Proposed Companion Policy: NI - 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer

PART 1 BACKGROUND

1.1 History

(1) Obligations imposed on reporting issuers under corporate law and securities legislation to communicate with securityholders are typically cast as obligationsin respect of registered holders and not in respect of beneficial owners. For purposes of market efficiency, securities are increasingly not registered in the namesof the beneficial owners but rather in the name of depositaries, or their nominees, who hold on behalf of intermediaries, such as dealers, trust companies or banks,who in turn hold on behalf of the beneficial owners.

(2) To address concerns that beneficial owners of securities of reporting issuers who hold their securities through intermediaries or their nominees may notreceive the information and the materials that enable them to exercise their right to vote that corporate law and securities legislation require reporting issuers tosend to their registered holders, the Canadian Securities Administrators (the "CSA") approved in 1987 National Policy Statement No. 41 ("NP41"), which hasbeen replaced by National Instrument 54-101 (the "Instrument").

(3) The purpose of this Policy is to state the views of the Canadian securities regulatory authorities on various matters relating to the Instrument in order toprovide guidance and interpretation to market participants in the practical application of the Instrument.

1.2 Fundamental Principles - The following fundamental principles have guided the preparation of the Instrument:

(a) all securityholders of a reporting issuer, whether registered holders or beneficial owners, should have the opportunity to be treated alike as far as ispracticable;

(b) efficiency should be encouraged; and

(c) the obligations of each party in the securityholder communication process should be equitable and clearly defined.

PART 2 GENERAL

2.1 Application of Instrument

(1) The securityholder communication procedures contemplated by the Instrument are applicable to all securityholder materials sent by reporting issuers toholders of its securities under Canadian securities legislation including, but not limited to, proxy-related materials. Securityholder materials include materialsrequired by securities legislation or applicable corporate law, to be sent to registered holders of securities of a reporting issuer, such as interim financialstatements, takeover bid circulars and directors circulars. Securityholder materials can also include materials sent to registered holders absent any legalrequirement to do so; an example of these types of materials would be non-legal corporate communications.

(2) As provided in section 2.7 of the Instrument, compliance with the procedures set out in the Instrument for sending proxy- related materials to beneficialowners is mandatory for reporting issuers, and, under section 2.8 of the Instrument, is optional for the sending of other materials. Once a reporting issuerchooses to use the communications procedures specified in the Instrument, depositaries, intermediaries and other persons or companies are subject to therespondent obligations under the Instrument.

2.2 Application to Foreign Securityholders and U.S. Issuers

(1) As provided in subsection 2.12(3) of the Instrument, a reporting issuer that is precluded from sending proxies directly to NOBOs because of conflicting legalrequirements in the United States or elsewhere outside of Canada may choose to send the proxies and other proxy-related materials indirectly, i.e., by forwardingthe materials to NOBOs through proximate intermediaries for those securities.

(2) National Instrument 71-101 The Multi-Jurisdictional Disclosure System provides that a "U.S. issuer", as defined in that Instrument, is considered to satisfythe requirements of the Instrument, other than in respect of fees, if the issuer complies with the requirements of Rule 14a-13 under the 1934 Act for anyCanadian clearing agency and any intermediary whose last address as shown on the books of the issuer is in the local jurisdiction. Those requirements aredesigned to achieve the same purpose as the requirements of the Instrument.

(3) Similarly, a Canadian reporting issuer may be exempt from complying with U.S. requirements under a reciprocal provision in the U.S. MultijurisdictionalDisclosure regime.

2.3 Interim Financial Statements - Interim financial statements sent to beneficial owners in accordance with National Instrument 54-102 Supplemental MailingList and Interim Financial Statement Exemption will be "securityholder materials" under the Instrument. However, the sending of those financial statementsunder National Instrument 54-102 will not use the mechanisms of the Instrument as the reporting issuer will send them directly to persons on a supplementalmailing list.

2.4 "Client" to be Distinguished From "Beneficial Owner"

(1) Section 1.1 of the Instrument distinguishes between "client" and "beneficial owner". The two definitions recognize that, for many reporting issuers, theremay be layers of intermediaries between the registered holder of a security and the ultimate beneficial owner. For example, a dealer could hold an account onbehalf of another dealer that in turn holds the account of the beneficial owner.

(2) In the Instrument, "beneficial owner" refers to a person that ultimately, has the right to vote, or exercise control or direction over, the securities that are heldthrough intermediaries and that therefore originates the instructions that are contained in a client response card, or that would have the authority to originatethose instructions.

(3) The term "client" refers to the person or company for whom an intermediary directly holds securities, regardless of whether the client is a beneficial owner.So, if a dealer holds securities on behalf of a bank who in turn holds the securities on behalf of the beneficial owner, the bank is a client of the dealer, and thebeneficial owner is a client of the bank. The beneficial owner is not a client of the dealer. It is noted that section 1.3 of the Instrument provides that, under theInstrument, an intermediary may "hold" securities for a client, even if another person or company is shown on the register of the reporting issuer or the records ofanother intermediary as the holder of the securities.

2.5 Definition of "Corporate Law" - Section 1.1 of the Instrument defines "corporate law" as any legislation, constating instrument or agreement that governs theaffairs of a reporting issuer. It is noted that this definition would include Canadian or foreign laws, and, in the case of a trust, the declaration or deed of trust orother instrument under which the trust was created, and in the case of a partnership, the partnership agreement.

PART3 REPORTING ISSUERS

3.1 Timing for Intermediary Searches

(1) Section 2.2 of the Instrument sets a minimum of eight business days before the record date for notice for a reporting issuer to send a notification of meetingand record dates, and section 2.5 of the Instrument sets a minimum of five business days before the record date for notice for sending a request for beneficialownership information to proximate intermediaries. The CSA emphasize that these are minimum timing requirements and that it is useful for reporting issuers totake these steps at earlier times to ensure sufficient time for the search procedures to be completed. It is expected that in most cases, sending a notification ofmeeting and record dates 25 days before the record date for notice, and sending the request for beneficial ownership information 20 days before the record datefor notice would provide sufficient time for all the necessary information to be returned to the reporting issuer before the record date for notice.

(2) Proximate intermediaries are required under section 4.1 of the Instrument to furnish the information requested in a request for beneficial ownershipinformation, in certain circumstances, within three business days of receipt. It should be noted that this timing refers to receipt by the proximate intermediary,which may not be the same date as the request was sent by the reporting issuer. The time necessary for a request for beneficial ownership information to bereceived by a proximate intermediary should be factored into a reporting issuer's planning.

(3) Reporting issuers that have obligations under corporate law to advertise in advance a record date for notice or satisfy other publication requirements wouldalso need to factor any such advance notice provision into their timing when selecting a record date for notice.

3.2 Reasonable Fees

(1) Section 2.13 of the Instrument provides that a reporting issuer shall pay a search fee in a reasonable amount for proximate intermediaries responding to arequest for beneficial ownership information. Based upon past experience, current procedures and current technology, the CSA consider that a fee in the amountof $10 per search response is reasonable.

(2) Section 2.14 of the Instrument provides that if a proximate intermediary sends securityholder materials to any NOBO on behalf of a reporting issuer, thereporting issuer shall pay to the proximate intermediary a fee in a reasonable amount for sending the materials to all beneficial owners, including both NOBOsand OBOs. Based upon the considerations referred to in subsection (1), the CSA consider that a reasonable fee is $1.00 per NOBO or OBO, subject to aminimum fee per proximate intermediary of $15.00. These fees are in addition to the reimbursement for actual cost of postage incurred in sending the material.

3.3 Adjournment or Change in Meeting

(1) Section 2.15 of the Instrument requires reporting issuers that are required to give notice of adjournment or other change for a meeting to send notice of thechange to the persons listed in subsection 2.2(1) of the Instrument, the proximate intermediaries and to the persons and companies to whom the original notice ofmeeting was given. Issuers are reminded of a number of the implications of the requirement to send the notice of adjournment to the persons and companies whoreceived the original notice.

(2) If new proxy-related materials are sent in connection with the meeting, in addition to those previously sent, a new intermediary search may be required if thebeneficial owner determination date for the meeting is changed.

(3) New intermediary searches may have to be conducted if the nature of the business to be transacted at the meeting is materially changed. For example, if thenature of the business is changed to add special business, it may be necessary to conduct new intermediary searches in order to ensure that beneficial owners thathad elected not to receive proxy- related materials for meetings at which only routine business was to be conducted receive proxy-related materials for the specialmeeting.

(4) If the adjournment or other change to the business of the meeting requires that new proxy-related materials be sent to shareholders, the meeting date or thedate of the adjourned meeting may have to be delayed to satisfy the time periods specified in the Instrument, unless an exemption from the time periods of theInstrument is obtained. If the change in the business of the meeting is significant, such as a change from only routine business to special business, it is expectedthat exemptions from timings for sending proxy-related materials will not generally be granted in the absence of exceptional circumstances.

3.4 Provision of NOBO List to Another Party

(1) Section 6.1 of the Instrument permits any person or company to request a NOBO list from the reporting issuer. It is noted that only a reporting issuer mayobtain a NOBO list from an intermediary and that the Instrument does not provide for the person or company to request a NOBO list directly fromintermediaries. A person or company seeking a NOBO list must make the request through the reporting issuer.

(2) Although another person or company is entitled to receive information from the reporting issuer under section 6.1 of the Instrument and from the depositaryunder section 5.4 of the Instrument, the person or company is responsible for making its own arrangements with intermediaries for forwarding the material toOBOs.

3.5 Voting Instructions - Voting instructions received from NOBOs that the reporting issuer requests directly from the NOBOs will be returned directly to thereporting issuer who will vote the securities in accordance with instructions received from the NOBOs. In that case, the management of the reporting issuer willvote the securities beneficially owned by NOBOs in accordance with the instructions received from NOBOs to the extent that management has the correspondingproxy. That proxy is given to management by the proximate intermediary that provides the NOBO list under subsection 4.1(2) of the Instrument.

3.6 Depositary's Index of Meetings - The index referred to in section 5.2 of the Instrument is currently published in the Monday edition of The Globe and MailReport on Business and in the Tuesday edition of La Presse. Notices of meetings received by CDS by noon on Wednesday will normally be published in TheGlobe and Mail on the following Monday and in La Presse on the following Tuesday. A description of the record and meeting date services provided by CDS,including a form for notice of record and meeting dates and fees charged by CDS to issuers for certain services, is set out in the March 18, 1988 edition of theOntario Securities Commission Bulletin, beginning at page 1242.

PART 4 INTERMEDIARIES

4.1 Client Response Card - By completing a client response card as provided in Part 3 of the Instrument, a beneficial owner gives notice of its choices concerningthe receipt of materials and the disclosure of ownership information concerning it. The Canadian securities regulatory authorities note that a beneficial ownermay, by written notice to the intermediary through which it holds, revoke any prior instructions given in a client response card.

4.2 Separate Accounts - A client that wishes to have certain of its securities receive different treatment under the Instrument should hold the securities inseparate accounts.

4.3 Reconciliation of Positions

(1) The records of an intermediary will, under the Instrument, require the intermediary to be able to identify which of its clients are NOBOs, OBOs or otherintermediaries, and specify the holdings of each of those clients.

(2) In order that the Instrument work properly, it is important that the records of an intermediary concerning the matters referred to in subsection (1) reconcileproperly with the records of the person through whom the intermediary itself holds the securities, which could either be another intermediary or a depositary, orthe security register of the relevant issuer, if the intermediary was a registered securityholder.

(3) A proximate intermediary, for instance, should not respond to a request for beneficial ownership information by providing security position informationconcerning NOBOs, that, together with the security positions of OBOs of the proximate intermediary, other intermediaries holding through the proximateintermediary and the security position of the proximate intermediary itself for securities that it holds as principal, exceed the total security holdings of theproximate intermediary as shown on the register of the issuer or in the records of the depositary.

(4) It is important as well that the total number of votes cast at a meeting by an intermediary or persons holding through an intermediary not exceed the numberof votes for which the intermediary itself has a proxy.

4.4 Identification of Intermediary - Identification of the intermediary and the holdings specified in the corresponding NOBO list on requests for votinginstructions as required in Form 54-101F6 is necessary for the reporting issuer to be able to reconcile voting instructions received from a NOBO to thecorresponding position registered in the name of the intermediary or its nominee or in respect of which the intermediary holds a proxy. In addition, should aNOBO wish to change its voting instructions, before or at a meeting of securityholders, knowledge of the corresponding intermediary and the NOBO's holdingsis necessary.

4.5 Incomplete or Late Deliveries - If sets of materials are incomplete or received after the prescribed time limits, the intermediary should advise the reportingissuer and request instructions.

PART 5 MEANS OF SENDING

5.1 General - Depositaries, reporting issuers and intermediaries should use the most efficient means of sending information or securityholder material under theInstrument, including, if practicable, sending materials in bulk.

5.2 Materials in Bulk for Sending to Beneficial Owners - Securityholder materials sent by reporting issuers to proximate intermediaries for sending to beneficialowners should be in uncollated bulk form. All documents forming part of a package to be delivered to securityholders should be delivered to proximateintermediaries together. The proximate intermediary will collate the materials, add its own request for voting instructions form if proxy-related materials are tobe sent to beneficial owners and place the materials into the intermediary's own envelopes for sending to beneficial owners.1

5.3 Number of Sets of Materials - The number of sets of materials specified for forwarding to OBOs in a response to a request for beneficial ownershipinformation by a proximate intermediary is not intended to include sets of materials to be forwarded to NOBOs directly by the reporting issuer.

5.4 Electronic Communication

(1) It is expected that communication for the purposes of the Instrument between or among depositaries, reporting issuers and intermediaries will be byelectronic means, including fax, e-mail or data transfer.

(2) The Instrument contemplates written instructions in order to conform with s. 79 of the Securities Act (Alberta), s.49 of the Securities Act (Ontario) andcomparable legislation in certain other provinces and territories. If such legislation were amended so that there was no written requirement (as is now the case inthe Securities Rules (British Columbia)), application could be made for relief from the requirement for written instructions in the Instrument, so long asappropriate safeguards are established to ensure proper and accurate instructions are obtained and supported by appropriate records.

PART 6 EXEMPTIONS

6.1 Materials Sent Less Than 21 Days Before Meeting - In the absence of extraordinary circumstances, the Canadian securities regulatory authorities willgenerally not consider shortening the 21-day period referred to in section 2.12 of the Instrument to a shorter period for the sending of proxy-related materials tobeneficial owners of securities.

6.2 Delay of Audited Annual Financial Statements or Annual Report - Applicable corporate law or securities legislation may permit a reporting issuer to send itsaudited annual financial statements or annual report to registered holders of its securities later than other proxy-related materials. Reporting issuers areencouraged to send their audited annual financial statements or annual report at the same time as proxy-related materials.

6.3 Additional Costs If Time Limitations Shortened - Section 4.2 of the Instrument allows a proximate intermediary three business days to prepare thesecurityholder materials for forwarding to beneficial owners after its receipt of the materials in bulk. If reporting issuers make arrangements with intermediariesto comply with the procedures in the Instrument within shorter time limits, the arrangements may provide for recovery by the intermediary of reasonable costsattributable to the shorter time limits that it would not otherwise have incurred (e.g., courier, long distance telephone calls, overtime).

6.4 Applications

(1) Applications made under section 9.2 of the Instrument for any exemption from the requirements of the Instrument shall be in writing and should identify therequirement in respect of which an exemption is sought, set out the basis upon which the exemption should be given, including any relevant precedents. Anapplication for exemption should include the draft form of any related ruling, order, resolution or other determination.

(2) The applicant should specify all jurisdictions in which the application is made and should designate either British Columbia, Alberta, Ontario or Québec asprincipal jurisdiction.

(3) An issuer may not be a reporting issuer in British Columbia, Alberta, Ontario or Québec. In that case, the applicant should deal with the securities regulatoryauthorities in those jurisdictions in which it is a reporting issuer and designate which of those jurisdictions should act as principal jurisdiction, provided that thedesignated jurisdiction agrees to act as principal jurisdiction.

(4) Applicants are encouraged to settle satisfactory arrangements with the staff of the securities regulatory authority of the principal jurisdiction before making anapplication.

(5) The application, together with draft form of any related determination, should be sent to each applicable jurisdiction on the same day.

(6) The Canadian securities regulatory authority of the principal jurisdiction will make its determination having regard to comments received from, and willcommunicate their determination to, the securities regulatory authority in the other jurisdictions named in the application. Each Canadian securities regulatoryauthority will issue its own form of determination.

(7) Applicants should be aware that substantial exemptions from the requirements of the Instrument are expected to be granted infrequently. Exemptions to thepredecessor policy statement to the Instrument that were granted typically involved reporting issuers that were incorporated or organized outside of Canada,with only an insignificant connection to Canada in terms of the percentage of its securities that were held in Canada and the percentage of its securityholders thatwere resident in Canada, and if the reporting issuers have also been subject to requirements imposed by securities or corporate legislation outside of Canada thatserve to ensure that beneficial owners receive some level of communication from the issuer.

PART 7 APPENDIX A

7.1 Appendix A - This Companion Policy contains, as Appendix A, a flow chart outlining the procedures prescribed by the Instrument that relate toproxy-related materials.