Annual Report by a Canadian Issuer — Form 40-F Filing Table of Contents
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This
document contains “forward-looking statements” within the meaning of applicable
securities laws, including RevPAR, profit margin and earning trends; statements
concerning the number of lodging properties expected to be added in this and
future years; expected investment spending; similar statements concerning
anticipated future events, results, circumstances, performance or expectations
that are not historical facts; and statements relating to the proposal to take
Four Seasons Hotels Inc. private and anticipated financial results. Various
factors and assumptions were applied or taken into consideration in arriving
at
these statements, which do not take into account the effect that non-recurring
or other special items announced after the statements are made may have on
our
business. These statements are not guarantees of future performance and,
accordingly, you are cautioned not to place undue reliance on these statements.
These statements are subject to numerous risks and uncertainties, including
those described in our management’s discussion and analysis and in this
document. (See discussion under “Operating Risks” at page 17.)
Those risks and uncertainties include adverse factors generally encountered
in
the lodging industry; the risks associated with world events, including war,
terrorism, international conflicts, natural disasters, extreme weather
conditions and infectious diseases; general economic conditions, fluctuations
in
relative exchange rates of various currencies, supply and demand changes for
hotel rooms and residential properties, competitive conditions in the lodging
industry, the risks associated with our ability to maintain and renew management
agreements and expand the portfolio of properties that we manage, relationships
with clients and property owners and the availability of capital to finance
growth. Many of these risks and uncertainties can affect our actual results
and
could cause our actual results to differ materially from those expressed or
implied in any forward-looking statement made by us or on our behalf. In
addition, actual results and developments relating to the proposal may differ
materially from those contemplated by the statements herein, due to, among
other
things, the risks that the parties will not proceed with the transaction, that
the terms of the transaction will differ from those that are currently
contemplated, and that the transaction will not be successfully completed for
any reason (including the failure to obtain the required approvals or clearances
from regulatory authorities and the timing of completion). All forward-looking
statements in this document are qualified by these cautionary statements. These
statements are made as of the date of this document and, except as required
by
applicable law, we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. Additionally, we undertake no obligation to comment on analyses,
expectations or statements made by third parties in respect of Four Seasons
Hotels Inc. (“FSHI”),
its financial or operating results or its securities or any of the properties
that we manage or in which we may have an interest.
All
amounts disclosed in this annual information form (including amounts for prior
periods) are in US dollars unless otherwise noted. Our consolidated financial
statements are prepared in accordance with Canadian generally accepted
accounting principles.
Arrangement
Transaction
On
February 12, 2007, we announced that we had entered into a definitive
acquisition agreement (the “Acquisition Agreement”) to implement a previously
announced proposal to take FSHI private at a price of $82.00 cash per Limited
Voting Share (the “Arrangement Transaction”). Following completion of the
transaction, FSHI would be owned by affiliates of Cascade Investment, L.L.C.
(“Cascade”) (an entity owned by William H. Gates III), Kingdom Hotels
International (“Kingdom”), a company owned by a trust created for the benefit of
His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud and his
family, and Isadore Sharp. The
transaction, which would be implemented by way of a court-approved plan of
arrangement under Ontario law, has been approved unanimously by our Board (with
interested directors abstaining) following the report and favourable, unanimous
recommendation of the Special Committee of independent directors. In doing
so,
our Board determined that the Arrangement Transcation is fair to the
shareholders of FSHI (other than Mr. Sharp, Kingdom, Cascade, their respective
directors and senior officers and any other “related parties”, “interested
parties” and “joint actors”) and in the best interests of FSHI and authorized
the submission of the Arrangement Transaction to shareholders of FSHI for their
approval at a special meeting of shareholders. Our Board also has determined
unanimously (with interested directors abstaining) to recommend to FSHI
shareholders that they vote in favour of the Arrangement
Transaction.
As
previously
disclosed,
upon completion of the Arrangement
Transaction, Triples Holdings Limited (which is Mr. Sharp’s family holding
company) would hold a significant continuing interest in FSHI and Mr. Sharp
would, as Chairman and Chief Executive Officer, continue to be directly involved
in all aspects of the operations and the strategic direction of Four Seasons,
which will remain headquartered in Toronto. If
the Arrangement Transaction is completed, Mr. Sharp will be entitled to realize
proceeds of approximately $289 million related to a long-term incentive
agreement that was approved by FSHI’s shareholders before it was put in place in
1989. (See Description of Share Capital - Sale of Control
Agreement.)
(iii)
A
meeting of shareholders to consider the Arrangement Transaction is
anticipated to take place in April. To be implemented, the Arrangement
Transaction will require approval by two-thirds of the votes cast by
holders of Limited Voting Shares, voting separately as a class, and approval
by
Triples, as the sole holder of the Variable Multiple Voting Shares, voting
separately as a class. Kingdom, Cascade and Triples have agreed to vote their
Limited Voting Shares and Variable Multiple Voting Shares to approve the
Arrangement Transaction. The Arrangement Transaction also will require
approval by a simple majority of the votes cast by holders of Limited Voting
Shares, other than Mr. Sharp, Kingdom, Cascade, their respective directors
and
senior officers and any other “related parties”, “interested parties” and “joint
actors”. In addition, the Arrangement Transaction will require approval by
the Ontario Superior Court of Justice. The Arrangement Transaction also
will be subject to certain other customary conditions, including receipt of
a
limited number of regulatory approvals. The Arrangement Transaction is not
subject to any financing condition, and FSHI has been advised that commitments
for the required debt financing have been received. FSHI has received from
Cascade and Kingdom a limited guaranty of certain obligations of FS Acquisition
Corp. (the “Purchaser”), the newly-formed company that is the purchaser under
the Acquisition Agreement. There are certain risks inherent in the Arrangement
Transaction which are described in the management information circular prepared
in connection with the special meeting of shareholders, a copy of which will
be
available as part of FSHI’s public filings at www.sedar.com and www.sec.gov.
Among other things, there are risks that the parties will not proceed with
the
Arrangement Transaction, that the ultimate terms of the Arrangement Transaction
will differ from those that currently are contemplated, and that the Arrangement
Transaction will not be successfully completed for any reason (including the
failure to obtain the required approvals or clearances from regulatory
authorities).
Copies
of the Acquisition Agreement and certain related documents have been filed
with
Canadian securities regulators and with the United States Securities and
Exchange Commission and will be available at the Canadian SEDAR website at
www.sedar.com and at the U.S. Securities and Exchange Commission’s website at
www.sec.gov. The management information circular in connection with the special
meeting of shareholders to consider the Arrangement Transaction is
currently expected to be mailed to shareholders on or about the week of March12, 2007.
It
is anticipated that the Arrangement Transaction, if approved by shareholders,
will be completed in the second quarter of 2007.
Given
the current Arrangement Transaction, it is likely there will be no annual
meeting and therefore no management information circular in connection
therewith. As a result, some of the items usually included in the management
information circular for the annual meeting will instead be included in the
annual information form this year.
This
annual information form reflects the historical operations of FSHI and is
drafted from the perspective of FSHI as a continuing public
entity.
(iv)
Four
Seasons Hotels Inc.
Four
Seasons Hotels Inc. was incorporated under the Business
Corporations Act
(Ontario) on January 6, 1978.1Our
registered and principal office is located at 1165 Leslie Street, Toronto,
Ontario, Canada M3C 2K8. Our Limited Voting Shares are listed on the Toronto
Stock Exchange under the symbol FSH and on the New York Stock Exchange under
the
symbol FS.
Business
of Four Seasons
Four
Seasons is one of the world’s leading managers of luxury hotels and resorts. We
endeavour to offer business and leisure travelers the finest accommodations
and
experiences beyond compare in each destination in which we operate.
Four
Seasons has a portfolio of 74 luxury hotel and resort properties (containing
approximately 18,090 guest rooms), several of which include a residential
component. These properties are operated primarily under the Four Seasons brand
name in principal cities and resort destinations in 31 countries in North
America, the Caribbean, Europe, Asia, Australia, the Middle East and South
America. In addition, 30
properties are under construction or development in a further 13 countries
around the world. Of these, 20 new properties are to include a residential
component. (For a chart summarizing the hotels, resorts, and Four Seasons
branded residential projects that are managed by us and under construction
or
development to be managed by us, see “Four Seasons Portfolio”.)
We
earn income primarily from our management operations. Under our management
agreements, we generally oversee, as agent for the property owner, all aspects
of the day-to-day operations of each hotel and resort. In addition, we generally
provide owners with advice with respect to the design, construction and
furnishing of new or renovated hotels, resorts and residences, assistance with
the refurbishment of hotels and resorts, support and advice with respect to
information technology systems and database applications, and a centralized
purchasing system for goods. For providing these services, we generally receive
a variety of fees, comprised of hotel management fees, including a base fee
and
an incentive fee, other fees including purchasing and pre-opening fees, and
reimbursable costs including a sales and marketing charge, an advertising charge
and a reservation charge. The base fee usually is calculated as a percentage
of
the total revenues of the property. Incentive fees typically are based on the
property’s profitability. (See “Management Operations”.)
To
further capitalize on the value of the Four Seasons brand name, we license
and
manage Four Seasons branded residential projects, including whole ownership
and
fractional ownership. We generally receive fees for the use of the Four Seasons
brand in connection with the sale of the interests in these projects. In
addition, we receive fees from the owners of the interests for services provided
in the ongoing management of these projects.
As
part of our ongoing business, we make investments in, or advances in respect
of
or to owners of, properties with a view to obtaining new management agreements
or enhancing existing management agreements where we believe the overall returns
will justify the investment or advance. We generally seek to limit our total
long-term capital exposure to no more than 20% of the total equity required
for
a
1The
articles of Four Seasons Hotels Inc. were restated in 1986 to consolidate prior
amendments and were amended in 1989 to subdivide each Subordinate Voting Share
and each Multiple Voting Share on a 2:1 basis and to create an unlimited number
of special shares designated as First Preference Shares and Second Preference
Shares. In 1996 the articles were further amended to re-designate the
Subordinate Voting Shares as Limited Voting Shares and to create 4,171,924
special shares designated as Variable Multiple Voting Shares, which replaced
and
have substantially the same rights, privileges, restrictions and conditions
as
did the Multiple Voting Shares, except that the number of votes per Variable
Multiple Voting Share generally increases as Limited Voting Shares are issued
and dividends on the Variable Multiple Voting Shares will be in an amount per
share equal to 50% of the dividends per Limited Voting Share.
property
and typically can choose to have our equity interest diluted if additional
capital is required. We attempt to structure our equity interests separately
from our management interests to enable us to dispose of equity interests as
opportunities arise, without affecting our management interests.
Management
Operations
Hotels
and Resorts
Management
We
are principally a management company. We generally manage our hotels and resorts
on behalf of our property owners pursuant to separate management agreements
for
each property. Under our management agreements, we generally oversee, as agent
for the property owner, all aspects of the day-to-day operations of the hotels
and resorts, including sales and marketing, advertising, reservations,
accounting, purchasing, budgeting and the hiring, training and supervising
of
staff. In addition, we generally provide owners with advice with respect to
information technology systems and development of certain database applications,
as well as, advice with respect to the design, construction and furnishing
of
new or renovated hotels, resorts and residences. We also provide a centralized
purchasing system for goods. We generally perform these services within the
guidelines contained in annual operating and capital plans that are submitted
to
the owners of the hotels and resorts during the last quarter of the preceding
year for their review and approval. For providing these services, we generally
receive a variety of fees, including management fees (comprised of a base fee
and an incentive fee), other fees (including royalty and management fees from
our residential business, fees we earn during the development of our hotels
and
resorts and other miscellaneous fees) and reimbursed costs (including a sales
and marketing charge, an advertising charge and a reservation
charge).
We
currently have the ability to earn incentive fees in virtually
all2of
the hotels and resorts that we manage. Incentive fees are based on the profits
of the hotel or resort as determined in accordance with the relevant management
agreement. In 2006, incentive fees were earned from 49 of our management
agreements, as compared to 453 of
our management agreements in 2005.
We
generally supervise purchasing at the hotels and resorts that we manage to
maintain a uniform quality of goods purchased and to control hotel operating
costs. We maintain a centralized purchasing system and receive a fee generally
calculated as a percentage of the cost of goods purchased when this system
is
utilized by the hotels and resorts under management.
Although
the hotel and resort owners are generally responsible for financing and managing
the development of the hotels and resorts, we typically play a significant
pre-opening role. We provide advice with respect to the design, construction
and
fitting out specifications of the hotels and resorts during the development
stage to ensure that they meet Four Seasons’ standards, and we earn fees for
these pre-opening services. We may also assist owners in connection with the
refurbishment of the hotels and resorts after opening in return for a
refurbishing fee.
Under
our management agreements, the hotel or resort owner is responsible for funding
the hotel’s or resort’s operating costs, capital expenditures and working
capital requirements, including the salaries and benefits of all employees.
The
owner typically is required to set aside a percentage of the gross revenue
of
the hotel or resort each year as a reserve for capital expenditures. Those
percentages typically range
2We
have
this ability in 70 of the 74 hotels and resorts that we manage.
3Includes
The
Pierre in New York and Four Seasons Hotel Newport Beach, which are no longer
managed by Four Seasons.
-
2
-
from
3% to 5% of hotel or resort annual gross operating revenues. We propose an
operating plan and capital expenditure budget to the owner for approval on
an
annual basis. All structural changes, major refurbishing programs and major
repairs generally require the separate approval of owners prior to
implementation and may be carried out by us or a third party.
Total
fee revenues are geographically diversified around the world. The United States
is the only geographic segment that contributed more than 40% of all our fee
revenues in 2006 and 2005. The diversification of our fee revenues has increased
significantly over the past 10 years. With the opening of hotels and resorts
currently under construction and development around the world, we expect
diversification of our fee revenues to continue in the future.
Sales,
Marketing, Advertising and Reservations
We
are responsible for the development of overall sales and marketing strategies
for our portfolio of branded hotels and resorts, which includes enhancing
international awareness of the Four Seasons brand and developing local market
potential for specific hotels and resorts. Our marketing efforts are coordinated
through our headquarters in Toronto and are exclusively targeted at the luxury
segment of the market worldwide. Our customer mix consists of business
travelers, groups (including corporate and incentive), and leisure travelers.
These customer segments accounted for an estimated 32%, 30% and 38%,
respectively, of total room nights in 2006.Our
corporate marketing staff oversees planning and implementation of hotel and
resort marketing programs and also the training and development of the global
sales force and the hotel sales and marketing staff. We also provide
supplementary oversight sales support to the three Regent hotels in our system
(see “Intellectual Property”), with core marketing services for the Regent brand
being provided by Carlson Hospitality Group of Minneapolis.
We
have a global sales force of approximately 55 sales professionals in 15 offices
worldwide located in Atlanta, Chicago, Dallas, Dubai, Frankfurt, Hong Kong,
London, Los Angeles, New York, Paris, San Francisco, Singapore, Sydney, Tokyo,
and Washington, D.C. Key objectives of our sales force are to attract groups
and
corporate business travelers for the hotels and resorts, as well as to establish
personal contact with nationally recognized travel agencies. In addition, a
total of approximately 480 sales professionals are employed locally at the
hotels and resorts that we manage. Our local marketing strategy is concentrated
on developing rooms and food and beverage business for hotels and resorts
locally and regionally, and promoting the hotel or resort as a centre of
community activity with a view to increasing revenues from local
sources.
We
also provide an international corporate advertising program that develops and
places advertising for Four Seasons branded hotels and resorts and oversees
promotional programs that benefit all the properties. Our advertisements are
designed to enhance consumer awareness of our luxury services and the value
that
such services provide to the business and leisure traveler.
We
staff one reservation centre for all Four Seasons branded hotels and resorts,
while Carlson Hospitality Group provides core reservation services for our
Regent hotels. In addition, our global reservation network provides reservation
services in the local language in 33 markets in North America, Asia/Pacific,
Europe and the Middle East. Electronic reservations are another key part of
our
global distribution network, as our reservation systems are fully integrated
with international airline booking systems. The Internet is a growing
distribution channel which is supported by our website - www.fourseasons.com.
Our website accepts on-line reservations and also refers guests to other
reservation channels.
We
receive corporate sales and marketing charges, centralized reservation service
charges and corporate advertising charges from our hotels and resorts, thereby
enabling us to recover substantially all of the costs of providing these
services.
-
3
-
Branded
Residential Properties
We
receive royalty fees for the use of our name in association with the sale of
Four Seasons branded real estate. These royalties are typically based on the
sales proceeds of the residences sold. We also manage Four Seasons branded
and
serviced residential projects pursuant to management agreements under which
we
oversee the management of the day-to-day operations of the completed projects
in
return for ongoing management fees from the owners of interests in these
projects.
Management
Resources
Each
of our properties is managed by a General Manager and supported by a Regional
Vice President (who is also a General Manager), and other corporate Vice
Presidents. The size of each property’s management team and its hourly staff
varies, based on the size and business volume of the particular property. These
management teams monitor staffing levels on an ongoing basis to optimize service
standards and labour productivity at the properties.
A
General Manager is responsible for supervising the day-to-day operations of
a
single property, is a full-time employee at that property, and is compensated
in
part based on the operational performance of that property. Our General Managers
report directly to one of 17 Regional Vice Presidents or directly to the Senior
Vice President, Operations - North America, the President, Hotel Operations
-
Europe, Middle East and Africa, or the Senior Vice President, Operations -
Asia/Pacific. Area Directors of Finance and Regional IT Directors, each of
whom
is also a full-time employee at a property that we manage, devote a portion
of
their time to regional activities and providing assistance to other properties
that we manage. Corporate Area Directors or Vice Presidents of Human Resources
and Marketing complete each regional support team. We believe that our regional
management structure is a key component in our ability to deliver and maintain
the highest and most consistent standards of product quality and service at
each
of our properties in a cost effective manner, especially as we continue to
expand globally.
From
the corporate level, we provide each of our properties with the benefits of
management services delivered by our network of highly experienced executives,
corporate personnel and area managers. We also provide, or arrange for the
provision of, assistance and training to each property’s employees for
administration, operations, rooms and guest service, reservations, maintenance
and engineering, human resources and benefits. Other services arranged by us
include assistance with accounting, tax, legal, risk management, treasury,
information technology, internal audit and credit services.
Employees
We
directly employ and are financially responsible for approximately 515
individuals at the various corporate offices, the worldwide sales offices and
the worldwide central reservations office. In addition, there are approximately
32,800 employees located at the 74 hotels and resorts that we manage, several
of
which include a residential component. All costs relating to property-based
employees, including wages, salaries and health and insurance benefits, are
the
responsibility of the property owners and are generally paid out of the
operating cash flow of the property. Management and corporate staff share
responsibility for the selection and training of property-based employees and
for ensuring, through progressive career development, an adequate supply of
mobile, qualified and experienced staff to match the growth of our operations
internationally. Maintenance of employee communication, motivation and morale
at
high levels is necessary to meet the expectations of our clientele. In this
context, we have devoted significant effort to developing customized hiring
practices, training and career development programs and approaches.
At
23 hotels and resorts that we manage, including 11 in North America, various
groups of employees are covered by collective bargaining agreements.
-
4
-
Ownership
Operations
We
hold ownership interests in, or have made advances in respect of or to owners
of, 34 of the 74 hotels and resorts and the branded residential projects that
we
currently manage, including a 100% leasehold interest in the Four Seasons Hotel
Vancouver. Our investment strategy as a public company is not to hold any
additional majority investments in hotels and resorts. However, Four Seasons
Hotel Vancouver is a long-term leasehold interest that was established at an
earlier stage in our development and we currently believe that we will operate
the Vancouver hotel under the existing lease agreement, until its expiry on
January 31, 2020.4
Intellectual
Property
In
the highly competitive service industry in which we operate, trademarks, service
marks and logos are very important in the sales and marketing of those services.
We have a significant number of trademarks, service marks and logos, and
significant time and effort are expended each year on surveillance, registration
and protection of our trademarks, service marks and logos, which we believe
have
become synonymous in the lodging industry with a standard of attention to detail
and an unwavering dedication to excellence.
We
have an arrangement with Carlson Hospitality Group pursuant to which Carlson
owns and has the exclusive right to use the Regent name, and related names,
trademarks, service marks and logos for new development. Pursuant to this
arrangement, we retain the right to use the Regent name and related marks and
logos at the three Regent properties we manage and, in consideration for the
transfer of the ownership rights in the Regent name and related marks and logos,
we receive fixed annual payments from Carlson. The costs associated with the
maintenance of the Regent brand and marks are the obligation of
Carlson.
Business
and Growth Strategy
Our
core strategic goal is to be recognized as the undisputed global leader in
luxury lodging. A core strategy underlying that goal is to enhance our industry
position through a focused, international portfolio expansion and refinement
program that capitalizes on the strengths of our core management operations
and
the value of our brand name. We intend to continue to focus on sustainable
growth and seek to utilize our competitive strengths to increase earnings,
cash
flow, property owners’ returns, and shareholder value. We expect to do this by
continuing to improve the operating performance of the portfolio of properties
that we manage,
by acquiring new management contracts, by pursuing strategic enhancements to
established properties and strategic divestitures of properties where
appropriate opportunities arise, and by capitalizing on opportunities to
leverage our luxury brand name through complementary business extensions such
as
Four Seasons branded residential products.
We
believe that the strength of our brand name, our global marketing presence
and
our operational expertise result in average room revenue per available room
(RevPAR)5
premiums and strong operating profitability for luxury hotels and resorts that
we manage and provide us with a competitive advantage in
4We
have
leased and managed Four Seasons Hotel Vancouver since 1976. The lease on
Four
Seasons Hotel Vancouver expires in 2020.
5 RevPAR
is defined as average room revenue per available room. It is a non-GAAP
financial measure and does not have any standardized meaning prescribed by
GAAP
and is therefore unlikely to be comparable to similar measures presented
by
other issuers. We use RevPAR because it is a commonly used indicator of market
performance for hotels and resorts and represents the combination of the
average
daily room rate and the average occupancy rate achieved during the period.
RevPAR does not include food and beverage or other ancillary revenues generated
by a hotel or resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over-period performance of comparable properties.
Our calculation of RevPAR may be different than the calculation used by other
lodging companies.
-
5
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obtaining
new management contracts worldwide. RevPAR for Core Hotels6
in the United States during 2006 was $299, 54%
higher than the RevPAR of the United States luxury segment as compiled by Smith
Travel Research.
Growth
from Existing Properties
We
believe opportunities will exist for growth within our existing and newly opened
properties by increasing overall market share and RevPAR, thereby improving
the
properties’ profitability and, in turn, our management fee revenues and
ownership earnings. From fiscal year 2005 to fiscal year 2006, RevPAR for all
Core Hotels increased by 11.8%.
During this period, RevPAR for Core Hotels in the United States, Other
Americas/Caribbean, Europe, the Middle East and Asia/Pacific increased
10.2%,
12.6%, 18.9%, 25.3% and 5.0% respectively.
On a local currency basis, as compared to 2005, RevPAR in 2006 for Other
Americas/Caribbean, Europe, the Middle East and Asia/Pacific Core Hotels
increased 10.7%, 17.5%, 23.8% and 3.6% respectively.
Region
Occupancy
Average
Room Rate
RevPAR
2006
2005
2006
2005
2006
2005
Worldwide
69.0%
68.3%
$372.36
$336.59
$257.03
$229.80
United
States
73.6%
73.0%
$406.03
$371.59
$299.03
$271.32
Other
Americas/Caribbean
64.6%
64.4%
$376.57
$335.58
$243.33
$216.06
Europe
66.7%
62.6%
$596.20
$534.37
$397.92
$334.70
Middle
East
69.3%
67.3%
$258.31
$212.05
$178.90
$142.79
Asia/Pacific
63.9%
65.0%
$211.36
$197.69
$134.99
$128.57
New
Hotel and Resort Opportunities
Having
established a network of luxury hotels in many of the world’s key financial
centres, we expect our future expansion to occur primarily in locations that
satisfy our objectives of better servicing the travel needs of our existing
customer base and attracting new international business travelers to our managed
hotels and resorts worldwide. We expect that future growth will primarily be
in
the form of new hotels and resorts, or the conversion of existing hotels and
resorts, in Europe, the Middle East, South America and Asia/India, as well
as
selected urban and resort locations in the United States and the Caribbean.
We
plan to continue to increase the number of resorts that we manage to serve
the
leisure travel needs of our customers, which is expected to reduce the
seasonality of our cash flows. We currently have 30
new properties under construction or development and are evaluating numerous
other management opportunities in various locations around the
world.
We
believe that we will continue to have the opportunity to consider and enter
into
appropriate new hotel and resort management agreements as a result of our
competitive strengths. In 2006, we began operations at Four Seasons Hotel
Silicon Valley at East Palo Alto, Four Seasons Tented Camp, Golden Triangle,
Thailand, Four Seasons Lana’i The Lodge at Koele, Four Seasons Hotel Westlake
Village and Four Seasons Resort Maldives at Landaa Giraavaru. In early 2007,
we
began operations at Four Seasons Resort Koh Samui. We expect to open 13
new
hotels and resorts over the remainder of 2007 and 2008.
6 The
term “Core Hotels” means hotels and resorts under management for the full year
of both 2006 and 2005. However, if a “Core Hotel” has undergone or is undergoing
an extensive renovation program in one of those years that materially affects
the operation of the property in that year, it ceases to be included as a
“Core
Hotel” in either year. Changes from the 2005/2004 Core Hotels are the additions
of Four Seasons Resort Scottsdale at Troon North, Four Seasons Resort Whistler,
Four Seasons Resort Cost Rica at Peninsula Papagayo, Four Seasons Hotel Gresham
Palace Budapest, Four Seasons Resort Provence at Terre Blanche and Four Seasons
Hotel Cairo at Nile Plaza, and the deletion of The Regent Kuala Lumpur.
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6
-
(For
details on these and other hotels and resorts under construction or advanced
stages of development, see “Four Seasons Portfolio - Properties under
Construction or Development”.)
Branded
Residential Properties
As
part of our program to capitalize on the value of the Four Seasons brand, we
are
pursuing opportunities relating to branded and serviced residential projects.
Typically, these residential projects will be integrated with our managed hotels
and resorts. (See discussion under “Management Operations - Branded Residential
Properties”.) During 2006, interests were marketed for initial sale in branded
and serviced residential projects in Aviara, Scottsdale, Punta Mita, Nevis,
Houston, Miami, Dublin, Toronto, Seattle, Mauritius, Costa Rica, Sharm el
Sheikh, Jackson Hole, Marrakech, Vail, Barbados and Bora Bora. We anticipate
pursuing similar initiatives in a number of our future resort and urban
developments.
Capital
Deployment
Consistent
with our business strategy, we do not generally require large amounts of capital
to maintain existing management agreements or our minority ownership positions.
To the extent required, we will make investments or advances to secure long-term
management contracts with a view to expanding or enhancing our management
business where we believe the overall returns will justify the investment or
advance. We generally seek to limit our total long-term capital exposure to
no
more than 20% of the total equity required for a property and typically can
choose to have our equity interest diluted if additional capital is required.
We
attempt to structure our equity interests separately from our management
interests so as to be able to dispose of an equity interest as sale
opportunities arise, without affecting our management interests. We have
advances outstanding in connection with various properties, including Four
Seasons Hotel George V Paris, Four Seasons Hotel Sydney, Four Seasons Hotel
Toronto, Four Seasons Hotel Geneva and Four Seasons Hotel Hampshire. As at
December 31, 2006 we had $358.9
million in cash and cash equivalents and additional financing available under
our bank credit facilities. (For details of those credit facilities see
“Liquidity and Capital Resources” in Management’s Discussion and Analysis.)
We
work closely with owners and investors in developing new properties and
acquiring existing luxury properties that we will manage. Further information
regarding capital commitments and capital funding for properties under
development or construction is provided under “Four Seasons Portfolio -
Properties under Construction or Development”.
Competitive
Strengths
The
hotel industry is highly competitive. We believe that our competitive position
is strengthened by our well-recognized and respected luxury brand name and
our
broad network of management contracts for luxury properties in strategic markets
worldwide. We also believe that we have developed a unique service culture,
depth of management expertise, and multiple capital sources over our more than
40-year history.
Strong
Brand Recognition
Our
properties are widely recognized for the exceptional quality of their guest
facilities, service and atmosphere and have been named more frequently than
any
other competitor among the world’s best hotels and travel experiences by
Institutional
Investor,
Condé
Nast Traveler,
Zagat,
Travel & Leisure
and others. We believe that our brand name recognition cannot easily be
replicated by others, as it has been created over more than 40 years through
the
exceptional experiences provided by Four Seasons’ global list of unique
properties of the highest quality.
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7
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Superior
Hotel Operating Results
We
generally achieve RevPAR and, we believe operating profit margins, for hotels
and resorts that we manage that are above the average achieved in the luxury
segment of the lodging industry. We believe that we attract owners and
developers of luxury hotels and resorts worldwide as a result of the generally
superior financial performance of the hotels and resorts that we manage.
Strategic
Relationships
Strategic
relationships are an important source of financing for the development
opportunities required to expand our management operations. We have established
relationships with numerous institutional and private equity sources that invest
in and develop luxury properties. Several of the existing owners have an
ownership interest in more than one Four Seasons hotel or resort, including
three owners that have interests in four or more properties.
In
1994, a company controlled by His Royal Highness Prince Alwaleed Bin Talal
Bin
Abdulaziz Al Saud purchased a significant minority position in Four Seasons
Hotels Inc. Prince Alwaleed or companies controlled by him (collectively,
“Kingdom”), own a majority interest in Four Seasons Hotel George V Paris, Four
Seasons Hotel Toronto, the Four Seasons Residence Club Scottsdale at Troon
North
and Four Seasons Hotel Riyadh, with Four Seasons having made advances in respect
of the first five properties. Kingdom also has a significant interest in Four
Seasons Hotel Geneva and in a company that holds interests in the Four Seasons
Hotel Amman, Four Seasons Resort Sharm el Sheikh, Four Seasons Hotel Cairo
at
Nile Plaza and Four Seasons Hotel Damascus. Kingdom has invested, or is expected
to make investments, either directly or indirectly, in a number of additional
properties at various stages of development that we expect to manage under
the
Four Seasons brand name, such as the Four Seasons hotels or resorts being
developed in Alexandria, Beirut, Marrakech and Mauritius. All of our
transactions with Kingdom are conducted at arm’s length and in the ordinary
course of business.
Kingdom
is also one of the parties to the Arrangement Transaction. See “Arrangement
Transaction”.
Management
Focus
We
are principally a global hotel and resort management company. Management
agreements for the hotels and resorts that we manage generally are long-term,
having remaining terms averaging approximately 51 years, including extension
periods available at our option. The average term of the management contracts
for the 13
new hotels and resorts we expect to open over the remainder of 2007 and 2008
is 56
years. (For a chart summarizing, among other things, the hotels and resorts
under construction or development by Four Seasons that are expected to open
over
the remainder of 2007 and 2008 see “Four Seasons Portfolio - Properties under
Construction or Development”.)
Global
Presence
We
manage a global portfolio of 74 luxury hotels and resorts, many of which include
a residential component, in 31 countries with 30
additional properties under construction or development in a further 13
countries around the world. Of these, 20 new properties are to include a
residential component. Hotels that we currently manage are located in major
international financial centres, such as London, New York, Paris, Geneva,
Chicago, Washington, Los Angeles, Tokyo, Milan, Shanghai, Singapore, Hong Kong,
Toronto and Sydney, as well as in emerging international markets, such as Dublin
and Mexico City. We also manage resorts in world-class leisure destinations,
such as Bali, California, Costa Rica, Hawaii, Mexico, Nevis, Malaysia and
Whistler and have residential products in active sales and operation in the
United States, Caribbean and Egypt. We anticipate that we will continue to
expand in urban and resort destinations where consumer demand warrants a luxury
property. In 2006, approximately 44%, 14%, 18%, 12% and 12% of all fee revenues
were derived from hotels and resorts in the United States,
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8
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Asia/Pacific,
Europe, Middle East, and Other Americas/Caribbean, respectively. We maintain
a
fully integrated global reservation and sales office system that provides
international sales coverage for our properties.
Strong
Management Team
Our
corporate executive management team consists of eight individuals who are
responsible for our global strategic direction and who have an average tenure
of
approximately 23 years with Four Seasons. This team is supported by 28 corporate
Vice Presidents, who are responsible for various aspects of our daily
operations, as well as by 71 General Managers and Regional Vice Presidents,
who
together have an average tenure of approximately 15 years with Four Seasons.
We
have a fundamental strategy of developing our senior management team, to the
extent possible, from within in order to ensure consistency of our service
culture and work ethic.
Four
Seasons Portfolio
The
properties that we manage are comprised of luxury hotels and resorts, many
of
which include a residential component, whose target customers are principally
business travelers, corporate and incentive groups and discerning leisure
travelers. Our urban hotels generally are centrally located in the commercial
and financial districts of the world’s leading cities in North America, South
America, Asia, Europe and the Middle East. Our luxury resorts and serviced
and
branded residential projects are located in world-class leisure destinations
and
provide extensive recreational and meeting facilities to attract upscale leisure
travelers and groups.
Description
of Hotels and Resorts
The
following table provides an overview of the properties that we currently manage,
many of which include a residential component:
Hotel/Resort
and Location
Approximate
Number
of Rooms
Approximate
Equity
Interest 1
United
States
Four
Seasons Hotel Atlanta, Georgia
245
-
Four
Seasons Hotel Austin, Texas
290
-
Four
Seasons Resort Aviara, California2
330
-
The
Beverly Wilshire (Beverly Hills), California
395
-
Four
Seasons Biltmore Resort (Santa Barbara), California
205
-
Four
Seasons Hotel Boston, Massachusetts2
275
-
Four
Seasons Hotel Chicago, Illinois
345
-
The
Ritz-Carlton Hotel Chicago, Illinois
435
-
Four
Seasons Resort and Club Dallas at Las Colinas, Texas
400
-
Four
Seasons Hotel Houston, Texas2
405
-
Four
Seasons Resort Hualalai at Historic Ka’upulehu, Hawaii
245
-
Four
Seasons Resort Jackson Hole, Wyoming2
125
-
4
Four
Seasons Resort Lana’i at Manele Bay, Hawaii
235
-
Four
Seasons Lana’i The Lodge at Koele, Hawaii
100
-
Four
Seasons Hotel Las Vegas, Nevada
425
-
Four
Seasons Hotel Los Angeles, California
285
-
4
Four
Seasons Resort Maui at Wailea, Hawaii
375
-
Four
Seasons Hotel Miami, Florida2
220
4.7%3
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Hotel/Resort
and Location
Approximate
Number
of Rooms
Approximate
Equity
Interest 1
Four
Seasons Hotel New York, New
York
370
-
Four
Seasons Resort Palm Beach, Florida
210
-
Four
Seasons Hotel Philadelphia, Pennsylvania
365
-
Four
Seasons Hotel San Francisco, California2
275
-
Four
Seasons Resort Scottsdale at Troon North, Arizona2
210
-
4,
5
Four
Seasons Hotel Silicon Valley at East Palo Alto, California
200
15%
3
Four
Seasons Hotel Washington, District
of Columbia
210
-
Four
Seasons Hotel Westlake Village, California
270
-
Other
Americas/Caribbean
Four
Seasons Hotel Buenos Aires, Argentina
165
-
Four
Seasons Resort Carmelo, Uruguay2
45
-
Four
Seasons Resort Costa Rica at Peninsula Papagayo, Costa
Rica2
155
11.4%
6
Four
Seasons Resort Great Exuma at Emerald Bay, The
Bahamas2
185
-
Four
Seasons Hotel Mexico City, Mexico
240
-
Four
Seasons Resort Nevis, West
Indies2
195
-
Four
Seasons Resort Punta Mita, Mexico2
150
-
Four
Seasons Hotel Toronto, Ontario,
Canada
380
-
Four
Seasons Hotel Vancouver, British
Columbia, Canada
375
100%
6
Four
Seasons Resort Whistler, British
Columbia, Canada 2
275
-
4
Europe
Four
Seasons Hotel Gresham Palace Budapest, Hungary
180
18.3%
3
Four
Seasons Hotel Dublin, Ireland2
195
-
Four
Seasons Hotel Geneva, Switzerland
105
-
Four
Seasons Hotel Hampshire, England
135
-
4
Four
Seasons Hotel Istanbul, Turkey
65
-
9
Four
Seasons Hotel The Ritz Lisbon, Portugal
280
-
Four
Seasons Hotel Canary Wharf, England
140
-
Four
Seasons Hotel London, England
220
-
4,10
Four
Seasons Hotel Milan, Italy
120
-
Four
Seasons Hotel George V Paris, France
245
-
Four
Seasons Hotel Prague, Czech
Republic
160
-
4
Four
Seasons Resort Provence at Terre Blanche, France2
115
-
Middle
East
Four
Seasons Hotel Amman, Jordan
190
-
Four
Seasons Hotel Cairo at The First Residence, Egypt2
270
-
Four
Seasons Hotel Cairo at Nile Plaza, Egypt
2
365
-
Four
Seasons Hotel Damascus, Syria
8
295
-
Four
Seasons Hotel Doha, Qatar
230
-
Four
Seasons Hotel Riyadh, Saudi
Arabia
250
-
Four
Seasons Resort Sharm el Sheikh, Egypt
2
135
-
Asia/Pacific
Four
Seasons Resort Bali at Jimbaran Bay, Indonesia2
145
-
Four
Seasons Resort Bali at Sayan, Indonesia
60
-
Four
Seasons Hotel Bangkok, Thailand
355
-
Four
Seasons Resort Chiang Mai, Thailand
80
-
Four
Seasons Tented Camp, Golden Triangle, Thailand
15
-
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10
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Hotel/Resort
and Location
Approximate
Number
of Rooms
Approximate
Equity
Interest 1
Four
Seasons Hotel Hong Kong, Special
Administrative Region of the People’s Republic of China 2
400
-
Four
Seasons Hotel Jakarta, Indonesia2
365
2%
3
Four
Seasons Resort Koh Samui, Thailand
65
-
The
Regent Kuala Lumpur, Malaysia7
470
-
Four
Seasons Resort Langkawi, Malaysia
90
-
Four
Seasons Resort Maldives at Kuda Huraa, Maldives
95
-
Four
Seasons Resort Maldives at Landaa Giraavaru, Maldives
100
-
Four
Seasons Hotel Shanghai, People’s
Republic of China
440
10%
3,
4
Four
Seasons Hotel Singapore, Singapore
255
-
The
Regent Singapore, Singapore
440
-
Four
Seasons Hotel Sydney, Australia
530
Grand
Formosa Regent Taipei, Taiwan
540
-
Four
Seasons Hotel Tokyo at Chinzan-so, Japan
285
-
Four
Seasons Hotel Tokyo at Marunouchi, Japan
55
-
1
In
the ordinary course, we make investments in, or advances in respect
of or
to owners of, properties to obtain new management agreements or to
enhance
existing management agreements where we believe the overall returns
will
justify the investment or advance. We generally seek to limit our
total
long-term capital exposure to no more than 20% of the total equity
required for a property. For a description of our investments in,
or
advances made in respect of or to owners, of properties and other
commitments in respect of existing properties, including the equity
investments listed in this chart, see “Balance Sheet Review and Analysis”
and “Liquidity and Capital Resources” in Management’s Discussion and
Analysis.
2
This
project includes, or is expected to include, a Four Seasons branded
residential component.
3
Freehold
interest.
4
In
addition to providing management services to this property, we have
a
guarantee or other off-balance sheet commitment in respect of this
property. See “Off-Balance Sheet Arrangements” in Management’s Discussion
and Analysis.
5
We
have a preferred profits interest derived from previously existing
subordinated loans to the resort or property of approximately $17.4
million in aggregate plus a loan in the amount of $6.0 million to
an
entity that owns approximately 85% of the entity that owns the
hotel.
6
Leasehold
interest.
7
We
have entered into an agreement to manage a new 140 room Four Seasons
hotel
in Kuala Lumpur and have reached agreement with the owner of the
existing
Kuala Lumpur hotel to transition out of managing that Regent property
as
of May 31, 2007.
8
The
Four Seasons Hotel Damascus is located in Damascus, Syria, a country
that
is on the U.S. list of state sponsors of terrorism and that is subject
to
U.S. regulations (including prohibitions on dealings with specified
entities) and legislatively mandated penalties (including export
sanctions
and ineligibility to receive most forms of U.S. aid or to purchase
U.S.
military equipment).
9
Subject
to satisfaction of certain conditions, we may invest up to
$4.08 million to acquire up to an 18% interest in conjunction with a
proposed expansion and renovation of Four Seasons Hotel Istanbul and
new management contract related to Four Seasons Hotel Istanbul at the
Bosphorus.
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10
Four
Seasons Hotels Limited (“FSHL”) is the tenant of the land and premises
constituting Four Seasons Hotel London. FSHL has entered into a
sublease
of the hotel with the entity on whose behalf we manage the hotel.
The
annual rent payable by FSHL under the lease is the same as the
annual rent
that is payable by the sub-tenant pursuant to the
sublease.
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12
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Properties
under Construction or Development
We
currently have 30
properties under construction or development that are to be operated under
the
Four Seasons name. We expect 20 of those properties to include a residential
branded component. The following table provides an overview of these
properties:
Hotel/Resort
and Location1, 2
Approximate
Number
of Rooms
Capital
Commitment3
Scheduled
2007/2008 Openings
Four
Seasons Hotel Alexandria, Egypt
125
Four
Seasons Hotel Beijing, People’s
Republic of China
325
ü
Four
Seasons Hotel Beirut, Lebanon
235
ü
Four
Seasons Resort Bora Bora, French
Polynesia4
105
ü
Four
Seasons Hotel Florence, Italy
120
Four
Seasons Hotel Hangzhou, People’s
Republic of China
100
Four
Seasons Hotel Istanbul at the Bosphorus, Turkey
170
ü
Four
Seasons Hotel Macau, Special
Administrative Region of the People’s Republic of China 4
370
Four
Seasons Resort Mauritius, Republic
of Mauritius 4
120
ü
Four
Seasons Hotel Moscow, Russia
4
185
ü
Four
Seasons Hotel Mumbai, India4
230
ü
Four
Seasons Hotel Seattle, Washington
USA 4
150
ü
Four
Seasons Resort Seychelles, Seychelles4
65
Beyond
2008
Four
Seasons Hotel Bahrain, Bahrain
270
Four
Seasons Hotel Baltimore, Maryland,USA
4
200
ü
Four
Seasons Resort Barbados, Barbados
4
120
Four
Seasons Resort Cham Island, Vietnam
80
Four
Seasons Hotel Doha at the Pearl, Qatar
4
250
ü
Four
Seasons Hotel Dubai, United
Arab Emirates 4
375
Four
Seasons Hotel Guangzhou, People’s
Republic of China4
325
Four
Seasons Hotel Kuala Lumpur, Malaysia
4
275
Four
Seasons Hotel Kuwait, Kuwait
300
Four
Seasons Hotel Marrakech, Morocco
4
140
ü
Four
Seasons Hotel Moscow Kamenny Island, Russia
4
80
ü
Four
Seasons Hotel New Orleans, Louisiana,
USA 4
240
ü
Four
Seasons Resort Puerto Rico, Puerto
Rico 4
250
ü
Four
Seasons Hotel Shanghai at Pudong, People’s
Republic of China 4
190
ü
Four
Seasons Hotel St. Petersburg, Russia
200
ü
Four
Seasons Hotel Toronto, Ontario,
Canada 4
265
ü
Four
Seasons Resort Vail, Colorado,
USA 4
120
ü
1
Information
concerning hotels, resorts and residential projects under construction
or
under development is based upon agreements and letters of intent
and may
be subject to change prior to the completion of the project. The
dates of
scheduled openings have been estimated by management based upon
information provided by the various developers. There can be no assurance
that the date of scheduled opening will be achieved or that these
projects
will be completed. In particular, in the case where a property is
scheduled to open near the end of a year, there is a greater possibility
that the year of opening could be changed. The process and risks
associated with the management of new properties are dealt with in
greater
detail under “Operating Risks”.
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13
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2
We
have made an investment in Orlando, Florida, in which we expect to
include
a Four Seasons Residence Club and/or a Four Seasons branded residential
component. The financing for this project has not yet been completed
and
therefore a scheduled opening date cannot be established at this
time.
3
The
aggregate capital commitment for the properties indicated is $129.0
million, of which nothing has been funded and $24.1 million is expected
to
be funded in the remainder of 2007. These amounts include capital
commitments in respect of Four Seasons branded residential projects
under
construction or development.
4
We
expect this project to include a Four Seasons branded residential
component.
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Summary
Hotel Operating Data
The
following table sets forth certain summary operating data in the years shown
for
hotels and resorts that we manage.
(Unaudited)
2006
2005
2004
All
Managed Hotels 1
Worldwide
No.
of properties
73
68
63
No.
of rooms
18,025
17,300
16,375
United
States
No.
of properties
26
23
24
No.
of rooms
7,445
6,845
7,110
Other
Americas/Caribbean
No.
of properties
10
10
10
No.
of rooms
2,165
2,165
2,160
Europe
No.
of properties
12
12
10
No.
of rooms
1,960
1,960
1,785
Middle
East
No.
of properties
7
7
5
No.
of rooms
1,735
1,740
1,210
Asia/Pacific
No.
of properties
18
16
14
No.
of rooms
4,720
4,590
4,110
Managed
Hotels (excluding recently opened properties) 2
Worldwide
No.
of properties
62
56
51
No.
of rooms
15,630
14,550
13,560
Occupancy
3
69.2%
68.2%
66.8%
ADR
4
$377
$329
$307
RevPAR
5
$261
$224
$205
Gross
operating margin 6
32.3%
30.3%
29.1%
United
States
No.
of properties
22
19
19
No.
of rooms
6,670
5,985
6,110
Occupancy
3
72.9%
73%
70.5%
ADR
4
$409
$373
$346
RevPAR
5
$298
$273
$244
Gross
operating margin 6
29.2%
28.7%
25.6%
Other
Americas/Caribbean
No.
of properties
10
10
7
No.
of rooms
2,165
2,165
1,540
Occupancy
3
64.6%
64.4%
64.2%
ADR
4
$377
$336
$280
RevPAR
5
$243
$216
$180
Gross
operating margin 6
27.8%
26.4%
29.8%
Europe
No.
of properties
11
10
8
No.
of rooms
1,855
1,720
1,490
Occupancy
3
66%
62.6%
63.5%
ADR
4
$587
$534
$529
RevPAR
5
$387
$335
$336
Gross
operating margin 6
32.7%
31.5%
34.7%
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15
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(Unaudited)
2006
2005
2004
Middle
East
No.
of properties
6
5
4
No.
of rooms
1,440
1,215
850
Occupancy
3
69.2%
67.3%
65.6%
ADR
4
$279
$212
$182
RevPAR
5
$193
$143
$119
Gross
operating margin 6
49.4%
44.4%
37.9%
Asia/Pacific
No.
of properties
13
12
13
No.
of rooms
3,500
3,465
3,570
Occupancy
3
66.5%
65.3%
63.4%
ADR
4
$246
$180
$183
RevPAR
5
$164
$118
$116
Gross
operating margin 6
37.5%
33.2%
32.3%
1
Since
December 31, 2006, we have commenced management of Four Seasons Resort
Koh
Samui, Thailand, which has approximately 65 rooms. This property
is not
reflected in this table. All room numbers in this table are
approximate.
2
Includes
hotels and resorts that were fully open and that we managed throughout
a
particular year and during the last quarter of the prior year. This
data
is used when information for more than two years is provided. However,
if
a “Managed Hotel” has undergone or is undergoing an extensive renovation
program during the aforementioned period, it ceases to be included
as a
“Managed Hotel” for that particular
year.
3
Occupancy
percentage is defined as the total number of rooms occupied divided
by the
total number of rooms available.
4
ADR
is defined as average daily room rate per room
occupied.
5
RevPAR
is defined as average room revenue per available room. It is a non-GAAP
financial measure and does not have any standardized meaning prescribed
by
GAAP and is therefore unlikely to be comparable to similar measures
presented by other issuers. We use RevPAR because it is a commonly
used
indicator of market performance for hotels and resorts and represents
the
combination of the average daily room rate and the average occupancy
rate
achieved during the period. RevPAR does not include food and beverage
or
other ancillary revenues generated by a hotel or resort. RevPAR is
the
most commonly used measure in the lodging industry to measure the
period-over-period performance of comparable properties. Our calculation
of RevPAR may be different than the calculation used by other lodging
companies.
6
Gross
operating margin represents gross operating profit as a percentage
of
gross operating revenue.
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16
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Operating
Risks
Our
business is subject to many risks and uncertainties, including those discussed
below.
Geopolitical,
Economic and Lodging Industry Conditions
We
focus exclusively on the luxury segment of the lodging industry, which is
subject to operating risks inherent in the industry. These risks include, among
other things:
•
changes
in general, local and industry-specific economic and financial conditions,
such as the airline industry,
•
periodic
overbuilding in the industry or a specific
market,
•
varying
levels of demand for rooms and related services (including food and
beverage and function space),
•
competition
from other properties,
•
changes
in travel patterns,
•
the
recurring need for renovation, refurbishment and improvement of hotel
and
resort properties,
•
changes
in wages, benefits, prices, construction and maintenance, insurance
and
operating costs that may result from inflation or
otherwise,
•
government
regulations,
•
changes
in taxes and interest rates,
•
currency
fluctuations,
•
the
availability and cost of financing for operating or capital requirements,
•
natural
disasters,
•
extreme
weather conditions,
•
labour
disputes,
•
infectious
diseases, and
•
war,
civil unrest, terrorism, international conflict and political
instability.
We
operate and have interests in luxury hotels, resorts and serviced and branded
residential projects in many areas of the world and our revenues are dependent
upon the results of the individual properties. The conditions listed above
can
have, and have from time to time had, a significant adverse impact upon
individual properties or particular regions. A period of economic recession
or
downturn in any of the world’s primary outbound travel markets could materially
and adversely affect, and have from time to time materially and adversely
affected, our business, results of operations and financial condition, including
fee revenue and ownership earnings. An economic downturn generally affects
ownership results to a significantly greater degree than management results
due
to the high fixed costs associated with hotel ownership.
Competition
The
luxury segment of the hotel and resort industry is subject to intense
competition, both for guests and for the acquisition of new management
agreements. Competition for guests arises primarily from other luxury hotel
chains, individual luxury hotels and resorts and a limited number of luxury
properties operated by larger hotel chains. That competition is primarily based
on, among other things, brand name
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17
-
recognition,
location, room rates and quality of service and accommodations. Demographic,
geographic and other changes in specific market conditions could materially
and
adversely affect the convenience or desirability of the locales in which hotels
and resorts that we manage are located.
We
compete for management opportunities with other operators of luxury hotels.
We
believe that our ability to obtain management agreements is based primarily
on
the value and quality of our management services, brand name recognition and
the
economic advantages to the hotel owner of retaining our management services
and
using our brand name. We also believe that an owner’s assessment of the economic
advantages of retaining our management services and using our brand name is,
in
part, a function of the success of the hotels and resorts currently under
management by us. Competitive factors also include relationships with hotel
owners and investors, marketing support, reservation system capacity and the
ability to make investments that may be necessary to obtain management
agreements. Our failure to compete successfully for expansion opportunities
or
to attract and maintain relationships with current hotel owners could materially
and adversely affect our business, results of operations and financial
condition.
Dependence
on Management Agreements
Management
agreements expire in the ordinary course, and may in certain circumstances
be
renegotiated and be subject to termination upon the occurrence of specified
events. Failure to obtain new management agreements or maintain existing
management agreements could materially and adversely affect our business,
results of operations and financial condition. We manage hotels and resorts
for
various owners subject to the terms of each property’s management agreements.
Those agreements generally can be terminated by the non-defaulting party upon
default in payment or unremedied failure to comply with the terms of the
agreements unless, in most cases, such default or unremedied failure was caused
by typical force
majeure
events. Most of the management agreements are subject to performance tests
that,
if not met, could allow the agreements to be terminated by the owner prior
to
the expiration of their respective terms. The failure to maintain the standards
specified in the agreement or to meet the other terms and conditions of an
agreement, including a performance test, could result in the loss or
cancellation of a management agreement. Typically, but not in all cases, we
have
certain rights to cure a default to avoid termination. Substantially all of
the
management agreements include typical force
majeure
events, which, if they were to occur would prevent the termination of the
management agreements. Some management agreements also can be terminated,
subject in certain cases, to a payment to us, upon a change in use of the
property or upon a sale by the owner to a new owner who does not wish to retain
the existing agreement.
In
the event of bankruptcy involving a property and foreclosure, a management
agreement may be terminated in most jurisdictions, unless the lender has
executed a non-disturbance agreement that is enforceable under applicable
bankruptcy laws. We generally have non-disturbance agreements with the lenders
to owners of hotels and resorts that we manage. Where no non-disturbance
agreement is in place or where it is not enforceable under applicable bankruptcy
laws, the risk of loss of a management agreement increases where the owner
incurs debt at the property level that cannot be serviced adequately. In some
jurisdictions, particularly in the United States, management agreements have
been construed by courts to create an agency relationship that is terminable
by
the owner, notwithstanding any provision of the agreement that purports to
make
the agreement not terminable under such circumstances. In such circumstances,
we
would generally have an unsecured claim for breach of contract against the
owner
of the hotel or its trustee in bankruptcy.
Management
agreements for hotels and resorts we manage have varying remaining terms
(including extension periods that we may elect) and have remaining terms
averaging of approximately 51 years. Renewal of management agreements at the
end
of their term is the subject of negotiation between us and the relevant owners.
There can be no assurance that any particular management agreement or agreements
will be renewed or with respect to the terms and conditions of any
renewal.
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Dependence
on Property Owners
As
a result of our strategic decision to focus on management as opposed to
ownership of hotel and resort properties, our growth opportunities are dependent
in part on our ability to establish and maintain satisfactory relationships
and
enhance those relationships with existing and new property owners. Those growth
opportunities are also dependent on access to capital by these investors. In
2006, one owner had an ownership interest in a combination of hotels, resorts
and serviced and branded residential properties managed by Four Seasons that
represented in excess of 10% of our fee revenues from management operations.
A
failure by us to maintain satisfactory relationships with any owner or owners
of
a significant number of properties could have a material adverse effect on
our
business, results of operations and financial condition.
Risk
Associated with Expansion, Growth and New Construction
An
element of our business strategy is to increase the number of hotels and resorts
under management. That expansion is dependent upon a number of factors,
including the identification of appropriate management opportunities, competing
successfully for the management agreements relating to those opportunities,
availability of financing for new developments and timely completion of
construction of new hotels and resorts (or the refurbishment of existing
properties) that are, or are to be, managed by us.
From
time to time, the hotel industry has experienced periods during which financial
institutions generally have been reluctant to provide financing for the
construction of real estate properties, including hotels and resorts. There
can
be no assurance that we will be able to obtain financing for projects or that
the terms on which such financing can be obtained will be acceptable to us.
The
inability to obtain financing for a project could cause cancellation of, or
short-term interruption in, the progress or completion of properties under
construction or development.
Additionally,
any construction project entails significant construction risks that could
delay
or result in a substantial increase in the cost of construction. The opening
of
newly constructed properties, in particular, is contingent upon, among other
things, receipt of all required licences, permits and authorizations, including
local land use permits, building and zoning permits, health and safety permits
and liquor licences. Changes or concessions required by regulatory authorities
could also involve significant additional costs and delays or prevent completion
of construction or opening of a project. As a result of the global nature of
our
business, these regulatory matters arise in a number of jurisdictions, many
of
which have distinctive regulatory regimes.
Investments
in and Advances to Managed and Owned Properties
We
have made investments in, and/or advances in respect of or to owners of, hotels
and resorts that we manage, to enable us to acquire the management agreements
for those properties or to enhance the terms of those agreements. Currently,
we
hold an ownership interest in, or have made advances in respect of, 34 of the
74
hotels and resorts that we manage. We also have one remaining 100% leasehold
interest in the Four Seasons Hotel Vancouver. We also have made, or expect
to
make in the near term, investments in, or advances in respect of or to owners
of, 18
of the 30 properties
under construction or development. The book value of total investments and
advances as at December 31, 2006 was approximately $380
million.
In
addition to the risks associated with the operation of a hotel, we are subject
to risks generally related to owning and leasing real estate in connection
with
these properties. These risks include, among others, adverse changes in general
or local economic conditions, local real estate market conditions, property
and
income taxes, interest rates, the availability, cost and terms of financing,
the
financial stability of the property owner, liability for long-term lease
obligations, the availability and costs of insurance coverage, the potential
for
uninsured casualty and other losses, the impact of present or future legislation
or
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regulation
(including those relating to the environment), adverse changes in zoning laws
and other regulations, civil unrest, terrorism, war and political instability.
In addition, these investments in real estate are relatively illiquid and our
ability to dispose of our ownership interests, particularly our leasehold
interests, in response to changes in economic or other conditions may be
limited. Further, advances to owners of properties are typically subordinated
and, in any event, may be subject to loss in the event of insolvency of the
owner to which an advance was made. Any of these factors could result in
material operating losses by us or a particular hotel or resort and possibly
the
whole or partial loss of our investment in the property or the inability to
collect advances outstanding. Holding an interest in a hotel also introduces
risks associated with funding of capital expenditures and incurring our
proportionate share of any operating losses. Where cash and working capital
reserves provided by hotel operations are insufficient, debt service, major
repairs, renovations, refurbishments, alterations or other capital expenditures
generally must be funded by the owners of the hotels and resorts, including
us
in some cases.
Debt
Rating Risks
Our
corporate rating is currently investment grade (BB+) as rated by Standard &
Poor’s. Our senior unsecured debt is currently rated by three debt rating
agencies (Standard & Poor’s: BBB-; Moody’s: Baa3 with stable outlook;
Dominion Bond Rating Service: BBB). In each case our rating is under review
with
the possibility of a down grade as a result of the implementation of
the proposed Arrangement Transaction. A negative change in either
global economic or political events may result in the rating agencies
downgrading the rating and/or outlook for many of the lodging companies,
including us, which would result in an increase in our borrowing costs. In
addition, pricing of any amounts drawn under our syndicated bank credit
facilities (which are undrawn but under which $1.6 million
of letters of credit were issued at December 31, 2006) includes a spread to
LIBOR ranging between 0.875% and 2.25%, depending upon the ratings from Standard
& Poor’s and Moody’s and certain financial ratios.
Government
Regulation
We
are subject to laws, ordinances and regulations relating to, among other things,
taxes, environmental matters, the preparation and sale of food and beverages,
accessibility for disabled persons and general building and zoning requirements
in the various jurisdictions in which we manage hotels and resorts. Owners
and
managers of hotels and resorts also may be subject to laws governing the
relationship with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. In addition, the properties
we
manage (and in,
or in respect of which, we may have made advances or investments)
may be located in countries (such as Syria), which may from time to time be
subject to international trade restrictions, regulations or other forms of
economic or political sanction. Compliance with these laws can affect the
revenues and profits of properties managed by us or could materially and
adversely affect our business, results of operations and financial
condition.
Four
Seasons, as the current or previous owner or operator of certain hotels, could
be liable for investigation and clean-up of contamination and other corrective
or remedial action under various laws, ordinances and regulations relating
to
environmental matters. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the condition
requiring environmental response and whether the party is currently or formerly
the owner or manager of the property. The presence of contamination from
hazardous or toxic substances, or the failure to properly remediate a
contaminated property, may affect the ability to use the property for its
intended purpose, to sell or rent the property, or to borrow using the property
as collateral. Persons who arrange for the disposal or treatment of hazardous
or
toxic substances also may be liable for the cost of removal or remediation
of
substances at the disposal or treatment facility. In connection with the
operation and ownership of various properties, we could be held liable for
the
cost of remedial action with respect to environmental matters. We are not aware
of any potential material environmental liabilities for which we will be
responsible with respect to any of the properties which we currently manage
or
previously managed.
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Pursuant
to the management agreements to which we are a party, the owner is responsible
for the costs and expenses of the employees at each hotel and for all costs,
expenses and liabilities incurred in connection with the operation of the hotel,
including compliance with government regulations. However, as the manager,
we
may be contingently liable for certain liabilities in respect of which we do
not
maintain insurance, including certain workers’ compensation claims,
environmental liabilities and, in respect of hotels in the United States, claims
arising under the Americans
with Disabilities Act.
We
generally obtain indemnities from the owners of the hotels that we manage in
respect of these liabilities. The value of those indemnities is dependent upon,
among other things, the financial condition of the owners who have provided
them.
Political
Risk
We
currently manage and in some cases have an ownership interest in hotels and
resorts in 31 countries and currently have development plans to open hotels
and
resorts in 13 additional countries around the world. In certain of these
countries, from time to time, the related assets and revenues may be exposed
to
political and other risks associated with foreign investment. In some
jurisdictions, at certain times, there may be a risk that we may have difficulty
enforcing our contractual rights relating to our assets including our
non-disturbance agreements and any security relating to our loan receivables
if
due process of law is not respected.
Insurance
Our
management agreements require the hotels and resorts that we manage to be
insured against property damage, business interruption and liability at the
expense of the owner of the property. Under these policies we are also typically
insured against loss of fee income in the event of a temporary business
interruption at any of the hotels and resorts that we manage. We also maintain
our own insurance coverage in respect of liability, in excess of that obtained
at the property level. In addition, we obtain indemnities from the owners of
the
hotels and resorts that we manage in respect of damages caused by acts,
omissions and liabilities of the employees of the property or of Four Seasons,
other than damages resulting from certain actions of Four Seasons and certain
senior management personnel. Insurance premiums are continuing to increase
and
underwriters are imposing increasingly restrictive terms and conditions. All
lines of coverage generally have been affected; however, commercial properties
generally continue to be the most difficult to insure. Exposures for terrorism,
cyber perils and toxic mould are now common exclusions. If we were held liable
for amounts exceeding the limits of our insurance coverage or for claims outside
the scope of that coverage or if the indemnities were insufficient for any
reason, including as a result of the owner’s or indemnitor’s financial
condition, our business, results of operations and financial condition could
be
materially and adversely affected.
Legal
Proceedings
In
the ordinary course of our business, we are named as a defendant in legal
proceedings resulting from incidents taking place at properties we manage or
in
which we have an ownership interest. We maintain comprehensive liability
insurance and also require owners to maintain adequate insurance coverage as
described above under “Insurance”. We believe such coverage to generally be of a
nature and amount sufficient to ensure that we are adequately protected from
suffering material financial loss as a result of such claims.
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Currency
Exposure
We
have entered into management agreements with respect to hotels throughout the
world and accordingly, earn revenue and make investments and advances in many
foreign currencies. Our most significant currency is US dollars, as
approximately half of our revenues and assets currently are US
dollar-denominated, as are the majority of our investment commitments. However,
we incur the majority of our costs in Canadian dollars and our most significant
liability (which is related to our convertible senior notes) is a Canadian
dollar obligation.
In
2005, we adopted US dollars as our reporting currency. This means that our
Canadian dollar consolidated financial statements are translated into US dollars
for reporting purposes. Our consolidated statements of operations, consolidated
statements of cash provided by operations and consolidated statements of cash
flow are translated using the weighted average exchange rates for the period,
and assets and liabilities are converted from Canadian dollars into US dollars
at the foreign exchange rate applicable at the balance sheet date.
We
have not changed our functional currency, which remains Canadian dollars, or
the
functional currencies of any of our subsidiaries. As a result, while US dollar
reporting will minimize the currency fluctuations related to the majority of
our
US dollar management fee revenues, it will not eliminate the impact of foreign
currency fluctuations related to our management fees in other currencies, or
our
general and administrative expenses, which are incurred primarily in Canadian
dollars. It will also not eliminate foreign currency gains and losses related
to
un-hedged net monetary assets and liability positions. As such, our consolidated
results will continue to include gains and losses related to foreign currency
fluctuations. The impact of foreign currency gains and losses has been material
in the past and could continue to be material in the future.
We
endeavour to match foreign currency revenues to costs and investment commitments
to provide a natural hedge against currency fluctuations, although there can
be
no assurance that these measures will be effective in the management of those
risks. We also endeavour to manage our currency exposure through, among other
things, the use of foreign exchange forward contracts. As at December 31, 2006,
we held $39.1
million in foreign exchange forward contracts for the sale of US dollars into
Canadian dollars to meet our operating needs. In
addition, certain currencies are subject to exchange controls or are not freely
tradeable and as a result are relatively illiquid. We attempt to minimize our
foreign currency risk by monitoring our cash position, keeping fee receivables
current, monitoring the political and economic climate and considering whether
to insure convertibility risk in each country in which we manage a property.
In
certain properties, the foreign currency risk is further mitigated by pricing
room rates in US dollars. However, no assurances can be given as to whether
our
strategies relating to currency exposure will be successful or that foreign
exchange fluctuations will not materially adversely affect our business, results
of operations and financial condition.
Seasonality/Quarterly
Predictability
Our
hotels and resorts are generally affected by normally recurring seasonal
patterns and, for most of the properties, demand is typically lower in December
through March than during the remainder of the year.
Management
operations are seasonal in nature, as fee revenues are affected by the
seasonality of hotel and resort revenues and operating results. Urban hotels
generally experience lower revenues and operating results in the first quarter,
which has a negative impact on management revenues. However, this negative
impact on management revenues generally is offset, to some degree, by increased
travel to resorts in that quarter and may be offset to a greater extent as
the
portfolio of resort properties that we manage increases. However, seasonality
can be affected by specific local events that can cause, and from time to time
have caused, unanticipated disruptions to the operations of certain of the
properties we manage.
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In
addition, certain management fees, in particular incentive fees and residential
royalty fees, are difficult to predict both in terms of timing and amount and
can be impacted to a greater extent than other elements of our business by
economic cycles, interest rate levels and other external factors. Although
the
majority of our management fees are based on the total revenues of the
properties we manage and as a result are easier to predict, fluctuations in
our
incentive fees and residential royalty fees can cause volatility in our
earnings, particularly as measured from quarter to quarter.
Our
hotel ownership position is also affected by seasonal fluctuations, with lower
revenue, operating profit and cash flow in the first quarter; ownership
positions typically incur an operating loss in the first quarter of each year.
Typically, the third quarter has been the strongest quarter for the Four Seasons
Hotel Vancouver.
Intellectual
Property
In
the highly competitive service industry in which we operate, trademarks, service
marks and logos are very important in the sales and marketing of those services.
We have a significant number of trademarks, service marks and logos, and
significant time and effort are expended each year on surveillance, registration
and protection of our trademarks, service marks and logos. The loss or
infringement of any of our trademarks, service marks or logos could have a
material and adverse effect on our business, results of operations and financial
condition.
Risks
Associated with the Four Seasons Branded Residential
Business
We
currently license and manage Four Seasons branded residential projects,
including whole ownership and fractional ownership, in many of our existing
hotel and resort locations. We are expanding our presence in the luxury segment
of the whole ownership and fractional ownership business with a number of other
projects under development. Our ability to successfully develop and sell
interests in the residential units that are built, and the various fees earned
by us from each residential project, could be materially and adversely affected
by one or any combination of the factors described in this “Operating Risks”
section. Although we believe that we are in compliance in all material respects
with applicable laws and regulations to which the marketing, sale and operation
of Four Seasons branded residential projects are currently subject, changes
in
these requirements or a determination by a regulatory authority that we are
not
in compliance could materially and adversely affect our business, results of
operations and financial condition.
Dependence
on Key Employees
Our
success depends in part on the continued service of our senior executives,
who
have an average tenure of approximately 23 years with Four Seasons. In
particular, our senior management is responsible for the development and/or
maintenance of ongoing relationships with new and existing investors in the
properties that are managed by us. The unanticipated departure of individuals
responsible for those relationships could have a material and adverse effect
on,
among other things, relationships affecting properties that are, or that may
be,
managed by us.
Except
for the following, since January 1, 2002, we did not enter into any material
contracts, other than contracts in the ordinary course of business that still
are in effect and material to FSHI:
•
Indenture
dated as of June 18, 2004 between FSHI and the Bank of Nova Scotia
Trust
Company of New York, as trustee, under which we may from time to
time
issue unsecured debentures, notes or other evidences of indebtedness
in an
unlimited amount, issuable in series,
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•
a
First Supplemental Indenture dated as of June 18, 2004 relating to
the
issue of our 1.875% Convertible Senior Notes due 2024 in the aggregate
principal amount of $250,000,000, all of which were issued pursuant
to a
prospectus supplement dated June 14, 2004 to a prospectus of FSHI
dated
April 6, 2004,
•
Acquisition
Agreement dated February 9, 2007 in connection with the Arrangement
Transaction,
•
Voting
Agreement dated February 9, 2007 among FS Acquisition Corp., FSHI,
Kingdom, Cascade and Triples in connection with the Arrangement
Transaction, and
•
Limited
Guaranty made as of February 9, 2007 by each of Kingdom and Cascade
in
favour of FSHI in connection with the Arrangement
Transaction.
See
“Corporate Information - Convertible Senior Notes” for details of the terms of
convertibility of the Convertible Senior Notes. Copies of the documents referred
to above are available on www.sedar.com.
Corporate
Information
Description
of Share Capital
Our
authorized share capital consists of an unlimited number of First Preference
Shares, issuable in series, an unlimited number of Second Preference Shares,
issuable in series, 3,725,698 Variable Multiple Voting Shares and an unlimited
number of Limited Voting Shares. At March 9, 2007, 3,725,698 Variable Multiple
Voting Shares, 33,774,038
Limited
Voting Shares and options to purchase 3,548,799 Limited
Voting Shares were outstanding.
The
following is a summary of the material attributes of our Variable Multiple
Voting Shares and Limited Voting Shares.
Dividends
The
dividends declared and paid on our Variable Multiple Voting Shares will be
in
amounts per share equal to 50% of the dividends declared and paid on our Limited
Voting Shares, regardless of whether the number of votes attaching to the
Variable Multiple Voting Shares is further increased.
Rights
on Dissolution
In
the event of the liquidation, dissolution or winding up of FSHI, the holders
of
Limited Voting Shares and Variable Multiple Voting Shares will be entitled,
share for share, to receive, on a pro
rata
basis, all of the assets of FSHI remaining after payment of all of its
liabilities, subject to the preferential rights of any shares ranking prior
to
the Limited Voting Shares and Variable Multiple Voting Shares.
Voting
Rights
The
holders of Limited Voting Shares and Variable Multiple Voting Shares will be
entitled to receive notice of any meeting of our shareholders and to attend
and
vote thereat, except those meetings where only the holders of shares of another
class or of a particular series are entitled to vote. Each Limited Voting Share
will entitle the holder to one vote. Each Variable Multiple Voting Share
currently entitles the holder to that number of votes that results in the
aggregate votes attaching to the Variable Multiple Voting Shares representing
approximately 64.55%of
the votes attaching to the Variable Multiple Voting Shares and the Limited
Voting Shares, in the aggregate. The number of votes attaching to the Variable
Multiple Voting Shares adjusts concurrently with the issue of additional Limited
Voting Shares in order to maintain this voting control. Holders of Limited
Voting Shares are entitled, voting separately as a class, to elect two members
of our board of directors annually.
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Under
the provisions attaching to the Variable Multiple Voting Shares, beginning
with
the annual meeting held in 2000 and every three years thereafter, the continued
application of this adjusting mechanism is subject to ratification by the
holders of our Limited Voting Shares. The adjusting mechanism was last ratified
by shareholders at the annual and special meeting of shareholders in 2006.
If
the maintenance of the adjustment mechanism is not confirmed by a simple
majority of the votes cast by the holders of Limited Voting Shares (other than
“prescribed holders” of Limited Voting Shares), any issue of Limited Voting
Shares after that time (other than the issue of Limited Voting Shares pursuant
to a right, option or similar obligation granted prior to that time) will not
result in a further adjustment in the number of votes attaching to the Variable
Multiple Voting Shares. Additionally, the continued application of the
adjustment mechanism will be subject to ratification after any transfer of
Variable Multiple Voting Shares that results in a person other than a member
of
the Sharp Family (as defined in the articles of FSHI) holding Variable Multiple
Voting Shares or after Isadore Sharp ceases to be the Chief Executive Officer.
For these purposes, the “prescribed holders” of Limited Voting Shares shall be:
(a) any person or company that beneficially owns, directly or indirectly,
Variable Multiple Voting Shares; (b) any person or company that
beneficially owns, directly or indirectly, securities carrying more than 20%
of
the votes attaching to all of our outstanding voting securities; (c) any
associate, insider or affiliate (as defined in the Securities
Act
(Ontario)) of any person or company referred to in (b); (d) any of our
affiliates (as defined in the Securities
Act
(Ontario)); (e) any person or company that, alone or in concert with
others, effectively controls FSHI; and (f) if all of (b), (d) and (e) are
inapplicable, all directors and officers of FSHI and their associates (as
defined in the Securities
Act
(Ontario)). To our knowledge, the prescribed holders are Triples Holdings
Limited, Isadore Sharp and Rosalie Sharp.
Pursuant
to the terms of a Voting Agreement, each of Kingdom and Cascade has agreed
to
vote the Limited Voting Shares owned by it in favour of the Arrangement
Transaction, and Triples has agreed to vote all of the Variable Multiple Voting
Shares owned by it in favour of the Arrangement Transaction, subject in each
case to the terms and conditions contained in the Voting Agreement.
Take-Over
Bid Protection
Variable
Multiple Voting Shares will be converted automatically into Limited Voting
Shares upon any transfer thereof, except (i) a transfer within the
immediate family of Isadore Sharp (so long as the family beneficially owns
a
majority of the outstanding Variable Multiple Voting Shares) or (ii) a
transfer of a majority of the outstanding Variable Multiple Voting Shares to
a
purchaser who has offered to purchase all outstanding Variable Multiple Voting
Shares and will, as a result, have acquired a majority of the outstanding
Variable Multiple Voting Shares and who offers to purchase all outstanding
Limited Voting Shares for a per share consideration equal to that offered for
the Variable Multiple Voting Shares.
Triples
Holdings Limited, which owns all of the outstanding Variable Multiple Voting
Shares, has entered into an agreement with Montreal Trust Company of Canada,
as
trustee for the benefit of the holders of the Limited Voting Shares, that has
the effect of preventing transactions that otherwise would deprive the holders
of Limited Voting Shares of rights under applicable provincial take-over bid
legislation to which they would have been entitled if the Variable Multiple
Voting Shares had been Limited Voting Shares.
Conversion
Variable
Multiple Voting Shares are convertible into Limited Voting Shares on a
one-for-one basis at any time at the option of the holder.
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Modifications,
Subdivisions and Consolidation
Modifications
to the provisions attaching to the Variable Multiple Voting Shares as a class,
or to the Limited Voting Shares as a class, will require the separate
affirmative vote of two-thirds of the votes cast at a meeting of the holders
of
the shares of the respective class. No subdivision or consolidation of the
Variable Multiple Voting Shares or of the Limited Voting Shares may take place
unless the Limited Voting Shares or the Variable Multiple Voting Shares, as
the
case may be, are concurrently subdivided or consolidated in the same proportion.
If we propose to grant rights to holders of shares of any class, as a class,
to
acquire additional voting or participating securities (or securities convertible
into voting or participating securities), the holders of the Limited Voting
Shares and the Variable Multiple Voting Shares shall for the purposes of that
distribution be deemed to be holders of shares of the same class.
Sale
of Control Agreement
At
a special meeting held on December 19, 1989, the shareholders of FSHI approved
an agreement (the “Sale
of Control Agreement”)
pursuant to which Isadore Sharp surrendered (a) an option, which had been
granted to him on December 6, 1985, to acquire 500,000 Limited Voting Shares
at
an exercise price of C$12.60 per share (which, as a result of a share “split” in
1990 would have entitled Mr. Sharp to acquire 1,000,000 Limited Voting Shares
at
an exercise price of C$6.30 per share) and (b) the right to receive additional
options in subsequent years, and, in exchange, FSHI and its principal
operating subsidiary, Four Seasons Hotels Limited, agreed that Four Seasons
Hotels Limited would make a payment to Mr. Sharp upon an arm’s-length
sale of control of FSHI. The Sale of Control Agreement contemplates that this
payment will be comprised of two components, the first component will be equal
to the product of (a) the excess of the per share consideration paid in respect
of the sale-of-control transaction (the “Transaction Consideration”) over
C$6.30, and (b) the number (the “Share Number”) that is 5% of the aggregate
number of Variable Multiple Voting Shares and Limited Voting Shares issued
and
outstanding on the date of the sale-of-control transaction. The second component
will be equal to the product of (x) the excess of the Transaction Consideration
over C$20.84, and (y) the Share Number, provided that the second component
will
be payable only if the Transaction Consideration is equal to or greater than
125% of the weighted average trading price of all board lots of Limited Voting
Shares traded on the TSX during the period beginning six months and ending
one
month before the first public announcement of the sale-of-control transaction.
Pursuant to the Sale of Control Agreement, the Board may make adjustments if
the
Board determines that it would be equitable to do so in the event that FSHI
takes any action affecting the Limited Voting Shares and/or the Variable
Multiple Voting Shares.
The
right to receive the two payments may be transferred among members of Mr.
Sharp’s family, their holding companies and trusts. Upon the death of Mr. Sharp,
the right to the payments passes to his legal or personal representatives,
heirs
or permitted assigns.
Pursuant
to the Arrangement Transaction, Mr. Sharp will receive the amount payable
to him
calculated in accordance with the Sale of Control Agreement in full satisfaction
of all obligations to him under the Sale of Control Agreement. If the
Arrangement Transaction is consummated, based on an acquisition price of
$82.00
for each Limited Voting Share and Variable Multiple Voting Share, and using
the
noon rate of exchange as quoted by the Bank of Canada for the conversion
of
United States dollars into Canadian dollars on February 23, 2007, Mr. Sharp
would receive approximately C$334,806,500 or approximately US$289 million
in
satisfaction of the obligations to him under the Sale of Control
Agreement.
Transfer
Agent and Registrar
The
registrar and transfer agent for our Limited Voting Shares in Canada is
Computershare Trust Company of Canada, Toronto, Ontario, Canada.
Market
for Securities
Our
Limited Voting Shares are listed on the Toronto and New York stock exchanges.
The following table sets forth the high and low closing prices and trading
volumes of the Limited Voting Shares as reported by these exchanges during
the
periods indicated, according to published reports:
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NYSE
TSX
Price
Range
Price
Range
2006
High
US$
Low
US$
Volume
High
C$
Low
C$
Volume
January
59.13
49.86
5,627,400
67.73
57.69
534,073
February
59.55
56.02
2,913,500
68.56
64.22
456,534
March
57.35
50.40
4,991,900
64.95
58.40
463,879
April
55.02
49.80
3,613,100
62.04
58.05
543,800
May
67.80
53.03
9,930,400
75.11
58.87
836,465
June
64.80
58.98
5,527,700
71.57
66.00
344,952
July
61.76
52.51
3,888,100
69.12
59.83
353,684
August
63.60
53.46
6,374,300
70.93
60.50
1,344,889
September
65.40
61.98
3,533,400
73.16
68.80
471,735
October
64.97
60.19
4,118,500
73.79
67.50
693,089
November
84.25
63.32
16,738,500
95.35
71.45
2,159,040
December
82.36
80.51
2,797,000
95.71
92.17
371,275
On
March 9, 2007 the last reported sale prices of the Limited Voting Shares on
the
NYSE and TSX were $81.20 and C$95.23 per
share, respectively.
Dividend
Policy
It
is FSHI’s policy to pay a semi-annual dividend to holders of the Limited Voting
Shares and Variable Multiple Voting Shares. In each of the years 2004, 2005
and
2006 FSHI paid semi-annual cash dividends of C$0.055 per Limited Voting Share
and C$0.0275 per Variable Multiple Voting Share. There are no restrictions
currently that prevent FSHI from continuing to pay dividends on this basis.
Pursuant to the Acquisition Agreement, FSHI agreed not to declare, set aside
or
pay any dividend or other distribution or payment (whether in cash, shares
or
property) in respect of the Limited Voting Shares or Variable Multiple Voting
Shares owned by any person other than regularly scheduled semi-annual cash
dividends, consistent with past practice. FSHI does not expect to change its
dividend policy before the closing of the Arrangement Transaction.
Convertible
Senior Notes
On
June 18, 2004, we completed a public offering of $250 million principal amount
of 1.875% convertible senior notes due July 30, 2024. The notes will be
convertible into Limited Voting Shares at an initial conversion rate of 13.9581
shares per $1,000 principal amount in certain circumstances, including those
in
which the Limited Voting Shares have traded for more than 130% of the conversion
price for a specified period, the notes have had a trading price of less than
95% of the market price of the Limited Voting Shares into which they may be
converted for a specified period, the notes have been called for redemption,
or
a specified corporate transaction or a fundamental change has
occurred.
If
the Arrangement Transaction is completed, FSHI will be required to make an
offer
to repurchase the notes at a purchase price equal to the principal amount of
the
notes plus a make whole premium, and an amount equal to any accrued and unpaid
interest to, but not including, the date of repurchase. FSHI must make this
offer by providing a notice to the trustee and the holders of notes within
30
days of the completion of the Arrangement Transaction.
The
Purchaser has informed FSHI that it currently expects to commence an offer
to
purchase all of the outstanding notes prior to the effective time of the
Arrangement Transaction. The terms of any such offer have not yet been
finalized, and will be determined by the Purchaser in the event that it decides
to proceed with the offer. If the Purchaser proceeds with the offer, the notes
owned by the Purchaser and its subsidiaries will be transferred to FSHI for
cancellation pursuant to the Arrangement Transaction.
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Ratings
Our
$250 million of convertible senior notes have been assigned the following
ratings:
Standard
& Poor’s: BBB-. As defined by Standard & Poor’s, an obligation rated BBB
exhibits adequate protection parameters. However, adverse economic conditions
or
changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. The rating is
modified by a minus sign, which is used to show relative standing within this
rating category. Moody’s Investors Service: Baa3 with a stable rating outlook.
As defined by Moody’s, obligations rated Baa are subject to moderate credit
risk. They are considered medium-grade and as such may possess certain
speculative characteristics. The modifier 3 indicates a ranking in the lower
end
of the rating category. The rating outlook means the rating is not likely to
change in the medium term (18 to 36 months).
Dominion
Bond Rating Service (“DBRS”): BBB with a stable rating trend. As defined by
DBRS, long-term debt rated BBB is of adequate credit quality. Protection of
interest and principal is considered acceptable, but the entity is fairly
susceptible to adverse changes in financial and economic conditions, or there
may be other adverse conditions present which reduce the strength of the entity
and its rated securities. The absence of either a “high” or “low” designation
indicates the rating is in the middle of the rating category. The rating trend
is designed to give the investor an understanding of DBRS’ opinion regarding the
outlook for the rating.
Credit
ratings are meant to give an indication of the risk that a borrower will not
fulfill its full obligations in a timely manner, with respect to both interest
and principal commitments. The ratings are current opinions of the relative
credit risk of fixed-income obligations with an original maturity of one year
or
more. Such ratings reflect both the likelihood of default and any financial
loss
suffered in the event of default. Credit ratings may be changed, suspended,
or
withdrawn as a result of changes in, or unavailability of, such information,
or
based on other circumstances. The issued credit rating is not a recommendation
to purchase, sell, or hold a financial obligation, inasmuch as it does not
comment as to market price or suitability for a particular
investor.
Directors
and Officers
The
following table sets forth certain information regarding each of FSHI’s
executive officers and directors:
Name
and Residence
Position
with FSHI
Principal
Occupation
Shareholdings
No.
of
Variable
Multiple
Voting
Shares
No.
of
Limited
Voting
Shares
Isadore
Sharp
Ontario,
Canada
Chairman,
Chief Executive Officer
Chairman
and Chief Executive Officer, Four Seasons Hotels Limited
3,725,698
Nil
William
D.
Anderson
1, 2, 3
Quebec,
Canada
Director
Corporate
Director
Nil
500
Brent
Belzberg 1,
3
Ontario,
Canada
Director
Senior
Managing Partner, Torquest Partners Inc. 4
Nil
1,900
H.
Roger Garland 2
Ontario,
Canada
Director
Corporate
Director
Nil
81,418
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Name
and Residence
Position
with FSHI
Principal
Occupation
Shareholdings
No.
of
Variable
Multiple
Voting
Shares
No.
of
Limited
Voting
Shares
Nan-b
de Gaspé Beaubien 1,
5, 6
Quebec,
Canada
Director
President,
Business Families Foundation7
and Co-Chair, Philbeau Inc.8
Nil
4,000
Charles
S. Henry 6,
9
New
York, USA
Director
President,
Hotel Capital Advisers, Inc. 10
Nil
2,500
Heather
Munroe-
Blum
1,
6
Quebec,
Canada
Director
Principal
and Vice Chancellor, McGill University 11
Nil
1,250
Ronald
W. Osborne 2,
3
Ontario,
Canada
Director
Chairman
of the Board, Sun Life Financial Inc. 12
Nil
1,000
J.
Robert S. Prichard 5,
6
Ontario,
Canada
Lead
Director
President
and Chief Executive Officer, Torstar Corporation 13
Nil
20,000
Lionel
H. Schipper 1,
2
Ontario,
Canada
Director
President,
Schipper Enterprises Inc. 8
Nil
52,953
Anthony
Sharp
Ontario,
Canada
Director
President,
Sharpwise Ltd. 14
Nil
26,927
Simon
M. Turner 1,
9
New
York, USA
Director
Principal,
Hotel Capital Advisers, Inc. 10
Nil
2,500
Sarah
Cohen
Ontario,
Canada
Senior
Vice President, Corporate Counsel and Assistant Secretary
Senior
Vice President, Corporate Counsel and Assistant Secretary, Four
Seasons
Hotels Limited
Nil
Nil
John
M. Davison
Ontario,
Canada
Executive
Vice President, Chief Financial Officer
Executive
Vice President, Chief Financial Officer, Four Seasons Hotels
Limited
Nil
700
Craig
O. Reith
Ontario,
Canada
Vice
President, Finance and Treasurer
Vice
President, Finance and Treasurer, Four Seasons Hotels
Limited
Nil
11,331
Kathleen
Taylor
Ontario,
Canada
President
and Chief Operating Officer
President
and Chief Operating Officer
Nil
2,041
Randolph
Weisz
Ontario,
Canada
Executive
Vice President, Business Administration, General Counsel and Secretary
Executive
Vice President, Business Administration, General Counsel and Secretary,
Four Seasons Hotels Limited
Nil
Nil
1
Member
of the Human Resources Committee.
2
Member
of the Audit Committee.
3
Member
of the Special Committee.
4
Private
equity fund manager.
5
Elected
by the holders of the Limited Voting
Shares.
6
Member
of the Corporate Governance
Committee.
7
Non-profit
foundation.
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8
Investment
holding company.
9
Nominee
of Kingdom, which has the right pursuant to an agreement with Triples
Holdings Limited and Isadore Sharp to elect two directors to the
FSHI
Board of Directors.
10
Hotel
investment advisory firm.
11
Educational
institute.
12
Insurance
company.
13
Media
and publishing company.
14
Real
estate/resort development company. Prior to August 25, 1999, Mr.
Sharp was
Executive Vice-President of Vacation Ownership of Four Seasons Hotels
Limited.
Isadore
Sharp has served as a director of FSHI and its predecessor corporation since
January 9, 1978. H. Roger Garland was elected to the board of directors of
FSHI’s predecessor corporation on October 1, 1985. Lionel H. Schipper was
appointed to the board of directors on February 18, 1988. Charles S. Henry
was
appointed to the board of directors on November 11, 1994. J. Robert S. Prichard
was appointed to the board of directors on March 6, 1996. Nan-b de Gaspé
Beaubien was elected to the board of directors on May 23, 1997. Anthony Sharp
was appointed to the board of directors on August 25, 1999. Simon M. Turner
was
re-appointed to the board of directors on February 14, 2002. Brent Belzberg
and
Heather Munroe-Blum were appointed to the board of directors on November 7,2002. Ronald W. Osborne was elected to the board of directors on May 21, 2003.
William D. Anderson was elected to the board of directors on May 25,2005.
All
of the directors will hold office until the next annual meeting of shareholders,
or until their successors are elected or appointed.
All
our executive officers and directors have held their principal occupations
for
more than five years with the exception of the following. William Anderson
was
President of BCE Ventures Inc. until December 31, 2005. Heather Munroe-Blum
was
a Professor at the University of Toronto prior to December 31, 2002 and was
Vice-President, Research and International Relations at the University of
Toronto prior to June 1, 2002. Ronald W. Osborne was President and Chief
Executive Officer of Ontario Power Generation prior to December 4, 2003.
Kathleen Taylor was President, Worldwide Business Operations prior to January1,2007. Randolph Weisz was Senior Vice President and General Counsel of Four
Seasons Hotels Limited prior to August 6, 2002. Sarah Cohen was Vice President,
Corporate Counsel and Assistant Secretary of Four Seasons Hotels Limited prior
to September, 2006. Craig O. Reith was Vice President, Finance and Assistant
Treasurer of Four Seasons Hotels Limited prior to May 17, 2005. John Davison
was
Senior Vice President of Four Seasons Hotels Limited prior to August 23, 2005,
an independent consultant prior to August 26, 2002.
Heather
Munroe-Blum served on the board of directors of Livent Inc. from June 1998
through November 27, 1998. On November 18, 1998, Livent Inc. filed a voluntary
petition under Chapter 11 of the US Bankruptcy Code. On November 19, 1998,
Livent Inc. filed for protection under the Companies
Creditors Arrangement Act.
Additionally, on August 28, 1998 the Ontario Securities Commission made an
order
pursuant to section 127(5) of the Securities
Act (Ontario)
that trading in securities of Livent Inc. cease immediately for a period of
15
days on the grounds that there was not sufficient information in the marketplace
on which investors could make informed decisions as to the purchase or sale
of
the securities of Livent Inc. That order was extended, with the consent of
Livent Inc., on September 11, 1998. That cease trade order was revoked by the
Ontario Securities Commission on November 19, 1998.
Ronald
W. Osborne served on the board of directors of Nortel Networks Corporation
and
Nortel Networks Limited (collectively, the “Nortel Companies”) from April 1996
to September 1997 and from June 2005 to June 2006. On March 10, 2006 the Nortel
Companies announced the need to restate certain previously reported financial
results and that the filing of certain 2005 financial statements would be
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30
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delayed.
The Ontario Securities Commission issued a management cease trade order on
April10, 2006, prohibiting all of the directors, officers and certain current and
former employees from trading in securities of the Nortel Companies until two
business days following the receipt by the Ontario Securities Commission of
all
of the filings the Nortel Companies are required to make pursuant to Ontario
securities laws. The British Columbia Securities Commission and Quebec
Securities Commission also issued similar orders. Mr. Osborne was not subject
to
the orders issued by the British Columbia Securities Commission and the Quebec
Securities Commission. The Ontario Securities Commission lifted the cease trade
order effective June 8, 2006. The British Columbia Securities Commission and
the
Quebec Securities Commission also lifted their cease trade orders shortly
thereafter. Mr. Osborne served on the board of directors of Air Canada from
May
of 1999 to September 30, 2004. In September of 2004, Air Canada completed a
court-sanctioned restructuring process and implemented a plan of arrangement
under the corporate and insolvency laws of Canada.
Kathleen
Taylor was formerly a director of The T. Eaton Company Limited which, in 1999,
completed a court-sanctioned reorganization pursuant to a plan of compromise
and
arrangement under the corporate and insolvency laws of Ontario and Canada,
respectively. As a result of this situation, trading of the common shares of
Eaton’s was suspended by the Toronto Stock Exchange on August 23, 1999 and the
common shares were ultimately delisted in connection with the implementation
of
the reorganization.
Our
directors and executive officers, as a group, own beneficially, directly or
indirectly, or exercise control or direction over, the following number of
Limited Voting Shares and Variable Multiple Voting Shares:
Description
of Class
Number
of Shares
Percentage
of Class
Limited
Voting Shares
209,020
0.619%
Variable
Multiple Voting Shares
3,725,698
100%
Corporate
Governance
Approach
to Governance
Our
corporate governance policies, procedures and practices are designed to ensure
that:
•
the
business and affairs of Four Seasons are conducted with the highest
standards of ethical conduct and in the best interests of our shareholders
and other stakeholders, and
•
the
Board can fulfill its statutory mandate to supervise the management
of the
business and affairs of FSHI.
The
Board and its Committees have refined our governance polices, procedures and
practices in the context of the significant regulatory initiatives in North
America that have been adopted to enhance governance practices of public
companies generally. Those initiatives include the rules and policies that
have
been adopted by the Ontario Securities Commission and other Canadian Securities
Administrators, the revised listing standards adopted by the New York Stock
Exchange and the various requirements that have come into force under the
Sarbanes-Oxley
Act of 2002 and
related rules that have been adopted by the U.S. Securities and Exchange
Commission. The Board and its Committees also review our governance policies,
procedures and practices on a regular basis to ensure that they are effective
for FSHI.
We
believe that our corporate governance policies, procedures and practices, which
are described below, are in substantive compliance with the guidelines, rules
and requirements that are applicable to FSHI and are appropriate for FSHI in
the
current circumstances.
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We
believe that there are no significant differences in our corporate governance
practices from those required to be followed by U.S. domestic issuers (including
the NYSE listing standards), other than the membership on each of our Corporate
Governance Committee and Human Resources Committee of one director who may
be
deemed not to be independent for certain purposes and the approval of the Chief
Executive Officer’s compensation level, upon the recommendation of the Human
Resources Committee, by the independent directors and those two other directors.
As discussed below under “Committees of the Board of Directors”, we believe that
the continued involvement of those directors on those Committees and their
participation in the process of approving the Chief Executive Officer’s
compensation is of significant benefit to the Committees, the Board and FSHI
and
does not compromise the independence of those Committees or the process for
the
approval of the Chief Executive Officer’s compensation.
We
recognize that our policies, procedures and practices cannot be static and
have
refined them over the past year. We also recognise that further refinements
may
be necessary as applicable legal and regulatory requirements and the
circumstances of FSHI evolve. We intend to continue to ensure that our system
and culture of corporate governance meet the legitimate expectations of our
shareholders as well as applicable legal and regulatory
requirements.
Code
of Business Conduct and Ethics
We
believe that director, management and employee honesty and integrity are
important factors in ensuring good corporate governance, which in turn improves
corporate performance and benefits all shareholders. To that end, we have
adopted a Code of Business Conduct and Ethics that applies to all directors,
officers and employees of Four Seasons, its subsidiaries and affiliates, other
persons in similar relationships with those entities, and all employees at
hotels and resorts managed by us. Our Code of Business Conduct and Ethics is
available to all directors, officers and employees and can be viewed on our
website at www.fourseasons.comor
at www.sedar.com.
The Code of Business Conduct and Ethics addresses such matters as conflicts
of
interest, protection and proper use of our assets, confidential information,
fair dealing, compliance with laws, rules and regulations and the reporting
of
illegal and unethical behaviour.
We
encourage personnel who become aware of a conflict or potential conflict or
departures from the Code of Business Conduct and Ethics to bring it to the
attention of a supervisor or department head. We also have established
additional procedures for confidential and anonymous reporting of complaints
concerning accounting, internal accounting controls and auditing matters. Our
Board of Directors requires every director and executive officer to disclose
any
direct or indirect conflict of interest that he or she has, and formal
confirmation of compliance with the Code of Business Conduct and Ethics is
obtained annually from each director and executive officer.
Any
waivers of the Code of Business Conduct and Ethics for directors or members
of
our Management Committee may only be granted by the Board. The Board has not
granted any such waivers in 2006.
The
Board of Directors
The
Role of the Board
In
fulfilling its statutory mandate and discharging its duty of stewardship of
FSHI, the Board assumes responsibility for, among other things:
•
reviewing
and approving the strategic planning and business objectives that
are
submitted by management and monitoring the implementation by management
of
the strategic plan,
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•
reviewing
the principal business risks for FSHI and overseeing, with the assistance
of the Audit Committee, the implementation and monitoring of appropriate
risk management systems and monitoring of risks,
•
ensuring,
with the assistance of the Corporate Governance Committee, the effective
functioning of the Board and its Committees in compliance with applicable
corporate governance requirements of applicable legislation, and
that such
compliance is reviewed periodically by the Corporate Governance
Committee,
•
ensuring
internal control and management information systems are in place,
evaluated as part of the internal audit process and reviewed periodically
on the initiative of the Audit
Committee,
•
assessing
the performance of executive officers, including monitoring the
establishment of appropriate systems for succession planning (including
the development of policies and principles for Chief Executive Officer
selection and performance reviews and policies regarding succession
in an
emergency or upon retirement of the Chief Executive Officer) and
periodically monitoring the compensation levels of such executive
officers
based on the determinations made by the Human Resources
Committee,
•
ensuring
that we have in place a policy for effective communication with
shareholders, other stakeholders and the public generally,
and
•
reviewing
and, where appropriate approving, the recommendations made by the
various
Committees including the selection of nominees for election to the
Board,
appointment of directors to fill vacancies on the Board, appointment
of
members of the various Committees and establishing the form
and
amount of director compensation.
This
mandate and specific expectations of directors that are intended to promote
the
discharge by the directors of their responsibilities and the efficient conduct
of the Board are outlined in the Board’s Corporate Governance Guidelines (which
includes the Board Charter), which are attached as Schedule A and can be viewed
at our website at www.fourseasons.com.
Board
Composition
Consistent
with applicable legal and regulatory requirements and prevailing best practices,
the Board and its Committees give careful consideration to their size,
composition and independence, which they believe are appropriate for FSHI.
The
Corporate Governance Committee, among other things, develops and recommends
to
the Board criteria for selecting new directors, assists the Board by identifying
individuals qualified to become members of the Board, and recommends to the
Board nominees for election to the Board in annual meetings and directors to
be
appointed to each Committee and as the Chair of each Committee. In doing so,
the
Corporate Governance Committee applies a number of criteria in assessing
individuals that may be qualified to become directors and members of Committees,
including:
•
their
judgement, character, expertise, skills and knowledge that may be
useful
to the oversight of Four Seasons’
business,
•
their
diversity of viewpoints, backgrounds, experiences and other demographics,
•
their
business and other relevant experience,
and
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33
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•
the
extent to which the interplay of their expertise, skills, knowledge
and
experience with that of other members of the Board will build a board
that
is effective, collegial and responsive to the needs of Four
Seasons.
These
criteria are applied in respect of each individual director, and in respect
of
the Board and each Committee as a whole.
To
assist in determining the independence of directors for purposes that include
compliance with applicable legal and regulatory requirements and policies,
the
Board has adopted categorical standards, which are part of the Board’s Corporate
Governance Guidelines, which are attached to this circular
and may be viewed on our website at www.fourseasons.com.
A director who qualifies as “independent” under these standards is:
•
a
director who has no direct or indirect material relationship with
FSHI,
being a relationship that could, in the view of the Board, reasonably
interfere with his or her independent judgment, and
•
“independent”
for the purposes of the NYSE listing standards and the corporate
governance policies of the Canadian Securities
Administrators.
Members
of the Audit Committee also must satisfy additional independence standards
as
contemplated by the rules made by certain of the Canadian Securities
Administrators and the SEC (and adopted by the NYSE), which result in them
being
“independent” for those purposes as well.
Based
upon information provided by each of the directors, the Corporate Governance
Committee and the Board have affirmatively determined that the following
8of
the 12 directors are “independent” under these standards: Messrs. Henry and
Turner are deemed not to be independent under the listing standards of the
NYSE
as a result of each of them being a director of a company that owns a hotel
that
is managed by Four Seasons and that made payments in 2006 to Four Seasons and
its subsidiaries of more than the greater of $1 million or 2% of FSHI’s
consolidated gross revenues. The Corporate Governance Committee and the Board
have determined that Anthony Sharp should not be considered to be an
“independent” director as a result of his familial relationship to Isadore
Sharp, and that Isadore Sharp should not be considered to be “independent” as a
result of his being the Chief Executive Officer of Four Seasons.
Board
Process
In
addition to having two-thirds of the Board comprised of independent directors,
we have adopted a variety of structures to allow for the independence of the
Board from management, including the consideration of transactions and
agreements in respect of which a director or executive officer has a material
interest. Those structures include the appointment of a “lead director” (who is
an “independent” director) with a formal mandate to assist the Board in
fulfilling its duties effectively, efficiently and independent of management,
the practice of having the non-management members of the Board meet as a group
in executive sessions (with no members of management present) after every
regularly scheduled meeting of the Board and otherwise as those directors may
determine, following which the independent directors meet in executive session
(with no members of management or non-independent directors present) and members
of the Board having the opportunity to initiate discussions with senior
management without the Chief Executive Officer present so that they may freely
discuss any concerns they may have, and the ongoing monitoring of the
relationship between the Board and management by the Corporate Governance
Committee. The position description of the lead director, which has been
approved by the Board, is available on our website at www.fourseasons.com.
The Board believes that it has functioned, and continues to function,
independently of management.
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Consistent
with recommended governance practices, the Board and the Chief Executive Officer
have developed position descriptions that define the limits of management’s
responsibilities. In this regard, the Board has adopted a job description and
statement of functions for the Chief Executive Officer that delegates to him
the
responsibility for overseeing the day-to-day management of Four Seasons’
business in accordance with strategic plans and operating and capital
expenditure budgets approved by the Board. The Chief Executive Officer reports
formally to the Board, as well as less formally through discussions with members
of the Board, to advise the Board on a timely basis of courses of action that
are being considered by management and are being followed. The Board exercises
its responsibility for oversight through the approval of all significant
decisions and initiatives affecting Four Seasons. The Board is satisfied that
the Chief Executive Officer has reported to, and sought the consent of, the
Board where necessary and appropriate.
Management,
working with the Board and the Corporate Governance Committee, provides an
orientation program and education program for new directors to familiarize
them
with FSHI and its business. On a continuing basis, management provides periodic
presentations for the Board to ensure that directors are aware of major business
trends and industry practices, and directors are free to contact the Chief
Executive Officer and other members of the Management Committee at any time
to
discuss any aspect of our business. The provision of lodging and food and
beverage privileges at properties we manage in accordance with industry practice
(which do not compromise the independence of our directors) also encourages
direct, on-site experience by directors with our business.
The
Board is scheduled to meet sixtimes
a year and meets more frequently, if required. During 2006, the Board held
six
meetings and six meetings of the directors who are independent for purposes
of
the corporate governance policies of the Canadian Securities Administrators
(two
of whom may not be considered to be independent under the listing standards
of
the NYSE). The Board expects all directors to attend the annual general meeting,
although this expectation is not documented in a formal, written policy; all
directors attended the 2006 annual general meeting of shareholders. In 2006,
the
directors listed below attended in person or by telephone the number of meetings
of the Board of Directors and its Committees shown in the following
table.
Number
of Meetings Attended During 2006
Board
of Directors
Independent
Directors
Committees
William
D. Anderson
6
6
17
Nan-b
de Gaspé Beaubien
6
6
9
Brent
Belzberg
6
6
13
H.
Roger Garland
6
6
2
Charles
S. Henry
6
0
5
Heather
Munroe-Blum
6
6
7
Ronald
W. Osborne
6
6
13
J.
Robert S. Prichard
6
6
5
Lionel
H. Schipper
6
6
8
Anthony
Sharp
6
0
0
Isadore
Sharp
6
0
0
Simon
M. Turner
6
0
4
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35
-
Summary
of Board and Committee Meetings Held in 2006:
Board
of Directors
6
Independent
Directors
6
Audit
Committee
4
Human
Resources Committee
4
Corporate
Governance Committee
5
Special
Committee
9
Since
January 1, 2007, the Board has held three
meetings and there have been three
meetings of the independent directors. Each of these meetings, in addition
to
all Committee meetings held since January 1, 2007, was attended in person or
by
telephone by all of the respective directors.
Board
Assessment
Annually,
under the supervision of our Corporate Governance Committee, our directors
conduct a formal annual evaluation of the performance and effectiveness of
the
Board and each of its Committees. This annual evaluation includes an assessment
of the individual directors and their attributes that contribute to an effective
Board. A written evaluation process is complemented with individual interviews
with a member of the Corporate Governance Committee. The resulting data is
analyzed by the Corporate Governance Committee and the Board and is used to
assist in refinements to our ongoing governance process. The Boardhas
not conducted its annual assessment for 2006 but it will conduct its annual
assessment at a later date if necessary.
Committees
of the Board
The
Board has established three standing Committees to assist it in discharging
its
mandate. The roles of the Committees as part of our governance process are
outlined below, and their charters may be viewed on our website at www.fourseasons.com.
Each Committee reviews and assesses its mandate at least annually and has the
authority to retain special legal, accounting or other advisors. Each Committee
is chaired by an “independent” director. The Board has approved a position
description for the chairs of these committees, which are available on our
website at www.fourseasons.com.
Composition
of Committees
The
members of the Committees are appointed annually by the Board upon the
recommendation of the Corporate Governance Committee. In considering the
composition of each Committee, the Corporate Governance Committee and the Board
consider, among other things, the expertise, experience and independence that
the members bring to the Committee individually and as a group.
All
of the directors who currently are members of the Committees and were members
of
the Committees in 2006 are “independent” directors except that in 2006, the
Human Resources Committee and the Corporate Governance Committee also included
a
director who was a nominee of Kingdom Investments Inc. As discussed above,
Messrs. Turner and Henry may not be considered “independent” as a result of
certain deeming provisions under the governance standards of the NYSE and rules
made by the Canadian Securities Administrators and the SEC. The Corporate
Governance Committee and the Board believe that the continued involvement of
Mr.
Henry and Mr. Turner has been, and will continue to be of significant benefit
to
the Committees on which they may serve, the Board and FSHI as a result of the
expertise and experience that they bring to that process and the perspective
that they bring to the issues considered by the Committees as representatives
of
a significant shareholder and does not compromise the independence of those
Committees.
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36
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The
Board, upon the recommendation of the Corporate Governance Committee, has
determined that the Chair of the Audit Committee, Mr. Osborne, is a “financial
expert” for the purposes of a rule made under the Sarbanes-Oxley
Act of 2002
and that all members of the Audit Committee are “financially literate” and
independent as contemplated by the rule made by certain of the Canadian
Securities Administrators and the governance standards of the NYSE. The SEC
has
indicated that the designation of Mr. Osborne as an audit committee financial
expert does not make Mr. Osborne (and others who may be similarly designated)
an
“expert” for any purpose, impose any duties, obligations or liabilities on Mr.
Osborne that are greater than those imposed on members of the Audit Committee
and Board of Directors who do not carry this designation or affect the duties,
obligations or liability of any other members of the Audit Committee. When
considering criteria for determinations of financial literacy, the Board looks
at the ability to read and understand a balance sheet, an income statement
and
cash flow statement of a breadth and level of complexity of accounting issues
generally comparable to the issues expected to be raised by FSHI financial
statements.
None
of the members of the Audit Committee may serve on the audit committee of more
than three public companies in addition to FSHI without the prior approval
of
the Audit Committee and the Corporate Governance Committee. None of the members
of the Audit Committee serves on the audit committee of more than three other
public companies.
Audit
Committee
Members
- Ronald W. Osborne (Chair), William D. Anderson, Roger Garland and Lionel
H.
Schipper.
Ronald
W.Osborne
(Chair), B.A., F.C.A. - Mr. Osborne is a former partner and employee of a
prominent Canadian Chartered Accountants firm and its Brazilian affiliate and
has held positions as President, Chief Executive Officer and Chief Financial
Officer at four large Canadian companies. Mr. Osborne currently serves on the
board of a number of Canadian public companies and community organizations.
In
addition to serving as the Chair of the Audit Committee at FSHI, Mr. Osborne
is
the Chair of the Audit Committee at one of Canada’s largest real estate
investment trusts and a member of the Audit Committee at two other Canadian
public companies.
Lionel
H. Schipper, C.M., Q.C. - Mr. Schipper received his B.A. and L.L.B. from the
University of Toronto and is a former partner of a major Toronto law firm,
where
he specialized in corporate finance and securities law. Since retiring from
the
firm he has been actively involved in the investment business as President
of a
private firm. Mr. Schipper has for more than 20 years served as a director
of
numerous public companies some of whose shares have been listed on the New
York
Stock Exchange and the Toronto Stock Exchange. Mr. Schipper currently serves
on
the board of directors of two other Canadian public companies and on the board
of directors and audit committee of one United States public company, is the
Vice-Chair of the Centre for Research in Neurodegenerative Diseases at the
University of Toronto and is an Honourary Director of the Baycrest Centre
Foundation.
William
Anderson, C.A. - Mr. Anderson is a corporate director. Mr. Anderson was the
president of BCE Ventures Inc. until December 31, 2005 and has held positions
as
the Chief Financial Officer at BCE Inc., Bell Canada and Bell Cablemedia plc.
Mr. Anderson is a former partner of KPMG LLP (having left the firm in 1989).
He
also is a director of TransAlta Corporation, Bell Canada International Inc.,
Gildan Activewear Inc. and MDS Inc.
H.
Roger Garland, C.A. - Mr. Garland received his B.A. from the University of
Toronto and commenced his professional career with PricewaterhouseCoopers LLP,
qualifying as a Chartered Accountant in 1966. Following eight years of
experience in treasury, finance and accounting with AGT Data Systems Ltd. and
ERCO Ltd., Mr. Garland joined Citibank in Toronto. During the next seven years,
he held positions as Vice-President, Corporate Banking (Canada), Vice-President
Corporate Banking (Switzerland), Vice-President, Mortgage Lending (Toronto)
and
Chief of Staff for Citicorp (Canada). In 1981, Mr. Garland
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37
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joined
FSHI as Senior Vice-President, Finance and was appointed to the board of
directors in 1984. One year later, he was appointed Executive Vice-President
and
Chief Financial Officer of FSHI. In 1995, Mr. Garland assumed the role of
Vice-Chairman of FSHI. In this role, he managed the planning and direction
of
the development, acquisition and asset management activities of the company.
Mr.
Garland retired from FSHI as of December 31, 2000. Mr. Garland currently serves
on the boards of a number of Canadian public and private companies and income
funds and community organizations and is the Chairman of the board of Soulpepper
Theatre Company.
The
Audit Committee assists the Board in, among other things, its oversight and
evaluation of:
•
the
quality and integrity of our financial
statements,
•
compliance
by FSHI with legal and regulatory requirements in respect of financial
disclosure,
•
the
qualification, independence and performance of our independent auditor,
and
•
the
performance of the Chief Financial Officer ;and
•
internal
auditor.
In
addition, the Audit Committee provides an avenue for communication between
the
internal auditor, the independent auditor, financial management, other employees
and the Board concerning accounting and auditing matters.
The
Audit Committee is directly responsible for the appointment, compensation,
retention (and termination) and oversight of the independent auditor (including
oversight of the resolution of any disagreements between management and the
independent auditor regarding financial reporting) for the purpose of preparing
audit reports or performing other audit, review or attest services. The Audit
Committee has the primary oversight responsibility for our financial reporting,
risk management and internal controls. It has the sole authority to hire and
fire the independent auditor, approve significant non-audit relationships with
our independent auditor and the terms of and fees for audit and non-audit
engagements. The Audit Committee has unrestricted access to our personnel and
documents and to our independent auditor and takes advantage of such access
as
it deems necessary. The Audit Committee meets to review and discuss the annual
and quarterly financial statements and accompanying management’s discussion and
analysis and recommends their approval to the Board. It is not, however, the
responsibility of the Audit Committee to determine that our financial statements
are complete and accurate and in accordance with generally accepted accounting
principles (“GAAP”), which is the responsibility of management, or to plan and
conduct audits of our financial statements, which is the responsibility of
the
independent auditor. The Audit Committee assesses the independence of the
independent auditor and the independent auditor’s other relationships with FSHI,
reviews the scope and planning of the external audit, the form of audit report
and any correspondence from or comment by the independent auditor regarding
financial reporting and internal controls. The Audit Committee has adopted
policies and procedures regarding services provided by the independent auditor
that, among other things, require the pre-approval by the Audit Committee of
the
audit and non-audit services performed by the independent auditor. The Audit
Committee also will review the hiring by FSHI of partners or managers of the
independent auditor who have been involved in a recent audit.
The
Audit Committee reviews significant accounting policies and principles and
is
updated regularly about current accounting issues and developments and has
explained to it, among other things, the various alternatives available under
GAAP (and the consequences of those alternatives) that could result in lower
revenues and/or profits and higher asset write-offs and/or greater liabilities.
The Audit Committee updates the Board of the foregoing as necessary. The Audit
Committee reviews the competence of key partners and managers of the independent
auditor. In addition, the Audit Committee reviews relevant analyst reports
and
press accounts of our accounting practices and disclosures.
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38
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The
Audit Committee considers the appointment and replacement by management of
the
senior internal auditing personnel and reviews the scope of internal audit
work
plans each year. The Audit Committee reviews the significant reports to
management prepared by the internal auditor and management’s responses and
discusses with the internal auditor the adequacy of Four Seasons’ internal
accounting controls and its financial, auditing and accounting organizations
and
personnel.
The
Audit Committee has implemented employee complaint procedures for accounting
and
auditing matters, pursuant to which directors, officers and employees of FSHI,
its subsidiaries and the properties they manage are encouraged to talk to
supervisors, managers or other appropriate personnel about observed illegal
or
unethical behaviour and when in doubt about the best course of action in a
particular situation. Confidential complaint procedures have been established
to
facilitate the submission of complaints relating to any questionable accounting,
internal accounting controls or auditing matters.
Our
Board of Directors has approved a written charter for the Audit Committee,
the
text of which is set out in Schedule “B”. Our Audit Committee charter may also
be viewed on our website at www.fourseasons.com.
The
Audit Committee charter provides that the Committee will meet at least quarterly
and will meet separately with management periodically and will meet with the
internal auditor and the independent auditor as appropriate. All meetings of
the
Committee include a session at which only members of the Committee are present.
The Audit Committee met fourtimes
in 2006.
The
Audit Committee has reviewed and discussed the audited financial statements
with
management, and has discussed with the independent auditors the matters required
to be discussed. The Audit Committee has also received the written disclosures
and the letter from, and discussed them with, the independent accountants,
as
required by applicable securities laws. The Audit Committee has recommended
to
the Board that the audited financial statements be included in FSHI’s annual
report on Form 40-F for the last fiscal year for filing with the SEC.
Pre-Approval
Policies and Procedures
The
Audit Committee has considered whether the provision of services by KPMG LLP
other than audit services is compatible with maintaining the independence of
KPMG LLP. The Audit Committee has determined that the provision of certain
services is consistent with that independence and has adopted a policy that
restricts us from engaging KPMG LLP for certain categories of non-audit services
and requires pre-approval by the Audit Committee of audit services and other
services that KPMG LLP is not restricted by this policy from providing. The
services provided by, and fees paid to, KPMG LLP in 2006 were in compliance
with
this policy.
Audit
and Audit-Related Fees
Audit
fees charged by KPMG LLP totalled C$1,430,939 in 2006 and C$736,056 in 2005.
Audit-related
fees charged by KPMG LLP totalled C$164,200 in 2006 and C$234,209 in 2005.
Audit-related fees include fees for assurance and related services that are
reasonably related to the performance of the audit or review of our annual
financial statements and are not reported as part of audit fees, including
audit
of employee retirement benefit plan, advice with respect to internal controls
and other assurance reports.
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39
-
Tax
Fees
Fees
charged by KPMG LLP for tax services, including tax compliance, tax advice
and
tax planning, totalled approximately C$509,477 in 2006 and C$111,824in
2005. These services consisted of tax compliance (including the review of tax
returns, assistance with questions regarding tax audits and preparation of
certain employee tax returns), and tax planning and advisory services relating
to common forms of domestic and international taxation.
All
other Fees
Fees
charged by KPMG LLP for other services not described above totalled nil in
2006
and nil in 2005.
Human
Resources Committee
Members:
Lionel H. Schipper (Chair), William D. Anderson, Nan-b de Gaspé Beaubien, Brent
Belzberg, Heather Munroe-Blum and Simon Turner.
The
Human Resources Committee assists the Board in discharging its responsibility
relating to compensation of executives and approving and evaluating the
compensation plans, policies and programs of senior executives or that otherwise
are of significance to FSHI. The Human Resources Committee has the specific
responsibility for the review and approval of corporate goals and objectives
relevant to the compensation of the Chief Executive Officer, evaluation of
his
performance against those goals and objectives, and making recommendations
to
the Board in respect of his compensation in the context of his performance.
As
outlined in the charter of the Human Resources Committee, the Committee also
has
responsibility for making recommendations with respect to retirement benefit
plans, incentive and equity-based compensation plans and ensuring that programs
related to manpower planning, management development, succession planning,
career path planning and performance evaluation are effectively integrated
with
FSHI’s strategy. The Human Resources Committee also is responsible for producing
an annual report on executive compensation.
The
Human Resources Committee charter provides that the Committee will meet at
least
twice a year and more frequently as circumstances require. All meetings of
the
Committee include a session at which only members of the Committee are present.
The Human Resources Committee met four times in 2006.
Corporate
Governance Committee
Members:
J. Robert S. Prichard (Chair and Lead Director), Nan-b de Gaspé Beaubien,
Charles S. Henry and Heather Munroe-Blum.
In
addition to making recommendations as to the size of the Board, standards for
director independence, nominees for election as directors and the composition
of
Committees, the Corporate Governance Committee is intended to enhance our
corporate governance process through the development and recommendation to
the
Board of appropriate corporate governance guidelines, administering the Code
of
Business Conduct and Ethics, assisting the Board and the Committees in their
annual review of their performance and their charters and their oversight of
the
evaluation of management’s performance, reviewing and making recommendations to
the Board with respect to the compensation of directors, reviewing and making
recommendations with respect to succession plans and undertaking such other
initiatives that may be necessary or desirable to enable the Board to provide
effective corporate governance. The Corporate Governance Committee also reviews
the compensation and remuneration of the Board with a view to ensuring that
it
realistically reflects the responsibilities involved in being an effective
director. The Corporate Governance Committee has been granted the authority
and
direction to take such other initiatives as are needed to help the Board address
corporate governance issues and to approve the engagement of independent
advisors for individual directors at the expense of FSHI, if the need should
arise.
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40
-
The
Corporate Governance Committee charter establishes policies with respect to
the
role and responsibility of the Corporate Governance Committee in identifying
new
directors consistent with criteria approved by the Board. The Corporate
Governance Committee does not have a specific policy with respect to the
consideration of director candidates recommended by shareholders. The Board
believes that the Corporate Governance Guidelines (as set out in Schedule “A”
attached hereto) establishes appropriate criteria for selecting new directors.
The Corporate Governance Committee will consider director candidates received
by
shareholders in a manner consistent with its consideration of all other director
candidates.
The
Corporate Governance Committee charter provides that the Committee will meet
at
least twice a year and more frequently as circumstances require. All meetings
of
the Committee include a session at which only members of the Committee are
present. The Corporate Governance Committee met five times in 2006.
Special
Committee
Members:
Ronald W. Osborne (Chair), William D. Anderson and Brent Belzberg.
In
connection with the Arrangement Transaction, the Board established the Special
Committee. The mandate of the Special Committee was to consider the
proposed transaction and the structure and terms and conditions of the proposed
transaction, to supervise the conduct of, and engage in negotiations or
discussions on behalf of FSHI with respect to, the proposed transaction, to
make
recommendations to the Board regarding the proposed transaction and the process
related thereto, and to supervise the preparation of a formal valuation of
the Limited Voting Share in connection with the proposed
transaction.
Since
its formation on November 5, 2006, the Special Committee has met a total of
13
times in connection with the Arrangement Transaction.
Communicating
to Shareholders
The
Board is committed to an effective communications policy for the benefit of
all
stakeholders, including shareholders, debt holders, suppliers, guests,
governmental authorities, employees and members of the investment community.
In
addition to its timely and continuous disclosure obligations under applicable
law, the Board also has a formal policy for dealing with analysts, shareholders
and the financial press so as to facilitate the dissemination of information.
These
practices are intended to provide timely disclosure of material information
in a
manner that is broadly accessible on a non-exclusionary basis by all market
participants. To facilitate this open communication and to avoid selective
disclosure, FSHI holds regular information meetings or calls after the release
of quarterly and annual results and holds meetings or calls in association
with
the release of other information by FSHI. All such meetings and calls are open
to the public. Details of the notice of time, place, general substance and
method of accessing any such meeting or call and instructions as to where and
how long the public will be able to access transcripts or replays are broadly
disseminated. To increase accessibility, all such information is also available
through our website.
Shareholders
may communicate directly with non-management directors, through the Lead
Director, by writing to: Lead Director of the Board of Directors, Four Seasons
Hotels Inc., 1165 Leslie Street, Toronto, Ontario, M3C 2K8.
-
41
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Experts
Our
auditors, KPMG LLP, who have prepared the auditors report to our shareholders
on
our consolidated financial statements for the year ended December 31, 2006
are
independent within the meaning of the Rules of Professional Conduct of the
Institute of Chartered Accountants.
Corporate
Chart
The
following chart illustrates our corporate structure, and includes corporations
in which we have a significant interest, either directly or indirectly, and
their jurisdictions of incorporation or organization.
Four
Seasons Hotels Inc.
(Ontario
Corporation)
|
Four
Seasons Hotels Limited A
(Ontario
Corporation)
100%
B
|
|
Four
Seasons Hotels and Resorts B.V. C
(Netherlands
Corporation)
100%
B
|
|
|
Four
Seasons Hotels and Resorts Asia Pacific Pte Ltd. C
(Singapore
Corporation)
100%
D
|
|
|
Four
Seasons Hotels (Barbados) Ltd.
(Barbados
Corporation)
100%
B
|
|
|
Four
Seasons Hotels (U.S.) Inc.
(Delaware
Corporation)
100%
B
Notes
A.
The
management of Four Seasons hotels in North America is generally carried
out by Four Seasons Hotels Limited.
B.
Direct.
C.
The
management of Four Seasons hotels outside North America and Regent
hotels
is generally carried out by Four Seasons Hotels and Resorts B.V.
and Four
Seasons Hotels and Resorts Asia Pacific Pte
Ltd.
D.
Indirect.
Additional
Information
Additional
financial information is provided in our Consolidated Financial Statements
for
the year ended December 31, 2006 and related Management’s Discussion and
Analysis. Such information and other information about us may be found at
www.sedar.com.
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42
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SCHEDULE
“A”
FOUR
SEASONS HOTELS INC.
CORPORATE
GOVERNANCE GUIDELINES
INTRODUCTION
The
Board of Directors of the Company is committed to fulfilling its statutory
mandate to supervise the management of the business and affairs of the Company
with the highest standards of ethical conduct and in the best interests of
the
shareholders of the Company. The Board of Directors, acting on the
recommendation of its Corporate Governance Committee, has adopted these
corporate governance guidelines to promote the effective functioning of the
Board of Directors and its committees, to promote the interests of shareholders,
and to establish a common set of expectations as to how the Board of Directors,
its various committees, individual directors and management should perform
their
functions.
GUIDELINES
Board
Responsibilities
The
business and affairs of the Company are managed by or under the supervision
of
the Board of Directors in accordance with applicable legislation, regulatory
requirements and policies of the Canadian Securities Administrators. The
responsibility of the Board of Directors is to provide direction and oversight.
The Board approves the strategic direction of the Company and oversees the
performance of the Company's business and management. The management of the
Company is responsible for presenting strategic plans to the Board for review
and approval and for implementing the Company's strategic
direction.
In
performing their duties, the primary responsibility of the directors is to
exercise their business judgment in what they reasonably believe to be the
best
interests of the Company. In discharging that obligation, directors should
be
entitled to rely on the honesty and the integrity of the Company's senior
executives and outside advisors and auditors. The directors also should be
entitled to have the Company purchase reasonable directors' and officers'
liability insurance on their behalf, and to the benefits of indemnification
to
the fullest extent permitted by applicable law and to exculpation as provided
by
applicable law.
In
fulfilling its statutory mandate and discharging its duty of stewardship of
the
Company, the Board of Directors assumes responsibility for those matters set
forth in its Charter (which also is its mandate), a copy of which is attached
as
Schedule
1.
Board
Size
It
is the current view of the Board of Directors that the Board should consist
of
no more than 15 members to facilitate its effective functioning.
As
in effect March2006
-
2
-
Chairman
of the Board and Chief Executive Officer
The
Board of Directors believes that so long as the roles of Chairman and Chief
Executive Officer are held by the same individual, there should be a "lead
director" appointed by the Board of Directors from among its independent
members, who should also serve as chair of the Corporate Governance Committee.
The Lead Director and the Chief Executive Officer should carry out their
responsibilities in accordance with their written position
descriptions.
Selection
of Directors
As
provided in the Corporate Governance Committee’s Charter, the Corporate
Governance Committee will be responsible for identifying and recommending to
the
Board of Directors individuals qualified to become members of the Board of
Directors, based primarily on the following criteria:
•
judgment,
character, expertise, skills and knowledge useful to the oversight
of the
Company's business,
•
diversity
of viewpoints, backgrounds, experiences and other
demographics,
•
business
or other relevant experience, and
•
the
extent to which the interplay of the individual's expertise, skills,
knowledge and experience with that of other members of the Board
of
Directors will build a board that is effective, collegial and responsive
to the needs of the Company.
The
Corporate Governance Committee also will be responsible for initially assessing
whether a candidate would be independent (and in that process applying the
Categorical Standards for Determining Independence of Directors (that are
appended to the Board of Directors Charter) and advising the Board of Directors
of that assessment.
The
Board of Directors, taking into consideration the recommendations of the
Corporate Governance Committee, will be responsible for selecting the nominees
for election to the Board of Directors, for appointing directors to fill
vacancies, and determining whether a nominee or appointee is
independent.
Continuation
as a Director
Directors
(other than the Chairman) who have passed their 72nd
birthday will not be eligible for re-election unless a specific determination
to
the contrary is made by the Board of Directors upon the recommendation of the
Corporate Governance Committee.
When
a director's principal occupation or business association changes substantially
from the position he or she held when originally invited to join the Board
of
Directors (determined by reference to factors such as country of principal
residence, industry affiliation, etc.), that director should tender a letter
of
proposed resignation to the chair of the Corporate Governance Committee. The
Corporate Governance Committee will review that director's continuation on
the
Board of Directors and recommend to the Board of Directors whether, in light
of
all the circumstances, the Board of Directors should accept the proposed
resignation or request that the director continue to serve.
As
in effect March2006
- 3
-
Committee
Membership
Each
of the Audit Committee, the Human Resources Committee and the Corporate
Governance Committee will be composed of no fewer than three members, each
of
whom will satisfy the membership criteria set out in the relevant committee
charter. Members of committees will be appointed by the Board of Directors
upon
the recommendation of the Corporate Governance Committee. A director may serve
on more than one committee and committee membership may be rotated periodically
as necessary or advisable. The Board of Directors, taking into account the
recommendation of the Corporate Governance Committee, will designate one member
of each committee as chairperson of that committee. As set out above, at such
times as there is a Lead Director, he or she shall serve as the chairperson
of
the Corporate Governance Committee. Committee chairpersons shall carry out
their
responsibilities in accordance with their respective written position
descriptions. Committee chairpersons may be rotated periodically as
well.
Evaluating
Board and Committee Performance
The
Board of Directors and each committee will conduct an annual self-evaluation
as
provided in its respective charter.
Board
and Committee Meetings
The
Board and each committee should meet as provided in its respective
charter.
An
agenda for each meeting of the Board of Directors and each committee meeting
will be provided to each director and each member of the relevant committee.
Any
director or member of a committee may suggest the inclusion of subjects on
the
agenda of meetings of the Board of Directors or a committee. Each director
and
each member of a committee is free to raise at a meeting of the Board of
Directors or a committee meeting, respectively, subjects that are not on the
agenda for that meeting.
Materials
provided to the directors for meetings of the Board of Directors and committee
meetings should provide the information needed for the directors and members
of
the committee, respectively, to make informed judgments or engage in informed
discussions.
To
ensure strong communication with the Chief Executive Officer, the
non-managementdirectors
will meet with the Chief Executive Officer (with no other members of management
present) before every regularly scheduled Board meeting. To ensure free and
open
discussion and communication among directors, the non-managementdirectors
will meet in executive session (with no members of management present) after
every regularly scheduled meeting of the Board of Directors and otherwise as
those directors determine, following which the independent directors will meet
in executive session (with no members of management or non-independent directors
present). The Chair of the Corporate Governance Committee will preside at these
executive sessions, unless the directors present at such meetings determine
otherwise. Any interested party may communicate directly with the Chair, who
may
invite such person to address an executive session.
Unless
the Chair of a committee otherwise determines, the agenda, materials and minutes
for each committee meeting will be available on request to all directors, and
all directors will be free to attend any committee meeting. All meetings of
a
committee will have a session in which the members of the committee will meet
with no non-committee members present and, at any time in a meeting of a
committee, directors who are not members may be asked to leave the meeting
to
ensure free and open discussion and communication among members of the
committee. Directors who are not members of a committee will not be compensated
for attending meetings of that committee.
Director
Compensation
As
provided for in the Corporate Governance Committee’s Charter, the form and
amount of director compensation will be determined by the Board of Directors
upon the recommendation of the Corporate Governance Committee.
As
in effect March2006
- 4
-
Expectations
of Directors
The
Board of Directors has developed a number of specific expectations of directors
to promote the discharge by the directors of their responsibilities and to
promote the efficient conduct of the Board of Directors.
Commitment
and Attendance. All
directors should strive to attend all meetings of the Board of Directors and
the
committees of which they are members. Attendance by telephone or video
conference may be used when necessary to facilitate a director's
attendance.
Participation
in Meetings. Each
director should be sufficiently familiar with the business of the Company,
including its financial statements and capital structure, and the risks and
the
competition it faces, to ensure active and effective participation in the
deliberations of the Board of Directors and of each committee on which he or
she
serves.
Loyalty
and Ethics. In
their roles as directors, all directors owe a duty of loyalty to the Company.
This duty of loyalty mandates that the best interests of the Company take
precedence over any other interest possessed by a director. Directors should
conduct themselves in accordance with the Company's Code of Business Conduct
and
Ethics.
Interlocking
Directorships. No
director should serve on more than two other public company boards of directors
on which another director of the Company serves.
Contact
with Management and Employees. All
directors should be free to contact the Chief Executive Officer and other
members of the Company’s Management Committee at any time to discuss any aspect
of the Company's business. The Board of Directors expects that there will be
frequent opportunities for directors to meet with the Chief Executive Officer
and other members of management in meetings of the Board of Directors and
committees, or in other formal or informal settings.
Confidentiality.
The
proceedings and deliberations of the Board of Directors and its committees
are
confidential. Each director will maintain the confidentiality of information
received in connection with his or her service as a director.
Orientation
and Continuing Education
Management,
working with the Board of Directors, will provide an orientation and education
program for new directors to familiarize them with the Company and its business,
as well as the expected contribution of individual directors. All new directors
will participate in this program, which should be completed within four months
of a director first joining the Board of Directors. In addition, management
will
schedule periodic presentations for the Board of Directors to ensure they are
aware of major business trends and industry practices as and when
required.
As
in effect March2006
Schedule
1
FOUR
SEASONS HOTELS INC.
BOARD
OF DIRECTORS CHARTER
PURPOSE
The
Board of Directors is elected by the Company’s shareholders to supervise the
management of the business and affairs of the Company, in the best interests
of
the Company. The Board of Directors shall:
•
Review
and approve the strategic plan and business objectives of the Company
that
are submitted by management and monitor the implementation by management
of the strategic plan. During at least one meeting each year, the
Board of
Directors will review the Company’s long term strategic plans and the
principal issues that the Company expects to face in the
future.
•
Review
the principal business risks for the Company and oversee, with the
assistance of the Audit Committee, the implementation and monitoring
of
appropriate risk management systems and the monitoring of
risks.
•
Ensure,
with the assistance of the Corporate Governance Committee, the effective
functioning of the Board of Directors and its committees in compliance
with the corporate governance requirements of applicable legislation,
and
that such compliance is reviewed periodically by the Corporate Governance
Committee.
•
Ensure
internal controls and management information systems for the Company
are
in place, are evaluated as part of the internal auditing process
and
reviewed periodically on the initiative of the Audit
Committee.
•
Assess
the performance of the Company’s executive officers, including monitoring
the establishment of appropriate systems for succession planning
(including the development of policies and principles for Chief Executive
Officer selection and performance review and policies regarding succession
in an emergency or upon retirement of the Chief Executive Officer)
and for
periodically monitoring the compensation levels of such executive
officers
based on determinations and recommendations made by the Human Resources
Committee.
•
Ensure
that the Company has in place a policy for effective communication
with
shareholders, other stakeholders and the public
generally.
•
Review
and, where appropriate, approve the recommendations made by the various
committees of the Board of Directors, including, without limitation,
to:
select nominees for election to the Board; appoint directors to fill
vacancies on the Board; appoint members of the various committees
of the
Board; and, establish the form and amount of director
compensation.
As
in effect March2006
-
2
-
COMPOSITION
The
Board of Directors collectively should possess a broad range of skills,
expertise, industry and other knowledge, and business and other experience
useful to the effective oversight of the Company’s business. The Board shall be
comprised of that number of individuals which will permit the Board’s effective
functioning. The appointment and removal of directors of the Board shall occur
in accordance with the Company’s by-laws. A majority of the Board of Directors
of the Company should meet the independence requirements of applicable
legislation, regulatory requirements and policies of the Canadian Securities
Administrators. The Board of Directors has adopted a set of categorical
standards for determining whether directors satisfy those requirements for
independence. A copy of those standards is attached as Appendix A. A majority
of
the Board of Directors shall be "resident Canadians", as contemplated by the
Business
Corporations Act (Ontario).
MEETINGS
The
Board of Directors shall meet at least four times each year and more frequently
as circumstances require. All members of the Board of Directors should strive
to
be at all meetings. The Board of Directors may meet separately, periodically,
without management, and may request any member of the Company’s Management
Committee or the Company’s outside counsel or independent auditor to attend
meetings of the Board or with advisors thereto.
COMMITTEES
The
Board of Directors may delegate authority to individual directors and committees
where the Board determines it is appropriate to do so. The Board of Directors
expects to accomplish a substantial amount of its work through committees and
shall form at least the following three committees: the Audit Committee; the
Human Resources Committee; and the Corporate Governance Committee. The Board
of
Directors may, from time to time, establish or maintain additional standing
or
special committees as it determines to be necessary or appropriate. Each
committee should have a written charter and should report regularly to the
Board
of Directors, summarizing the committee’s actions and any significant issues
considered by the committee.
INDEPENDENT
ADVICE
In
discharging its mandate, the Board of Directors shall have the authority to
retain (and authorize the payment by the Company of) and receive advice from
special legal, accounting or other advisors as the Board determines to be
necessary to permit it to carry out its duties.
ANNUAL
EVALUATION
At
least annually, the Board of Directors through the Corporate Governance
Committee shall, in a manner it determines to be appropriate:
•
Conduct
a review and evaluation of the performance of the Board of Directors
and
its members and committees, including the compliance of the Board
with
this Charter. This evaluation will focus on the contribution of the
Board
of Directors to the Company and specifically focus on areas in which
the
directors and management believe that the contribution of the Board
of
Directors could be improved.
•
Review
and assess the adequacy of this
Charter.
As
in effect March2006
FOUR
SEASONS HOTELS INC.
Appendix
A
CATEGORICAL
STANDARDS FOR DETERMINING
INDEPENDENCE
OF DIRECTORS
For
a director to be considered independent:
•
under
the policies of the Canadian Securities Administrators, he or she
must
have no
direct or indirect material relationship with the Company,
being
a relationship that could, in the view of the Board of Directors,
reasonably interfere with the exercise of a Director’s independent
judgement, and
•
under
the rules of the New York Stock Exchange, the Board of Directors
must
affirmatively determine that the director has no
material relationship (directly or indirectly) with the
Company.
The
Board of Directors, upon the recommendation of the Corporate Governance
Committee, has considered the types of relationships that could reasonably
be
expected to be relevant to the independence of a director of the Company. The
Board of Directors has determined that:
(i) A
director’s interests and relationships arising solely from his or her (or any
immediate family members’1.)
shareholdings in the Company are not, in and of themselves, a bar to
independence.
(ii)
Unless
a specific determination to the contrary is made by the Corporate
Governance Committee as a result of there being another direct or
indirect
material relationship with the Company, a director will be independent
unless currently, or at any time within the past three years, he
or she or
any immediate family member:
•
Employment:
Is (or has been) an officer or employee (or, in the case of an immediate
family member, an executive officer) or (in the case of the director
only)
an affiliate2
of the Company or any of its subsidiaries or affiliates (collectively,
the
“Company
Group”);
1A
(i)
spouse, parent, child, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, or (ii) any person (other than
domestic employees) who shares that director’s home.
2A
company is a subsidiary of another company if it is controlled, directly
or
indirectly, by that other company (through one or more intermediaries or
otherwise). An “affiliate” of a person is a person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under
common control with the first person.
As
in effect March2006
-
2
-
•Direct
Compensation:
Receives (or has received) more than C$75,000 during any twelve-month period
in
directcompensation
from the Company Group (other than director fees and committee fees and pension
or other forms of deferred compensation for prior service, provided it is not
contingent on continued service)3;
•
Auditor
Relationship.
Is (or has been) a partner or employee of a firm that is the Company’s
internal or independent auditor (provided that in the case of an
immediate
family member, he or she participates in its audit, assurance or
tax
compliance (but not tax planning practice)) and if during that time,
he or
she or an immediate family member was a partner or employee of that
firm
but no longer is such, he or she or the immediate family member personally
worked on the Company’s audit;
•
Material
Commercial Relationship.
Has (or has had), or is an executive officer, employee or significant
shareholder of a person that has (or has had), a significant commercial
relationship with the Company Group as a result of which that person
makes
payments to, or receives payments from, the Company Group for property
or
services in any fiscal year that, in aggregate, account for more
than 2%
or US$1,000,000 (whichever is greater) of that person's consolidated
gross
revenues;
•
Cross-Compensation
Committee Link.
Is employed as an executive officer of another entity whose compensation
committee (or similar body) during that period of employment included
a
current executive officer of the
Company.
3Employment
as
an interim chair or an interim Chief Executive Officer need not preclude a
director from being considered independent following the end of that employment.
Receipt of compensation by an immediate family member need not preclude a
director from being considered independent if that family member is a
non-executive employee.
As
in effect March2006
SCHEDULE
“B”
FOUR
SEASONS HOTELS INC.
AUDIT
COMMITTEE CHARTER
PURPOSE
The
Audit Committee is appointed by the Board of Directors of the Company to assist
the Board of Directors in its oversight and evaluation of:
•
the
quality and integrity of the financial statements of the Company,
•
the
compliance by the Company with legal and regulatory requirements
in
respect of financial disclosure,
•
the
qualification, independence and performance of the Company’s independent
auditor, and
•
the
performance of the Company's Chief Financial Officer and internal
auditor.
In
addition, the Audit Committee provides an avenue for communication between
the
internal auditor, the independent auditor, financial management, other employees
and the Board of Directors concerning accounting and auditing
matters.
The
Audit Committee is directly responsible for the appointment, compensation,
retention (and termination) and oversight of the work of the independent auditor
(including oversight of the resolution of any disagreements between management
and the independent auditor regarding financial reporting) for the purpose
of
preparing audit reports or performing other audit, review or attest services
for
the Company.
The
Audit Committee is not responsible for:
•
planning
or conducting audits,
•
certifying
or determining the completeness or accuracy of the Company’s financial
statements or that those financial statements are in accordance with
generally accepted accounting principles, or
•
guaranteeing
the report of the Company’s independent auditor.
The
fundamental responsibility for the Company’s financial statements and disclosure
rests with management. It is not the duty of the Audit Committee to conduct
investigations, to itself resolve disagreements (if any) between management
and
the independent auditor or to assure compliance with applicable legal and
regulatory requirements.
As
in effect March 2006
-
2
-
In
discharging its obligations under this Charter, the Audit Committee shall act
in
accordance with its fiduciary duties.
REPORTS
The
Audit Committee shall report to the Board of Directors of the Company on a
regular basis and, in any event, before the public disclosure by the Company
of
its quarterly and annual financial results. The reports of the Audit Committee
shall include any issues of which the Audit Committee is aware with respect
to
the quality or integrity of the Company’s financial statements, its compliance
with legal or regulatory requirements, and the performance and independence
of
the Company’s internal auditor and independent auditor.
The
Audit Committee also shall prepare, as required by applicable law, any audit
committee report required for inclusion in the Company's publicly filed
documents.
COMPOSITION
The
members of the Audit Committee shall be three or more individuals who are
appointed (and may be replaced) by the Board of Directors of the Company on
the
recommendation of the Company's Corporate Governance Committee. The appointment
of members of the Audit Committee shall take place annually at the first meeting
of the Board of Directors of the Company after a meeting of shareholders at
which directors are elected, provided that if the appointment of members of
the
Audit Committee is not so made, the directors who are then serving as members
of
the Audit Committee shall continue as members of the Audit Committee until
their
successors are appointed. The Board of Directors may appoint a member to fill
a
vacancy that occurs in the Audit Committee between annual elections of
directors. Any member of the Audit Committee may be removed from the Audit
Committee by a resolution of the Board of Directors. Each of the members of
the
Audit Committee shall meet the Company’s categorical standards for director
independence and shall be financially literate (or acquire that familiarity
within a reasonable period after appointment) in accordance with applicable
legislation and stock exchange requirements. At least one member of the Audit
Committee shall be a “financial expert” with accounting or related financial
management expertise, as contemplated by applicable legislation and stock
exchange requirements. No member of the Audit Committee shall:
• accept
(directly or indirectly) any consulting, advisory or other compensatory fee
from
the Company or any of its subsidiaries1
(other than remuneration for acting in his or her capacity as a director or
committee member) or be an “affiliated person”2
of the Company or any of its subsidiaries, or
•
concurrently
serve on the audit committee of more than three other public companies
without the prior approval of the Audit Committee, the Corporate
Governance Committee and the Board of Directors and their determination
that such simultaneous service would not impair the ability of the
member
to effectively serve on the Audit Committee (which determination
shall be
disclosed in the Company’s annual management information circular).
A
majority of the members of the Audit Committee shall be "resident Canadians",
as
contemplated by the Business
Corporations Act (Ontario).
1 A
company is
a subsidiary of another company if it is controlled, directly or indirectly,
by
that other company (through one or more intermediaries or
otherwise).
2 An
“affiliate” of a person is a person that, directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with the first person.
As
in effect March 2006
- 3
-
RESPONSIBILITIES
Independent
Auditor
The
Audit Committee shall:
•
Recommend
the appointment and the compensation of, and, if appropriate, terminate
the independent auditor, subject to such Board of Directors and
shareholder approval as is required under applicable legislation
and stock
exchange requirements.
•
Obtain
confirmation from the independent auditor that it ultimately is
accountable, and will report directly, to the Audit Committee and
the
Board of Directors of the Company.
•
Oversee
the work of the independent auditor, including the resolution of
any
disagreements between management and the independent auditor regarding
financial reporting.
•
Pre-approve
all audit and non-audit services (including all internal control-related
services) provided by the independent auditor (subject to any restrictions
on such non-audit services imposed by applicable legislation, regulatory
requirements and policies of the Canadian Securities
Administrators).
•
Adopt
such policies and procedures as it determines appropriate for the
pre-approval of the retention of the independent auditor by the Company
and any of its subsidiaries for any audit or non-audit services,
including
procedures for the delegation of authority to provide such approval
to one
or more members of the Audit
Committee.
•
At
least annually, review the qualifications, performance and independence
of
the independent auditor. In doing so, the Audit Committee shall,
among
other things, undertake the measures set forth in Appendix
A.
•
Provide
notice to the independent auditor of every meeting of the Audit
Committee.
The
Audit Process, Financial Statements and Related Disclosure
The
Audit Committee shall:
•
Meet
with management and/or the independent auditor to review and
discuss,
-
the
planning and staffing of the audit by the independent
auditor,
-
before
public disclosure, the Company’s annual audited financial statements and
quarterly financial statements, the Company's accompanying disclosure
of
Management’s Discussion and Analysis and earnings press releases and make
recommendations to the Board of Directors as to their approval and
dissemination of those statements and
disclosure,
-
financial
information and earnings guidance provided to analysts and rating
agencies: this review need not be done on a case by case basis but
may be
done generally (consisting of a discussion of the types of information
disclosed and the types of presentations made) and need not take
place in
advance of the disclosure,
As
in effect March 2006
- 4
-
-
any
significant financial reporting issues and judgments made in connection
with the preparation of the Company’s financial statements, including any
significant changes in the selection or application of accounting
principles, any major issues regarding auditing principles and practices,
and the adequacy of internal controls that could significantly affect
the
Company’s financial statements,
-
all
critical accounting policies and practices
used,
-
all
alternative treatments of financial information within GAAP that
have been
discussed with management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the independent
auditor,
-
the
use of “pro
forma”
or “adjusted” non-GAAP information,
-
the
effect of new regulatory and accounting pronouncements,
-
the
effect of any material off-balance sheet structures, transactions,
arrangements and obligations (contingent or otherwise) on the Company’s
financial statements,
-
any
disclosures concerning any weaknesses or any deficiencies in the
design or
operation of internal controls or disclosure controls made to the
Audit
Committee in connection with certification of forms by the Chief
Executive
Officer and/or the Chief Financial Officer for filing with applicable
securities regulators, and
-
the
adequacy of the Company’s internal accounting controls and management
information systems and its financial, auditing and accounting
organizations and personnel (including any fraud involving an individual
with a significant role in internal controls or management information
systems) and any special steps adopted in light of any material control
deficiencies.
•
Establish
and periodically assess, adequate procedures for the review of disclosures
of financial information extracted or derived from the Company's
financial
statements.
•
Review
with management, the Company’s guidelines and policies with respect to
risk assessment and the Company’s major financial risk exposures and the
steps management has taken to monitor and control such
exposures.
•
Review
with the independent auditor,
-
the
quality, as well as the acceptability of the accounting principles
that
have been applied,
-
any
problems or difficulties the independent auditor may have encountered
during the provision of its audit services, including any restrictions
on
the scope of activities or access to requested information and any
significant disagreements with management, any management letter
provided
by the independent auditor or other material communication (including
any
schedules of unadjusted differences) to management and the Company’s
response to that letter or communication,
and
-
any
changes to the Company’s significant auditing and accounting principles
and practices suggested by the independent auditor, internal auditor
or
other members of management.
As
in effect March 2006
- 5
-
Internal
Audit Function
The
Audit Committee shall:
•
Review
the experience and qualifications, and consider the appointment and
replacement by management, of the senior internal auditing
personnel.
•
Review
the scope of internal audit work plans for the
year.
•
Review
the significant reports to management prepared by the internal auditor
and
management’s responses, including a summary report of major findings by
the internal auditor (including an explanation of the factors considered
in determining the audit scope), major risk factors, a list and the
circumstances of any occurrences of fraud that have been identified,
and
confirmation that no limitations have been placed on the scope for,
or
nature of, the internal audit.
•
Discuss
with the independent auditor the internal audit
function.
•
Discuss
with the internal auditor the adequacy of the Company's internal
accounting controls and its financial, auditing and accounting
organizations and personnel.
Compliance
The
Audit Committee shall:
•
Obtain
reports from management and the Company’s senior internal auditing
personnel that the Company’s subsidiary/foreign affiliated entities are in
conformity with applicable legal requirements and the Company's Code
of
Business Conduct and Ethics including disclosures of insider and
affiliated party transactions.
•
Review
with management and the independent auditor any correspondence with
regulators or governmental agencies and any employee complaints or
published reports, which raise material issues regarding the Company’s
financial statements or accounting policies.
•
Advise
the Board of Directors of the Company with respect to the Company’s
policies and procedures regarding compliance with applicable laws
and
regulations and with the Company’s Code of Business Conduct and
Ethics.
•
Review
with the Company’s General Counsel legal matters that may have a material
impact on the financial statements, the Company’s compliance policies and
any material reports or inquiries received from regulators or governmental
agencies.
•
Establish
procedures for,
-
the
receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters,
and
-
the
confidential, anonymous submission by employees of the Company with
concerns regarding any accounting or auditing
matters.
Delegation
To
avoid any confusion, the Audit Committee responsibilities identified above
are
the sole responsibility of the Audit Committee and may not be allocated to
a
different committee.
As
in effect March 2006
- 6
-
MEETINGS
The
Audit Committee shall meet at least quarterly and more frequently as
circumstances require. All members of the Audit Committee should strive to
be at
all meetings. The Audit Committee shall meet separately, periodically, with
management, the internal auditor and the independent auditor and may request
any
member of the Company’s Management Committee or the Company’s outside counsel or
independent auditor to attend meetings of the Audit Committee or with any
members of, or advisors to, the Audit Committee. The Audit Committee also may
meet with the investment bankers, financial analysts and rating agencies that
provide services to, or follow, the Company.
The
Audit Committee may form and delegate authority to individual members and
subcommittees of the Audit Committee where the Audit Committee determines it
is
appropriate to do so.
INDEPENDENT
ADVICE
In
discharging its mandate, the Audit Committee shall have the authority to retain
(and authorize the payment by the Company of) and receive advice from special
legal, accounting or other advisors as the Audit Committee determines to be
necessary to permit it to carry out its duties.
As
in effect March 2006
- 7
-
ANNUAL
EVALUATION
At
least annually, the Audit Committee shall:
•
Conduct
a review and evaluation of the performance of the Audit Committee
and its
members, including the compliance of the Audit Committee with this
Charter.
•
Review
and assess the adequacy of its Charter and recommend to the Board
of
Directors any improvements to this Charter that the Audit Committee
determines to be appropriate.
As
in effect March 2006
Appendix
A
•
Review
the experience and qualifications of the senior members of the independent
auditor’s team.
•
Discuss
with the independent auditor its internal quality-control
procedures.
•
Confirm
with the independent auditor that it is in compliance with applicable
legal, regulatory and professional standards relating to auditor
independence.
•
Confirm
with the independent auditor that it is a participating audit firm
of the
Canadian Public Accountability Board in compliance with all restrictions
or sanctions imposed on it (if
any).
•
Review
and approve clear policies for the hiring by the Company of partners,
employees and former partners and employees of the present and former
independent auditor.
•
Review
periodic reports from the independent auditor regarding its independence
and consider whether there are any non-audit services or relationships
that may affect the objectivity and independence of the independent
auditor and, if so, recommend that the Board of Directors of the
Company
take appropriate action to satisfy itself of the independence of
the
independent auditor.
•
Obtain
and review such report(s) from the independent auditor as may be
required
by applicable legal and regulatory
requirements.
Dates Referenced Herein and Documents Incorporated by Reference
