, ifdisclosed, would reasonably beexpected to affect the decision of abeneficial owner of affected securitiesto vote for or against the going privatetransaction or to retain or dispose ofaffected securities, the issuer shallpromptly disseminate disclosure of thechange

(a) in a manner that the issuerreasonably determines will informbeneficial owners of affectedsecurities of the change; and

(b) sufficiently in advance of themeeting that the beneficial ownersof affected securities will be ableto assess the impact of thechange.

(4) If subsection (3) applies, the issuershall file a copy of the informationdisseminated contemporaneously withits dissemination.

4.3 Conditions for Relief from Timing forOBCA Information Circular

(1) The conditions for the granting of anexemption from the requirement insubsection 190(3) of the OBCA tosend a management informationcircular not less than 40 days beforethe date of a meeting called toconsider a "going private transaction"as defined in the OBCA are that

(a) Part 4 does not apply to thetransaction by reason ofsubsection 4.1(2);

(b) the transaction is not a goingprivate transaction as defined insubsection 1.1(3); or

(2) If any one of the conditions insubsection (1) applies, an issuer thatproposes to carry out a transactionthat is a "going privatetransaction" as defined in theOBCA

(a) is exempt from the 40 dayrequirement in subsection 190(3)of the OBCA in respect of ameeting called to consider a"going private transaction" asdefined in the OBCA; and

(b) is not required to make anapplication under subsection190(6) of the OBCA for therequisite exemption.

4.4 Formal Valuation

(1) Subject to section 4.5, an issuer whoseaffected securities are the subject of aproposed going private transactionshall

(a) obtain a formal valuation;

(b) provide the disclosure required bysection 6.2;

(c) disclose, in accordance withsection 6.5, a summary of theformal valuation in the disclosuredocument for the going privatetransaction, unless the formalvaluation is included in its entiretyin the disclosure document;

(d) state in the disclosure documentfor the going private transactionwho will pay or has paid for thevaluation; and

(e) comply with the other provisionsof Part 6 applicable to it relatingto formal valuations.

(2) The board of directors of the issuer oran independent committee of the boardshall

(a) determine who the valuator willbe; and

(b) supervise the preparation of theformal valuation.

4.5 Exemptions from Formal ValuationRequirement

(1) Section 4.4 does not apply to an issuerin connection with a going privatetransaction in any of the followingcircumstances if the facts supportingreliance upon an exemption aredisclosed in the disclosure document:

1. Discretionary Exemption - The issuerhas been granted an exemption fromsection 4.4 under section 9.1.

2. Previous Arm's Length Negotiations -If

(a) the consideration under the goingprivate transaction is at leastequal in value to and is in thesame form as the highestconsideration agreed to with oneor more selling securityholders ofthe issuer in arm's lengthnegotiations

(i) in connection with the goingprivate transaction,

(ii) in connection with anothertransaction involvingsecurities of the class ofaffected securities, if theagreement was entered intonot more than 12 monthsbefore the date of the firstpublic announcement of thegoing private transaction, or

(iii) in connection with two ormore transactions or acombination of transactionsreferred to in subparagraphs(i) and (ii),

(b) at least

(A) at least five percent ofthe outstanding securitiesof the class of affectedsecurities, as determinedin accordance withsubsection (2), if theperson or companyproposing the goingprivate transactionbeneficially owned,directly or indirectly, 80percent or more of theoutstanding securities ofthe class of affectedsecurities, as determinedin accordance withsubsection (2), or

(B) at least 10 percent of theoutstanding securities ofthe class of affectedsecurities, as determinedin accordance withsubsection (2), if theperson or companyproposing the goingprivate transactionbeneficially owned,directly or indirectly,less than 80 percent ofthe outstanding securitiesof the class of affectedsecurities, as determinedin accordance withsubsection (2), and

(c) one or more of the sellingsecurityholders party to any of thetransactions referred to inparagraph (a) beneficially ownsor exercises control or directionover, or beneficially owned orexercised control or directionover, and agreed to sell, in theaggregate, at least 20 percent ofthe outstanding securities of theclass of affected securities, asdetermined in accordance withsubsection (3), beneficiallyowned or over which control ordirection is exercised by personsor companies other than aninterested party and persons orcompanies acting jointly or inconcert with an interested party,

(d) the person or company proposingthe going private transactionreasonably believes, afterreasonable inquiry, that at thetime of each of the agreementsreferred to in paragraph (a)

(i) each selling securityholderparty to the agreement hadfull knowledge of and accessto information concerning theissuer and its securities,

(ii) any factors peculiar to aselling securityholder party tothe agreement, including non-financial factors, that wereconsidered relevant by theselling securityholder inassessing the considerationdid not have the effect ofreducing the price that wouldotherwise have beenconsidered acceptable by thatselling securityholder,

(e) at the time of each of theagreements referred to inparagraph (a), the person orcompany proposing the goingprivate transaction did notknow, and to the knowledgeof the person or companyproposing the going privatetransaction, after reasonableinquiry, no sellingsecurityholder party to theagreement knew, of anymaterial non-publicinformation in respect of theissuer or the affectedsecurities that

(i) was not disclosed generally,and

(ii) if disclosed, could havereasonably been expected toincrease the agreedconsideration,

(f) any of the agreements referred toin paragraph (a) was entered intowith a selling securityholder by aperson or company other than theperson or company proposing thegoing private transaction, theperson or company proposing thegoing private transactionreasonably believes, afterreasonable inquiry, that at thetime of that agreement, the personor company did not know of anymaterial non-public information inrespect of the issuer or theaffected securities that,

(i) was not disclosed generally,and

(ii) if disclosed, could havereasonably been expected toincrease the agreedconsideration, and

(g) the person or company proposingthe going private transaction,after reasonable inquiry, does notknow of any material non-publicinformation in respect of theissuer or the affected securitiessince the time of each of theagreements referred to inparagraph (a) that has not beendisclosed generally and couldreasonably be expected toincrease the value of the affectedsecurities.

3. Auction - If

(a) the going private transaction ispublicly announced while

(i) one or more going privatetransactions for the affectedsecurities that ascribe a persecurity value to thosesecurities are outstanding,

(ii) one or more transactions areoutstanding that

(A) would be going privatetransactions in respect ofthe affected securities,except that they comewithin the exception inparagraph (e) of thedefinition of goingprivate transaction, and

(B) ascribe a per securityvalue to those securities,or

(iii) one or more formal bids forthe affected securities havebeen made and areoutstanding, and

(b) at the time the disclosuredocument for the going privatetransaction has been sent, theissuer has provided equal accessto the issuer and informationconcerning the issuer and itssecurities, to the person orcompany proposing the goingprivate transaction, thepersons or companies thathave proposed the othertransactions described inclauses (i) or (ii) ofsubparagraph (a) and theofferors that have made theformal bids.

4. Second Step Going PrivateTransaction - If

(a) the going private transaction inrespect of the offeree issuer isbeing effected by a person orcompany or an affiliated entity ofthe person or company followinga formal bid by the person orcompany and is in respect of theoutstanding securities of the sameclass that were the subject of thebid,

(b) the going private transaction iscompleted no later than 120 daysafter the date of expiry of theformal bid,

(d) the consideration per security paidby the person or company or theaffiliated entity of the person orcompany in the going privatetransaction

(i) is at least equal in value tothe consideration per securitythat was paid by the personor company in the formal bid,and

(ii) is in the same form as theconsideration per securitythat was paid by the personor company in the formal bid,and if the consideration paidconsisted of securities of theperson or company, consistsof the same securities, and

(e) the disclosure document for theformal bid

(i) described the taxconsequences of both theformal bid and the subsequentgoing private transaction, if,at the time of making theformal bid, the taxconsequences arising from thesubsequent going privatetransaction

(A) were known orreasonably foreseeable tothe person or companythat made the formal bid,and

(B) were reasonably expectedto be different from thetax consequences oftendering to the formalbid, or

(ii) disclosed that the taxconsequences of the formalbid and the subsequent goingprivate transaction may bedifferent, if, at the time ofmaking the formal bid, theperson or company that madethe formal bid did not knowor could not reasonablyforesee the tax consequencesarising from the subsequentgoing private transaction.

5. Non-redeemable Investment Fund -The issuer is a non-redeemableinvestment fund that

(a) at least once each quartercalculates and publiclydisseminates the net asset value ofits securities, and

(b) at the time of announcing thegoing private transaction, publiclydisseminates the net asset value ofits securities as at the businessday before announcing the goingprivate transaction.

(2) For the purposes of paragraph 2(b) ofsubsection (1), the number ofoutstanding securities of the class ofaffected securities

(a) is calculated at the time of theagreement referred to insubparagraph 2(a)(i) or (ii) ofsubsection (1), if the person orcompany proposing the goingprivate transaction knows thenumber of securities of the classoutstanding at that time; or

(b) if paragraph (a) does not apply, isdetermined based upon theinformation most recentlyprovided by the issuer of theaffected securities, in a materialchange report or under section 2.1of National Instrument 62-102,immediately preceding the date ofthe agreement referred to insubparagraph 2(a)(i) or (ii) ofsubsection (1).

(3) For the purposes of paragraph 2(c) ofsubsection (1), the number ofoutstanding securities of the class ofaffected securities

(a) is calculated at the date of the lastof the agreements referred to inparagraph 2(a) of subsection (1),if the person or companyproposing the going privatetransaction knows the number ofsecurities of the class outstandingat that time; or

(b) if paragraph (a) does not apply, isdetermined based upon theinformation most recentlyprovided by the issuer of theaffected securities in a materialchange report or under section 2.1of National Instrument 62-102,immediately preceding the date ofthe last of the agreements referredto in paragraph 2(a) of subsection(1).

4.6 Conditions for Relief from OBCAValuation Requirement

(1) The conditions for the granting of anexemption from the requirements ofsubsection 190(2) and clauses190(3)(a) and (c) of the OBCA for atransaction that is a "going privatetransaction" as defined in the OBCAare that

(a) Part 4 does not apply to thetransaction by reason ofsubsection 4.1(2);

(b) the transaction is not a goingprivate transaction as defined insubsection 1.1(3);

(d) the issuer complies with section4.4.

(2) If any one of the conditions referred toin subsection (1) applies, an issuerthat proposes to carry out atransaction that is a "going privatetransaction" as defined in the OBCA

(a) is exempt from the requirementsof subsection 190(2) and clauses190(3)(a) and (c) of the OBCA;and

(b) is not required to make anapplication under subsection190(6) of the OBCA for therequisite exemptions.

4.7 Minority Approval - Subject to section4.8, no going private transaction shall becarried out in respect of an issuer unlessminority approval for the going privatetransaction has been obtained under Part8.

4.8 Exemptions from Minority ApprovalRequirement

(1) Section 4.7 does not apply to a goingprivate transaction in any of thefollowing circumstances if the factssupporting reliance upon anexemption are disclosed in thedisclosure document for the goingprivate transaction:

1. Discretionary Exemption - The issuerhas been granted an exemption fromsection 4.7 under section 9.1.

2. 90 Percent Exemption - Subject tosubsection (2), one or more interestedparties beneficially owns 90 percent ormore of the outstanding securities of aclass of affected securities at the timethat the going private transaction isproposed and either

(a) an appraisal remedy is availableto holders of the class of affectedsecurities under the statute underwhich the issuer is organized or isgoverned as to corporate lawmatters, or

(b) if the appraisal remedy referred toin subparagraph (a) is notavailable, holders of the class ofaffected securities are given anenforceable right that issubstantially equivalent to theappraisal remedy provided for insubsection 185(4) of the OBCAand that is described in thedisclosure document for the goingprivate transaction.

(2) If there are two or more classes ofaffected securities, paragraph 2 ofsubsection (1) applies only to a classfor which the interested partybeneficially owns or the interestedparties beneficially own 90 percent ormore of the outstanding securities ofthe class.

4.9 Conditions for Relief from OBCAMinority Approval Requirement

(1) The conditions for the granting of anexemption from the requirements ofclauses 190(3)(b) and (d) andsubsection 190(4) of the OBCA for atransaction that is a "going privatetransaction" as defined in the OBCAare that

(a) Part 4 does not apply to thetransaction by reason ofsubsection 4.1(2);

(b) the transaction is not a goingprivate transaction as defined insubsection 1.1(3);

(d) the issuer complies with section4.7.

(2) If any one of the conditions referred toin subsection (1) applies, an issuerthat proposes to carry out atransaction that is a "going privatetransaction" as defined in the OBCA

(a) is exempt from the requirementsof clauses 190(3)(b) and (d) andsubsection 190(4) of the OBCA;and

(b) is not required to make anapplication under subsection190(6) of the OBCA for therequisite exemptions.

PART 5 RELATED PARTYTRANSACTIONS

5.1 Application

(1) Subject to subsection (2), this Partapplies to every related partytransaction.

(2) This Part does not apply to a relatedparty transaction

(a) if the issuer is not a reportingissuer;

(b) if the issuer is a mutual fund;

(i) persons or companies

(A) whose last address asshown on the books ofthe issuer is in Ontario donot hold more than twopercent of each class ofthe outstanding affectedsecurities of the issuer, or

(B) who are in Ontario andwho beneficially ownaffected securities of theissuer do not beneficiallyown more than twopercent of each class ofthe outstanding affectedsecurities of the issuer,and

(d) that is a statutory amalgamationbetween

(i) the issuer and one or more ofits wholly-owned subsidiaryentities, but no other personor company, or

(ii) two or more wholly-ownedsubsidiary entities of theissuer, but no other person orcompany;

(e) that is a going private transactionin respect of the issuer carried outin accordance with Part 4 orexempt from Part 4 undersubsection 4.1(2);

(f) that would be a going privatetransaction in respect of the issuerexcept that it comes within theexceptions in paragraphs (a)through (e) of the definition ofgoing private transaction;

(g) that

(i) is part of a series of relatedtransactions that the issuer ora predecessor of the issuernegotiated at arm's lengthwith a person or companythat became a related party ofthe issuer only as aconsequence of one of thetransactions in the series ofrelated transactions, and

(ii) the issuer is obligated to anddoes complete the transactionsubstantially in accordancewith the terms negotiated atarm's length;

(h) that was agreed to by the issuer ora predecessor of the issuer beforeJuly 5, 1991, if the issuer isobligated to complete thetransaction in accordance with theterms agreed to and generallydisclosed at that time or thereafterbefore the coming into force ofthis Rule;

(i) that

(i) was agreed to by the issuer ora predecessor of the issuerafter July 5, 1991 but beforethe coming into force of thisRule,

(ii) has not been completedbefore the coming into forceof this Rule,

(iii) is being carried out inaccordance with theguidelines of OntarioSecurities Commission Policy9.1, and

(iv) the issuer is obligated to anddoes complete the transactionsubstantially in accordancewith the terms agreed to andgenerally disclosed at the timethe transaction was agreed toor thereafter before thecoming into force of thisRule;

(j) if

(i) the transaction was agreed toby the issuer or a predecessorof the issuer on or before thedate that the issuer became areporting issuer, and

(ii) the issuer is obligated to anddoes complete the transactionsubstantially in accordancewith the terms agreed to andgenerally disclosed at the timethe transaction was agreed toor thereafter on or before thedate that the issuer became areporting issuer;

(k) if the transaction represents anissuance or transfer by an issuerof securities upon the exercise bya holder of a right to purchase,convert, exchange or retractpreviously granted by the issuer,which right is attached to a classof securities for which there is apublished market, and the issueris obligated to complete thetransaction;

(l) that is carried out by an issuer towhich the Rule In the Matter ofCertain Trades in Securities ofJunior Resource Issuers (1997),20 OSCB 1218, as amended by(1999), 22 OSCB 2152, or anysuccessor to that Rule applies, inaccordance with that Rule or anysuccessor to that Rule; or

(m) that is a distribution

(i) of the securities of an issuerand is a related partytransaction in respect of theissuer solely because theinterested party is anunderwriter of thedistribution, and

(ii) carried out in compliancewith, or under an exemptionfrom, the requirements of

(A) until MultilateralInstrument 33-105Underwriting Conflictscomes into force, PartXIII of the Regulation,and

(B) after MultilateralInstrument 33-105 comesinto force, thatMultilateral Instrument.

(3) This Part does not apply to a personor company that is subject to therequirements of Part IX of the Loanand Trust Corporations Act, Part XIof the Bank Act (Canada), Part XI ofthe Insurance Companies Act(Canada), or Part XI of the Trust andLoan Companies Act (Canada), andthe person or company complies withthose provisions.

5.2 Disclosure: News Release and MaterialChange Report

(1) An issuer shall include in a materialchange report required to be filedunder the Act for a related partytransaction

(a) a description of the transactionand its material terms;

(b) the purpose and business reasonsfor the transaction;

(d) a description of

(i) the interest in the transactionof every interested party thatis expected to receive,directly or indirectly, as aconsequence of thetransaction, a benefit that isnot also expected to bereceived on a pro rata basisby all other holders ofaffected securities, and theissuer insiders, associates,affiliated entities and otherrelated parties of thatinterested party,

(ii) the effect of the transactionon every person or companyreferred to in subparagraph(i), and

(iii) the nature of any benefit thatwill accrue as a consequenceof the transaction to everyperson or company referredto in subparagraph (i);

(e) if subsection 5.4(2) does notapply to the issuer, a discussionof the review and approvalprocess adopted by the board ofdirectors, and the independentcommittee, if any, of the issuerfor the transaction, including anymaterially contrary view orabstention by a director and anymaterial disagreement between theboard and the independentcommittee;

(f) a summary in accordance withsection 6.5 of the formalvaluation, if any, obtained for thetransaction, unless the formalvaluation is included in its entiretyin the material change report orwill be included in its entirety inanother disclosure document forthe transaction;

(g) disclosure in accordance withsection 6.8 of every priorvaluation in respect of the issuerthat has been made in the 24months before the date of thematerial change report

(i) that relates to the subjectmatter of or is otherwiserelevant to the transaction,and

(ii) the existence of which isknown after reasonableinquiry to the issuer or to anydirector or senior officer ofthe issuer; and

(h) the general nature and materialterms of any agreement enteredinto by the issuer, or a relatedparty of the issuer, with aninterested party, or a person orcompany acting jointly or inconcert with an interested party,in connection with the transaction.

(2) If a material change report is filed bya reporting issuer less than 21 daysbefore the expected date of closing ofthe transaction, the issuer shallexplain in the news release required tobe issued under the Act and materialchange report why the shorter periodis reasonable or necessary in thecircumstances.

(3) Despite paragraph (1)(f), if an issueris required to include a summary ofthe formal valuation in the materialchange report and the formalvaluation is not available at the timethe issuer files the material changereport, the issuer shall file asupplementary material change reportcontaining the disclosure required byparagraph (1)(f) as soon as the formalvaluation is available.

5.3 Copy of Material Change Report - Anissuer shall send a copy of any materialchange report prepared by it in respect ofthe related party transaction to anysecurityholder of the issuer upon requestand without charge.

5.4 Meeting and Information Circular

(1) If minority approval is required to beobtained for a related partytransaction, the issuer shall

(a) call a meeting of holders ofaffected securities; and

(b) send an information circular toholders of affected securities.

(2) An issuer shall include in theinformation circular referred to inparagraph (1)(b)

(a) the disclosure required by Form33 of the Regulation, to the extentapplicable and with necessarymodifications;

(d) disclosure in accordance withsection 6.8 of every priorvaluation in respect of the issuerthat relates to the subject matterof or is otherwise relevant to thetransaction

(i) that has been made in the 24months before the date of theinformation circular, and

(ii) the existence of which isknown after reasonableinquiry to the issuer or to anydirector or senior officer ofthe issuer;

(e) disclosure of any bona fide prioroffer that relates to the subjectmatter of or is otherwise relevantto the transaction, which wasreceived by the issuer during the24 months before the transactionwas publicly announced, and adescription of the offer and thebackground to the offer; and

(3) If, after sending the informationcircular referred to in paragraph(1)(b) and before the date of themeeting, a change occurs that would,if disclosed, reasonably be expected toaffect the decision of a beneficialowner of affected securities to vote foror against the related party transactionor to retain or dispose of affectedsecurities, the issuer shall promptlydisseminate disclosure of the change

(a) in a manner that the issuerreasonably determines will informbeneficial owners of affectedsecurities of the change; and

(b) sufficiently in advance of themeeting that the beneficial ownersof affected securities will be ableto assess the impact of thechange.

(4) If subsection (3) applies, the issuershall file a copy of the informationdisseminated contemporaneously withits dissemination.

5.5 Formal Valuation

(1) Subject to section 5.6, an issuerinvolved in a related party transactionshall

(a) obtain a formal valuation;

(b) provide the disclosure required bysection 6.2;

(c) disclose, in accordance withsection 6.5, a summary of theformal valuation in the disclosuredocument for the related partytransaction, unless the formalvaluation is included in its entiretyin the disclosure document;

(d) state in the disclosure documentfor the related party transactionwho will pay or has paid for thevaluation; and

(e) comply with the other provisionsof Part 6 applicable to it relatingto formal valuations.

(2) The board of directors of the issuer oran independent committee of the boardshall

(a) determine who the valuator willbe; and

(b) supervise the preparation of theformal valuation.

5.6 Exemptions from Formal ValuationRequirement - Section 5.5 does notapply to an issuer in connection with arelated party transaction in any of thefollowing circumstances if the factssupporting reliance upon an exemptionare disclosed in both the material changereport referred to in section 5.2 and theinformation circular referred to inparagraph (b) of subsection 5.4(1):

1. Discretionary Exemption - The issuerhas been granted an exemption fromsection 5.5 under section 9.1.

2. Fair Market Value not more than 25Percent of Market Capitalization -The transaction

(a) is not an amalgamation or merger,whether by way of arrangement orotherwise, and

(b) is one in which at the date thetransaction is agreed to

(i) neither the fair market valueof the subject matter of, northe fair market value of theconsideration for, thetransaction, insofar as itinvolves all interested parties,is greater than 25 percent ofthe issuer's marketcapitalization, or

(ii) if either of the values referredto in clause (i) is not readilydeterminable, the board ofdirectors of the issuer, actingin good faith, determines thatthe value referred to in clause(i) that is not readilydeterminable, is not greaterthan 25 percent of the issuer'smarket capitalization.

3. Amalgamation, Merger orArrangement - The transaction is

(a) an amalgamation, merger orarrangement between anissuer or a wholly-ownedsubsidiary entity of the issuer,and an interested partydescribed in paragraph (c) ofthe definition of related partywithout taking into accountsecurities beneficially ownedby an affiliated entity of theissuer that is not a subsidiaryentity of the issuer, and

(b) one in which, as at the datethe transaction is agreed to

(i) neither the fair marketvalue of the securities ofthe interested partybeneficially owned bypersons or companiesother than the issuer andpersons or companiesacting jointly or inconcert with the issuer,before the transaction,nor the fair market valueof the consideration to bereceived by those personsor companies under thetransaction, is greaterthan 25 percent of theissuer's marketcapitalization, or

(ii) if either of the valuesreferred to in clause (i) isnot readily determinable,the board of directors ofthe issuer, acting in goodfaith, determines that thevalue referred to inclause (i) that is notreadily determinable isnot greater than 25percent of the issuer'smarket capitalization.

4. Certain Transactions in theOrdinary Course of Business -The transaction is

(a) a purchase or sale, in theordinary course of businessof the issuer, of inventoryconsisting of personalproperty under anagreement that has beenapproved by the board ofdirectors of the issuerand the existence ofwhich has been generallydisclosed, or

(b) a lease of real or personalproperty under an agreementon reasonable commercialterms that, considered as awhole, are not lessadvantageous to the issuerthan if the lease was with aperson or company dealing atarm's length with the issuerand the existence of whichhas been generally disclosed.

5. Pro Rata Transaction - If

(a) the transaction consists of

(i) a rights offering made toholders of affectedsecurities,

(ii) a dividend paid in cash orin securities of the issueror a dividend in specie toholders of affectedsecurities,

(iii) a distribution of assets ofthe issuer directly orindirectly to holders ofaffected securities, or

(iv) a reorganization of one ormore classes of anissuer's affectedsecurities to whichsubparagraphs (i), (ii)and (iii) do not apply,and

(b) the interested party is treatedidentically to all other holdersin Canada of affectedsecurities and does notreceive, directly or indirectly,as a consequence of thetransaction consideration ofgreater value than thatreceived on a pro rata basisby all other holders ofaffected securities, exceptthat in the case of a rightsoffering made to holders ofaffected securities, aninterested party may providea stand-by commitment, andtake up securities under thestand-by commitment, inaccordance with the terms ofCommission Policy No. 6.2Rights Offerings or asuccessor rule.

6. Negotiated Transaction withArm's Length ControllingShareholder - The interested partybeneficially owns, or exercisescontrol or direction over, votingsecurities of the issuer that carryfewer voting rights than the votingsecurities beneficially owned, orover which control or direction isexercised, by anothersecurityholder of the issuer whoseholding affects materially thecontrol of the issuer and who, inthe circumstances of thetransaction

(a) is not also a party to thetransaction,

(b) is dealing at arm's length withthe interested party,

(d) is treated identically to allother holders in Canada ofaffected securities and doesnot receive, directly orindirectly, as aconsequence of thetransaction a benefit thatis not also received on apro rata basis by all otherholders of affectedsecurities.

7. Bankruptcy, Insolvency orReorganization - If

(a) the transaction is subject tocourt approval under

(i) the Bankruptcy andInsolvency Act (Canada)or the Companies'Creditors ArrangementAct (Canada),

(ii) section 191 of theCanada BusinessCorporations Act(Canada), or

(iii) bankruptcy or insolvencylaws of anotherjurisdiction or foreignjurisdiction that areapplicable to thetransaction,

(b) the issuer advises the court ofthe requirements of this Rule,and

8. Financial Hardship - If

(a) the issuer is insolvent or inserious financial difficulty,

(b) the transaction is designed toimprove the financial positionof the issuer,

(d) the board of directors of theissuer, acting in good faith,determines, and not less thantwo-thirds of the independentdirectors of the issuer, actingin good faith, determine, that

(i) paragraphs (a) and (b)apply, and

(ii) the terms of thetransaction arereasonable in thecircumstances of theissuer.

9. Transaction with Wholly-ownedSubsidiary Entity - Thetransaction is between

(a) an issuer and one or morewholly-owned subsidiaryentities of the issuer and noother person or company,

(b) an issuer that is, directly orindirectly, a wholly-ownedsubsidiary entity of anotherissuer and that issuer and noother person or company, or

10. Transaction with an InterestedParty involving another RelatedParty - If paragraph 9 does notapply, the transaction is betweenan issuer and an interested partydescribed in paragraph (c) of thedefinition of related party, withouttaking into account securitiesbeneficially owned by anaffiliated entity of the issuer thatis not a subsidiary entity ofthe issuer if, to the knowledgeof the issuer after reasonableinquiry, no other related partyof the issuer other than awholly-owned subsidiaryentity of the issuer either

(a) beneficially owns, orexercises control or directionover, other than through therelated party's interest in theissuer, securities in theinterested party that

(i) constitute more than fivepercent of the securitiesof a class of theinterested party, or

(ii) could reasonably beexpected to result in therelated party exercisingcontrol or influence overthe issuer so as to benefitthe interested party, or

(b) receives, directly orindirectly, as a consequenceof the transaction, other thanthrough its security holding inthe interested party referredto in subparagraph (a), abenefit that is not alsoreceived on a pro rata basisby all other holders ofaffected securities.

11. Loan on Commercial Terms - Thetransaction is

(a) a loan, or the creation of, oran advance under, a creditfacility

(i) that is obtained by theissuer from an interestedparty on reasonablecommercial terms thatare not less advantageousto the issuer than if theloan or credit facilitywere obtained from aperson or companydealing at arm's lengthwith the issuer, and

(ii) that is not, directly orindirectly, convertibleinto or exchangeable forparticipating securities orvoting securities of theissuer or a subsidiaryentity of the issuer and isnot otherwiseparticipating in nature oraccompanied by rights toacquire participating orvoting securities of theissuer or a subsidiaryentity of the issuer, and

(iii) for which neitherprincipal nor interest ispayable, directly orindirectly, inparticipating securities orvoting securities of theissuer or a subsidiaryentity of the issuer, or

(b) a payment in cash by theissuer to that interested partyas payment under the loan orcredit facility referred to inparagraph (a).

12. Amalgamation with No AdverseEffect on Issuer or Minority - Thetransaction is a statutoryamalgamation between the issueror a wholly-owned subsidiaryentity of the issuer and aninterested party that is undertakenin whole or in part for the benefitof another related party, if

(a) the transaction does not andwill not have any adverse taxor other consequences to theissuer, a company resultingfrom the amalgamation orbeneficial owners of affectedsecurities generally,

(b) no material actual orcontingent liability of theinterested party with whichthe issuer or a wholly-ownedsubsidiary entity of the issueris amalgamating will beassumed by the issuer, thewholly-owned subsidiaryentity of the issuer or asuccessor to the issuer,

(c) the related party agrees toindemnify the issuer againstany and all liabilities of theinterested party with whichthe issuer, or a wholly-ownedsubsidiary entity of the issueris amalgamating,

(d) after the transaction, thenature and extent of theequity participation of holdersof affected securities in theamalgamated entity will bethe same as, and the value oftheir equity participation willnot be less than, the value oftheir interest in the issuerbefore the transaction, and

(e) the related party pays for allof the costs and expenses ofor relating to or resultingfrom the transaction.

13. Transaction Size - Thetransaction is one in which, at thedate the transaction is agreed to

(a) neither the fair market valueof the subject matter of, northe fair market value of theconsideration for, thetransaction is $500,000 ormore, or

(b) if either of the values referredto in subparagraph (a) is notreadily determinable, theboard of directors of theissuer that is the subject ofthe related party transaction,acting in good faith,determines that the valuereferred to in subparagraph(a) that is not readilydeterminable is less than$500,000.

14. Distribution of Listed Securities -The transaction involves adistribution by an issuer of itssecurities to an interested partyfor cash consideration, if

(a) the securities have been listedand posted for trading on TheToronto Stock Exchange, TheMontreal Exchange or theCanadian Venture Exchangeor any predecessor market tothose stock exchanges for the12 months immediatelypreceding the date that thetransaction is agreed to,

(b) a liquid market for thesecurities exists,

(c) neither the issuer nor, to theknowledge of the issuer afterreasonable inquiry, theinterested party hasknowledge of any materialnon-public informationconcerning the issuer or itssecurities that has not beengenerally disclosed, and thedisclosure document for therelated party transactionincludes a statement tothat effect, and

(d) the disclosure document forthe related party transactionincludes a description of theeffect of the distribution onthe direct or indirect votinginterest of the interestedparty.

15. Asset Resale - The subject matterof the related party transactionwas acquired by the issuer or aninterested party, as the case maybe, in a prior transaction with aperson or company acting at arm'slength that was agreed to notmore than 12 months before thedate that the related partytransaction is agreed to and aqualified valuator, independent ofall interested parties to thetransaction, as determined inaccordance with section 6.1,provides a written opinion that,after making such adjustments, ifany, as the valuator considersappropriate in the exercise of thevaluator's professional judgment

(a) the value of the considerationpayable by the issuer for thesubject matter of the relatedparty transaction is not morethan the value of theconsideration paid by theinterested party in the priorarm's length transaction, or

(b) the value of the considerationto be received by the issuerfor the subject matter of therelated party transaction isnot less than the value of theconsideration paid by theissuer in the prior arm'slength transaction.

16. Non-redeemable Investment Fund- The issuer is a non-redeemableinvestment fund that

(a) at least once each quartercalculates and publiclydisseminates the net assetvalue of its securities, and

(b) at the time of announcing therelated party transaction,publicly disseminates the netasset value of its securities asat the business day beforeannouncing the related partytransaction.

5.7 Minority Approval - Subject to section5.8, an issuer shall not carry out a relatedparty transaction unless minorityapproval for the related party transactionhas been obtained under Part 8.

5.8 Exemptions from Minority Approval

(1) Section 5.7 does not apply to an issuerin connection with a related partytransaction in any of the followingcircumstances if the facts supportingreliance upon an exemption aredisclosed in both the material changereport referred to in section 5.2 andthe information circular referred to inparagraph (b) of subsection 5.4(1):

1. Discretionary Exemption - Theissuer has been granted anexemption from section 5.7 undersection 9.1.

2. Fair Market Value not more than25 Percent of MarketCapitalization - Thecircumstances described inparagraph 2 or 3 of section 5.6.

3. Other Transactions Exempt fromFormal Valuation - Thecircumstances described inparagraph 4, 5, 6, 9, 10, 11or 12 of section 5.6.

4. Bankruptcy - The circumstancesdescribed in subparagraphs 7(a)and 7(b) of section 5.6, if thecourt does not require compliancewith section 5.7.

5. Financial Hardship - Thecircumstances described inparagraph 8 of section 5.6, ifthere is no other requirement,corporate or otherwise, to hold ameeting to obtain any approval ofthe holders of any class ofaffected securities.

6. 90 Percent Exemption - Subject tosubsection (2), one or moreinterested parties beneficiallyowns 90 percent or more of theoutstanding securities of a classof affected securities at the timethat the related party transactionis proposed and either

(a) an appraisal remedy isavailable to holders of theclass of affected securitiesunder the statute under whichthe issuer is organized or isgoverned as to corporate lawmatters, or

(b) if the appraisal remedyreferred to in subparagraph(a) is not available, holders ofthe class of affected securitiesare given an enforceable rightthat is substantiallyequivalent to the appraisalremedy provided for insubsection 185(4) of theOBCA and that is describedin an information circular orother document sent tosecurityholders in connectionwith a meeting to approve therelated party transaction.

(2) If there are two or more classes ofaffected securities, paragraph 6 ofsubsection (1) applies only to a classfor which the interested partybeneficially owns, or the interestedparties beneficially own, 90 percent ormore of the outstanding securities ofthe class.

PART 6 FORMAL VALUATIONS ANDPRIOR VALUATIONS

6.1 Independence

(1) Every formal valuation required bythis Rule for a transaction shall beprepared by an independent valuatorfor the transaction having appropriatequalifications.

(2) Subject to subsections (3), (4) and (5),it is a question of fact as to whether

(a) a valuator is independent of aninterested party;

(b) a person or company isindependent of an interested party,for the purpose of subparagraph(b)(ii) of subsection 1.3(1); and

(3) A valuator or a person or companyreferred to in paragraph (2)(b) is notindependent of an interested party inconnection with a transaction if

(a) the valuator or the person orcompany or an affiliated entity ofeither of them is an issuer insider,associate or affiliated entity of theinterested party;

(b) except in the circumstancesdescribed in paragraph (e), andsubject to subsection (5), thevaluator or the person orcompany or an affiliated entity ofeither of them acts as an adviserto the interested party in respectof the transaction;

(c) the compensation of the valuatoror the person or company or anaffiliated entity of either of themdepends in whole or in part uponan agreement, arrangement orunderstanding that gives thevaluator or person or company oraffiliated entity of either of them afinancial incentive in respect ofthe conclusions reached in theformal valuation or opinion or theoutcome of the transaction;

(d) the valuator or the person orcompany or an affiliated entity ofeither of them is

(i) a manager or co-manager of asoliciting dealer group formedin respect of the transaction,or

(ii) a member of the solicitingdealer group, if the valuatoror person or company oraffiliated entity of either ofthem, in its capacity as asoliciting dealer, performsservices beyond thecustomary soliciting dealer'sfunction or receives morethan the per security or persecurityholder fees payable toother members of the group;

(e) the valuator or the person orcompany is the independentauditor of the issuer or of aninterested party, or the valuator orperson or company is an affiliatedentity of the auditor, unlessneither the valuator nor the personor company nor an affiliatedentity of either of them will be theindependent auditor of the issueror an interested party uponcompletion of the transaction andthat fact has been publiclydisclosed; or

(f) the valuator or the person orcompany or an affiliated entity ofeither of them has a materialfinancial interest in thecompletion of the transaction.

(4) A valuator or a person or companyreferred to in paragraph (2)(b) that ispaid by one or more interested partiesto a transaction or is paid jointly bythe issuer and one or more interestedparties to a transaction to prepare aformal valuation for a transaction orto provide the opinion referred to insubparagraph (b)(ii) of subsection1.3(1) for a transaction is not, byvirtue of that fact alone, notindependent.

(5) For the purpose of paragraph (3)(b), avaluator or a person or companyreferred to in paragraph (2)(b) that isretained by an issuer to prepare aformal valuation for an issuer bid orto provide the opinion referred to insubparagraph (b)(ii) of subsection1.3(1) for an issuer bid is not, byvirtue of that fact alone, considered tobe an adviser to the interested party inrespect of the transaction.

6.2 Disclosure Re Valuator - An issuer orofferor required to obtain a formalvaluation in respect of a transaction orthat relies on an opinion referred to insubparagraph (b)(ii) of subsection 1.3(1)or paragraph 15 of section 5.6 shallinclude in the disclosure document for thetransaction

(a) a statement that the valuator orthe person or company has beendetermined to be qualified andindependent;

(b) a description of any past, presentor anticipated relationshipbetween the valuator or the personor company and the issuer or aninterested party that may berelevant to a perception of lack ofindependence;

(d) a description of any other factorsrelevant to a perceived lack ofindependence of the valuator orthe person or company;

(e) the basis for determining that thevaluator or the person orcompany is qualified; and

(f) the basis for determining that thevaluator or the person orcompany is independent, despiteany perceived lack ofindependence, including theamount of the compensation orother factors referred to inparagraphs (b) and (d).

6.3 Subject Matter of Formal Valuation

(1) An issuer or offeror required to obtaina formal valuation under this Ruleshall provide the valuation in respectof

(a) the offeree securities, in the caseof an insider bid or issuer bid;

(b) the affected securities, in the caseof a going private transaction;

(d) except as provided in subsection(2), any non-cash considerationbeing offered in or forming part ofthe transaction.

(2) A formal valuation of non-cashconsideration is not required if

(a) the non-cash considerationconsists of securities of a class ofan issuer for which a liquidmarket exists;

(b) the securities offered as non-cashconsideration

(i) constitute 10 percent or lessof the aggregate number ofsecurities of the class that areissued and outstandingimmediately before thedistribution of the securitiesoffered as non-cashconsideration, and

(ii) are freely tradeable;

(d) the issuer or offeror required toobtain the formal valuation statesin the disclosure document for thetransaction that the issuer orofferor has no knowledge of anymaterial non-public informationconcerning the issuer of thesecurities or its securities that hasnot been generally disclosed.

6.4 Preparation of Formal Valuation

(1) A person or company preparing aformal valuation under this Rule shall

(a) prepare the formal valuation in adiligent and professional manner;

(b) prepare the formal valuation as ofan effective date that is not morethan 120 days before the earlier of

(i) the date that a disclosuredocument for the transactionis first sent to securityholders,if applicable, and

(ii) the date that a disclosuredocument is filed;

(c) make appropriate adjustments inthe formal valuation for materialintervening events of which it isaware between the effective dateof the valuation and the earlier ofthe dates referred to in paragraph(b);

(d) in determining fair market valueof securities, not include in theformal valuation a downwardadjustment to reflect the liquidityof the securities, the effect of thetransaction on the securities or thefact that the securities do not formpart of a controlling interest; and

(e) provide sufficient disclosure in theformal valuation to allow thebeneficial owners of the securitiesto understand the principaljudgments and principalunderlying reasoning of thevaluator so as to form a reasonedjudgment of the valuation opinionor conclusion.

(2) National Instrument 52-101 FutureOriented Financial Information doesnot apply to a formal valuation forwhich financial forecasts andprojections are relied upon anddisclosed.

6.5 Summary of Formal Valuation

(1) An issuer or offeror that is required bythis Rule to provide a summary of aformal valuation shall ensure that thesummary provides sufficient detail toallow the beneficial owners of thesecurities to understand the principaljudgments and principal underlyingreasoning of the valuator so as to forma reasoned judgment of the valuationopinion or conclusion.

(2) In addition to the disclosure referredto in subsection (1), if an issuer orofferor is required by this Rule toprovide a summary of a formalvaluation, the issuer or offeror shallensure that the summary

(a) discloses

(i) the valuation date, and

(ii) any distinctive materialbenefit that might accrue toan interested party as aconsequence of thetransaction, including theearlier use of available taxlosses, lower income taxes,reduced costs or increasedrevenues;

(b) if the formal valuation differsmaterially from a prior valuation,explains the differences betweenthe two valuations or, if it is notpracticable to do so, the reasonswhy it is not practicable to do so;

(d) states that a copy of the formalvaluation will be sent to anysecurityholder upon request andwithout charge.

6.6 Filing of Formal Valuation

(1) An issuer or offeror required to obtaina formal valuation in respect of atransaction shall file a copy of theformal valuation

(a) concurrently with the sending ofthe disclosure document for thetransaction to securityholders; or

(b) concurrently with the filing of amaterial change report for arelated party transaction forwhich no disclosure document issent to securityholders, or if theformal valuation is not availableat the time of filing the materialchange report, as soon as theformal valuation is available.

(2) If the formal valuation is included inits entirety in a disclosure document,an issuer or offeror satisfies therequirement in subsection (1) by filingthe disclosure document.

6.7 Valuator's Consent - An issuer orofferor required to obtain a formalvaluation shall

(a) obtain the valuator's consent to itsfiling and to the inclusion of theformal valuation or disclosure ofa summary of the formalvaluation in the disclosuredocument for the transaction forwhich the formal valuation wasobtained; and

(b) include in the disclosure documenta statement signed by the valuatorsubstantially as follows:

We refer to the formalvaluation dated , which weprepared for (indicate nameof the person or company)for (briefly describe thetransaction for which theformal valuation wasprepared). We consent tothe filing of the formalvaluation with the OntarioSecurities Commission andthe inclusion of [a summaryof the formal valuation/theformal valuation] in thisdocument.

6.8 Disclosure of Prior Valuation

(1) A person or company required todisclose a prior valuation shall, in thedocument in which the person orcompany is required to disclose theprior valuation

(a) disclose sufficient detail to enablebeneficial owners of securities tounderstand the prior valuation andits relevance to the presenttransaction;

(b) indicate an address where a copyof the prior valuation is availablefor inspection; and

(2) If there are no prior valuations, theexistence of which is known afterreasonable inquiry, the person orcompany preparing the document inwhich the person or company wouldbe required to disclose the priorvaluation, if one existed, shall includea statement to that effect in thedocument.

(3) Despite anything to the contrarycontained in this Rule, disclosure of aprior valuation is not required in adocument if

(a) the contents of the prior valuationare not known to the person orcompany required under this Ruleto disclose the prior valuation;

(b) the prior valuation is notreasonably obtainable by theperson or company referred to inparagraph (a), irrespective of anyobligations of confidentiality; and

(c) the document contains statementsin respect of the prior valuationsubstantially to the effect ofparagraphs (a) and (b).

6.9 Filing of Prior Valuation - An issuer orofferor required to disclose a priorvaluation shall file a copy of the priorvaluation concurrently with the filing ofthe document to which the prior valuationrelates.

PART 7 INDEPENDENT DIRECTORS

7.1 Independent Directors

(1) Subject to subsections (2) and (3), it isa question of fact as to whether adirector of an issuer is independent.

(2) A director of an issuer is notindependent in connection with atransaction if

(a) the director is currently, or hasbeen at any time during the 12months before the date of thetransaction, an employee, issuerinsider or associate of aninterested party or an affiliatedentity of an interested party, otherthan solely in his or her capacityas a director of the issuer;

(b) the director is currently, or hasbeen at any time during the 12months before the date of thetransaction, an adviser to aninterested party in connection withthe transaction, an employee,issuer insider or associate of anyperson or company acting as anadviser to an interested party inconnection with the transaction oran affiliated entity of the adviser,other than solely in his or hercapacity as a director of theissuer;

(c) the director has a materialfinancial interest in an interestedparty or an affiliated entity of aninterested party or it is anticipatedthat the director will, in the eventthat the transaction is successful,be provided with the opportunityto obtain a material financialinterest in an interested party, anaffiliated entity of the interestedparty, or in the issuer; or

(d) the director would reasonably beexpected to receive a benefit as aconsequence of the transactionthat is not also received on a prorata basis by all other beneficialowners in Canada of affectedsecurities.

(3) For the purposes of this section, in thecase of an issuer bid, a director of theissuer is not, by that fact alone, notindependent of the issuer.

PART 8 MINORITY APPROVAL

8.1 From Holders of Affected Securities

(1) Subject to subsection (2), if minorityapproval is required for a goingprivate transaction or related partytransaction, it shall be obtained fromthe holders of every class of affectedsecurities of the issuer, in each casevoting separately as a class.

(2) If minority approval is required for agoing private transaction or a relatedparty transaction and the transactionwould affect a particular series of aclass of affected securities of theissuer in a manner different from othersecurities of the class, then the holdersof the series shall be entitled to voteseparately as a series.

(3) In determining minority approval fora going private transaction or a relatedparty transaction, an issuer shallexclude the votes attached to affectedsecurities that, to the knowledge of theissuer or any interested party or theirrespective directors or senior officers,after reasonable inquiry, arebeneficially owned or over whichcontrol or direction is exercised by

(a) the issuer;

(b) subject to section 8.2, aninterested party, unless, in thecontext of a related partytransaction, the interested party istreated identically to all otherholders in Canada of affectedsecurities and does not receive,directly or indirectly, as aconsequence of the transaction,consideration of greater valuethan that received by all otherholders of affected securities;

(i) the related party is a directorof the issuer who isindependent of the interestedparty, or

(ii) in the context of a relatedparty transaction, the relatedparty and interested party aretreated identically to all otherholders in Canada of affectedsecurities and do not receive,directly or indirectly, as aconsequence of thetransaction, consideration ofgreater value than thatreceived by all other holdersof affected securities and therelated party of an interestedparty does not hold, directlyor indirectly, whether alone orjointly or in concert withothers, securities of morethan one party to thetransaction sufficient to affectmaterially the control of suchparties; and

(d) a person or company actingjointly or in concert with a personor company referred to inparagraph (b) or (c) in respect ofthe transaction.

8.2 Multi-Step Transactions - Despiteparagraphs (b) and (c) of subsection8.1(3), the votes attached to securitiestendered to a formal bid may be includedas votes in favour of a subsequent goingprivate transaction in the determination ofwhether the requisite minority approvalhas been obtained if

(a) the securityholder tendering thesecurities

(i) did not receive

(A) a consideration persecurity that is notidentical in amount andtype to that paid to allother beneficialowners in Canada ofaffected securities ofthe same class, or

(B) consideration of greatervalue than that paid to allother beneficial ownersof affected securities ofthe same class, or

(ii) upon completion of thetransaction, did notbeneficially own, or exercisecontrol or direction over,participating securities of aclass other than affectedsecurities;

(b) the going private transaction iscompleted no later than 120 daysafter the date of expiry of theformal bid;

(c) the going private transaction isproposed by the offeror who madethe formal bid or an affiliatedentity of the offeror and involvesthe outstanding securities of thesame class that were the subjectof the formal bid and that werenot acquired by the offeror underthe formal bid;

(d) the consideration per security inthe subsequent going privatetransaction is

(i) at least equal in value to theconsideration per security inthe formal bid paid by theofferor, and

(ii) in the same form as theconsideration per security inthe formal bid, and if theconsideration paid consistedof securities of the person orcompany, consists of thesame securities; and

(e) the disclosure document for theformal bid

(i) disclosed the intent to effectthe subsequent transaction,

(ii) contained a summary of aformal valuation of thesecurities in accordance withthe applicable provisions ofPart 6, or contained thevaluation in its entirety, if theofferor in the formal bid wassubject to and not exemptfrom the requirement toobtain a formal valuation,

(iii) identified the securities, ifknown to the offeror afterreasonable inquiry, the votesattached to which would berequired to be excluded in thedetermination of whether therequisite minority approval ofthe subsequent transactionhad been obtained,

(iv) stated that the subsequenttransaction would be subjectto minority approval,

(v) identified each class ofsecurities, the holders ofwhich would be entitled tovote separately as a class onthe subsequent transaction,

(vi) described the taxconsequences of both theformal bid and the subsequentgoing private transaction, if,at the time of making theformal bid, the taxconsequences arising from thesubsequent going privatetransaction

(A) were known orreasonably foreseeable tothe offeror, and

(B) were reasonably expectedto be different from thetax consequences oftendering to the formalbid, and

(vii) disclosed that the taxconsequences of theformal bid and thesubsequent going privatetransaction may bedifferent, if, at the time ofmaking the formal bid,the offeror did not knowor could not reasonablyforesee the taxconsequences arisingfrom the subsequentgoing private transaction.

PART 9 EXEMPTION

9.1 Exemption - The Director may grant anexemption to this Rule, in whole or inpart, subject to such conditions orrestrictions as may be imposed in theexemption.

PART 10 EFFECTIVE DATE

10.1 Effective Date - This Rule comes intoforce on May 1, 2000.

ONTARIO SECURITIES COMMISSION
COMPANION POLICY 61-501CP
TO ONTARIO SECURITIES COMMISSIONRULE 61-501
INSIDER BIDS, ISSUER BIDS, GOINGPRIVATE TRANSACTIONS
AND RELATED PARTY TRANSACTIONS

TABLE OF CONTENTS

PART TITLE

PART 1 GENERAL
1.1 General

PART 2 DEFINITIONS AND INTERPRETATION
2.1 Director
2.2 Freely Tradeable
2.3 Jointly or in Concert
2.4 Issuer Bid
2.5 Director for Purposes of Section 1.3
2.6 Going Private Transactions Carried outin Accordance with Part 4
2.7 Related Party Transactions Carried outin Accordance with Policy 9.1
2.8 Persons or Companies Involved in aTransaction
2.9 Amalgamations
2.10 Same Consideration
2.11 Arm's Length
2.12 Previous Arm's Length Negotiations
2.13 Collateral Benefit

PART 3 MAJORITY OF THE MINORITYAPPROVAL
3.1 Majority of the Minority Approval

PART 4 DISCLOSURE
4.1 Form 33 Disclosure
4.2 Disclosure of Financial Information
4.3 Disclosure of Smaller Related
Party Transactions

PART 5 VALUATIONS
5.1 Formal Valuations
5.2 Independent Valuators

PART 6 RELATED TRANSACTIONS
6.1 Related Transactions

PART 7 ROLE OF DIRECTORS
7.1 Role of Directors

PART 1 GENERAL

1.1 General - The Commission regards it asessential, in connection with the disclosure,valuation, review and approval processesfollowed for insider bids, issuer bids, goingprivate transactions and related partytransactions, that all securityholders be treated ina manner that is fair and that is perceived to befair. In the view of the Commission, issuers andothers who benefit from access to the capitalmarkets assume an obligation to treatsecurityholders fairly and the fulfilment of thisobligation is essential to the protection of thepublic interest in maintaining capital marketsthat operate efficiently, fairly and with integrity.

The Commission does not consider that insiderbids, issuer bids, going private transactions andrelated party transactions are inherently unfair.It recognizes, however, that these transactionsare capable of being abusive or unfair, and hasmade Rule 61-501 (the "Rule") to regulate thesetransactions.

This Policy expresses the Commission's views oncertain matters related to the Rule.

PART 2 DEFINITIONS ANDINTERPRETATION

2.1 Director - The term "director" is used frequentlyin the Rule. By virtue of Rule 14-501Definitions, the term has the meaning in section1 of the Act. The Commission is of the viewthat, by virtue of this definition, in appropriatecircumstances a director of a general partner ina limited partnership can be considered to be adirector of the limited partnership.

2.2 Freely Tradeable - In order for securities to be"freely tradeable" for purposes of the Rule, allhold periods imposed by Ontario securities lawmust have expired, any period of time underOntario securities law for which an issuer mustbe a reporting issuer must have passed and theother conditions of the definition must be met.Securities that can only be distributed under aprospectus or in reliance on a prospectusexemption, including any exemption in Ontariosecurities law applicable to control persondistributions, would not be considered to befreely tradeable.

2.3 Jointly or in Concert

(1) The Act sets out certain circumstanceswhere the presumption will arise that partiesare acting jointly or in concert. Paragraph(b) of subsection 1.2(1) of the Rule providesthat the term "acting jointly or in concert"has the meaning ascribed to it in section 91of the Act. The Commission is of the viewthat, for an insider bid, an offeror and aninsider may be viewed as acting jointly or inconcert if an agreement, commitment orunderstanding between an offeror and aninsider provides that the insider shall nottender to the offer or provides the insiderwith an opportunity not offered to allsecurityholders to maintain or acquire adirect or indirect equity interest in theofferor, the issuer or a material asset of theissuer.

(2) Concern has been expressed that agreementsby a shareholder to tender into a proposedtake-over bid or to vote in favour of aproposed transaction, which are commonlyreferred to as lock-up agreements, may resultin the selling shareholder being seen to beacting jointly or in concert with an acquiror.While the language of section 91 of the Actis broad, and the particular facts of any casemust be considered, the Commission is of theview that an ordinary lock-up agreementwith an identically treated shareholdershould not in and of itself generally result inarm's length parties being seen to be actingjointly or in concert.

2.4 Issuer Bid

(1) The term "issuer bid" is defined in NationalInstrument 14-101 Definitions as having themeaning ascribed to that term in securitieslegislation (in Ontario, subsection 89(1) ofthe Act). Subject to subsection (2), theCommission is of the view that, by virtue ofthe provisions of section 92 of the Act, anoffer to acquire securities of the issuer madeby a wholly-owned subsidiary entity of theissuer would be an issuer bid.

(2) The Commission is of the view that theremay be limited circumstances in which apurchase of securities of an issuer made bya wholly-owned subsidiary entity of theissuer may not be an issuer bid. An exampleof one such situation is where the wholly-owned subsidiary entity of the issuer is aregistered dealer and the registered dealer isnot acting at the direction of the issuer inmaking the purchases, e.g., a registereddealer acting in its capacity as anunderwriter or agent for a purchaser otherthan the issuer.

2.5 Director for Purposes of Section 1.3 -Subparagraph (b)(iii) of subsection 1.3(1) of theRule and subsection 1.3(4) of the Rule requirecertain letters to be sent to the Director forpurposes of satisfying the liquid market test.Those letters should be sent to the Director,Take-over/Issuer Bids, Mergers andAcquisitions, Corporate Finance Branch.

2.6 Going Private Transactions Carried Out inAccordance with Part 4 - Paragraph (c) ofsubsection 4.3(1) of the Rule provides anexemption from the 40 day delivery requirementin the OBCA if the going private transaction iscarried out in accordance with Part 4 of the Rule.Paragraph (e) of subsection 5.1(2) of the Ruleprovides that Part 5 of the Rule does not apply toa related party transaction that is a going privatetransaction carried out in accordance with Part 4of the Rule. If the issuer relies on or obtains anexemption from the valuation or majority of theminority requirements in Part 4 of the Rule, theCommission still views the going privatetransaction as being carried out in accordancewith Part 4 of the Rule.

2.7 Related Party Transactions Carried Out inAccordance with Policy 9.1 - Paragraph (d) ofsubsection 4.1(2) of the Rule provides that Part4 of the Rule does not apply to a going privatetransaction that was announced before thecoming into force of the Rule and, among otherthings, is being carried out in accordance withthe guidelines of Ontario Securities CommissionPolicy 9.1. Paragraph (i) of subsection 5.1(2)provides a similar exemption for related partytransactions. The Commission is of the view thatthe transaction is being carried out in accordancewith the guidelines of Ontario SecuritiesCommission Policy 9.1

(1) if Policy 9.1 is being complied with, or

(2) if all or any part of a transaction is not beingcarried out in accordance with Policy 9.1,the transaction is being carried out inaccordance with a "no-action letter" grantedby staff.

2.8 Persons or Companies Involved in aTransaction - In the definitions of "interestedparty", "going private transaction" and "relatedparty transaction", the Rule refers to a person orcompany involved in a transaction or atransaction involving a person or company. Inthose situations, the Rule sets out certainconsequences for the person or company (e.g.,disclosure, exclusion for minority approvalpurposes). The Commission is of the view thata director or senior officer of an issuer is notinvolved in a transaction merely because thedirector or senior officer is acting in thatcapacity in negotiating or approving thetransaction.

2.9 Amalgamations

(1) Generally, a transaction is a going privatetransaction if the interest of a beneficialowner of a participating security of an issuermay be terminated without the beneficialowner's consent as a consequence of thetransaction, a related party of the issuer isinvolved in the transaction and thetransaction does not come within theexceptions to the definition of going privatetransaction in the Rule. The Commission isof the view that in the normal situation,where two or more arm's length operatingcorporations amalgamate and shareholdersof the amalgamating corporations receivenon-redeemable participating securities ofthe amalgamated corporation, a beneficialowner's interest in a participating security isnot being terminated and therefore thetransaction is not a going private transaction.

(2) An amalgamation between a corporation andone or more related parties of thecorporation is a related party transaction forall of the amalgamating corporations.

(3) Exemptions from the valuation and minorityapproval requirements of the Rule may beavailable under paragraphs 3 and 10 ofsection 5.6 and paragraphs 2 and 3 ofsubsection 5.8(1) of the Rule for anupstream corporation amalgamating with adownstream corporation. Those exemptionsare not available for the downstreamcorporation. Similarly, those exemptions arenot available for amalgamating corporationsthat are related parties because of a commoncontrolling shareholder.

(4) Paragraph 5 of section 5.6 and paragraph 3of subsection 5.8(1) contain an exemptionfrom the valuation requirement and minorityapproval requirement for certaintransactions, including a reorganization ofone or more classes of an issuer's affectedsecurities if certain conditions are satisfied.A reorganization, as referred to in thoseparagraphs, is a reorganization of capitaland would not encompass an amalgamationof the issuer with another issuer.

2.10 Same Consideration - One of the conditions tothe valuation for second step going privatetransactions exemption in paragraph 4 of section4.5 is that the consideration per security paid inthe going private transaction is in the same formas the consideration per security paid in theformal bid. The Commission is aware that oftenin going private transactions, the considerationtakes the form of redeemable preference shares,which are immediately redeemed for cash. TheCommission is of the view that where the cashpaid on redemption is the same as the cashconsideration paid on the formal bid, theconsideration in the going private transaction isin the same form as the consideration paid in theformal bid.

2.11 Arm's Length - Section 1.4 of the Rule providesthat it is a question of fact whether two or morepersons or companies act, negotiate or deal witheach other at arm's length. The Commission isof the view that persons or companies related toeach other by blood or marriage would notnormally be considered to be dealing with eachother at arm's length. The Commission alsonotes that in the case of the exemptions inparagraph 3 of subsection 2.4(1) and paragraph2 of subsection 4.5(1), the arm's lengthrelationship must be between the sellingsecurityholder and all persons or companies thatnegotiated with the selling securityholder.

2.12 Previous Arm's Length Negotiations - TheCommission notes that the previous arm's lengthnegotiation exemption is based on the view thatsuch negotiations can be a substitute for avaluation. An important requirement for theexemption to be available is that the offeror orproponent of the going private transaction, as thecase might be, engages in "reasonable inquiries"to determine whether various circumstancesexist. In the Commission's view, if an offerorcannot satisfy this requirement, through receiptof representations of the parties directly involvedor some other suitable method, the offeror orproponent of the transaction is not entitled to relyon this exemption.

2.13 Collateral Benefit

(1) A number of provisions in the Rule turn onwhether a particular securityholder isreceiving consideration of greater value thanthat received by or paid to othersecurityholders.

(2) The Commission notes that the words"consideration of greater value" are found insubsection 97(2) of the Act, whichsubsection contains what is commonlyreferred to as the "collateral benefit rule".

(3) Decisions considering subsection 97(2) ofthe Act may be of assistance in interpretingthe relevant provisions in the Rule.

(4) The Commission is of the view that asecurityholder does not receive considerationof greater value than another securityholdermerely as a result of holding more sharesthan another securityholder.

PART 3 MAJORITY OF THE MINORITYAPPROVAL

3.1 Majority of the Minority Approval - While theRule provides, in a number of circumstances, forminority approval, the Commission recognizesthat such a requirement may give rise to abuses.As the purpose of the Rule is to ensure fairtreatment of minority securityholders,unjustifiable minority tactics in a situationinvolving a minimal minority position may causethe Director to grant an exemption from therequirement to obtain minority approval.

PART 4 DISCLOSURE

4.1 Form 33 Disclosure

(1) Form 32 of the Regulation (the form for atake-over bid circular) requires for an insiderbid, and subsection 2.2(2) of the Rulerequires for a stock exchange insider bid, thedisclosure required by Form 33 of theRegulation, appropriately modified. In theview of the Commission, Form 33 disclosurewould generally include, in addition to Form32 disclosure, disclosure with respect to thefollowing items, with necessarymodifications, in the context of an insiderbid or a stock exchange insider bid:

1. Item 10 Reasons for Bid

2. Item 14 Acceptance of Bid

3. Item 15 Benefits from Bid

4. Item 17 Other Benefits to Insiders,Affiliates and Associates

5. Item 18 Arrangements Between Issuerand Security Holder

6. Item 19 Previous Purchases and Sales

7. Item 21 Valuation

8. Item 24 Previous Distribution

9. Item 25 Dividend Policy

10. Item 26 Tax Consequences

11. Item 27 Expenses of Bid

(2) Paragraph (a) of subsection 4.2(2) of theRule and paragraph (a) of subsection 5.4(2)of the Rule require, for a going privatetransaction and a related party transaction,respectively, the disclosure required by Form33 of the Regulation, to the extent applicableand with necessary modifications. In theview of the Commission, Form 33 disclosurewould generally include disclosure withrespect to the following items, withnecessary modifications, in the context ofthose transactions:

1. Item 5 Consideration Offered

2. Item 10 Reasons for Bid

3. Item 11 Trading in Securities to beAcquired

4. Item 12 Ownership of Securities ofIssuer

5. Item 13 Commitments to AcquireSecurities of Issuer

6. Item 14 Acceptance of Bid

7. Item 15 Benefits from Bid

8. Item 16 Material Changes in the Affairsof Issuer

9. Item 17 Other Benefits to Insiders,Affiliates and Associates

10. Item 18 Arrangements Between Issuerand Security Holder

11. Item 19 Previous Purchases and Sales

12. Item 20 Financial Statements

13. Item 21 Valuation

14. Item 22 Securities of Issuer to beExchanged for Others

15. Item 23 Approval of Bid

16. Item 24 Previous Distribution

17. Item 25 Dividend Policy

18. Item 26 Tax Consequences

19. Item 27 Expenses of Bid

20. Item 28 Judicial Developments

21. Item 29 Other Material Facts

22. Item 30 Solicitations

4.2 Disclosure of Financial Information - TheCommission is of the view that, in order toprovide securityholders with sufficiently detailedinformation to form a reasoned judgment, adisclosure document delivered to securityholdersin respect of transactions subject to and notexempt from the formal valuation requirementsof the Rule should contain, unless suchinformation would be irrelevant or unavailable,summary disclosure of comparative historicalannual financial information over the previousthree years and of historical interim financialinformation for the most recent period and thecomparative period in the previous year, togetherwith summary information concerning keyfinancial statement ratios and statistics and keyoperating statistics over the same periods. Thisdisclosure would be in addition to any disclosurerequired under Ontario securities law or referredto in Staff Accounting Communique No. 7:Financial Disclosure in Information Circulars,or other Staff Accounting Communiques or anysuccessor instruments.

4.3 Disclosure of Smaller Related PartyTransactions -The Commission is of the viewthat transactions involving related parties, andbeneficial ownership by an issuer of, or anissuer's exercise of control or direction over,securities of related parties other than the issuer'ssubsidiary entities, should be disclosed tosecurityholders if they are material eitherindividually or in the aggregate, in order toprovide securityholders with sufficiently detailedinformation to form a reasoned judgmentregarding such matters as the election ofdirectors. If such transactions or ownership donot otherwise require immediate disclosure,annual disclosure may suffice. Issuers arereferred, without limitation, to item 8 of Form 30of the Regulation and other similar informationcircular requirements, as well as to section 3840of the Handbook.

PART 5 VALUATIONS

5.1 Formal Valuations

(1) The Rule requires formal valuations in anumber of circumstances. The Commissionis of the view that a conclusory statement ofopinion as to the value or range of values ofthe subject matter of the formal valuationdoes not by itself achieve this purpose.

(2) The disclosure standards proposed by theInvestment Dealers Association of Canadaand Appendix A to Standard #110 of theCanadian Institute of Chartered BusinessValuators each generally represent areasonable approach to meeting theapplicable legal requirements. Specificdisclosure standards, however, cannot beconstrued as a substitute for the professionaljudgment and responsibility of the valuatorand, on occasion, additional disclosure maybe necessary.

(3) A person or company required to have aformal valuation prepared should, at therequest of the valuator, promptly furnish thevaluator with access to the person orcompany's management and advisers and toall material information in its possessionrelevant to the formal valuation. Thevaluator is expected to use that access toperform a comprehensive review andanalysis of information upon which theformal valuation is based. The valuatorshould form its own independent views of thereasonableness of this information, includingany forecasts or projections or othermeasurements of the expected futureperformance of the enterprise, and ofany of the assumptions upon which it isbased, and adjust the informationaccordingly.

(4) The disclosure in the valuation of the scopeof review should include a description of anylimitation on the scope of the review and theimplications of the limitation on thevaluator's conclusion. Scope limitationsshould not be imposed by the issuer, aninterested party or the valuator, but shouldbe limited to those beyond their control thatarise solely as a result of unusualcircumstances. In addition, it isinappropriate for any interested party toexercise or attempt to exercise any influenceover a valuator.

(5) The person or company responsible forobtaining a formal valuation should work incooperation with the valuator to ensure thatthe requirements of the Rule are satisfied.

(6) Subsection 2.3(2) of the Rule provides thatin the context of an insider bid, anindependent committee of the offeree issuershall, and the offeror shall enable theindependent committee to, determine who thevaluator will be and supervise thepreparation of the formal valuation. TheCommission is aware that an independentcommittee could attempt to use thisrequirement as a means to delay or impedean insider bid viewed by them as unfriendly.In a situation where an offeror is of the viewthat an independent committee is not actingin a timely manner in having the formalvaluation prepared, the offeror may seekrelief under section 9.1 of the Rule from therequirement that the issuer obtain avaluation.

(7) Similarly, in circumstances where anindependent committee is of the view that abid that has been announced will not actuallybe made or that the bid is not being made ingood faith, an independent committee mayapply for relief from the requirement that theindependent committee determine thevaluator and supervise the preparation of thevaluation.

(8) Subsection 6.4(2) of the Rule provides thatNational Instrument 52-101 Future-OrientedFinancial Information does not apply to aformal valuation for which financialforecasts and projections are relied upon anddisclosed. National Instrument 52-101 willreplace National Policy No. 48 Future-Oriented Financial Information. Until suchtime, National Policy No. 48 does not applyto a formal valuation for which financialforecasts and projections are relied upon anddisclosed.

5.2 Independent Valuators - While, except incertain prescribed situations, the Rule providesthat it is a question of fact as to whether avaluator or a person or company providing theopinion referred to in subparagraph (b)(ii) ofsubsection 1.3(1) is independent, situations havebeen identified in the past that raise seriousconcerns for the Commission and that must bedisclosed and assessed for materiality. Indetermining the independence of the valuator orperson or company from the interested party, anumber of factors may be relevant, includingwhether

(a) the valuator or the person or company or anaffiliated entity of either of them has amaterial financial interest in future businessin respect of which an agreement,commitment or understanding existsinvolving the issuer, an interested party ofthe issuer or an associate or affiliated entityof the issuer or interested party;

(b) during the 24 months before the valuator orperson or company was first contacted forthe purpose of the formal valuation oropinion, the valuator or the person orcompany or an affiliated entity of either ofthem

(i) had a material involvement in anevaluation, appraisal or review of thefinancial condition of an interestedparty or an associate or affiliatedentity of the interested party, otherthan the issuer,

(ii) had a material involvement in anevaluation, appraisal or review of thefinancial condition of an issuer or anassociate or an affiliated entity of theissuer, if the evaluation, appraisal orreview was carried out at the directionor request of the interested party or paidfor by the interested party, other than theissuer in the case of an issuer bid,

(iii) acted as a lead or co-lead underwriter ofa distribution of securities by theinterested party, or acted as a lead or co-lead underwriter of a distribution ofsecurities by the issuer if the retention ofthe underwriter was carried out at thedirection or request of the interestedparty or paid for by the interested party,other than the issuer in the case of anissuer bid,

(iv) had a material financial interest intransactions involving the interestedparty, other than the issuer in the case ofan issuer bid, or

(v) had a material financial interest intransactions involving the issuer otherthan by virtue of performing the servicesreferred to in subparagraphs (b)(ii) and(b)(iii); or

(i) a lead or co-lead lender or manager of alending syndicate in respect of thetransaction in question, or

(ii) a lender of a material amount ofindebtedness in a situation where aninterested party or the issuer is infinancial difficulty and the transactionwould reasonably be expected to havethe effect of materially enhancing thelender's position.

PART 6 RELATED TRANSACTIONS

6.1 Related Transactions

(1) The definition of "related party transaction"in subsection 1.1(3) of the Rule refers toother related transactions between the issuerand the related party.

(2) Depending on the circumstances, it may bepossible for an issuer to rely on one or moreexemptions in the Rule in connection with aseries of transactions between the issuer anda related party.

(3) The Commission may intervene if it believesthat one or more exemptions are not capableof being relied upon such that a part or all ofthe transaction is not exempt from theproposed Rule or if a transaction is beingstructured or carried out in series or stagesto take advantage of individual exemptionsthat could not be relied upon if thetransaction was carried out in one step.

PART 7 ROLE OF DIRECTORS

7.1 Role of Directors

(1) Paragraphs (d) of subsection 2.2(3), (e) ofsubsection 3.2(1), (f) of subsection 4.2(2),(e) of subsection 5.2(1) and (f) of subsection5.4(2) of the Rule require that the relevantdisclosure documents include a discussion ofthe review and approval process adopted bythe board of directors and the independentcommittee, if any, of the issuer for therelevant transaction, including any materiallycontrary view or abstention by a director andany material disagreement between the boardand the independent committee.

(2) An issuer involved in any of the types oftransactions regulated by the Rule shouldprovide sufficient information tobeneficial owners of securities to enablethem to make an informed decision.Accordingly, directors should disclosetheir reasonable beliefs as to thedesirability or fairness of the proposedtransaction and make usefulrecommendations with regard to thetransaction. A statement that thedirectors are unable to make or are notmaking a recommendation with respectto the transaction, without detailedreasons, generally would be viewed asinsufficient disclosure.

(3) In reaching a conclusion as to the fairness ofa transaction, the directors should disclose inreasonable detail the material factors onwhich their beliefs regarding the transactionare based. The disclosure disseminated bythe directors should discuss fully thebackground of deliberations by the directorsand any special committee and any analysisof expert opinions obtained.

(4) The factors that are important in determiningthe fairness of a transaction to beneficialowners of securities and the weight to begiven to these factors in a particular contextwill vary with the circumstances. Normallythe factors considered should includewhether or not the transaction is subject tominority approval, whether or not thetransaction has been reviewed and approvedby a special committee and, if there has beena formal valuation, whether theconsideration offered is fair in relation to thevaluation conclusions arrived at through theapplication of the valuation methodsconsidered relevant for the subject matter ofthe formal valuation. A statement that thedirectors have no reasonable belief as to thedesirability or fairness of the transaction orthat the transaction is fair in relation tovalues arrived at through the application ofvaluation methods considered relevant,without more, generally would be viewed asinsufficient disclosure.

(5) The directors of an issuer involved in anissuer bid, insider bid, going privatetransaction or related party transactiongenerally are in the best position to assessthe formal valuation to be provided tosecurityholders. Accordingly, theCommission is of the view that, indischarging their duty to securityholders, thedirectors should consider the formalvaluation and all prior valuations disclosedand discuss them fully in the applicabledisclosure document.

(6) To safeguard against the potential for unfairadvantage accruing to an interested party asa result of that party's conflict of interest orinformational or other advantage in respectof the proposed transaction, it is goodpractice for negotiations respecting atransaction involving an interested party tobe carried out by or reviewed and reportedupon by a special committee of disinteresteddirectors. Following this practice normallywould assist in addressing the Commission'sinterest in maintaining capital markets thatoperate efficiently, fairly and with integrity.While the Rule only mandates independentcommittees in limited circumstances, theCommission is of the view that it generallywould be appropriate for, and that corporatelaw may require, issuers involved in amaterial transaction to which the Ruleapplies to constitute an independentcommittee of the board of directors toparticipate in the transaction. TheCommission also would encourageindependent committees to select thevaluator, to supervise any formal valuationinvolved and to review the disclosurerespecting the formal valuation.

(7) A special committee should, in theCommission's view, include only directorswho are independent from the interestedparty. While a special committee may invitenon-independent board members and otherpersons possessing specialized knowledge tomeet with, provide information to, and carryout instructions from, the committee, in theCommission's view non-independentpersons should not be present at orparticipate in the decision-makingdeliberations of the special committee.