The issue is a complex one, but in the matter of McEwen vs. Goldcorp, it was asserted with clarity. This being a landmark case, I decided to lay it out for you in all its minutiae.

In a subsequent blog I intend to comment on the matter other than what I have already stated, which is that it was a well presented case by both sides in a respectable courtroom. The judge's decision will be out "early in the week".

Also, next week I will be outlining the framework for an International Foundation for Shareholder Rights, which will take its roots from this case, and the people who were involved " at least some of them.

It would be my hope that, whatever the decision of this judge, the outcome be turned into a win-win-win. Should this olive branch being extended to Ian Telfer and Goldcorp not be picked up, I foresee tough sledding ahead for them.

We have reached the point in the history of capital markets where shareholder rights and the demand for best practices with respect to corporate governance will not be denied.

The McEwen argument was NOT ABOUT the quality of the Goldcorp-Glamis deal. It was strictly about corporate governance and shareholder rights. Glamis shareholders have been provided a vote, and Goldcorp shareholders were not. Two of the largest Goldcorp shareholders, including U.S. Global Advisors and Robert McEwen, a man who spent a career building Goldcorp into a major player in the gold mining industry, were offended. They were not alone.

In any case, here is the McEwen presentation to the court on October 20.

Summary of the arguments:

DEAL ANNOUCEMENT AND TERMS

• On August 31st Goldcorp announced Plan of Arrangement with Glamis.

• Goldcorp proposed issued 67% of company (GG would own 60% - GLG 40%)

• Offered Glamis a 32% premium (based on closing price day prior to the bid)

• Significant drop in EPS, CFPS, IRR for Goldcorp

• Change in top 2 executive positions

• Ian Telfer to become Chairman

• Increases risk profile

• Change of strategy from ESP/CFPS to NAV

• Change from Gold to Polymetalic

• On announcement Goldcorp dropped 9.5% and Glamis rose 18.7%.

• In comparison, when Goldcorp/Wheaton deal was announced in Dec 2004 both stocks were up at the end of the day.

GOLDCORP: NO VOTE REQUIRED

• Goldcorp was advised by council that no shareholder vote was required for GG under the rules of the Toronto Stock Exchange.

• However, if this transaction were proposed in the United States, London, Hong Kong, and many other developed capital markets a shareholder vote would be required.

• Goldcorp is listed on Toronto and New York exchanges. The NYSE in this case follows the rules of the companies' primary listing.

PETER DEY " GOLDCORP'S REPRESENTATIVE

Peter Dey, director of Goldcorp and governance guru, states in his affidavit of October 11th that:

"Goldcorp shareholder approval of the acquisition is not required, or even desirable, to protect shareholder interests." " Dey

One of GG directors, Michael Stein, dissented because he felt shareholders should be given a vote on the deal.

"One of my reasons for not supporting the transaction at the time it was approved was my view that it should go to shareholders for approval given the magnitude of the dilution." " Stein Email to Goldcorp Directors, September 27, 2006

Dey has been quoted many times that transactions such as this should be sent to shareholders for a vote. He has done an about face, claiming in his sworn affidavit that: International guidelines he helped develop are only intended for underdeveloped capital markets, and should not necessarily by followed in markets like Canada.

PRECEDENTS & GOOD GOVERNANCE

When Rob (I) was negotiating to buy Wheaton River, Wheaton's management (now Goldcorp's) insisted that no vote be given to Goldcorp shareholders. When Glamis made a premium bid for Goldcorp, and Rob believed that even though he owned 4% of the Company and believed that the Wheaton deal was superior. However, he recognized that 96% of the shareholders might not share his views, so he offered shareholders a vote.

It should be pointed out that, although Glamis was making a hostile bid at that time, they, Glamis, gave shareholders a vote.

ONTARIO LAW

What is required when an Ontario company proposes a Plan of Arrangement:

• The Ontario Business Corporations Act (OBCA) is a statute of law, which is not enforced by an body e.g. the Ontario Securities Commission (OSC)

• Goldcorp is an Ontario corporation and the OBCA applies to them

• The Court does not enforce laws unless an action is brought against the company.

APPLICATION FOR COMPLIANCE ORDER

On September 26th Rob McEwen (I) made an application to the Ontario Superior Court under the OBCA, requesting that the Court order Goldcorp to abide by the OBCA and give shareholders a special resolution vote on the transaction (66 2/3% in favour).

The OBCA states that:

A fundamental change such as entering into a Plan of Arrangement requires shareholder approval by a special resolution vote (66 2/3% in favour).

To avoid Ontario law Goldcorp established special purpose corporation (Numbered Company in British Columbia: Subco), which entered the Plan of Arrangement with Glamis. Under BC corporate law a shareholder vote is also required, however, because Goldcorp controls Subco a vote of Subco shareholders (Goldcorp) is a forgone conclusion.

On September 27 Goldcorp amended their agreement with Glamis:

• Eliminated the BC Subco

• GG now entering directly into the Plan of Arrangement with Glamis

• Allegedly done for tax purposes, in an effort to get a tax-free rollover for US shareholders of Glamis.

OUR FUNDAMENTAL BELIEFS

• Shareholders are the owners!

• Management and Board of Goldcorp as a group own less than 0.1% of the Company. Their interests are not aligned with the owners of the other 99.9%.

• Our corporate governance policies and practices in Canada should meet or exceed those of the United States.

Goldcorp claims they have the support of the 100 largest shareholders, this is false, Rob McEwen, Frank Holmes and others are in the top 20 and were not consulted.
If the Goldcorp/Glamis combination is as good as Management claims, why not put it to a vote. Shareholder will certainly approve it if is in their economic interest.

GOLDCORP DUE DILIGENCE

• No site visits, and no mention since

• You're not going to discover operational problems in a hotel room in Seattle!

• Goldcorp 2 of 3 technical representatives held higher positions at Silver Wheaton, and most of their wealth.

• 3 weeks later Goldcorp gives SLW the right to buy the Penasquito's silver stream, despite GG claims that such a deal would not be contemplated until after the deal with Glamis closed.

• Where was Russell Barwick, Goldcorp's COO?

Old Plan of Arrangement as agreed to by Goldcorp and Glamis:

Amended Plan of Arrangement that followed McEwen's initial complaint:

Paper presenting international best practices for transactions of this sort:

DRAFT: October 17, 2006
4:00 pm

Shareholder Approval for Share Issuance is International Best Practice

1. In the Peter Dey affidavit Goldcorp asserts that a shareholder vote would "usurp the function and duties of the board and render it little more than an advisory body" and that a shareholder vote is not even "desirable" from a corporate governance perspective.

2. Shareholder approval for dilution and major acquisitions is fairly standard good corporate governance in most of the largest securities markets (such as the US and UK). Shareholder voting is also advocated by the leading international organizations involved in developing best practices in corporate governance. Shareholder approval for a major acquisition or for a share issuance involving a 65% increase in the number of outstanding shares would be consistent with international corporate governance standards.

3. The following is a review of corporate governance practices among leading jurisdictions and leading international organizations involved in setting corporate governance standards:

(i) U.S: The US is the world's largest equity market and the leading jurisdiction for setting corporate governance best practices. The NYSE requires shareholder approval on any share issuance in excess of 20%. NYSE Listed Company Manual " Rule 312.03 Shareholder Approval which provides as follows:

"(c) Shareholder approval is required prior to the issuance of common stock, or of securities convertible in to or exercisable for common stock, in any transaction or series of related transactions if: (1) the common stock has, or will have upon issuance, voting power equal to or in excess of 20 percent of the voting power outstanding before the issuance of such stock or of securities convertible into or exercisable for common stock; or (2) the number of shares of common stock to be issued is, or will be upon issuance, equal to or in excess of 20 percent of the number of shares of common stock outstanding before the issuance of the common stock or of securities convertible into or exercisable for common stock."

(Goldcorp is only exempt from the NYSE because NYSE defers to the TSE.)
(See www.nyse.com)

(ii) U.K: The London Stock Exchange ("LSE") is the third largest exchange by market capitalization after exchanges in the US and Japan. The UK has been on the cutting edge of setting corporate governance standards. Companies listed on the LSE must obtain shareholder approval for any share issuance in excess of 5%.The Pre-Emption Group publishes a Statement of Principles on pre-emption. The most recent version published is May 2006 provides as follows:

"Pre-emption rights are a cornerstone of UK company law and provide shareholders with protection against inappropriate dilution of their investments. They are enshrined in law by the 2nd Company Law Directive and the Companies Act 1985, which provides that they may be disapplied only by a special resolution of shareholders at a general meeting of the company."

(iii) Hong Kong: Hong Kong is the seventh largest market in the world by market capitalization. Hong Kong Stock Exchange ("HKEx") listed companies must get shareholder approval for any share issuance over 20% (and even the 20% must be approved by shareholders at the annual general meeting). The purpose of the Listing Rule is to ensure that the value of a shareholders shares is not diluted by the issue of new shares to third parties. In the case of a Hong Kong incorporated company, s. 57B of the Companies Ordinance requires prior shareholder approval for the issue of shares other than on a pro rata basis to existing shareholders.

Paragraph 19(1) of the HKEx Listing Agreement reflects the provisions of the Companies Ordinance, but extends the requirement to securities convertible into shares and to securities conferring a right to subscribe for shares (e.g. warrants and convertible securities). The Listing Agreement permits shareholders to give the company's directors a general mandate to issue shares, convertible securities, or rights to subscribe for shares. The general mandate must be subject to the restriction that the number of shares which may be allotted or agreed to be allotted must not exceed 20% of the company's existing issued share capital.

In order to issue shares in excess of 20% the directors must convene an extraordinary meeting of the company to approve an issue of shares for a specific purpose (for example, where the general mandate is insufficient).

4. Canada: The TSX Company Manual gave the exchange the discretion to require shareholder approval for share issuances over 25% until 2003. Prior to 2000 the TSX was a not-for profit institution. In 2000 it became a for-profit company listed on the TSX. Since then it has played a reduced role in corporate governance although it continues to retain the power to exercise discretion to require shareholder approval. The statutory securities regulators (such as the OSC) have taken over the role of setting corporate governance standards. However, the statutory regulators have not as yet addressed the dilution issue which continues to be addressed in the TSX Company Manual.

[The pre-2003 TSX Company Manual gave the TSX discretion to require a vote where a share issuance exceeded 25% of the existing shares. See Rules 601(6), 606(c) and 624 which refers back to the 25% limit for private placements unless approved by shareholders. These rules were in effect until 2003.]

5. The International Corporate Governance Network ("ICGN") founded in 1995 at the instigation of major institutional investors, represents investors, companies, financial intermediaries, academics and other parties interested in the development of global corporate governance practices. ICGN's statement on Global Corporate Governance Principles (revised July 8, 2005) states as follows:

4.5: "Shareholder Participation in Governance: Shareholders should have the right to participate in key corporate governance decisions, including the right to nominate, appoint and remove directors on an individual basis as well as the external auditor and the right to approve major decisions of the nature referred to in Section 4.9"

4.9: "Major Decisions: Major changes to the core businesses of a corporation and other major corporate changes which may in substance or effect materially dilute the equity or erode the economic interests or share ownership rights of existing shareholders, including major acquisitions and major dispositions and closures of businesses, should not be made without prior shareholder approval of the proposed change."

(Peter Dey was a member of the Corporate Governance Principles Review Committee at the time the ICGN issued its Statement of Corporate Governance Principles.)

(See www.icgn.org)

6. The Organization for Economic Cooperation and Development ("OECD") is an organization comprised of the most developed countries in the world including Canada. The OECD plays a prominent role in fostering good governance in the public service and in corporate activity. The OECD issued its revised OECD Principles of Corporate Governance in 2004. The forward to the report starts as follows:

"The OECD Principles of Corporate Governance were endorsed by OECD Ministers in 1999 and have since become an international benchmark for policy makers, investors, corporations and other stakeholders worldwide. They have advanced the corporate governance agenda and provided specific guidance for legislative and regulatory initiatives in both OECD and non OECD countries. The Financial Stability Forum has designed the Principles as one of the 12 key standards for sound financial systems. The Principles also provide the basis for an extensive programme of cooperation between OECD and non-OECD countries and underpin the corporate governance component of Work Bank / IMF Reports on the Observance of Standards and Codes (ROSC)."

Chapter II of the OECD Principles "II The Rights of Shareholders and Key Ownership Functions" includes the following statement of principle:

"Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as: 1) amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2) the authorisation of additional shares; and 3) extraordinary transactions, including the transfer of all or substantially all assets, that in effect result in the sale of the company."

OECD Principles of Corporate Governance (2004)

(See www.oecd.org)

[Mr. Dey is chairman of the OECD Global Corporate Governance Forum and contributed to the development of the OECD Principles of Corporate Governance.]

McEwen Factum:

Download McEwen Factum

I do not have a copy of the Goldcorp or Glamis arguments, however, Madam Justice Sarah Pepall of the Ontario Superior Court has heard them, and she is expected to make a decision "early in the week".