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Two of the most prominent Internet companies brought to the public markets by Yorkton Securities Inc. have boards of directors that are dominated by company insiders and individuals closely tied to Yorkton itself.

The issues raised are important because multiple roles could give rise to the appearance of conflict of interest, as opposed to an actual conflict or any suggestion that advantage has been taken. Corp., an Internet portal that offers reservation links to North American golf courses, has only five directors. Two are company executives, two are linked to Yorkton and the fifth is Book4golf's lawyer.

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At EcomPark Inc., a financier of Internet startups, there are nine directors, only one of whom has no connections to EcomPark.

The two Internet companies are among a group of seven Yorkton-backed ventures in which The Globe and Mail has examined the multiple roles played by the brokerage's officials as early investors, insiders, underwriters and advisers. At both firms, Toronto-based Yorkton has been the lead underwriter and has dominated trading in their stocks. Its analysts also have issued favourable research reports, believed to be the only available analysis on Bay Street.

The Canadian Venture Exchange (CDNX), where Book4golf and EcomPark are listed, does not prohibit insiders from dominating boards. But the exchange said yesterday that it plans to tighten its rules to force boards to include truly independent directors.

"We have to beef up the drafting," said CDNX executive vice-president Gerald Romanzin.

Neither Book4golf nor EcomPark nor any of their directors are breaching current board of director rules at CDNX, where the Toronto-based companies trade.

However, corporate governance experts say independent directors are a vital safeguard at public companies to ensure that the board acts in the best interests of shareholders. Indeed, the Toronto Stock Exchange has guidelines that call for its listed companies to appoint a majority of outside directors.

Close ties between directors are "a very troubling relationship," said J. Richard Finlay, a corporate governance consultant and chairman of the Centre for Corporate and Public Governance. "Ideally they should have no material interest in the company," he said, adding that otherwise it could give the appearance of compromising "their capacity to render independent judgment and thinking."

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Two of Book4golf's five directors are its president Phillip DeLeon and chief executive officer Sheldon Pollack. A third is Gary Steinhart, a corporate lawyer who has worked with both executives for eight years at a separate company. The other directors are Yorkton's director of research Roger Dent and independent investor relations adviser Alain Lambert, who has played a variety of roles in companies financed by Yorkton.

Book4golf's president, Mr. DeLeon, said the company has been in discussions for a month with two independent U.S. businessmen about joining its board of directors.

"We want to enhance the value of the board," Mr. DeLeon said. "My priority in the past year and a half has been our operations and enhancing shareholder values."

Mr. DeLeon said he was not aware until recently that Mr. Lambert was closely involved with a number of other Yorkton-backed companies.

"I don't know what Alain's links to Yorkton are," Mr DeLeon said. "I hired him as an investor relations guy and he does a great job."

Mr. Lambert did not respond to numerous requests for an interview.

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As Yorkton's director of research, Mr. Dent supervises staff who have written glowing research reports about Book4golf's prospects. In March, Yorkton recommended the stock as a "strong buy" and targeted a 12- to 18-month price of $40 a share. In trading on the CDNX yesterday, Book4golf closed at $4.95.

In a written response to Globe and Mail questions about the appearance of his conflicting roles as a Book4golf director and Yorkton's director of research, Mr. Dent said: "It is offensive to suggest that [Yorkton's]research is in any way influenced by my board membership at Book4golf." Furthermore, Mr. Dent pointed out Yorkton has a written trading policy.

He said Yorkton's research reports are independent of the firm's investment banking arm, which earns fees as underwriters and advisers to such corporate clients as Book4golf.

"Analysts at our firm are not patsies for the investment banking group," he said.

Mr. Dent said it is his duty to represent the interests of Book4golf and its investors, and he has not bought or sold any shares since joining the board. Options he received as a director have not yet vested, he said.

In addition, Mr. Dent said, "I have never disclosed inside information regarding Book4golf."

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But Mr. Finlay, the governance consultant, described Mr. Dent's position on the board as "a peculiar situation." Usually, he said, in reference to appearance of conflicting roles, "investment houses want to avoid those kinds of relationships where it could be said that the objectivity that they're bringing to the table would be compromised."

At EcomPark, only one of its nine directors, Don Tapscott, the Toronto technology guru who is chairman of Alliance for Converging Technologies Corp., is independent. The remaining directors are current and former executives of EcomPark or officials with affiliated companies.

CDNX rules on the composition of boards are minimal, spelling out that an issuer must have at least three directors, one of whom must have expertise in the company's business. Two of the directors must not be "employees, senior officers, control persons or management consultants of the issuer or its associates or affiliates," but they can be on the staff of an underwriter.

CDNX's Mr. Romanzin said yesterday that the exchange will likely tighten its rules when they are rewritten this year, to make sure at least two directors are truly independent. Brokerage professionals should "clearly" not be classified as independents, he said.

"The intent is to have a minimum of two folks that are completely independent on the board."

EcomPark said last week that it plans to apply for a listing to the TSE -- where it will face different rules for board composition.

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The TSE uses the recommendations of the 1995 Dey report as its guidelines for board membership, and these say a majority of board members should be completely independent.

But those are just guidelines, said TSE vice-president Clare Godet, and companies can breach them as long as they explain in detail why they feel it is justified.

Mr. Dent's role in some of Yorkton's startups goes far beyond his board membership in Book4golf. He was an early investor in Storage One Inc., the company that eventually became EcomPark, buying 100,000 special warrants at 25 cents each in April, 1997. He said he sold these warrants at a substantial loss in November, 1998.

Mr. Dent said that in April, 1997, he and his wife bought about 165,000 shares of Games Trader Inc., a Yorkton vehicle that is now the public company GTR Group Inc. Mr. Dent has personally written several favourable research reports about GTR.

Mr. Dent said he still holds more than 90 per cent of the shares he bought in 1997, and "I have been and continue to be a highly committed long-term shareholder of GTR."

Mr. Dent said it is "not inappropriate" for analysts to hold shares in companies they cover. It isinappropriate, he said, for analysts to trade shares if they hold inside information or if their trades took place around the time of a change in a stock recommendation.

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After several delays, Corp. officially launched a service yesterday that will allow users of its Web portal to make real-time golf course reservations.

Until yesterday Book4golf only provided links to golf courses throughout North America. Now, Internet users can make tee-time reservations through Book4golf at 50 courses, the company said, including Ontario's Angus Glen, Lake Las Vegas' Reflection Bay and North Carolina's The Pit Golf Links.

Book4golf's president Phillip DeLeon said the company intends to add 10 to 20 new courses weekly to its reservation system.

Book4golf originally planned to offer the service last fall.

To mark yesterday's launch, the company selected mountain climber Ben Webster as its first on-line customer. Mr. Webster made reservations at four golf -courses yesterday from the base camp of Mount Everest. -** -**


The Toronto Stock Exchange's listing requirements for companies trading on the exchange for the first time say the firms must have at least two independent directors. For companies already on the exchange, non-binding guidelines say they should have a majority of independent directors. If they don't, they have to explain why. Incomplete information was published yesterday. (Thursday, May 4, 2000, Page B2)

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