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1. Board of directors
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(a) Disclose the identity of directors who are independent.
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NI 58-101 provides that a director is independent if he or she has no direct or indirect material relationship with the Corporation which could, in the view of the board of directors, be reasonably expected to interfere with the exercise of the director’s independent judgment. After having examined the relationships of each director, the board of directors has determined that the following four directors are independent for purposes of board service:
Dr. Peter Barrett
Dr. Hans-Rainer Hoffman
Rolf Reininghaus
Dr. Maurice St-Jacques
Following his election to the Board of Directors, Mr. Yves Glaude will be considered independent for purposes of board service.
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(b) Disclose the identity of directors who are not independent, and describe the basis for that determination.
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After having examined the relationships of each director, the board of directors has determined that the following directors are not independent within the meaning of NI 58-101:
Dr. Günter Knorr: Partner of a law firm which provides legal services to the Corporation
Dr. Halvor Jaeger: Chief Executive Officer of the Corporation
Jean-Marie Pomerleau: Partner of an accounting firm which provides tax services to the Corporation
Robert O. Williams III: Acts as a consultant for the Corporation on intellectual property matters
In addition, Mr. Keijo Väkiparta has recently become a consultant to the Corporation on certain matters and therefore is no longer considered independent within the meaning of NI 58-101.
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(c) Disclose whether or not a majority of directors are independent.
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Currently, a majority of the directors are not independent. Messrs. Pomerleau and Väkiparta are not standing for re-election to the board of directors. Following Mr. Glaude’s election to the board of directors, a majority of the directors will be independent.
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(d) If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify both the director and the other issuer.
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Dr. Peter Barrett is the Chairman of the Board of Momenta Pharmaceuticals, Inc. and a director of Alnylam Pharmaceuticals, Inc., both of which are biopharmaceutical companies listed on the NASDAQ.
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(e) Disclose whether or not the independent directors hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held since the beginning of the issuer’s most recently completed financial year. If the independent directors do not hold such meetings, describe what the board of directors does to facilitate open and candid discussion among its independent directors.
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During each board of directors meeting, time is reserved for the directors to meet when members of management are not in attendance. The Corporation has made available to the directors a conference call line which can be used by the independent directors, at their convenience, to have any discussions in which non-independent directors and members of management do not participate. In future, at each meeting of the board of directors, the independent directors will hold an in camera session without members of management and non-independent directors present.
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(f) Disclose whether or not the chair of the board of directors is an independent director. If the board of directors has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and describe his or her role and responsibilities. If the board of directors has neither a chair that is independent nor a lead director that is independent, describe what the board of directors does to provide leadership for its independent directors.
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The Corporation’s Chairman is not an independent director. Currently, the board of directors has no formal process to provide leadership for its independent directors.
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(g) Disclose the attendance record of each director for all board of directors meetings held since the beginning of the issuer’s most recently completed financial year.
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The board of directors held 19 meetings during the year ended December 31, 2006.
Dr. Peter Barrett attended 14 meetings.
Dr. Hans-Rainer Hoffmann attended four meetings.
Dr. Halvor Jaeger attended all meetings.
Dr. Günter Knorr attended all meetings.
Jean-Marie Pomerleau attended 14 meetings.
Rolf Reininghaus was elected to the board of directors on June 26, 2006. He attended 10 of the 12 meetings held during the year following his election.
Dr. Maurice St-Jacques attended 18 meetings.
Keijo Väkiparta attended 15 meetings.
Robert O. Williams III became a director on January 26, 2007.
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2. Board of Directors Mandate
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Disclose the text of the board of directors’ written mandate.
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The text of the board of directors’ mandate is set out as Schedule “D” hereto.
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3. Position Descriptions
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(a) Disclose whether or not the board of directors has developed written position descriptions for the chair and the chair of each board of directors committee.
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The board of directors has developed a written charter of expectations for directors, which includes position descriptions for the Chairman of the board of directors and the Chairs of the board of directors’ committees.
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(b) Disclose whether or not the board of directors and CEO have developed a written position description for the CEO.
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The board of directors and CEO have developed a written position description for the CEO.
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4. Orientation and Continuing Education
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(a) Briefly describe what measures the board of directors takes to orient new directors regarding: (i) the role of the board of directors, its committees and its directors; and (ii) the nature and operation of the issuer’s business.
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New directors are provided with the Corporation’s corporate governance documentation and other briefing materials regarding the nature and operation of the Corporation’s business. Also, individual meetings with the Chairman of the board of directors and with the CEO are held to orient new directors.
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(b) Briefly describe what measures, if any, the board of directors takes to provide continuing education for its directors. If the board of directors does not provide continuing education, describe how the board of directors ensures that its directors maintain the skill and knowledge necessary to meet their obligations as directors.
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From time to time the CEO provides updates to the directors regarding the Corporation’s business to ensure that the directors maintain the level of knowledge regarding the Corporation necessary for them to meet their obligations as directors. Directors are otherwise individually responsible for updating the skills necessary to meet their obligations as directors.
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5. Ethical Business Conduct
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(a) Disclose whether or not the board of directors has adopted a written code for the directors, officers and employees. If the board of directors has adopted a written code:
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The Corporation has recently adopted a Code of Business Conduct and Ethics (the “Code”) that applies to the directors, officers and employees of the Corporation and its subsidiaries.
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(i) Disclose how a person or company may obtain a copy of the code;
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A copy of the Code is available on the Corporation’s website at www.akelapharma.com and on SEDAR at www.sedar.com.
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(ii) Describe how the board of directors monitors compliance with its code, or if the board of directors does not monitor compliance, explain whether and how the board of directors satisfies itself regarding compliance with its code; and;
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To facilitate the board of directors monitoring compliance with the Code, the Code provides that every director, officer and employee is responsible for being aware of, understanding and complying with the Code when making business decisions and must promptly report any problems or concerns and any actual or potential violation of the Code. The Corporate Governance Committee will receive reports from the CEO and management and any relevant documentation required for the assessment by the Committee of compliance with the Code. The Committee will report to the board of directors at each meeting thereon.
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(iii) Provide a cross-reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code.
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No such material change report was filed in 2006.
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(b) Describe any steps the board of directors takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.
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The Code requires directors to avoid situations involving a conflict or the potential for a conflict between their personal interests and the interests of the Corporation. Under the Canada Business Corporations Act, directors are required to disclose any interest in a material contract or material transaction, whether made or proposed. As a matter of practice, closed door deliberations and votes are held by the board of directors, excluding the director who has a material interest in the contract or transaction.
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(c) Describe any other steps the board of directors takes to encourage and promote a culture of ethical business conduct.
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The board of directors has no other formal processes for encouraging and promoting a culture of ethical business conduct.
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6. Nomination of Directors
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(a) Describe the process by which the board of directors identifies new candidates for board of directors nomination.
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In the past, director nominations have been accepted from members of the board of directors and from management and an ad hoc committee has been formed to evaluate the proposed nominee and make a recommendation to the board of directors with respect to the candidate. Following the Meeting, a newly constituted Nominating Committee will be responsible for director nominations, including making recommendations to the board of directors to fill any vacancies on the board of directors.
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(b) Disclose whether or not the board of directors has a nominating committee composed entirely of independent directors. If the board of directors does not have a nominating committee composed entirely of independent directors, describe what steps the board of directors takes to encourage an objective nomination process.
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Currently, the Corporation does not have a nominating committee. However, following the Meeting, a newly constituted Nominating Committee will serve as the board of directors’ nominating committee. The Committee will be composed entirely of independent directors.
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(c) If the board of directors has a nominating committee, describe the responsibilities, powers and operation of the nominating committee.
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The Nominating Committee’s responsibilities relating to director nominations are set forth in a written charter. Specific responsibilities include director recruitment, identification of potential nominees and making recommendations to the board of directors regarding nominees. The Committee meets at least twice each year and reports the proceedings of each meeting and all recommendations to the board of directors at its next meeting.
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7. Compensation
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(a) Describe the process by which the board of directors determines the compensation for the issuer’s directors and officers.
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The Compensation Committee is responsible for reviewing and making recommendations to the board of directors for the compensation of the CEO and other executive officers. The Corporate Governance Committee is responsible for reviewing and making recommendations to the board of directors for the compensation of directors.
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(b) Disclose whether or not the board of directors has a compensation committee composed entirely of independent directors. If the board of directors does not have a compensation committee composed entirely of independent directors, describe what steps the board of directors takes to ensure an objective process for determining such compensation.
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The Compensation Committee serves as the board of directors’ compensation committee. The current members of the Committee are Dr. Barrett (Chair), Dr. Hoffmann, Dr. Knorr and Mr. Pomerleau. Dr. Knorr and Mr. Pomerleau are not independent directors within the meaning of NI 58-101 and therefore, the Committee is not currently composed entirely of independent directors. In the past, the board of directors has engaged independent compensation consultants as and when required to ensure an objective process for determining compensation. Following the Meeting, the Committee is expected to be composed entirely of independent directors.
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(c) If the board of directors has a compensation committee, describe the responsibilities, powers and operation of the compensation committee.
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The Compensation Committee’s responsibilities are set forth in a written charter. Specific responsibilities include: (a) reviewing and making recommendation to the board of directors regarding: (i) the compensation of the CEO and other executive officers, including salary, incentives, benefits and other perquisites; and (ii) general compensation philosophy and guidelines for all executive officers, including the CEO, including incentive plan design and other remuneration; and (b) reviewing any executive compensation disclosure. The Committee meets at least twice each year and reports the proceedings of each meeting and all recommendations to the board of directors at its next meeting.
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(d) If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work.
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No compensation consultant or advisor was retained during 2006.
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8. Other Board Committees
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If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.
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The Corporate Governance Committee has responsibilities relating to corporate governance. Specific corporate governance responsibilities include: reviewing the appropriateness of the board structure, composition and practices and making recommendations thereon to the board of directors; reviewing and recommending to the board of directors candidates for appointment to the office of Chairman of the board of directors; reviewing and recommending to the board of directors appropriate corporate governance policies; making recommendations to the board of directors to fill any vacancies on the board’s committees; overseeing compliance with timely disclosure, confidentiality and insider trading policies, and with the Code; reviewing the adequacy, amount and form of compensation to be paid to directors; and reviewing and making recommendations to the board of directors regarding orientation and education programs to be undertaken for all new members of the board and continuing education programs to be made available to members of the board of directors.
The board of directors recently approved a charter for a Qualified Legal Compliance Committee (“QLCC”). The members of the Audit Committee constitute the membership of the newly formed QLCC. The QLCC will review any report by a lawyer employed or retained by the Corporation or its subsidiaries of a material violation of U.S. federal or state securities law, a material breach of fiduciary duty arising under U.S. federal or state law or a similar violation of any U.S. federal or state law. In addition to any other responsibilities which may be assigned from time to time by the board of directors, the QLCC has the authority and responsibility to: adopt written procedures; investigate reports; inform the board of directors and the Chief Executive Officer of such reports and their findings; and adopt remedial measures if deficiencies are found. The QLCC may take all other appropriate action, including notifying the Securities and Exchange Commission, if the Corporation fails in any material respect to implement an appropriate response that the QLCC has recommended to the Corporation.
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9. Assessments
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Disclose whether or not the board of directors, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments.
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The board of directors evaluates yearly its performance and the performance of committees and the directors individually, with the ultimate goal of improving, whenever possible, the overall performance of the Corporation’s corporate governance. The formal review process is conducted between January 1 and March 31 each year. Each year prior to January 10, the Chairman of the Corporate Governance Committee sends out a questionnaire to each director. This questionnaire outlines questions with regard to the performance of the board of directors and its committees. The questionnaire is sent back marked “Confidential” to the Chairman of the Corporate Governance Committee prior to the end of January. The Chairman of the Corporate Governance Committee reviews the returned questionnaires and, prior to mid-March, discusses the results with each director individually. In addition, the returns for the performance of the board of directors as a whole are discussed at the following meeting of the board of directors. The results of the review of the committees are then discussed in the committees. The board of directors does not have a formal process for assessing the effectiveness and contribution of individual directors.
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