Disclosure
Controls and Procedures
The Registrants management,
including the Registrants Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended), as of December 31, 2006. Based on
that evaluation, as of December 31, 2006, the Registrants Chief Executive
Officer and Chief Financial Officer concluded that the Registrants disclosure
controls and procedures are effective
to ensure that information
required to be disclosed by the Registrant in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms and is accumulated and communicated to management, including the
Registrants Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.
Managements
Report on Internal Control over Financial Reporting
The
Registrants management is responsible for establishing and maintaining
adequate internal control over financial reporting. The Registrants internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles in Canada(1).
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The
Registrants management, with the participation of the Registrants Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Registrants internal control over financial reporting based on the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this evaluation, the Registrants management has concluded that, as of
December 31, 2006, the Registrants internal control over financial
reporting was effective.
This annual report does not include an attestation
report of the Registrants registered public accounting firm regarding internal
control over financial reporting. Managements report
(1)
Our
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in Canada (Canadian GAAP) and significant
differences in measurement from generally accepted accounting principles in
United States (U.S. GAAP) and a reconciliation to U.S. GAAP in accordance
with Item18 of Form 20-F are set out in Note 24 to our consolidated financial
statements included as Exhibit 99.2 to this annual report on Form 40-F.
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was not subject to attestation by the Registrants
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Registrant to provide only managements
report in this annual report.
Changes
in Internal Control over Financial Reporting
There has been no change in
the Registrants internal control over financial reporting that occurred during
the year ended December 31, 2006 that have materially affected, or are
reasonably likely to materially affect, the Registrants internal control over
financial reporting.
Notices
Pursuant to Regulation BTR
None
Corporate
Governance
The Registrant is in
compliance with the corporate governance requirements of The Nasdaq Stock
Market, Inc. (NASDAQ) except as described below. The Registrant is not in
compliance with the NASDAQ requirement that a quorum for a meeting of the
holders of the common stock of the Registrant be no less than 33 1/3% of such
outstanding shares. The by-laws of the Registrant provide that a quorum for
purposes of any meeting of shareholders of the Registrant consists of at least
20% of the outstanding voting shares. The Registrant received an exemption from
NASDAQ from this quorum requirement because the quorum provided for in the
by-laws of the Registrant is consistent with generally accepted business
practices in Canada, the Registrants country of domicile, and with the
Toronto Stock Exchange, the principal market on which the Registrants
voting shares are traded.
In addition, the Registrant
follows certain of its home country practices in lieu of compliance with the
NASDAQ requirements that: (i) independent directors of the Registrant have
regularly scheduled meetings at which only independent directors are present (executive
sessions); (ii) the compensation of the chief executive officer and the other
executive officers of the Registrant be determined, or recommended to the
Registrants Board of Directors for determination, by a compensation committee
comprised solely of independent directors; and (iii) the director nominees be
selected, or recommended for selection by the Registrants Board of Directors,
by a nominations committee comprised solely of independent directors. The
Chairman of the Board of the Registrant from time to time ensures that
directors hold meetings at which senior management is not present, and the
Registrants Corporate Governance, Nominating and Human Resources Committee, which
serves as the Registrants compensation and nominations committee, is comprised
of four members, three of whom are independent directors. See Annex A to
the Registrants Management Proxy Circular dated March 9, 2007, which is filed
as Exhibit 99.5 to this annual report on Form 40-F. In accordance with
applicable current NASDAQ requirements, the Registrant has provided to NASDAQ
letters from outside counsel certifying that these practices are not prohibited
by the Registrants home country law.
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Code of
Ethical Conduct
O
n March 29, 2004,
the Board of Directors adopted a Code of Ethical Conduct, which was amended
by the Board of Directors on November 3, 2004, December 13, 2005 and March 2,
2007. The December 13, 2005 amendment incorporates changes to the duty to
report violations consistent with applicable laws. The Registrant has selected
an independent third party supplier to provide a confidential and anonymous
communication channel for reporting concerns about possible violations to the
Registrants Code of Ethical Conduct as well as financial and/or accounting
irregularities or fraud. A copy of the Code of Ethical Conduct, as amended, is
attached as Exhibit 99.7 to this annual report on Form 40-F and is also
available on the Registrants Web site at www.aeternazentaris.com in
Investors/Governance. The Code of Ethical Conduct is a code of ethics as
defined in paragraph (9)(b) of General Instruction B to Form 40-F. The Code of
Ethical Conduct applies to all of the Registrants employees, directors and
officers, including the Registrants principal executive officer, principal
financial officer, and principal accounting officer or controller, or persons
performing similar functions, and includes specific provisions dealing with
integrity in accounting matters, conflicts of interest and compliance with
applicable laws and regulations. The Registrant will provide this document to
any person or company upon request to the Corporate Secretary of the
Registrant, at its registered office at 1405 du Parc-Technologique
Boulevard, Quebec City, Quebec, G1P 4P5, Canada.
Audit
Committee Financial Expert
The Board of Directors of
the Registrant has determined that the Registrant has at least one audit
committee financial expert (as defined in paragraph 8(b) of General Instruction
B to Form 40-F). The name of the audit committee financial expert of the
Registrant is Mr. Gérard Limoges, FCA, the Audit Committees
Chairman. The Commission has indicated that the designation of Mr. Limoges as
the audit committee financial expert of the Registrant does not (i) make Mr.
Limoges an expert for any purpose, including without limitation for purposes
of Section 11 of the Securities Act of 1933, as amended, as a result of this
designation; (ii) impose any duties, obligations or liability on Mr. Limoges
that are greater than those imposed on him as a member of the Audit Committee
and the Board of Directors in the absence of such designation; or (iii) affect
the duties, obligations or liability of any other member of the Audit Committee
or the Board of Directors.
Audit Committee, External Auditors Fees and Pre-Approval Policies and
Procedures
The Registrant has a separately
designated standing Audit Committee established in accordance with Section
3(a)(58)(A) of the Exchange Act. The Board of Directors is of the view that
each of the members of the Audit Committee is independent as defined by the
Marketplace Rules of NASDAQ.
Information regarding the
composition of the Registrants Audit Committee, the fees billed by the Registrants
external auditor for each of the years ended December 31, 2005 and 2006 and the
pre-approval policies and procedures adopted by the Audit Committee is
4
incorporated into this annual
report on Form 40-F by reference from the Registrants Management Proxy
Circular dated March 9, 2007, which is filed as Exhibit 99.5 to this annual
report on Form 40-F.
For each of the years ended December 31, 2005 and
2006, none of the non-audit services provided by the Registrants external
auditor were approved by the Audit Committee pursuant to the de minimis
exception to the pre-approval requirement for non-audit services.