2011ANNUALINFORMATIONFORM

–March21,2012–

TABLEOFCONTENTS

Page

ELEMENTFINANCIALCORPORATION

FORWARD‐LOOKINGINFORMATION................................................................................................................................. 1

CORPORATESTRUCTURE...................................................................................................................................................... 3

GENERALDEVELOPMENTOFTHEBUSINESS .................................................................................................................. 4

Developmentofthebusinessoverthelastthreeyears .......................................................................................................... 4

Businessoverview................................................................................................................................................................................... 5

NARRATIVEDESCRIPTIONOFTHEBUSINESS ................................................................................................................ 7

OverviewoftheAsset‐basedfinanceindustry............................................................................................................................ 7

ElementFinance....................................................................................................................................................................................... 8

ElementCapital.......................................................................................................................................................................................10

Elementservices ....................................................................................................................................................................................11

AcquisitionsandJointVentures ......................................................................................................................................................16

CapitalStructure ....................................................................................................................................................................................24

Competition..............................................................................................................................................................................................26

Employees.................................................................................................................................................................................................27

RISKFACTORS.........................................................................................................................................................................28

RisksRelatingtoElement’sBusiness............................................................................................................................................28

RisksRelatingtoOwnershipofElementCommonShares...................................................................................................35

DESCRIPTIONOFSHARECAPITAL....................................................................................................................................38

General .......................................................................................................................................................................................................38

ElementCommonShares ...................................................................................................................................................................38

PreferredShares ....................................................................................................................................................................................38

MARKETFORSECURITIES ...................................................................................................................................................39

SECURITIESSUBJECTTORESTRICTIONONTRANSFER.............................................................................................40

DIRECTORSANDOFFICERS.................................................................................................................................................41

Directors ....................................................................................................................................................................................................41

OfficersOtherThanThoseReferredtoAbove ..........................................................................................................................42

VotingSecurities ....................................................................................................................................................................................42

COMMITTEES...........................................................................................................................................................................43

AuditCommittee ....................................................................................................................................................................................43

CompensationandCorporateGovernanceCommittee .........................................................................................................45

CreditCommittee...................................................................................................................................................................................45

AdvisoryCommittee .............................................................................................................................................................................46

TRANSFERAGENTANDREGISTRAR ................................................................................................................................47

EXPERTS....................................................................................................................................................................................47

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MATERIALCONTRACTS........................................................................................................................................................47

AmalgamationAgreement .................................................................................................................................................................47

AgencyAgreement–October2011PrivatePlacement.........................................................................................................47

SubscriptionReceiptIndenture.......................................................................................................................................................48

AgencyAgreement–April2011PrivatePlacement...............................................................................................................48

AssetPurchaseAgreement ................................................................................................................................................................48

SecuritizationAgreement...................................................................................................................................................................48

ADDITIONALINFORMATION .............................................................................................................................................49

APPENDIXA .............................................................................................................................................................................A1

ElementFinancialCorporationAuditCommitteeMandate ............................................................................................... A1

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FORWARD‐LOOKINGINFORMATION

Certain statements in this Annual Information Form, other than statements of historical fact, areforward‐lookingstatementsbasedoncertainassumptionsandreflectcurrentexpectationsofElementFinancialCorporation (“Element” or “the Company”). Forward‐looking statements are provided for the purposes ofassisting the reader inunderstandingElement’s financialperformance, financialpositionandcash flowsasatandfortheperiodsendedoncertaindatesandtopresentinformationaboutmanagement’scurrentexpectationsandplans relating to the futureand the reader is cautioned that suchstatementsmaynotbeappropriate forotherpurposes.Insomecases,theseforward‐lookingstatementscanbeidentifiedbywordsorphrasessuchas“may”, “will”, “expect”, “anticipate”, “aim”, “estimate”, “intend”, “plan”, “seek”, “believe”, “potential”, “continue”,“is/are likely to” or the negative of these terms, or other similar expressions intended to identify forward‐looking statements. Element has based these forward‐looking statements on its current expectations andprojections about future events and financial trends that it believesmay affect Element’s financial condition,resultsofoperations,businessstrategyandfinancialneeds,asthecasemaybe.

Forward‐lookingstatementsarebasedoncertainassumptionsandanalysismadebyElementinlightofits experience and perception of historical trends, current conditions and expected future developments andotherfactorsitbelievesareappropriate,andaresubjecttorisksanduncertainties.Suchassumptionsinclude,among others, those relating to general economic conditions, the legislative and regulatory environment, theimpact of increasing competition and the ability to obtain regulatory and shareholder approvals. AlthoughElement believes that the assumptions underlying the forward‐looking statements are reasonable, theymayprovetobeincorrect. Thereaderiscautionedtoconsidertheseandotherfactors,uncertaintiesandpotentialeventscarefullyandnottoputunduerelianceonforward‐lookingstatements.

The forward‐looking statements made in this Annual Information Form relate only to events orinformationasof thedateonwhich thestatementsaremade in thisAnnual InformationForm.Other thanasspecifically required by applicable Canadian law, Element undertakes no obligation to update any forward‐looking statement to reflect events or circumstances after the date on which such statement is made, or toreflecttheoccurrenceofunanticipatedevents,whetherasaresultofnewinformation,futureeventsorresults,orotherwise.

AdditionalinformationabouttherisksanduncertaintiesofElement’sbusinessandmaterial factorsor

assumptions on which information contained in forward-looking statements is based is provided in its

disclosurematerials,includingthisAnnualInformationFormanditsmostrecentManagement’sDiscussionandAnalysis,filedwiththeapplicablesecuritiesregulatoryauthoritiesinCanada,availableatwww.sedar.com.

Forw ,statementsrelatingto:ard‐lookingstatementsrelatingtoElementinclude,amongotherthings

Element’sexpectationsregardingitsrevenue,expensesand

operations; Element’santicipatedcashneedsanditsneedsforadditionalfinancing;

fro

Element’splansforandtimingofexpansionofitsservices;

Element’sfuturegrowthplans(includinggrowthresulting macquisitions);Element’sexpectationsregardingitsoriginationvolumes;

relationships and develop and maintainElement’s ability to attract new customers and vendor

relationshipswithexistingcustomers;

Element’santicipateddelinquencyratesandcreditlosses;

riginations;Element’sabilitytoattractandretainpersonnel;

o

Element’sexpectationsregardingitsreducedrelianceonthird‐partybrokersfor

Element’sexpectationsregardinggrowthincertainverticalsinwhichitoperates;Element’scompetitivepositionanditsexpectationsregardingcompetition;and

anticipatedtrendsandchallengesinElement’sbusinessandthemarketsinwhichitoperates.

Whether actual results, performance or achievements will conform to Element’s expectations and

predictionsissubjecttoanumberofknownandunknownrisks,uncertainties,assumptionsandotherfactors,includingth :

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oselistedunderRiskFactors,whichinclude

creditrisksmayleadtounexpectedlosses;concentrationofleasesandloanstosmallandmid‐sizedcompaniesmaycarrymoreinherentrisks;

ustryorregionmaynegativelyimpact

theconcentrationofleasesandloanswithinaparticularind

Element’sfinancialcondition;

Element’sprovisionforcreditlossesmayproveinadequate;

thecollateralsecuringaloanoraleasemaynotbesufficient;

lackoffundingmaylimitElement’sabilitytooriginateleases;

ent’sfundingrisks; ffectElement’sresults;

theconcentrationofdebtfinancingsourcesmayincreaseElem

globalfinancialmarketsandgeneraleconomicconditionsmayadverselya

Element’screditfacilitiesmaylimititsoperationalflexibility;

changesininterestratesmayadverselyaffectElement’sfinancialresults;

anunexpectedincreaseinElement’sborrowingcostsmayadverselyaffectitsearnings;

ent’sbusiness;

acompetitivebusinessenvironmentmaylimitthegrowthofElem

competitionforvendorequipmentfinancemayaffectElement’srelationshipswithvendors;lossofkeypersonnelmaysignificantlyharmElement’sbusiness;

ay harminability to realize benefits from growth (including growth related to acquisitions) m

Element’sfinancialcondition;complicationsinmanagingacquisitionsmaynegativelyaffectElement’soperatingresults;

red losses in the past andmay notElement has a brief operating history and Element has incur achieveprofitabilityinfutureperiods;

the market for Element Common Shares (as defined in the GeneralDevelopmentof theBusinesssectionbelow)maybevolatileandsubjecttowidefluctuationsinresponsetonumerousfactors;

onsaredifficult to forecastandmayElement’squarterlynet finance incomeandresultsofoperatifluctuatesubstantially;and

. litigationmaynegativelyimpactElement’sfinancialcondition

The above risks, uncertainties, assumptions and other factors could cause Element’s actual results,performance, achievements and experience to differ materially from Element’s expectations, future results,performancesorachievementsexpressedorimpliedbytheforward‐lookingstatements.

An investor should read this Annual Information Formwith the understanding that Element’s actualfutureresultsmaybemateriallydifferentfromwhatisexpected.

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CORPORATESTRUCTURE

ElementFinancialCorporationwasincorporatedonMay11,2007undertheBusinessCorporationsAct(Ontario)(“OBCA”).Itsheadandregisteredofficeislocatedat41LesmillRoad,Toronto,Ontario,CanadaM3B2T3.

OnAugust23,2011,Elementrestateditsarticlesofincorporation.OnDecember15,2011,ElementfiledArticlesofAmalgamationundertheOBCA,givingeffecttotheamalgamationofElementandMiraIIAcquisitionCorp., a capital pool company listed on the TSXV Venture Exchange. The entity continuing from theamalgamationwas “Element Financial Corporation”. OnDecember 16, 2011, the common shares of ElementFinancial Corporation were listed and posted for trading on the Toronto Stock Exchange (“TSX”) under thetradingsymbol“EFN”.

All references to Element in this Annual Information Form are to the predecessor Element FinancialCorporation and to the entity continuing as Element Financial Corporation pursuant to the amalgamation ofElementandMiraIIAcquisitionCorp.

Element has only one subsidiary, Element Financial (US) Corp. (“Element US”), a corporationincorporatedunderthelawsoftheStateofDelawarein2011,whichentityiswholly‐ownedbyElement.

Element Financial Corporation

OBCA

Element Financial (US) Corp.Delaware

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GENERALDEVELOPMENTOFTHEBUSINESS

D E V E L O P M E N T O F T H E B U S I N E S S O V E R T H E L A S T T H R E E Y E A R S

Element was founded in 2007 by Steve Sands, Element’s Chief Credit Officer, as an Ontario‐basedequipment finance company. Element began originating equipment leases through small debt commitmentsfromanumberoflifeinsurancecompanies.Elementoriginateditsfirstleasein2008and,from2008until2010,grewitsportfoliotoapproximately$5,000,000ofleasesandloans.

In April 2010, Element was recapitalized and expanded nationally under the leadership of StevenHudson,Element’sChairmanandChiefExecutiveOfficer, assistedby JamesMore, Element’s SeniorExecutiveVice President, in order to seize on the opportunities provided by the market disruption in the Canadianequipment finance industrydue to the global economic crisis.Messrs.HudsonandMorebecamedirectorsofElementonApril12,2010,andspearheadedthecreationofastrongseniormanagementteamandtheassemblyofanexperiencedandtalentedorigination,creditandadministrativestaff.Asaresult,Elementhasbeenabletoattract equity investment from a combination of institutional and high net worth investors and arrangesignificant debt commitments from leading life insurance companies, including The Canada Life AssuranceCompany(“CanadaLife”)andSunLifeAssuranceCompanyofCanada(“SunLife”).

AsatMarch31,2011,Elementhadassetsof$47,073,000andshareholders’equityof$8,001,000.

OnApril5,2011,Elementraised$75,000,000fromtheissuanceof18,750,000Elementunitsatapriceof$4.00perunit,whichconsistedofElementcommonsharesandrightstoacquireElementcommonshares.Inconnection with such financing, Element was able to secure an additional debt commitment from TheManufacturers Life Insurance Company (“Manulife”) and a new revolving credit facility from a Schedule 1Canadianbank.

AsofAugust1,2011,ElementacquiredsubstantiallyalloftheassetsandassumedcertainliabilitiesoftheAlterMonetaGroupL.P.(“AM”)forapproximately$160,180,000pursuanttotheAssetPurchaseAgreement(asdefinedbelow)(the“AlterMonetaAcquisition”).Inadditiontoamaturefinanceassetportfolioofleasesandloans,theAlterMonetaAcquisitionprovidedElementwithanestablishedback‐officestaffandsystemswiththecapability tomanage and process a largeNorthAmerican equipment financeportfolio andhandle significantgrowth in business originations. The Alter Moneta Acquisition also provided Element with an experiencedQuébec–basedmanagementteamandprovenoriginationandassetmanagementexperienceintheProvinceofQuébec.Inaddition,theAlterMonetaAcquisitionfurtherenabledElementtoexpanditsexistingsalesforceintoQuébectoestablishanationaloriginationteam.SeeNarrativeDescriptionoftheBusiness–AcquisitionsandJointVentures–SignificantAcquisitions–AlterMonetaAcquisition.

OnOctober28,2011,Elementcompletedaprivateplacementof41,700,000subscriptionreceipts(the“Subscription Receipts”) at a price of $4.20 per Subscription Receipt for $175,140,000 (the “October PrivatePlacement”). Each Subscription Receipt entitled the holder to receive, for no additional consideration, oneElement common share (the “Pre‐Amalgamation Element Common Shares”) immediately prior to thecompletionoftheAmalgamation.HoldersofPre‐AmalgamationElementCommonSharesissuedpursuanttotheOctober Private Placement were entitled to receive, pursuant to the terms of the Amalgamation Agreement(definedbelow),onecommonshareoftheamalgamatedElement(the“ElementCommonShares”)foreachPre‐AmalgamationElementCommonSharesoheld.

On October 28, 2011, Element andMira II Acquisition Corp. (“Mira”) entered into an AmalgamationAgreement(the“AmalgamationAgreement”),pursuanttowhichElementandMirawouldmergebywayofanamalgamation (the “Amalgamation”) and, among other things, the shareholders of Element would hold the

majorityof theoutstandingElementCommonSharesandthenameof theresulting issuerwouldbe“ElementFinancialCorporation”.Mirawasacapitalpoolcompany(a “CPC”) for thepurposesof thepoliciesof theTSXVentureExchangeInc.(the“TSXV”),incorporatedundertheOBCAonFebruary4,2011,andareportingissuerunderapplicablesecuritieslawsinOntario,AlbertaandBritishColumbia.Mira’scommonshareswerelistedontheTSXVunderthesymbol“MIA.P”.AsaCPC,Mira’sprincipalbusinesssinceitsexistencewastoidentifyandevaluateassetsorbusinesseswithaviewtocompletingatransactionwhereaCPCacquiressignificantassets,otherthancash,bywayofpurchase,amalgamation,mergerorarrangementwithanothercompanyorbyothermeans( a

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a“QualifyingTrans ction”)inaccordancewiththepoliciesoftheTSXV.

On December 15, 2011, Element and Mira amalgamated under the OBCA pursuant to Articles ofAmalgamation,withElementFinancialCorporationbeingthecontinuingentity.PursuanttotheAmalgamationAgreement, thepredecessorElement’sby‐lawsbecame theamalgamatedentity’sby‐lawsand thedirectorsofthe predecessor Element became the directors of the amalgamated continuing entity. The AmalgamationconstitutedMira’sQualifyingTransactionundertheTSXV’srulesandpolicies.Mira’scommonshareswerede‐listedfromtheTSXVconcurrentwiththecompletionoftheAmalgamation.

Uponcompletionof theAmalgamation,Element’s shareholdersheldapproximately99%of the issuedand outstanding common shares in the combined company that resulted from the Amalgamation. TheAmalgamationconstitutedareversetake‐overofMirabyElement.

ConcurrentwiththecompletionoftheAmalgamation,onDecember16,2011,ElementCommonShareswerelis oted fortrading ntheTSXunderthesymbol“EFN”.

At December 31, 2011, Element had total assets of $416,715,000 and shareholders’ equity of$238,341,000. As set out under NarrativeDescriptionof theBusiness, Element has experienced substantialgrowthinitsleaseoriginationbusiness,subsequenttoMr.HudsonassumingleadershipoftheCompany.

B U S I N E S S O V E R V I E W

Elementisanindependentfinancialservicescompanythatoriginates,co‐investsinandmanagesasset‐basedfinancings.TheCompanyoriginatesthefinancingofabroadrangeofequipmentandcapitalassetsbywayof secured loans, conditional sales contracts and financial leases.Elementoriginates its equipment financingsthrough its employee sales force, who focus on equipment vendors and direct equipment users. Elementdistinguishesitselffromtraditionallenderssuchasbanksandfinancecompaniesinthatit:

offersselect,asset‐basedfinancingservicesratherthanprovidingfull‐servicelending;originatesprimarilythroughitsownvendoranddirectrelationships;and

funds its activities through commitments from institutional investors rather than accepting

depositsfromthepublic.

ElementisledbyStevenHudson,theChairmanandChiefExecutiveOfficerofElement.Mr.Hudsonhasextensive experience in the equipment finance industry, including 14 years as chief executive officer ofNewcourt Credit Group Inc. (“Newcourt”), a company he founded. UnderMr. Hudson’s leadership, Newcourtwentpublicinearly1994,completednumerousacquisitionsandexperiencedsignificantorganicgrowthpriortothemergerofNewcourtwithTheCITGroup,Inc.in1999.UnderMr.Hudson’sleadership,Newcourtcompletedanumberofacquisitions,includingAT&TCapitalCorporation,CommcorpFinancialServicesInc.(CIBCEquipmentLeasing) and the asset finance operations of Lloyd’s Bank and grew its portfolio of finance assets from$100milliontoapproximately$35billionatthetimeofitssaletoCIT..

ElementhasanexperiencedexecutivemanagementteamwitheachexecutiveleadingeachofElement’s

core business divisions having an average of 20 years of diversified asset finance and equipment financeindustryexperience.Elementutilizes itsmanagement team’sextensiveexperience in theequipment financingindustryanditsindustryrelationshipstomaintainandfurthergrowrelationshipswithequipmentvendorsanddirectre

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lationshipswithcustomers.

Elementcurrentlyoperatesintwodistinctsegmentsoftheasset‐basedfinancemarket:(i)commercialfinance and (ii) corporate finance. Element has organized its activities and operations around three corebusinesses:(i)ElementFinance,(ii)ElementCapitaland(iii)ElementServices.

ELEMENTFINANCE

ElementFinanceistheCompany’scommercialfinancebusinessunit.ElementFinanceoffersasset‐basedsales throu alers(collectively h s c

gh select strategic relationships with equipment manufacturers, de and distributors,“vendors”).ElementFinanceprovidesitsfinancialservicesthroug fourdi tin tbusinessunits:

he transportation,Transportation and Construction Finance – provides vendor finance in t

construction,forestryandmaterialhandlingmarkets;GolfEquipmentFinance–providesvendorfinanceinthegolfequipmentmarket;

Commercial and Industrial Finance – provides vendor finance in the commercial and industrialmarkets;and

Healthcare Equipment Finance – provides vendor finance and direct end‐user financing productsdesignedtoservicethehealthcaresectorseekingfinancingforequipment,businessacquisitionandworkingcapital.

ELEMENTCAPITAL

Element Capitalwas established on January 30, 2012 and offers asset‐based sales dedicated to largeequipment financing and leasing transactions, including energy‐related assets, corporate aircraft andhelicopters,railandroadtransport,aswellasminingandlarge‐scaleconstructionequipment.

ELEMENTSERVICES

Element Services is the administrative unit of the Company responsible for managing the capitalstructureoftheCompanyandforprovidingcost‐effectivegrowth,controlandsupportservicestotheElementFinanceandElementCapitalbusinessunits.

Element rincipaloperatingunits:Servicesisdividedintofourp

t; Treasury;

CreditandRiskManagemen dFinancialManagement;an InformationTechnology.

CORPORATEANDEXECUTIVEOFFICE

TheCorporateandExecutiveOfficecomprisesElement’sChairmanandChiefExecutiveOfficerandtheExecutiveVice‐President andVice‐Chairman, and are responsible for thedevelopment and communicationofElement’s overall corporate strategy and business policies as well as for the Company’s corporate capitalstructure,strategiccorporateplanning,businessassessmentsandreviewsandmergersandacquisitions.

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NARRATIVEDESCRIPTIONOFTHEBUSINESS

O V E R V I E W O F T H E A S S E T ‐ B A S E D F I N A N C E I N D U S T R Y

The Company operates in two distinct segments of the asset‐based finance market: (i) commercialfinance;and(ii)corporatefinance.

COMMERCIALFINANCEMARKET–ELEMENTFINANCE

Thecommercialfinancesegmentoftheasset‐basedfinancemarketinvolvestheprovisionofdirectandindirectfinancingfortheacquisitionofcommercialequipment.Thissegmentoftheasset‐basedfinancemarketinvolves the financing of equipment as such assets move through the distribution channel from themanufacturer to the dealer to the ultimate end‐user of the equipment. Asset‐based financing within thecommercialfinancesegmentofthemarketisprovidedbyawidevarietyofmarketparticipants,includingbanks,captivefinancecompaniesandindependentfinancecompanies.Thecommercialfinancesegmentofthemarkethas experienced strong growth in recent years as a result of increased capital and infrastructure spending,increasedmachineryandequipmentexpendituresandthecontinuingtrendofconsolidationintheindustryaslargerparticipantsbuildmarketsharethroughacquisitionsandtheoutsourcingbyequipmentmanufacturers,dealersanddistributorsoftheirasset‐basedfinancingrequirements.Withinthecommercialfinancemarket,theCompanyisfocusingitsactivitiesonestablishingformalvendorfinanceprogramsasabasisfororiginatingassetfinancebusiness.

Vendor finance programs are agreements with equipment manufacturers, dealers, distributors andprofessionalorganizations(collectively, “vendors”)whichprovidea financecompanywithpreferredaccesstofinancing transactions relating to a vendor’s equipment. These financings are generally offered to: (i) theultimate end‐user of the equipment; and (ii) the vendor’s dealers and distributors through inventory or“floorplan”financing.Vendorfinancearrangementsprovideasteady,reliableflowofnewbusinesswithlowercostsoforiginationthanasset‐basedfinancingsmarketeddirectlytoend‐users.Vendorsoftenprovidevariousforms of support to the finance company under these programs, including credit support and equipmentrepurchase and remarketing arrangements. Vendor finance programs can also take the form of a referralrelationshipwhich is less formalandtypicallydoesnot includecreditsupport fromthevendor. Forvendors,these programs are attractive because the financing is tailored to the vendor’s particular product line andindustry, therebyhelpingtopromoteequipmentsales. Thecloserelationshipbetweencreditsourcesandthevendorallows thevendor tomaintaincontactwith thecustomer. Theseprogramsareoftena lessexpensivealternativetoavendormaintainingitsowncaptivefinancecompany.

CORPORATEFINANCEMARKET–ELEMENTCAPITAL

The corporate finance segment of the asset‐based financemarket generally involves large structuredasset finance transactions. Financing in thismarket is requiredbycorporations, institutionsandgovernmentacquiring capital assets such as aircraft, toll highways, railway rolling stock and transportation fleets.Transactions in thismarketdiffersignificantly fromthose in thecommercial financemarket in termsof theircomplexity. Funding is usually provided by banks, other private market lenders such as life insurancecompaniesandthroughpubliccapitalmarkets.Theprincipalintermediariesinthecorporatefinancemarketareinvestmentbankers.Mosttransactionsinvolvesyndications,wherebyseveralinstitutionalinvestorsparticipateinthefinancing.

Thecorporatemarkethasexperiencedstronggrowthover thepast severalyears. Thisgrowth is the

result of corporate and institutional borrowers seeking to diversify their sources of debt capital by dealingdirectly with asset‐based lenders. As well, asset‐based lenders have been aggressively pursuing lendingopportunitiesasameansofdiversifyingtheirinvestmentportfolios.

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E L E M E N T F I N A N C E

ElementFinanceistheCompany’sbusinessunitservicingthecommercialfinancemarketandfocusesonthe mid‐ticket finance segment of the equipment finance industry. The mid‐ticket finance segment of theequipment finance industry involves financing for the acquisition of equipment ranging in value fromapproximately$10,000toover$1,000,000.AccordingtotheCanadianFinance&LeasingAssociation(“CFLA”),the Canadian equipment finance industry’s portfolio of owned and managed equipment finance assets wasapproximately $40 billion in 2010 ($40.7 billion – 2009), with approximately $16 billion of new businesswrittenin2010($13.5billion–2009).Theequipmentfinancingindustryisthesecondlargestproviderofdebtfinancing to business customers and consumers after banks and credit unions. In general, the Canadianequipmentfinanceindustryisservedbythreemainindustryparticipants:independentleasefinancecompanieslike Element (including subsidiaries of U.S.‐based commercial leasing companies), captive finance companieswnedbo ymanufacturersanddistributers,andCanadianbanks.

Element Finance has assembled an industry‐leading national sales force, and currently heads anorigination team of 20 salespersons covering all ten Canadian provinces. Element originates its equipmentfinanceassetsinspecificsegmentsoftheequipmentfinancemarket,withacurrentfocusonthecommercialandindustrial, transportation and construction, healthcare and golf equipment market verticals. To assure thequalityofitsequipmentfinanceassets,Elementemphasizesthecreditworthinessoftheend‐userorborrower,thevalueofthefinancedassetsandthecreditworthinessofthevendor.

Element Finance has identified three key objectives for the development of its equipment financingbusiness: (i) target specific segments of the mid‐ticket equipment finance market and establish separatebusiness units to cover each segment; (ii) as Element’s market presence grows, expand its vendor financebusiness by increasing thenumber of its vendor relationships; and (iii) expandElement’s equipment financeoriginat rioncapabilitiesth oughtargetedorganicandacquisitivegrowth.

Element Finance distinguishes itself from traditional equipment financing lenders such as banks andfinancecompanies in that itoffers selectedequipment financingservicesandoriginatesprimarily through itsownspecializedin‐houseleasingsalesforceandvendorrelationships.

Element Finance primarily originates its equipment finance assets directly through its specialized

verticals (of which there are currently four) and relationships with equipment vendors, as well as throughrelationshipswithselectthird‐partybrokers.Unlikemanyofitscompetitors,ElementFinancedoesnotrelyonthird‐partybrokerstooriginateasignificantportionof itsbusinessduetothehigherincidenceof lossesfromthistypeofbusiness.Brokeroriginatedbusinessaccountedforlessthan5%ofnewbusinessatDecember31,2011. As Element Finance implements its key objectives it has seen strongmonth‐over‐month growth in itsoriginationvolumes, from$1.4million inApril 2010 to $25.8million inDecember2011, a compoundannualgrowthrate(“CAGR”)of134%.ThechartbelowillustratesthehistoricalevolutionofElement’sorganicgrowthinoriginationvolumesduringthesameperiodofApril2010toDecember2011:

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

Millions

Apr-10

M ay-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

M ar-11

Apr-11

M ay-11

Jun-11

Jul-11 Aug-11

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Dec-11

ElementFinanceexpectstoexperiencecontinuedstrongoriginationgrowth(generatedbothinternallyandthroughtherelationshipsandcustomersacquiredpursuanttotheAlterMonetaAcquisition)andpotentialstrategic joint venture opportunities. Element’s organic growth objectives are further described below. Thegrowthobjectives regarding theAlterMonetaAcquisition are describedbelowunderNarrativeDescriptionoftheBusiness–AcquisitionsandJointVentures–SignificantAcquisitions–AlterMonetaAcquisition and the jointventure opportunities are described belowunderNarrativeDescriptionoftheBusiness–AcquisitionsandJointVentures–GrowthStrategies.

Element Finance operateswith four distinct business unit platformsor “verticals”, each ofwhichhasnationalscopeandcoverage.ElementFinanceissupportedbyElementServiceswhichprovidescomprehensiveassetma enagements rvices.

Historically Element Finance’s core origination business has been in the Transportation andConstruction group.However, Element Finance expects amaterial portion of future growth in its originationbusiness to come from the Commercial and Industrial, Healthcare Equipment and Golf Equipment groups.Element Finance believes that the diversification of its existing verticalswill provide itwith protection fromeconomiccycles.Element’sequipmentfinanceverticalsaredescribedinmoredetailbelow.

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TRANSPORTATIONANDCONSTRUCTIONFINANCE

TheTransportationandConstructiongroupprovidesequipment financing for customersoperating inthe transportation and construction equipment markets. Element enjoys vendor relationships and suppliesequipment financing to established Canadian transportation and construction equipment vendors, whichaccountforapproximately80%oftheunit’snewbusinessvolume.Typicalequipmentfinancedincludesheavyandmediumdutytrucks,highwaytrucks,highwaytrailers,vacuumtrucks,towtrucks,utilitytrucks,passengercoaches,andalltypesof“yellowiron”equipment,includingexcavators,backhoes,graders,cranes,dumptrucksandloadingequipment.Elementdoesnotcurrentlyfinanceautomobilesorlighttrucksforconsumeruse.

GOLFEQUIPMENTFINANCE

TheGolf group provides equipment financing for customers operating in the golf equipmentmarket.Element enjoys vendor relationships and supplies equipment financing to customers of establishedCanadiangolfandturfcareequipmentvendors,whichaccountforvirtuallyalloftheunit’snewbusinessvolume.Typicalequipmentfinancedincludesgasandelectricgolfcarts,turfcareequipmentandexcavators.

COMMERCIALANDINDUSTRIALFINANCE

The Commercial and Industrial group provides equipment financing for customers operating in thecommercial and industrial equipmentmarkets. Element enjoys vendor relationships and supplies equipmentfinancing tocustomersofestablishedCanadiancommercial and industrialequipmentvendors,whichaccountforapproximately50%oftheunit’snewbusinessvolume.Typicalequipmentfinancedincludesmetalworking,woodworking,plastic injectionmouldingmachinery, fabricatingmachinery,skidsteers, lift trucksandscissorlifts.

HEALTHCAREEQUIPMENTFINANCE

The Healthcare group provides equipment financing to healthcare providers, including medical anddental practitioners, as well as veterinarian clinics, pharmacies and hospitals. Typical equipment financedincludespatientcareequipment,rangingfromradiologyequipmentandmagneticresonanceimagingmachinestodentalchairs,andrelatedassets.TheHealthcaregroupalsoprovidesfinancingforpracticepurchases,officeconstruction and technology upgrades. For practitioners, the Healthcare group requires life, disability andpropert u n l c a nyins ranceina amountequaltotheva ueofthefinan ed ssetsasaconditiontoprovidingfina cing.

The Canadian healthcare industry is characterized by significant government regulation, low tomoderate growth, established healthcare providers and constraints on public funding. Element believes thathealthcareproviderswill increasingly looktoprivatesectorsourcesof financingto fundcapitalexpenditures,representingasignificantopportunityforgrowthintheHealthcaregroup’sbusiness.

Element is one of a limited number of companies in Canada that specialize in providing equipmentfinancingtothehealthcareindustry.TheCanadianhealthcareequipmentfinancemarkethassignificantbarriersto entry. Participants seeking entrymust develop considerable industry knowledge and expertisewhile alsoovercoming thehighdegreeof loyalty to existing financing relationshipswhichhealthcarepractitionershavehistoricallydemonstrated.Elementbelieves that its success in thehealthcareequipment financing industry isthe result of the detailed industry knowledge of its staff, the relationships which it has developed withhealthcarepractitionersandequipmentvendorsandtheefficiencyofElement’sportfoliomanagementsystem.

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in rdertoprovideeffectivecreditandriskmanagementofElement’sportfolio.

To oversee credit management matters, the Element Board of Directors has established a CreditCommittee.TheCreditCommitteeischairedbyPierreLortie.Mr.Lortiehasextensiveexperienceintheasset‐

E L E M E N T C A P I T A L

On January 30, 2012, Element announced the establishment of a new Element Capital business unitdedicatedtolargeequipmentfinancingandleasingtransactions.ElementCapitalwillfocusonareasincludingenergyrelatedassets,corporateaircraftandhelicopters, railandroadtransport,aswellasminingand large‐scaleconstructionequipment.

The target market for Element Capital is focused on transactions in excess of $2,000,000. ElementbelievesthatthereisagoodopportunityforElementCapitalinthemarketforlargeequipmentfinancingsasaresultofthewithdrawalofsometraditionalcompetitorsfromthismarketstemmingfromthefinancialmarketturbulencethatbeganin2008. ElementCapital issupportedbyStevenHudsonandotherseniormanagersofElement who oversaw a large and successful business in the large equipment financing market while atNewcourtandGECapital.Elementexpectstooriginatetransactionsthroughbothvendorprogramsanddirectlyfromend‐users.WhileElementCapitalexpectstoselectivelysyndicateportionsof largetransactions,Elementintends to hold someportion of all syndicated transactions and tomanage any syndicates created to financetransactionsoriginatedbyElementCapital.

TheprincipalcompetitorsofElementCapitalareexpectedtobeGECapital,CIT,KeyEquipmentFinance,HSBC,BankofAmericaEquipmentFinance,PNCEquipmentFinance,,andotherCanadianandUSbanks.ElementCapital expects to generate revenue through various means, including fees for structuring transactions,syndication and service fees for acting as syndicationmanagerof transactionsoriginatedbyElementCapital,and finance income earned on transactions not syndicated (if any) and the portion of any syndicatedtransactionsretainedbyElementCapital.

E L E M E N T S E R V I C E S

Element Services is the administrative unit of the Company. Element Services directly supports theCompany’s corporate and commercial finance businesses with a wide range of growth, control and supportservicessuchascreditandriskmanagement,customerservices,financialreportingandinformationtechnologysupport. In addition, Element Services is responsible for managing the capital structure of the Company,including the management of Element’s various funding programs with in banks and institutionalinvestors/lenders.

ElementServices’fourprincipaloperatinggroupsaredescribedinmoredetailbelow.

TREASURY

TheTreasurygroupisresponsibleforensuringtheCompany’sliquidityandaccesstocapitalattractivepricingaswellasmanagingtherelationshipwithbankandinstitutionallenders.Treasuryalsomanagescertainfinancialrisksgeneratedinthenormalcourseofbusiness,suchasinterestrateandcurrencyrisks.

CREDITANDRISKMANAGEMENT

TheCreditandRiskManagementgroupisleadbytheCompany’ChiefCreditOfficerandisresponsibleforprudentandproperunderwritingandportfoliomanagementofElement’screditrisk

In connection with these core functions, Element has developed a series of credit managementphilosophies that are specific to the granting of credit to customers and adapted to each specific vertical,commercial and corporate asset type, as well as a credit manual and vertical‐specific credit underwritingmanuals o

backed lending industry, having previously served as President and Chief Operating Officer of BombardierTransportation, Bombardier Capital, Bombardier International, and as President of Bombardier Aerospace,RegionalAircraft.SeeCommittees–CreditCommittee.

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UNDERWRITING

Elementbelievesthateffectivecreditmanagement iscritical tothesuccessofElement’sportfolio.TheBoard has approved, through the Board’s Credit Committee, a credit manual which sets forth the businessobjectives,strategies,creditphilosophiesandcreditguidelinesthataretobefollowedbyElementinconsideringprospective new business financings within its business units and for managing its existing asset portfolio.Element’s seniormanagement team regularly reviews andmonitors the creditmanual to ensure consistencybetween Element’s business objectives and strategies and current economic conditions. By following adisciplinedandconsistentapproachinitsdailybusinessoperations,Elementbelievesitcanmanagecreditrisksinareasonableandprudentmanner.

Elementhasalsodevelopedaseriesofcreditmanagementphilosophiesthatarespecifictothegrantingofcredittoitscustomers,adaptedtoeachspecificbusinessunitandequipmenttype.TheBoardhasapproved,through theCredit Committee, credit underwritingmanualswhich set forthbusiness and credit philosophiesandparametersandcreditstandardsforeachbusinessunit.Element’screditadjudicationpolicyrequiresstrictadherencetothesecreditunderwritingmanuals.Thiscreditevaluationprocess,asspecifiedineachofthecreditunderwritingmanuals, sets outdetailedproceduresbywhichproposed transactions arepresented, reviewedand assessedby a credit officer andultimately approvedor declined. These credit underwritingmanuals areregularlyreviewedandapprovedbytheCreditCommittee,aswellastheprovidersofElement’sTermFundingFacilities, each of whom also regularly conduct reviews and audits of Element’s compliance with its creditprocedures.

Ingeneral,Element’screditunderwritingguidelinesinclude:

fhavingadefinedandconsistentapproachtotheassessmentandunderwritingprocessused orreviewingnewcreditapplications;

r tusing a prudent combination of judgement and a credit a ing system when considering anapplicationforanewcreditexposure;

ensuring all new transactions are correctly credit rated so that, in combination with ongingmonitoring of existing exposures, the overall level of credit risk in the portfolio can beaccuratelyquantifiedandmonitoredonanongoingbasis;

creating reasonableandprudentpolicies regardingoverall credit exposures tobusiness lines,geographicareasandindividualcustomerexposures;

settingformalandprudentindividualapprovallevels,basedontheexperienceandknowledgeof the individual and Credit Committee authorities for the approval of credit granting – such

also ocredit authorities are based on a combined or consolidated exposure to the cust mer asopposedtoindividualcreditrequests;

constant monitoring of the portfolio for credit quality, various exposures and arrearsperformanceandreportingonsametotheCreditCommitteeonamonthlybasisandtheBoardonaquarterlybasis;and

quickly identifying and addressing potential or actual accounts that may be or have becomecreditimpaired.

In conjunctionwith Element’s credit underwriting guidelines, Element has also developed a series ofgeneral underwriting philosophies which are employed throughout Element’s business units. In general,Element’sunderwritingphilosophiesincludethefollowing:

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employingexperiencedandknowledgeableinternaloriginationteamsthatarefamiliarwiththestry segmequipment product lines and indu ents in which they are originating new business

applications;

transactingnewbusinessthroughbonafideequipmentdealersandvendorsthatareknowntoElementanditsemployees;

followingElement’s“KnowYourCustomer”philosophywhichconstitutesamajorcomponentofl i neffectively managing E ement’s cred t risks and is i strumental in significantly reducing and

managingthepossibilityoffraudulentactivity;

vetting and approving any financial intermediaries, such as third‐party brokers, thatwish tohic csubmitnewbusinessapplicationstoElement,w hincludesthe ompletionofanapplication

andintermediaryagreement;

reviewing each intermediary’s transactions for delinquencies or other issues on an ongoingabasis, including further reviewandpossible terminationof the intermediary sanorigination

sourcewhereexcessivedelinquenciesorotherissuespersist;

employing a network of dependable and reliable bailiffs to quickly assist in the procuring ofElement’ssecurityondelinquentorimpairedaccountsasquicklyaspossible,therebyhelpingtoreducepotentiallossesonthoseaccounts;and

maintaininganaccuratedatabaseonElement’s customersanda credit fileoneach individualcustomerwhich canbeeasily referenced in theeventof any issues, changesordelinquenciesthatmayarise.

Element believes that effective riskmanagement against fraud is critical to the success of Element’sportfolio.Elementhasdevelopedcontrolsfortherisksthatresultfromfraud,whichincludescarefuladherencetoElement’sunderwritinganddocumentationprocedures.Elementrequiresstaff tobeawareof thepotentialfor fraud and to remaindiligent in identifying and reporting to seniormanagement any suspicious activities.TypesoffraudthatElementisexposedtogenerallyfallintooneofthreeprimarycategories:(i)vendor/dealerraud;(if i)customerfraud;and(iii)employeefraud.

Elementtakesanumberofstepstoprotectagainstvendor/dealerfraudbyadheringtothepoliciesandprocedures documented in each of its credit underwriting and documentation manuals. Element primarilyprotects against customer fraud at the underwriting stage. Element’s underwriting staff is experienced atidentifyingwarning signs associatedwith risk related to customer fraud. Element protects against employeefraud bymaintaining a culture which focuses on the highest standard of business ethics and conduct by allemployees, where Element’s staff are encouraged to identify and report unusual or irregular activities. As amember of the CFLA, Element and its staff abide by the CFLA’s Code of Ethics, which serves as the guidingprinciples for all members engaged in the business of leasing and asset‐based financing. Element has alsoadoptedawrittenCodeofBusinessConductandEthics thatapplies todirectors,officersandemployees.TheCFLACodeofEthicsandElement’sCodeofBusinessConductandEthicshavebeenmadeavailabletoeachofitsdirectors, officers and employees. Element has also established internal control procedures throughout thebusinessprocesstoreducetherisksofemployeefraud.

PORTFOLIOMANAGEMENT

In managing the growth of Element’s portfolio, Element takes a disciplined approach to riskmanagement. Element finances equipment in market segments that it understands and has the expertise tounderwriteandmanageandhasadoptedspecificunderwritingguidelines foreachof thedifferentequipmentmarket segments that it finances. Portfolio risk is diversified across the full range of asset classes with

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concentrationlimitsonmarketsegmentsasapercentageofElement’soverallportfolio.

ThecurrentportfolioconcentrationlimitsaresubjecttoongoingreviewbyseniormanagementandtheCreditCommitteeandareadjustedinresponsetochangesinmarketconditionsandtheadditionofnewproductlinesandmarketverticals.

Inmanagingthegrowthoftheleaseportfolio,Elementadherestoanumberofguidelines.Elementdoesnotcurrentlysolicitleasetransactionsforintangibleassets(e.g.,leaseholds,software),technologyequipmentorcomputerhardware,office furniture,phonesystems, copiersorhighly specializedequipmentwith limited re‐sale value. Element will make exceptions for transactions within Element’s Healthcare portfolio, whereintangible assets will be financed, for example, as part of a medical or dental practice purchase. Specificunderwriting guidelines for the financing of Healthcare transactions are set out in Element’s HealthcareUnderwritingManual.Certainindustries,includingforestry,pulpandpaper,mining,oilandgasandhospitality,are also viewed with more caution by Element, and as a result Element is more selective in new businessoriginationinsuchindustries.ThebusinessmixofElement’sportfoliowillbemonitoredandadjustedovertimeto reflectmarket and industry conditions aswell as the performance of the portfolio by asset class and riskratingcategory.Elementhasestablisheddocumentedpoliciesandproceduresinkeyriskareasincludingcredit,documentationandcollections.Element limits itsexposure to individual customersbymaintainingmaximumexposure limits per customer account. Element intends to establish geographic concentration limits for theportfolio acrossCanada as its originationbusiness growsbasedon the relative sizeof theparticular region’sassetbasedlendingvolume.

EQUIPMENTFINANCEPORTFOLIO

Element’sequipment financeportfolioconsistsof thoseassetswhich itownsandmanages.Certainofthe financial features and financial performance of the equipment portfolio summarized belowhave a directinfluenceonElement’scostoffundsanditsabilitytogeneratenewfinancingtransactions.

Portfolio growth has assisted Element in diversifying its lending across equipment classes andgeographically therebyreducingconcentrationrisks.The followingchartsset forthabreakdownofElement’sportfolio concentrations, based on net book value as of December 31, 2011 by equipment class, geographicegionar ndtransactionsize.

TheconcentrationoftheportfoliobyequipmentclassasatDecember31,2011,andMarch31,2011isshowninthefollowingchart:

December31,2011 March31,2011

$ % $ %AssetClass HighwayTractors $61,948,000 26.4 $9,500,000 25.1 ConstructionEquipment

onEquipment

41,234,000 17.611

5,987,0004

15.812

HighwayTrailersi

34,973,000 4.9 ,401,000 1.6 Inter‐cityTransportat

31,586,000 3.5 9,642,000 5.4

HealthcareEquipmententuipment

19,767,00011

8.4 567,0001,702,000

1.54. IndustrialEquipm

ringEqipment

4,167,000 6.0 5 Manufactu

therEquolfCarts

1,629,0009,843,0009,295,000

5.04.24.0

2,459,000‐

3,646,000

6.5‐

9.6

OG

$234,442,000 100.0% $37,904,000 100.0%

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TheconcentrationoftheportfoliobygeographicdistributionasatDecember31,2011,andMarch31,2011isshowninthefollowingchart:

December31,2011 Mar 11ch31,20 $ % $ %

Ontario $100,279,000 42.7 $24,128,000 63.6Quebec

71,392,00021

310.5 ‐ ‐

Alberta 7,088,000 1.6 6,744,0001,649,0003,819,000

17.8

1BritishColumbia

0,388,000 4.4 4.4Manitoba

ick 9,671,000 4.1 0.1

NewBrunsw 6,084,0003,2,

2.6 393,00056

1.01.41.7

Saskatchewan

Island

669,000 1.6 32,00028,00NovaScotia

dward

218,000 0.9 0PrinceE 609,000

23

0.3

9

11,000

37,904,00

‐

100.0NewfoundlandCanada

736,0002,134,000

0.39.0

‐0

‐

UnitedStates

2,308,000 1.0 ‐ ‐ $234,442,000 100% $37,904,000 100%

TheconcentrationoftheportfoliobytransactionsizeasatDecember31,2011isshowninthefollowingchart:

December 31, 2011 Element AM Total

Transaction Size Number of Contracts

Portfolio Assets

Number of Contracts

Portfolio Assets

Number of Contracts

Portfolio Assets

%

Less than $50,000 456 11,766,000 800 7,135,000 1,256 18,901,000 8.1 $50,000 - $149,999 577 47,131,000 969 24,242,000 1,546 71,373,000 30.4 $150,000 - $249,999 118 20,354,000 249 13,993,000 367 34,347,000 14.7 Greater than $250,000 100 51,337,000 308 58,483,000 408 109,820,000 48.8 Total 1,251 130,588,000 2,326 103,854,000 3,577 234,442,000 100.0

Element’sportfolio continues toperformwellwithdelinquencyandcredit losseswellbelow industrynorms.Portfoliodelinquency and losses are expected to risewith the growthof theportfolio;however, suchdelinquencyandlossesareprojectedbyElementtobewithinindustrynormsforacommercialportfoliowithinElement’sdesignatedequipmentfinanceassetclasses.Element’sportfolioyieldwas7.4%fortheninemonthsendedDecember31,2011.

FINANCIALMANAGEMENT

TheFinancialManagementgroupisleadbytheCompany’sChiefFinancialOfficerandisresponsibleforadministration and financial reporting, information technology, tax and audit and documentation systemservices toElement’s verticals.Thegrowth in thenumberof employeesengaged in theactivitiesofFinancialManagementhasparalleledthegrowthinElement’snewbusinessoriginationvolumes.

ADMINISTRATIONANDFINANCIALREPORTING

The administration branch of the Financial Management division is responsible for ensuring thatoriginatedfinanceassetsarenotfundedbyElementuntilallcreditanddocumentationconditionsaresatisfiedand all required security is perfected. Services provided by this division include document administration,reviewandapproval, funding, account set‐upandactivation, accountmaintenance, invoicing, correspondencetracking,insurancetrackingandsecurityregistrations.TheportfolioofassetsownedandmanagedbyElementis monitored with the assistance of a comprehensive software package. Element has also invested in cost‐effective financial reporting computer systems. Element has established back‐up arrangements and disaster

recoverysolutionsintheeventofafailureinitsprincipalsystems.FromDecember31,2010toDecember31,

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2011,thenumberofleasecontractsmanagedbytheadministrationbranchincreasedfrom450to3,577.

Prior to the Alter Moneta Acquisition, Element utilized Casitron Limited’s Lease Accounting andManagement System (“CLAMS”), which had proven cost effective and was hosted off‐site in a high securityfacility,providingElementwithdatasecurity,backupanddisasterrecoverysolutions.CLAMSisutilizedbysmalltomedium‐sizedleasingcompanies,isfunctional,verystableandaccurateinitsfinancialcalculations.Inearly2011, with Element’s anticipated origination and portfolio growth, Element began to review its options toconvert to amore robust and comprehensive leasemanagement system in2012.With the completion of theAlter Moneta Acquisition and the related acquisition of AM’s financial management information systems,Elementhasnowmigrated itsassetportfolio toAM’smorerobust leasemanagementsystems.Thesesystemsinclude:(i)LeasePlus(manufacturedbyLeaseTeamInc.),awell‐developed,industryleadingleasemanagementsoftwarewithsophisticatedreportingcapabilities,theabilitytoprocesssignificantgrowthandmanagealargeportfolio,whichisusedbynumerous leasingcompanies inbothCanadaandtheU.S.;(ii)Cognos,anIBMdatawarehousewhichisupdatedonadailybasisandutilizedtoprovidecomprehensivereportingcapabilities;and(iii)GreatPlains,aproductofMicrosoft,ahighlyrecognizedgeneralledgersystem.AllsystemsareinterfacedwitheachotherinordertoprovideElementwithaseamlesssystemssolution.AM’srobustleasemanagementsystems previously serviced a lease portfolio over US$2.0 billion. Element believes this proven capabilityprovidesitwithsignificantlyimprovedfinancialandleaseinformationandadministrationregardingElement’sassetportfolio,andalsoenablesittoprocesssignificantgrowthandmanageasignificantlylargerportfolioasitcontinuestogrowitsoriginationbusinessandconsiderbusinessacquisitions.

INFORMATIONTECHNOLOGYSYSTE S

Element’s Financial Management division currently utilizes a secure server for all of Element’selectronicdata.Theserver containsallofElement’s importantelectronic filesand isbackedupautomaticallyeveryeveningon‐siteandisalsobackedupremotelyevery24hourstoasecuredatacentre.Asdescribedabove,inconnectionwiththeAlterMonetaAcquisition,ElementhastransitioneditsleaseadministrationfunctionstoLeasePlus.

M

A C Q U I S I T I O N S

Steven Hudson, Element’s Chairman and Chief Executive Officer, and James More, Element’s SeniorExecutive Vice President, are responsible for Element’s Acquisitions and Joint Ventures division.Mr.Hudsonjoined Element in 2010, in the capacities of Director and consultant, having extensive experience in theequipmentfinanceindustry,includingthefounding,buildingandleadingofNewcourtovera14yearperiod.Mr.MorejoinedElementin2010,inthecapacitiesofDirectorandconsultant,followingover20yearsofextensivedebt capital markets and securitization experience. Messrs Hudson andMore become officers of Element in2011. A key component of Element’s business strategy is to grow its business through both organic andacquisitivegrowthopportunities.TheAcquisitionsandJointVenturesdivision,ledbyMessrs.HudsonandMore,isrespo thnsiblefordeveloping,executingandoverseeingElement’snon‐organicgrow planandstrategies.

Element has appointed an Advisory Committee that functions to provide advice and input regardingvariousmatters relating tomergers and acquisitions, the integration of anymerger or acquisition andmajorstrategicinitiatives.SeeCommittees–AdvisoryCommittee.

Sinceearly2010,Elementhasundertakenaprudentanddisciplinedapproachinreviewingnumerousacquisition opportunities. This approach recently resulted in the Alter Moneta Acquisition, which ElementexpectswillbethefirstofanumberofsignificanttransactionsasitassessesacquisitionopportunitiesinbothCanada and the United States. While Element takes a disciplined approach to opportunities it is willing to

pursue,itbelievesthatsignificantstrategicandaccretiveopportunitiesexistasmanycurrentequipmentleasingfirmsthroughoutNorthAmericalacksufficientaccesstocapital,areburdenedwithexpensivesourcesofcapitalorarenolongerastrategicfitfortheircurrentowners.Elementbelievesthatithassuperioraccesstocapital,ahighly experienced management team and a broad network of relationships that provide it with a strongcompetitiveadvantagerelativetomanyofthepotentialacquisitiontargetscurrentlyavailable.Moreover,withtheadditionofanumberofthemembersoftheformerAMmanagementteam,Elementisinapositiontoexpanditsprese sinthatregion.

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nceinQuébecandpursuefurtheracquisition

Element’sacquisitivegrowthobjectivesare:

Element’scoreequipmentandacquisitionsofindependentequipmentleasingcompanieswithinvendormarkets;

acquisitionsofcaptivefinancecompaniesandportfolios;and

o acquisitions fleasingbusinessesandportfoliosfromfinancialinstitutions.

Element’s focus for these acquisitive growth objectives will concentrate primarily on the Canadianmarket,withthepotentialforcross‐borderandU.S.opportunitiesthatarewithinElement’scoreverticalsandthatpossessprocessingcapabilitiesandstronglocalmanagementteams.AtthisstageinElement’sdevelopmentprocess,acquisitionswillbefocusedonbusinessesorportfoliosthatareastrategic fit intermsofback‐office,systems and originations capabilities, have the required infrastructure to continue to operate and growindependently without straining Element’s existing infrastructure and offer accretion to Element from a netincomeandreturnonequityperspective.

SIGNIFICANTACQUISITIONS

ALTERMONETAACQUISITI

Effective August 1, 2011, Element acquired substantially all the assets of AM pursuant to an assetpurchase agreement dated July 26, 2011 (as amended) (the “Asset Purchase Agreement”)with AlterMonetaCorporation, a corporation organizedunder the lawsof Canada andAlterMonetaCorporation, a corporationorganized under the laws of the State of Delaware (collectively, the “Vendors”) and IPC/AMH (Luxembourg)S.A.R.L., CDP Investissements Inc. and 4389930 Canada Inc. (collectively, the “Partners”). Element was notrequiredtofileaForm51‐102F4(BusinessAcquisitionReport)withrespecttotheAssetPurchaseAgreementasElementwasnot an issuing corporationat the timeof theacquisition. Pursuant to the termsof theAssetPurchaseAgreement,ElementacquiredalloftheassetsandassumedcertainliabilitiesoftheVendorsandtheirsubsidiaries, which operated as privately‐held independent financial services companies, for approximately$160,180,000.Theacquiredassetsincluded:netinvestmentsinleases;allfinancingcontractsoriginatedbyAMand its affiliates; interests in leased equipment; intellectual property, including management informationservicesandsoftware;certainofficeleases(inLongeuil,QuébecandBuffalo,NewYork);licenses;andallotherassetsrequiredtoconductthebusinessofAMasconductedatthetimeoftheAssetPurchaseAgreement.Thegeographicbreakdownoftheacquiredleaseportfolioconsistedof53%toobligorsofleasesinQuébec,31%ofleasesto

ON

obligorsintherestofCanadaand16%toobligorsofleasesintheUnitedStates,bydollarvalue.

AMwasan independent financial services companyoperating inboth theCanadianandU.S.markets,providing financing and leasing capital for a broad range of commercial assets to small‐ and mid‐sizedcompaniesinanumberofindustries,includingtransportation,construction,wastemanagement,manufacturing,surfacemining,passengertransportationandoilandgas.

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MaturingNatureofAMAssetsAcquiredIn2007,IrvingPlaceCapital(formerly,BearStearnsMerchantBanking)purchasedacontrollinginterest

in AM. Following the bankruptcy of Bear Stearns during the credit crisis in 2008, AM’s access to capitaldisappeared.Consequently,asofJanuary2009,AMceasedtofundnewlease/loanoriginations.

TheabsenceofanyneworiginationsbyAMsinceJanuary2009,togetherwiththecontinuedmaturationofleasesandloansinAM’sportfoliooverthe31monthperioduptotheclosingoftheAlterMonetaAcquisitioneffectiveonAugust1,2011,ledtoasignificantdeclineinAM’sassetsandrevenuesovertheperiodfromJanuary1,2009untiltheclosingoftheAlterMonetaAcquisition.ThevalueofAM’sfinanceassetportfolioatthetimeofitspurchasebyElementwasapproximately$158,474,000.

The financeassetportfolioacquired fromAMconsistedofover5,000 leasesand loans,whichpooloffinancereceivableshadanaverageremaininglifeofapproximately13monthsatthetimeoftheAlterMonetaAcquisition. The pool of finance receivables acquired under the Alter Moneta Acquisition was reduced toapproximately$103,854,000asatDecember31,2011.

Element expects to leverage its financial and operational abilities to service the maturing AM leaseportfolioitacquiredpursuanttotheAlterMonetaAcquisition.UnlikeAM,ElementhasthecapabilitytoservicetheAMcustomersbehindtheleasesandloansacquiredpursuanttotheacquisition.Inparticular,AM’sportfolioofover5,000leaseandloanassetsprovidesElementtheopportunitytoeitherofferrefinancingofequipmentthat has maintained its useful life or to extend new financing to former AM customers for replacementequipment.Asaresult,ElementdoesnotexpectnetfinancereceivablesrelatedtotheAlterMonetaAcquisitionto continue todecline.Rather,Elementbelieves that theAM leaseportfolio representsa substantialpotentialcustomerbaseforElementgoingforward,withtheacquisitionoftheAMassetsbeingaccretiveandasignificantsourceofnewbusinessforElement.

AssetPurchaseAgreementTheAssetPurchaseAgreement contains customary covenants, representationsandwarranties. In the

eventofbreachoftheAssetPurchaseAgreement,ElementwillhaverecoursetothePartnerswithin12monthsofthedateoftheAssetPurchaseAgreementforupto$12,500,000inconnectionwithcertainrepresentationsandwarrantiesmadeby thePartnersunder theAssetPurchaseAgreement.Aspartof the foregoingrecourserights,ontheclosingdate,$3,000,000ofthepurchasepricewasplacedondepositwithaNewYorkbank,tobeheldintrust(the“TrustAccount”),forthepurposeofpayingclaimsfordamagessubjecttoindemnification.Theamount in theTrustAccountwillbepaid toElement if theparties to theAssetPurchaseAgreementagree tosettle a damages claim in respect of AM or one of the Partners or a final arbitration decision is rendered infavourofElementwithin12monthsoftheclosingdate.

ConsiderationPursuanttothetermsoftheAssetPurchaseAgreement,thepurchasepricefortheacquiredassetswas

approximately $160,180,000, subject to specified post‐closing adjustments, together with the assumption ofcertainliabilitiesassociatedwithAM’songoingbusiness.TheAlterMonetaAcquisitionwasfinancedfromcashonhandof $42,800,000and from the sale and concurrent leaseof certainof the financeassets andpropertyacquiredfromAMpursuanttotheSecuritizationAgreementreferredtobelow.

SecuritizationAgreementConcurrentwiththeclosingoftheAlterMonetaAcquisition,ElementandElementUS(collectively,the

“Securitizers”) entered into a securitization agreement (the “SecuritizationAgreement”)with a securitization

conduit trust (the “Trust”) administered by an affiliate of a Canadian Schedule I bank (the “SecuritizationAgent”).

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PursuanttotheSecuritizationAgreement,theSecuritizershave:

(a) sold to the Trust certain specified loans (each a “Loan”) made by AM to individual obligors(“Obligors”)tofinancethepurchaseoftheequipmentandothermovableorpersonalpropertywhichiscollateralforthesecuredloan(“Collateral”);and

(b)leasedtotheTrustunderconcurrentleasescertainequipmentandothermovableandpersonalproperty(eacha “ConcurrentLease”of therelated “LeasedProperty”)whichLeasedPropertywasleasedtoindividualObligors(also“Obligors”)byAMunderleases(the“Leases”)whichareacquiredbytheTrustasaconsequenceoftheConcurrentLeases.

As consideration for such sale and concurrent lease, the Trust paid the Securitizers a purchase priceamount(inrespectof theLoans)andprepaymentofrent(inrespectof theConcurrentLeases)at thetimeofclosing inanaggregateamountof$120,700,000(before taxes) (the“InitialConsideration”)and theTrusthasagreedtopaydeferredpurchasepriceamountsanddeferredrent(collectively,“DeferredCompensation”)fromtime to time in accordance with the terms of the Securitization Agreement. Of the initial consideration,$1,500,000waspaidtoElement,$300,000waspaidtotheSecuritizationAgentasastructuringfee,$1,500,000wasdepositedtoareserveaccountestablishedpursuanttotheSecuritizationAgreement,whichamountmaybereleased toElement upon the termination of the transaction to the extent Collections (as definedbelow) aresufficienttosatisfyallobligationspayableoutofCollectionsinprioritytotheDeferredCompensationpayabletotheSecuritizer,andtheremainder($117,380,000)waspaidtotheVendorspursuanttothetermsoftheAssetPurchaseAgreement.

Furthermore, Element or ElementUS (each, an “Originator”)has agreed to pay the relevantObligorscertain floating rate adjustmentpayments thatmaybecomedueorowing to suchObligorsunder the relatedLoansorLeasesonanannualbasistoeffectivelyconvertthefixedinterestrateorimplicitratespecifiedintheLoan or Lease into a floating rate of interest by compensating the Obligor for the excess of any such fixedpaymentsover theamountofpaymentswhichwouldhavebeenpayable in theprecedingyear if theLoanorLeasewasatruefloatingrateloanorlease.

Element,astheservicer(the“Servicer”)undertheSecuritizationAgreement,hasagreedtoadminister,serviceandcollecttheLoansandLeasesinaccordancewithitscreditandcollectionpoliciesandtoperformtheadditionalservicingobligationssetoutintheSecuritizationAgreementfornoadditionalremuneration.ElementmaynotresignfromitsobligationsanddutiesasServicerunlesstheTrustotherwiseconsentsinwriting.

TheTrustmayappointaback‐upserviceruponwrittennoticetoElementandmayaffectatransferoftheservicingobligations fromElement toa replacementserviceron theoccurrenceof certainevents (each,a“ServicerTerminationEvent”).AServicerTerminationEventwilloccurifoneormoreofthefollowingeventsoccurs:

(a) ServiceTerminationEventscustomarytosecuritizationagreements,includingthevoluntaryorinvoluntary bankruptcy or similar insolvency proceedings of the Servicer, materially false,misleadingandincorrectrepresentationsandwarrantiesmadebytheServicerinorpursuanttoanydocumentrelatingtotheSecuritizationAgreementandtheoccurrenceofamaterialadversechangeinthefinancialconditionoroperationsoftheServicerwhichmateriallyadverselyaffectsthe securitized assets or the Trust’s interests therein or the Servicer’s ability to perform itsobligationsundertheSecuritizationAgreement;

(b) thefailureoftheServicertoperformorobserveanymaterialterm,conditionorcovenantunderthe Securitization Agreement which could have a material adverse effect on the Trust, the

20

securitizedassets,therelatedrightsorthecollectabilityorenforceabilitythereofandthefailuretoremedysuchafailure,ifcapableofbeingremedied,withintendaysafterwrittennotice;

(c) thefailureoftheServicertopayordepositanamountrequiredtobepaidordepositedpursuanttotheSecuritizationAgreementwithintwodaysofbeingdue;

(d) the failureofElement tomaintaina tangiblenetworthof an amountequal to the sumof (i)$60,000,000 and (ii) 50% of the cumulative positive net income of Element for each fiscalquarter following the closingdateas reported in eachof itsunauditedquarterly consolidatedfinancialstatementsandauditedannualconsolidatedfinancialstatements;

(e) theconsolidateddebttoshareholdersequityratioofElementisgreaterthan6.0:1atanygiventime;

(f) the default ratio for any monthly collection period exceeds 3.0% in respect of the Canadianassetsand12.5%inrespectoftheU.S.assets;

(g) the three‐month loss ratio for anymonthly collectionperiod exceeds2.30% in respect of theCanadianassetsand8.75%inrespectoftheU.S.assets;

(h) theServicerfailstodeliveramonthlyportfolioreportwithintwodaysoftherequiredreportingdate;and

(i) theoccurrenceofanEventofDefault(asdefinedbelow).

The feesandexpensespayabletoanyback‐upservicerorreplacementservicerwillbepayableoutofCollections and accordingly such payment obligations shall reduce the Securitizer’s entitlement to receiveDeferredCompensation.FollowingtheoccurrenceofaServicerTerminationEvent,anon‐performancemarginwillalsoaccrueandbecomepayablemonthlyinarrearsoutofCollectionsinadditiontotheprogramfeepayableoutofCollectionsduringthetermofthetransaction.

Element,astheServicer,assumestheobligationtocollectandremittoasegregatedaccountmaintainedfor theTrustwithin onebusiness day of receipt all payments receivedwith respect to the Loans andLeasesincludingObligorinterestpayments,Obligorprincipalpayments,Obligorprepayments,residualrealizations,netliquidation proceeds, payments for repurchased receivables, hedge payments (if any) and all insurancepaymentsandrecoveries(collectively,“Collections”).Ineachmonthlycollectionperiod,Elementmustdeliver,to the Trust, a certified portfolio report providing an accounting of collection activities during the collectionperiod,t e mher latedperformancestatistics,andthe relatedpay entallocations.

The Securitization Agreement sets out customary events of default (each an “Event of Default”),including:

(a) theoccurrenceofaServic erTerminationEvent;

(b) theoccurrenceandcontinuanceofaneventofdefaultunderanyagreementpursuanttowhichanOriginatorhasoutstandingindebtednessinanamountgreaterthan$5,000,000;

(c) thefailureofanOriginatortopayordepositanamountrequiredtobepaidordepositedundertheSecuritizationAgreementwithintwobusinessdaysofbeingdue;

(d) the failure of an Originator to perform or observe any material term, condition or covenantundertheSecuritizationAgreementandthefailuretoremedysuchafailure,ifcapableofbeingremedied,withintendaysafterwrittennotice;

(e) any representation or warranty made or deemed to have been made by an Originator in orpursuant toanydocumentrelating to theSecuritizationAgreementproves tohavebeen false,misleadingorincorrectinanymaterialrespectand,ifcapableofbeingcured,isnotcuredwithin10daysafterwrittennotice;

(f) achangeincontrolofownershipoccurswithrespecttotheServicer;

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(g) a voluntaryorinvoluntarybankruptcyorsimilarinsolvencyproceedingsofanOriginator;and

(h) inthereasonableopinionoftheSecuritizationAgent,therehasbeenamaterialadversechangeinthefinancialconditionoroperationsofanOriginatorwhichmateriallyadverselyaffectsthesecuritized assets or the Trust’s interests therein or such Originator’s ability to perform itsrespectiveobligationsundertheSecuritizationAgreement.

SubjecttotherightoftheSecuritizationAgenttowaiveenforcement,uponanEventofDefault,theTrustmayexerciseanyrightsavailable to itunder theSecuritizationAgreementorotherwise including theright tosellthesecuritizedassetsatpriceswhichmayresultinadiminutionofDeferredCompensationorresultinnoadditionalDeferredCompensationbeingpayabletotheSecuritizers.

The Securitization Agreement provides that the Securitizers will jointly and severally indemnify theTrust and theSecuritizationAgent and their respectiveofficers, agents, trusteesandassigns (collectively, the“IndemnifiedParties”) fromandagainstanydamages, losses,claims, liabilitiesandrelatedcostsandexpensesand any costs associatedwith the appointment of a replacement Servicer and including anydamages, losses,claims,liabilitiesandrelatedcostsandexpensessufferedbytheTrustawardedagainstorreasonablyincurredbyanyoftheIndemnifiedPartiesandarisingoutoforasaresultofabreachorviolationbytheSecuritizersofanyoftheirdutiesorobligationsundertheSecuritizationAgreement.

EffectonFinancialPositionTheAlterMoneta Acquisitionwas consistentwith Element’s stated acquisitive growth strategies and

objectives. SeeNarrativeDescriptionof theBusiness–Acquisitionsand JointVentures–GrowthStrategy. TheAlterMonetaAcquisitionprovidedElementwithanestablishedback‐officestaffandsystemswiththecapabilitytomanage andprocess a largeNorthAmerican equipment financeportfolio andhandle significant growth inbusiness originations. In addition, the Alter Moneta Acquisition provides Element with scale and a base forfuturestrategicandacquisitivegrowthtransactions,aswellasincreaseddiversificationinElement’sassets.Asaresult of the Alter Moneta Acquisition, Element has a national integrated sales force with local funding anddocumentationstafftosupportoriginationactivitiesandcentralizedportfoliomanagementandadministrativeservicessupport.

Following the closing of theAlterMonetaAcquisition, Elementproceededwith a detailed integrationplan respecting the financial integration of the business and assets of AM. The integration plan has been totransformtheAMplatformintoasharedservicesentity,decentralizeprocessestotheoperationsacquiredfromAM,retaincontrolatthecorporatelevel,re‐starttheQuébecoriginationplatformandleveragetheexistingAMcustomer base. The integration of the Alter Moneta Acquisition was completed by the end of 2011. ThisincludedthetransitionalactivitiesrelatedtotheAlterMonetaAcquisitionaswellasre‐startingoriginationsinQuébec and establishing the foundation of a scalable back‐office and a Montreal shared services office.Oversightof the integrationplanwas the responsibilityof the integrationsteeringcommittee, the integrationworkingcommitteeandtheintegrationoffice.

Specifically, the integration plan included the development of a national integrated sales force, theestablishmentoflocaldocumentationsupportinTorontoandMontrealandthedevelopmentoflocalcreditandfundingtosupportoriginations,centralizationofinvoicing,payments,contractmaintenance,leasemaintenance,cashmanagement and treasury and IT platforms, and consolidation of the reporting and planning processesunder the Chief Financial Officer. With the integration complete, Element now has three types of offices: acorporateofficeinToronto,asharedservicesofficeinMontrealandvarioussalesoffices.

Element’sintegrationplanrequiredthecontinuedemploymentofcertainAMemployeesandtheentryintoemploymentagreementsandconsultingagreementswithselectAMemployees.Notably,twoofAM’sseniormanagementmembers entered into consulting agreementswithElement for thepurposeof providing advice

and assistance to Element’s management team respecting the integration process, including assistance withoriginations, accounting and portfolio management and collections. These agreements were terminatedsubsequ

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enttothecompletionofthesuccessfulintegration.

ElementexpectstoleverageAM’shistoricaloriginationandmanagementexperiencetogrowElement’sorigination platform, particularly in Québec. Element also anticipates integrating the back‐office functions ofElement and AM, and expanding Element’s overall origination and lease management capacity. In addition,Element currently expects to expand its origination presence in Québec, where AM traditionally had a verystrongbookofbusiness.Elementhasalsosetgoalsforthepost‐integrationperiod.ItexpectstoexpandcurrentserviceofferingswithcomparableproductsacrossCanadaandtoevolvedeliverycapabilitiesofsharedservices.

SaleofU.S.AssetsOnDecember20,2011butwithaneffectivedateofNovember30,2011,ElementU.S.soldthemajority

of its U.S. assets acquired as part of the Alter Moneta Acquisition to a third party for gross proceeds of$12,031,000asElementdidnotconsidertheseassetsascoretoitsongoingbusiness.AsatDecember31,2011,U.S.assetsoutstandingwereapproximately$2,000,000.

GROWTHSTRATEGY

Element’sprimaryobjective istoenhanceitscurrentpositionasaproviderofequipmentfinancingtomedium‐sized businesses, primarily within the mid‐ticket market segment, as well as to increase Element’sbrandrecognitionwithintheequipmentfinanceindustry,withamissiontobecomeCanada’sleadingequipmentfinance company. Element intends to pursue this strategy by focusing on organic growth initiatives and bypursuingcomplimentaryaccretiveacquisitionopportunitiesacrossNorthAmerica, ineachcasemainlywithinElement’scoreequipmentandvendormarkets.

This proaap chtobothorganicandacquisitivegrowthisfoundeduponanumberofconsiderations.

(i) Prior to the AlterMoneta Acquisition,most of Element’s business had been generated inCentralandWesternCanada,whereElementcontinuestohaveawell‐developedoriginationnetwork. Following such acquisition, Element operates in all provinces of Canada andintends to increase its investment in originations into other geographic regions acrossCanadaandtheUnitedStates.

(ii) Element seeks tomaintain consistent credit quality standardswhile continuing to pursuestrategies designed to increase the number of independent equipment dealers and otheroriginationsourcesthatgenerateanddevelopleasecustomers.

(iii) Elementcontinuestotargetstrategiestofurtherpenetrateitsexistingoriginationsources,includingpursuingnewvendorrelationshipsandexpandinguponitsexistingrelationships.

(iv) Element believes that themarket disruption and lack of access to capital in theCanadianequipment finance industry as a result of the global economic crisis has created theopportunity for Element to expand its origination staff by hiring experienced teamswho

ihavewellestablishedoriginationrelationsh ps.

(v) Element believes that significant strategic and accretive opportunities exist in the NorthAmericanequipmentleasingindustryandElementintendstopursueadisciplinedapproachtosuchopportunities.

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Basedonthesecoreconsiderations,Element’sgrowthstrategyincludesthefollowingkeycomponents:

CAPITALIZEONORGANICOPPORTUNITIESINTHENORTHAMERICANEQUIPMENTFINANCEINDUSTRY

Expand sNewOrigination Element intends to expand upon its industry‐leading national sales force by continuing to hire

experienced and established origination staff with proven equipment vendor relationships and portfolioopportunities,aswellasretainingtalentedunderwriting,administrationandfinancialreportingexecutivesandmanagers. Element believes that the market disruption has created a “market dislocation” which has left anumber of undercapitalized participants in the equipment finance market with experienced teams andestablishedoriginationplatformslookingforopportunitiestopartnerwithawellcapitalizedfirm,creatingtheopportunity for Element to further build out its origination platform by attracting experienced teams withestablishedrelationshipsintheindustry.

GeographicExpansionWiththeAlterMonetaAcquisition,Elementexpandeditsgeographiccoveragebyenteringnewregions

in Canada (particularly in Québec) and intends to expand and enhance its origination in areas where it iscurrentlyunderrepresented,includingBritishColumbia,SaskatchewanandAtlanticCanada.However,Element’sgeographic expansion into new regions will be subject to securing proven origination and underwritingplatformswithinsuchregions.

TargetNewEquipmentVerticalsInadditiontoexpandingintonewgeographicareas,Elementintendstoemphasizegrowthbytargeting

newequipmentcategoriesandsalesprogramsandcontinuallypursuingopportunitiestodiversifyfromitscoreequipmentmarkets by expanding into complementary verticals, andmay consider areas such as technologyequipment, office equipment andnon‐commercial aircraft. Elementwill develop financing of these additionalassetclassesonlywhenithastheexpertisetounderwriteandmanagesuchassetswithintheidentifiedcategory.Element intends to do so by leveraging the expertise of its existing sales force, as well as through new,complementary hires in areas of potential growth. In furtherance of this growthobjective, in January 2012Element announced the establishment of Element Capital. Element Capital will pursue large equipmentfinancingand leasingtransactions, includingenergyrelatedassets,corporateaircraftandhelicopters,railandroad transport, as well as mining and large‐scale construction equipment. Element Capital is led by TonyBergeron,whohasmorethan20yearsofexperienceintheequipmentfinancingindustry.

ExperiencedSeniorManagementTeamElement believes its executive management team’s experience in the equipment financing industry

provides Element with access to key decision makers at equipment vendors across North America, therebyenabling it todevelopandenhanceequipmentvendor relationships in eachofElement’smarketverticals.Aspartofdevelopingandenhancingvendorrelationships,Elementseekstoestablishitselfeffectivelyasabusinesspartnerofitsvendorsthroughtheestablishmentofcomprehensivearrangementsdesignedtodevelop,promoteand administer equipment financing programs for such vendors’ customers. Element typically provides thevendorwithassistanceandadviceastointerestrates,downpayments,repaymentmaturities,documentation,collections, liquidations,marketingandrelatedmatters.AlthoughElementseeksandoftenobtainsapreferredrelationshipwithvendorspursuanttotheseprograms,thesearrangementsdonotobligateElementtoapproveany financing transactions which do not meet its credit standards or require the vendor to refer all of its

financingtransactionstoElement.Elementcontinuouslyseekstoexpandthefinancingservicesofferedunderitsexisting

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vendorprograms.

Element believes that these organic growth effortswill provide Elementwith a balanced originationteampossessingnationalcoverageandregionaldiversification.

PURSUESTRATEGICACQUISITIONSANDOTHERPARTNERSHIPS

PursueAcquisitionandPartnershipOpportunitiesElementispositionedtocapitalizeonopportunitiestoexpanditsbusinessthroughpotentialacquisition

andpartnershipopportunities thatarise fromthecurrentmarketdislocation.AspartofElement’sstrategytoexpandintonewgeographicmarkets,Elementmayacquireoraddestablishedoriginationteamsandplatformsin order to provide increased national coverage and regional diversification. Element intends to selectivelypursuestrategicacquisitions, investments,andotherrelationships inbothCanadaandtheU.S. that itbelievescansignificantlyenhance theattractivenessof its currentequipment leasingplatformorexpand its customerbase.Element’sexperiencedmanagementteamhassuccessfullycompletednumerousindustryacquisitionsandintegrations,andbelievesthatthemarketdislocationhascreatedunprecedentedbuyingopportunitiesforgoodbusinesses at reasonable value. Element management’s experience provides Element with a disciplinedapproachtoacquisitionandpartnershipopportunities.TodateElementhasevaluatednumerousopportunitiesand itwill continue todoso.Elementbelieves thatElementmanagement’spast experience in theequipmentfinancingandfinancialservicesindustriesprovidesElementwiththeskillsandexperiencetoeffectivelyidentifyandevaluateacquisitionorpartnershipopportunities.

ThemostrecentexampleofElement’sacquisitivegrowthstrategyistheAlterMonetaAcquisition.SeeNarrativeDescriptionof theBusiness–Acquisitionsand JointVentures–SignificantAcquisitions–AlterMonetaAcquisition,above.Withitsestablishedback‐officestaffandsystemswiththecapabilitytomanageandprocessalargeNorthAmericanequipment financeportfolioandhandlesignificantgrowth inbusinessoriginations, theAlterMonet ing:aAcquisitionprovidedElementwithanumberofimmediateandtangiblebenefits,includ

s;themigrationto,andintegrationof,AM’srobustleasemanagementprocessingsystem

ionplatform;andtheabilitytocapitalizeuponandestablishastrongQuébecoriginat

shinanaccretivemanner. theabilitytodeployElement’sexcessca

SelectivelyPursueU.S.AcquisitionOpportunitiesElementalso intendsonselectivelypursuingopportunities in theUnitedStates.Elementbelieves that

the U.S. offers acquisitive growth potential for Element including: independent leasing companies that lacksufficient capital to grow their business, or that cannot obtain debt funding on favourable terms; financialinstitutions with non‐core or non‐strategic leasing businesses; leasing companies that can be leveraged toexpanduponexistingvendor relationshipswitha cross‐borderpresence;originationplatforms that currentlysyndicateorsellalloftheirbusinessoriginationduetolackofequitycapitaltosupportfundingorbuildaback‐office;andattractiveportfoliosinrun‐offduetoinsufficientaccesstoadditionaldebtfunding.ElementbelievesthemostattractivecharacteristicsofpotentialtargetsforacquisitiveopportunitiesintheU.S.include:astrategicfittoElement’scurrentandfuturebusinessplans;atrackrecordofmanagementdisplayingprofitablegrowth;willingnessofkeymanagementtoparticipate in thecontinuedgrowthof thebusiness;equipment inverticalsElementunderstandsandwhichofferafavourableriskprofile;anoriginationmodelconsistentwithElement’srelying predominantly on vendor‐based and direct originations; and use of conservative revenue recognitionaccountingmethodologies.TheglobalcreditcrisisseriouslyimpactedtheU.S.equipmentfinanceindustryandthe recent turmoil in the U.S. financial services industry resulted in the withdrawal of many competitors

particularly in small‐ and mid‐ticket leasing. Element believes that it is well positioned in the market tocapitalizeuponstrategicgrowthopportunitiesintheU.S.thatfitwithinitscoreverticalsandaugmentitsback‐office,systemsandoriginationscapabilities.

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ExplorePartneringOpportunitieswithFinancialInstitutionsElementexpectsthatopportunitieswillexistforittopartnerwithamajorfinancialinstitutionthrough

financingarrangementsorthecreationofa“privatelabel”equipmentleasingbusiness,andhavecontinuedtoexploreandconsidersuchopportunities.Elementbelievesthatsuchpotentialpartnersmayshowinterestintheequipmentfinancesegmentduetotheabilitytodrivecommercialbankingbusinessthroughaleasingplatform,but that suchpotentialpartners currentlydonothave theexpertise toprovide thisproduct.GivenElement’sbroad experience and track record in equipment financing and leasing, it believes that financial institutionsseekingtoinvestintheequipmentfinancesegmentwillviewitasanattractivestrategicpartner,andthatsuchpartnershipswithmajorfinancialinstitutionswillprovideElementwithadditionalfundingandclientbasesthatwouldsignificantlyamplifyitsoriginationcapabilities.

C A P I T A L S T R U C T U R E

TheCapitalStructuredivisionis ledbyStevenHudsonandJamesMore.TheCapitalStructuredivisionprovidescomprehensivesupporttoeachofthebusinessunitsforbusinessoriginationtransactions.TheCapitalStructuredivisionisresponsibleforidentifyingandsatisfyingbothinterimandlong‐termfundingrequirementsand cash and financial riskmanagement. Element’s funding requirements, both on an interim and long‐termbasis,aredescribedunderNarrativeDescriptionoftheBusiness–CapitalStructure–FundingArrangements.

FUNDINGMODEL

From its inception in 2007 toDecember 31, 2011, Element has obtained in aggregate approximately$580,000,000inequitycapitalandfundingcommitments.In2011alone,Elementsubstantiallystrengtheneditsbalancesheetbyincreasingitsequitycapitalbymorethan$254,000,000pursuanttotwoprivateplacementsofcommon shares. AsdescribedbelowunderNarrativeDescriptionoftheBusiness–CapitalStructure–FundingArrangements, this substantially enhanced equity base will allow Element to leverage its balance sheet withadditionaldebtcapital,tosupportgrowthinequipmentleaseoriginations.

Elementoriginatesequipmentfinanceassetsforitsowntermfundingbook,aswellassyndicatingorco‐owningsuchassetswithlargerfinancialinstitutions.AtypicalequipmentfinancetransactionisfundedthroughElement’s committed term funding through secured credit facilities (the “Term Funding Facilities”). SeeNarrativeDescriptionoftheBusiness–CapitalStructure–FundingArrangements.

ThereareanumberofstepsinvolvedinthetermfundingofElement’sequipmentfinanceassets:

1. Elementoriginatesandinterimfundsequipmentfinancetransactionsinaccordancewithitsspecificcreditunderwritingguidelinesforeachequipmentvertical,usingacombinationofavailablecashonhandand/oritsWarehouseLine(asdefinedbelow);

2. Elementaccumulatesequipmentfinancetransactionsforaperiodoftime,typicallyintherangeoffourweeks,andpackagesthetransactionsindiscretetranchesfortermfundingthroughoneofitsTermFundingFacilities;

3. theproceedsreceivedfromthetermfundingareusedbyElementtorepayanyamountsborrowedunder theWarehouseLine (asdefinedbelow)onorigination,aswellas to fundany termfundingholdback,withtheremainingbalanceofthetermfundingproceedsreleasedtoElement;and

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4. transactionsarematchfundedbyElementonafixed‐ratebasiswithsecureddebtoverafinancingterm equal to the amortization of the underlying equipment finance transactions; Elementrecognizesinterestincomeandassociatedinterestexpenseoverthetermoftheequipmentfinancetransactions.

FUNDINGARRANGEMENTS

AsatDecember31,2011,Elementhadshareholders'equityof$238,341,000andaccesstocommittedtermfundingof$176,914,000“TermFundingFacilities”withfourlifeinsurancecompanieswhichitemploystooriginate new business. The Capital Structure division, which is responsible for arranging the funding forElement’s equipment financing originations, utilizesElement’s funding sources to satisfy Element’s long‐termmatch‐funding requirements. To obtain additional short and long term funding, Element looks to the bankmarketandsyndicationoforiginatedequipmentfinanceleases.

AsofDecember31,2011,Elementhassecuredborrowingsof$86,495,000,whichrepresentsamountsdrawn on its Term Funding Facilities. Pursuant to the terms of these facilities, the lenders receive either asecurityinterestand/orlegalownershipindirectfinancingleases.SecuredborrowingsareadvancedtoElementon a tranche‐by‐tranche basis,with each tranche collateralized by a specific group of underlying leases. Thetermsofrepaymentaredesignedtomatchthepaymenttermsoftheunderlyingleases.InterestratesarefixedatthetimeofeachadvanceandarebasedonGovernmentofCanadabondyieldswithmaturitiescomparabletotheterm of the underlying leases plus a premium. Since the beginning of fiscal 2010, Element has been able toeffectivelydecreaseitscostoffundswiththemajorityoffundingusedbyElementinnewbusinessoriginationsobtainedatsubstantiallynarrowerfundingmarginsagainstGovernmentofCanadabondyields.

Element’scurrentTermFundingFacilitiesasatDecember31,2011areshowninthefollowingchart:

TermFundingFacility EntireFacility

SunLife $100,000,000

Manulife $50,000,000

$CanadaLife

EquitableLife

40,000,000

$5,000,000

Total $195,000,000

AsofDecember31,2011,Elementhad$328,000,000ofavailable liquidity to fund futureoriginationsrepresenting approximately 10 month to 12 months future originations in line with management forwardplanningwhere it intends tooperatewith future fundingcommitmentsapproximating the forecastednext12monthsoforiginationofitsElementFinancebusiness.

AsofDecember31,2011Elementhadpledgedfinancereceivablesof$79,466,000.

Elementalsohasaccesstoa$25,000,000revolvingcreditfacilitywithaSchedule1Canadianbank(the“Warehouse Line”) to fund its equipment financings prior to their term funding through the Term FundingFacilities.Elementhasinplacea$120,000,000securedborrowingagreementwithaCanadiantrustrelatedtothe Alter Moneta Acquisition. This agreement is for the sole purchase of the financing of the Alter MonetaAcquisition and is non‐revolving. As atDecember 31, 2011, the outstanding indebtedness under such facilitywas $87,946,000. See Narrative Description of the Business – Acquisitions and Joint Ventures – SignificantAcquisitions–AlterMonetaAcquisition.

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FUTUREFUNDINGARRANGEMENTS

Elementmay considerobtaining furtherdebt financing facilities through termbankdebt,public termfundingprogramsandother institutionaldebtorsyndication facilities.Withthe increasedequitycapitalbase,and anticipated growth plans for originations, Element also expects to increase some of its existing TermFundingFacilitiesduring2012.

C O M P E T I T I O N

Element’smarketsarehighlycompetitiveandcharacterizedbyvariouscompetitivefactors.InCanada,Element faces competition from a number of industry participants, including independent lease financecompanies (including subsidiaries of U.S.‐based commercial leasing companies), captive finance companiesownedbymanufacturers anddistributers, Canadianbanks and third‐partybrokers.While someof the largercompetitorsprovideleasefinancingtothemarketplace,theydonottendtofocusonmid‐ticketleasestosmalland medium‐sized businesses. Element’s principal competitors include, among others, MAXIUM FinancialServices Inc., Bodkin Leasing Corporation, Lift Capital Corporation, and subsidiaries of Schedule 1 Canadianbanks,suchasRoynatLeaseFinanceandTDEquipmentFinance(formerlyCapitalUnderwritersCorporation).

Generally,Element’sprincipalcompetitorsareentitieswithoperationsonasmallerscalethanElementthatdonothave the financial strength, back‐office capabilities and sales forceofElement.Element competeswith itsprincipalcompetitorsonthebasisof,amongotherthings, interestratesfor leaseandloanfinancings,quality of customer service, the ability to establish,maintain andgrow relationshipswith vendors anddirectrelationshipswithcustomers,originationcapabilities,theabilitytoidentifyandproperlyriskassessoriginationsources, andaccess to capital to fundoriginations. Elementbelieves it iswellpositioned to competewith itscompetitors bymeans of having an experiencedmanagement teamwith a track record of success, superioraccesstocapital,alargeandhighlyexperiencedinhousesalesteamwithrapidcustomerresponsetimesandacreative structuring approach, as well as strong relationships with end‐user customers and vendors andfinancialinstitutionpartnerships.

Many small andmedium‐sized independent leasing companies, including thosedescribed above,whocompeteinthesamemid‐ticketsegmentasElementaresufferingfromanumberofchallengeswhichElementbelieves provide itwith competitive advantages. Element believes thatmany independent leasing companieshaveover‐leveredbalancesheetsthatarenolongeracceptabletotheirfunders,aninabilitytoaccessadequateequityanddebtcapital,higherthananticipatednetwrite‐offsasaresultofoverlyaggressivelendingpracticesprior to the global credit crisis, excessiveoperating expenditures that areout of linewith static or shrinkingportfolios, aggressive “gain on sale” accounting practices that have masked poor profitability metrics, andinadequatesuccessionplanningwherebymanyowner‐operatorsarereachingretirementagewithnoobviousbuyers to take over the business. Similarly, Element believes that the Schedule 1 Canadian banks that haveleasingoperations inCanadaaremore focusedonsmall‐ticketvendorprogramsand larger investmentgradeequipmentfinancings,andconsequentlydonothaveastrongfocusonthemid‐marketequipmentleasingspaceinwhichElementspecializes.

ElementCapital’sprimarycompetitorsinthelargeequipmentfinancingmarketare:GECapital,CIT,KeyEquipmentFinance,HSBC,PNCEquipmentFinance,BankofAmericaEquipmentFinanceandCanadianbanks.

E M P L O Y E E S

AsofDecember31,2011,Elementhad75employeesinclusiveoffourmembersofseniormanagement.NoneofElement’semployeesisrepresentedbyacollectivebargainingagreementandithasneverexperiencedanyworkstoppage.Elementhasemployment,non‐solicitationandnon‐competitionagreementswitheachofitssenior executives andoriginators. Element considers its relationswith its employees to be good. In addition,

Elementviewsitsemployeesasanimportantcompetitiveadvantage.Historically,Elementhasbeensuccessfulinretainingitskeyemployeesincludingmembersofitsmanagementteam.Element’sseniormanagementteamhasanindepthknowledgeofequipmentfinance,andoftheindependentfinancialservicesindustryingeneral,withanaverageof20yearsofdiversifiedassetfinanceandequipmentfinanceindustryexperience.

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RISKFACTORS

AninvestmentinthesecuritiesofElementinvolvessignificantrisks.InvestorsshouldcarefullyconsidertherisksdescribedbelowbeforedecidingtopurchaseElement’ssecurities.Ifanyofthefollowingorotherrisksoccur, Element’s business, prospects, financial condition, results of operations and cash flows could bemateriallyadverselyimpacted.

R I S K S R E L A T I N G T O E L E M E N T ’ S B U S I N E S S

CREDITRISKSMAYLEADTOUNEXPECTEDLOSSES

Element’snet investment in financeassets for itsownaccountandtobeheld for future termfundingexposes Element to credit risk. Credit risk is the risk that Elementwill incur an unexpected loss because itscustomers and counterparties fail to discharge their contractual obligations. Credit risk arises principallythroughElement’s finance receivables thatarea resultof transactionswithin theequipment finance industryand,assuch,containanelementofcreditrisk intheeventthatobligorsareunabletomeetthetermsoftheiragreements.Element isexposedtocreditriskas itarises fromeventsandcircumstancesoutsideofElement’scontrolrelating toadverseeconomicconditions,business failureor fraud.Typesof fraudtowhichElement isexposedgenerallyfallintooneofthreeprimarycategories:(i)vendor/dealerfraud;(ii)customerfraud;and(iii)employee fraud. Excessive credit losses could adversely affect Element’s ability to generate and fund newfinancings.

Inordertomanagecreditrisk,Elementoperatesusingaclearlyidentifiedsetofpoliciesandproceduresthroughout its business processes. This includes a detailed analysis of the value of security, the applicant’sfinancialconditionandtheability toservice thedebtat lease inceptionandthroughout the termof the lease.Elementalsomanagesandcontrolscreditriskbysettinglimitsontheamountofriskitiswillingtoacceptforindividualcounterpartiesondirectfinancingleasesandloans.

CONCENTRATIONOFLEASESANDLOANSTOSMALLANDMID‐SIZEDCOMPANIESMAYCARRYMOREINHERENTRISKS

Element’sportfolioconsistsprimarilyof loansandleasestosmallandmedium‐sized,privately‐ownedcompanies,mostofwhichdonotpubliclyreporttheirfinancialcondition.Comparedtolarger,publicly‐tradedfirms, loans to these typesof companiesmay carrymore inherent risk.The companies thatElement financesgenerallyhavemore limitedaccess tocapitalandhigher fundingcosts,maybe inaweaker financialposition,mayneedmorecapitaltoexpandorcompete,andmaybeunabletoobtainfinancingfrompubliccapitalmarketsor from traditional sources, suchas commercialbanks.Additionally,becausemostofElement’s customersdonot publicly report their financial condition, Element ismore susceptible to a customer’smisrepresentation,which could causeElement to suffer losseson itsportfolio.The failureof a customer to accurately report itsfinancialpositioncouldresult inElementproviding loansor leases thatdonotmeet itsunderwritingcriteria,defaultsinloanandleasepayments,thelossofsomeoralloftheprincipalofaparticularloanorleaseornon‐compliancewithloanorleasecovenants.Accordingly,loansandleasesmadetothesetypesofcustomersinvolvehigherrisksthanloansandleasesmadetocompaniesthathavelargerbusinesses,greaterfinancialresourcesorareotherwiseable toaccesstraditionalcreditsources.Numerous factorsmaymakethesetypesofcompaniesmorevulnerabletovariationsinresultsofoperations,changesimpactingtheirindustryandchangesingeneralmarketconditions.

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CONCENTRATIONOFLEASESANDLOANSWITHINAPARTICULARINDUSTRYORREGIONMAYNEGATIVELYIMPACT ELEMENT’SFINANCIALCONDITION

Element specializes in certain broad industry segments, such as manufacturing and industrial,transportationandconstruction,healthcareandgolf equipment.Asa result,Element’sportfolio currentlyhasandmaydevelopotherconcentrationsofriskexposurerelatedtothoseindustrysegments.Ifindustrysegmentsin which Element has a concentration of investments experience adverse economic or business conditions,Element’s delinquencies, default rate and charge‐offs in those segmentsmay increase,whichmay negativelyimpactitsfinancialconditionandresultsofoperations.

ELEMENT’SPROVISIONFORCREDITLOSSESMAYPROVEINADEQUATE

Element’s business depends on the creditworthiness of its customers and their ability to fulfill theirobligationstoElement.Elementmaintainsaprovisionforcreditlossesthatreflectsmanagement’sjudgmentoflosses inherent intheportfolio.Elementperiodicallyreviewsitsprovisionforadequacyconsideringeconomicconditionsandtrends,collateralvalues,andcreditqualityindicators, includingpastcharge‐offexperienceandlevelsofpastdueloans,pastdueloanmigrationtrends,andnon‐performingassets.

Element’sprovision for credit lossesmayprove inadequateandElement cannotassure that itwillbeadequateovertimetocovercreditlossesinElement’sportfoliobecauseofadversechangesintheeconomyoreventsadverselyaffectingspecificcustomers,industriesormarkets.ElementreservesmaynotkeeppacewithchangesinthecreditworthinessofElement’scustomersorincollateralvalues.IfthecreditqualityofElement’scustomerbasedeclines,iftheriskprofileofamarket,industry,orgroupofcustomerschangessignificantly,orifthemarkets for equipment or other collateral deteriorates significantly, any or all ofwhichwould adverselyaffecttheadequacyofElement’sreservesforcreditlosses,itcouldhaveamaterialadverseeffectonElement’sbusiness,resultsofoperations,andfinancialposition.

Whilecreditlosseshavebeenminimaltodate,Elementhasandwillcontinuetoprovideforcreditlossesbased on industry specific historical losses considering the categories, segmentation and distribution of theassetsbeingfinancedanditsborrowerbase.

THECOLLATERALSECURINGALOANORALEASEMAYNOTBESUFFICIENT

WhilemostofElement’sloansandleasesaresecuredbyalienonspecifiedcollateralofthecustomer,thereisnoassurancethatElementhasobtainedorproperlyperfecteditsliens,orthatthevalueofthecollateralsecuringanyparticular loanwillprotectElement fromsufferingapartialorcomplete loss if the loanor leasebecomesnon‐performingandElementmovestoforecloseonthecollateral.Insuchevent,Elementcouldsufferloanor lease losseswhichcouldhaveamaterialadverseeffecton itsrevenue,net income, financialconditionandresultsofoperations.

When underwriting collateral, Element makes an estimate of the value of the collateral under adistresseddisposition.Theestimatedrealizationvalueofequipmentduringthelifeoftheleaseisanimportantelementintheleasingbusiness.AdecreaseinthemarketvalueofleasedequipmentatarategreaterthantherateElementprojected,whetherduetorapidtechnologicaloreconomicobsolescence,unusualwearandtearontheequipment,excessiveuseoftheequipment,recessionorotheradverseeconomicconditions,orotherfactors,wouldadverselyaffectthecurrentrealizationvaluesofsuchequipment.

Further, certain equipment realization values are dependent on the manufacturers’ or vendors’warrant ity.ies,reputation,andotherfactors,includingmarketliquid

Thedegreeofrealizationriskvariesbytransactiontype.

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CREDITFACILITIESMAYLIMITELEMENT’S OPERATIONALFLEXIBILITY

Element’s credit facilities, including the Securitization Agreement, contain financial and non‐financialcovenants,suchasrequirementsthatElementcomplywithoneormoreoftangiblenetworth,consolidateddebttoshareholdersequityratio,loanlossratiosandchangeofcontrolprovisions.Complyingwithsuchcovenantsmay at times necessitate that Element forego other favourable business opportunities, such as acquisitions.Moreover,Element’sfailuretocomplywithanyofthesecovenantswouldlikelyconstituteadefaultundersuchfacilitiesandcouldgiverise toanaccelerationofsome, ifnotall,ofElement’s thenoutstanding indebtedness,whichwouldhaveamaterialadverseeffectonElement’sbusiness.

LACKOFFUNDINGMAYLIMITELEMENT’SABILITYTOORIGINATELEASES

Elementisdependentuponitsabilitytosecurefundingforitsloansandleasestocustomersandtofunditsexistingobligations.WhileElementactivelypursuesnewsourcesoffunding,therecanbenoassurancethatsuchadditionalfinancingwillbeobtained.Inthepast,Elementhasobtainedthecashrequiredforitsoperationsthroughtheissuanceofequityintereststoinstitutionalandaccreditedinvestors,byborrowingmoneythroughtheTermFundingFacilitiesandWarehouseLine,andthesyndicationandsecuritizationofcertainofElement’sleasesandloans.Elementmaynotbeabletocontinuetoaccesstheseorothersourcesoffunds.

AtDecember31,2011,Elementhadliquidityof$328,000,000tofundfutureoriginationsrepresentingapproximately10monthsto12monthsoftargetedoriginationofitsElementFinancebusiness,inlinewithitsstrategytocarryforwardcommitmentsofapproximately12monthsforward.

C R I F CONCENT AT ONOFDEBT INAN INGSOURCESMAYINCREASEELEMENT’SFUNDINGRISKS

Element has obtained the Term Funding Facilities financing from a limited number of financialinstitutions. Element’s reliance on such financial institutions for a significant amount of its funding exposesElement to funding risks. If these financial institutions decided to terminate the Term Funding Facilities,Element’soperationscouldbemateriallyadverselyaffected.

GLOBALFINANCIALMARKETSANDGENERALECONOMICCONDITIONSMAYADVERSELYEFFECTELEMENT’SRESULTS

Recenteventsinthefinancialmarketshavedemonstratedthatbusinessesandindustriesthroughouttheworldareverytightlyconnectedtoeachother.Thus,financialdevelopmentsseeminglyunrelatedtoElementortoitsindustrymaymateriallyadverselyaffectElementoverthecourseoftime.Forexample,generalvolatilityintheequitymarketscouldhurtElement’sabilitytoraisecapitalforthefinancingofacquisitionsorotherreasons.

Moreover, a reduction in credit, combinedwith reduced economic activity,maymaterially adverselyaffectbusinessesandindustriesthatcollectivelyconstituteasignificantportionofElement’scustomerbaseandmaymake it more difficult for Element to maintain new business origination and the credit quality of newbusinessatthe levelscurrently forecast.Asaresult, thesecustomersmayneedtoreducetheirpurchasesandreliance on Element’s services, or Element may experience greater difficulty in receiving payment for itsservices. Delinquencies, non‐accruals and credit losses generally increase during economic slowdowns orrecessions. Therefore, to the extent that economic and business conditions are unfavourable, Element’s non‐performingassetsmaybecomeelevatedandthevalueofElement’sportfolioislikelytodecrease.

AdverseeconomicconditionsalsomaydecreasetheestimatedvalueofthecollateralsecuringsomeofElement’s loans and leases. Further or prolonged economic slowdowns or recessions could lead to financiallossesinElement’sportfolioandadecreaseinElement’snetfinanceincome,netincomeandbookvalue.Anyoftheseevents, or anyotherevents causedby turmoil inworld financialmarkets,mayhaveamaterial adverseeffectonElement’sbusiness,operatingresults,andfinancialcondition.

As ofDecember 31, 2011, Element had $172,517,000 in debt outstanding, and Element expects this

amounttogrowasitincreasesoriginations.Inaddition,fromtimetotimeElementmayoweamountsunderitsWarehouseLineandmayotherwiseincreaseitsdebttofundthegrowthofElement’sbusiness.WhileElementmatch fundsitsborrowingsunder theTermFundingFacilities, if thematched incomeearningassetssecuringthe leasesor loansunderperformElementmayhave toutilize cash flowor capital resources to fund itsdebtservicepayments.IfElement’scashflowandcapitalresourcesareinsufficienttoserviceamountsowedunderthe Term Funding Facilities, theWarehouse Line or any future indebtedness, as applicable, Elementmay beforcedtoreduceordelaycapitalexpenditures,disposeofassets,issueequityorincuradditionaldebttoobtainnecessary funds,orrestructure itsdebt,anyorallofwhichcouldhaveamaterialadverseeffectonElement’sbusiness, financialconditionandresultsofoperations. Inaddition,Elementcannotguaranteethat itwouldbeable to take any of these actions on terms acceptable to Element, or at all, that these actions would enableElementtocontinuetosatisfyitscapitalrequirementsorthattheseactionswouldbepermittedunderthetermsofElement’svariousdebtagreements.

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CHANGESININTERESTRATESMAYADVERSELYAFFECTELEMENT’SFINANCIALRESULTS

Increases in Element’s cost of borrowing adversely impacts its net income. Leases with Element’scustomersareatafixedrateofinterestoverthelifeoftheleases.IfElementincurssignificantfixed‐ratedebtinthe future, increased interest ratesprevailing in themarket at the timeof the incurrenceof suchdebtwouldincreaseElement’sinterestexpense,totheextentElementhasnotmatchfundeditssecuredborrowingsundertheTermFundingFacilities.

Elementiscurrentlyinvolvedininterestratehedgingactivitieswithrespecttoaportionofitsportfoliorelated to the Alter Moneta Acquisition, and may contemplate engaging in further hedging activities in thefuture. Such hedging activities require Element to incur additional costs, and there can be no assurance thatElement will be able to successfully protect itself from any or all adverse interest rate fluctuations at areasonablecost.

Elementcarefullymonitorsitsborrowingcoststoensureitsratesreflectappropriatespreadstoinsulateagainst sudden unexpected interest rate movements. In order to further mitigate risk, Element undertakesregular transactionsunder itsTermFundingFacilities toensure its financecontractsareappropriatelymatchfunded by its secured borrowing, which reduces the warehouse period and the likelihood that a significantmovement in bond rates will negatively impact the spreads on such transactions. Element also maintainsadequatebalancesheetliquiditytoallowitflexibilityindevelopingastrategyofholdingversusfinancingsuchfinanceassets.

ANUNEXPECTEDINCREASEINELEMENT’SBORROWINGCOSTSMAYADVERSELYAFFECTITSEARNINGS

Elementexperiencesshort‐terminterestrateriskduringtheperiodbetweenfixingthecontractualrateundertheequipmentfinancecontractswith itscustomersandthe lockingofthe interestrateundertheTermFunding Facilities. During this time, an upward movement in Government of Canada bond rates wouldnegativelyimpactthespreadonthetransaction.

ACOMPETITIVEBUSINESSENVIRONMENTMAYLIMITTHEGROWTHOFELEMENT’SBUSINESS

Element’smarket segmentsarehighly competitiveandcharacterizedbycompetitive factors thatvarybaseduponproductandgeographicregion.Elementcompeteswithawidevarietyofcompetitorsthatincludeindependent lease finance companies (including subsidiaries of U.S.‐based commercial leasing companies),captivefinancecompaniesownedbymanufacturersanddistributers,Canadianbanksandthird‐partybrokers.

Elementcompetesprimarilyonthebasisofpricing,termsandstructure.IfElementisunabletomatch

itscompetitors’terms,Elementcouldlosemarketshare.ShouldElementmatchcompetitors’terms,itispossiblethat it could experience lower returns and/or increased losses. Element also may be unable to matchcompetitors’termsasaresultofElement’scurrentorfuturefinancialcondition.Inaddition,someofElement’scompetitorsofferabroaderrangeoffinancial,lendingandbankingservicesthanElementdoesandcanleveragetheir existing customer relationships to offer and sell services that compete directlywith Element’s services.Further, some of Element’s competitors have greater financial, technical, marketing, origination and otherresourcesthanElementdoes.TheymayalsohavegreateraccesstocapitalthanElementdoesandatalowercostthanisavailabletoElement.Asaresultofcompetition,Elementmaynotbeabletoattractnewcustomers,retainexistingcustomersorsustaintherateofgrowththatElementhasexperiencedtodate,andElement’sabilitytoprofitablyexpanditsportfolioandgrowfuturerevenuemaydecline.IfElement’sexistingcustomerschoosetousecompetingsourcesofcredittorefinancetheirdebt,Element’sportfoliocouldbeadverselyaffected.

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COMPETITIONFORVENDOREQUIPMENTFINANCEMAYAFFECTELEMENT’SRELATIONSHIPSWITHVENDORS

The vendor equipment finance business of Element is dependent upon its ability to enter into andmaintainexclusiveorpreferredrelationshipswithvendors.Thismarketishighlycompetitiveandtherecanbenoassurancethatsuchrelationshipscanbemaintained.

LOSSOFKEYPERSONNELMAYSIGNIFICANTLYHARMELEMENT’SBUSINESS

Element’sperformanceissubstantiallydependentontheperformanceofitsexecutiveofficersandkeyemployees,includingthosereferredtounder“DirectorsandOfficers”.Further,Elementdoesnotmaintain“keyperson” life insurancepoliciesonanyof itsemployees.The lossof the servicesofanyofElement’sexecutiveofficersorotherkeyemployeescouldsignificantlyharmElement’sbusiness.

Element provides a competitive compensation package, which includes profit sharing and medicalbenefitsasitcontinuouslyseekstoaligntheinterestofemployeesandshareholders.

I PLOYEESNABILITYTO RETAINEM MAYLIMITELEMENT’SABILITYTOGROWITSBUSINESS

If Element is not able to attract and retain top employees, its ability to compete may be harmed.Element’ssuccess isalsohighlydependentonitscontinuingabilitytoidentify,hire, train,retainandmotivatehighlyqualifiedmanagement,technical,salesandmarketingpersonnel.InordertogrowElement’sbusiness,itmustattractandretainqualifiedpersonnel,especiallyoriginationandcreditpersonnelwithrelationshipswithreferral sources and an understanding of small and middle‐market businesses and the industries in whichElement’sborrowersoperate. In addition, inElement’s effort to attract and retain criticalpersonnel,Elementmay experience increased compensation costs that are not offset by either improved productivity or higherpricesforElement’sservices.

ManyofthefinancialinstitutionswithwhichElementcompetesforexperiencedpersonnelmaybeabletooffermoreattractivetermsofemployment.IfanyofElement’skeyoriginationpersonnelleave,Element’snewequipmentfinanceoriginationvolumefromtheirbusinesscontactsmaydeclineorcease.Inaddition,Elementinvestssignificanttimeandexpenseintrainingitsemployees,whichincreasestheirvaluetocompetitorswhomayseektorecruitthemandincreasesthecostsofreplacingthem.ThesefactorsmayhaveamaterialadverseaffectonElement’sabilitytogrowitsbusiness.

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COMPLICATIONSINMANAGINGACQUISITIONSMAYNEGATIVELYAFFECTELEMENT’SOPERATINGRESULTS

Elementdoesnotcurrentlyhaveanyagreementorcommitmentstoacquireanybusinesses.However,Elementcontinues toseekopportunities toacquireor invest inbusinesses thatcouldexpand,complementorotherwise relate to Element’s current or future business. Element may also consider, from time to time,opportunities to engage in joint ventures or other business collaborations with third‐parties to addressparticular market segments. These activities create risks such as: (i) the need to integrate and manage thebusinesses,operations, services,personnelandsystemsacquiredwithElement’sownbusiness, (ii) additionaldemands on Element’s resources, systems, procedures and controls, (iii)disruption of Element’s ongoingbusiness, (iv) diversion of management’s attention from other business concerns, and (v) potential foradditionalregulatoryscrutiny.Moreover,thesetransactionscouldinvolve:(i)substantialinvestmentoffundsorfinancings by issuance of debt or equity securities; (ii) substantial investment with respect to technologytransfersandoperationalintegration;and(iii)theacquisitionordispositionofbusinesses.Also,suchactivitiescould result in one‐time charges and expenses and have the potential to either dilute the interests ofshareholdersofElementorresultintheissuanceof,orassumptionof,debt.Suchacquisitions,investments,jointventuresorotherbusinesscollaborationsmayinvolvesignificantcommitmentsofElement’sfinancialandotherresources.Anysuchactivitymaynotbesuccessfulingeneratingrevenue,incomeorotherreturnstoElement,andtheresourcescommittedtosuchactivitieswillnotbeavailabletoElementforotherpurposes.Moreover,ifElement is unable to access capital markets on acceptable terms or at all, Element may not be able toconsummateacquisitions,ormayhavetodosoonthebasisofalessthanoptimalcapitalstructure.Element’sinability:(i)totakeadvantageofgrowthopportunitiesforitsbusiness,or(ii)toaddressrisksassociatedwithacquisitionsor investments inbusinesses,maynegativelyaffectElement’soperatingresults.Additionally,anyimpairmentofgoodwillorotherintangibleassetsacquiredinanacquisitionorinaninvestment,orchargestoearnings associated with any acquisition or investment activity, may materially reduce Element’s earningswhich, in turn,mayhaveanadversematerialaffecton thepriceofElementCommonShares. IfElementdoescompletesuchtransactions,Elementcannotbesurethattheywillultimatelystrengthenitscompetitivepositionorthattheywillnotbeviewednegativelybycustomers,securitiesanalystsorinvestors.

INABILITYTOREALIZEBENEFITSFROMGROWTHMAYHARMELEMENT’SFINANCIALCONDITION

Element’s inability to realize thepotentialbenefits from its growth strategymayadversely impact itsoperatingresults.Element’sabilitytorealizesuchbenefitswillbebasedonitsmanagementofgrowthandwillrequireittocontinuetobuilditsoperational,financialandmanagementcontrols,humanresourcepolicies,andreporting systems and procedures. Element’s ability to manage its growthwill depend in large part upon anumberoffa ofElementctors,includingtheability torapidly:

secure additional sources of funding to undertake strategic acquisitions, while implementing aprudentcapitalstructureforElement;

expand Element’s internal operational and financial controls significantly, so that it canmaintaincontroloveroperationsandprovidesupporttootherfunctionalareasasthenumberofpersonnelandsizeofitsbusinessincreases;

attract and retain qualified personnel in order to continue to develop Element’s originationplatformsandprovideservicesthatrespondtoevolvingcustomerneeds;

develop support capacity for customers as sales increase, so that Element can provide post‐salessupportwithoutdivertingresourcesfromoriginationefforts;and

build a network of vendor relationships to create an expanding presence in the evolvingmarketplaceforElement’sservices.

Element’sinabilitytoachieveanyoftheseobjectivescouldharmitsbusiness,financialconditionand/or

resultsofoperations.

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ELEMENTISARECENTLYORGANIZEDCORPORATIONWITHABRIEFOPERATINGHISTORY ANDELEMENTHASINCURREDLOSSESINTHEPASTANDMAYNOTACHIEVEPROFITABILITYINFUTURE

PERIODS

Given Element’s limited operating history, Element’s shareholders have little historical informationuponwhich to evaluate its prospects, including its ability to generate originations on favourable terms or toenterintoprofitablefinancecontracts.Elementcannotassureitsshareholdersthatitwillbeabletoimplementits business objectives, that any of its objectives will be achieved or that Element will be able to operateprofitably. The results of Element’s operations will depend on several factors, including the availability ofopportunities for the acquisition, disposition and leasing of equipment, Element’s ability to capitalize on anysuchopportunities,thecreditworthinessofElement’scounterparties,thelevelofvolatilityofinterestratesandcommodities,theavailabilityofadequateshort‐andlong‐termfinancing,conditionsinthefinancialmarketsandothereconomicconditions,particularlyas theseconditions impact independent financecompanies.Element’slimitedhistoricaloperationsplaceitatacompetitivedisadvantagethatElement’scompetitorsmayexploit.

Elementanticipatesthatitsoperatingexpenseswillincreaseinthenearfutureasitcontinuestoinvestin its business and integrate the business of AM. These efforts may prove more expensive than Elementcurrentlyanticipates,andElementmaynotsucceedinincreasingitsrevenuesufficientlytooffsetthesehigherexpenses. Element cannot be certain that it will be able to attain or increase profitability on a quarterly orannualbasis.IfElementisunabletoeffectivelymanagetheserisksanddifficultiesasitencountersthem,itmaynegativelyimpactElement’sfinancialcondition,resultsofoperationsorcashflows.

ELEMENTQUARTERLYNETFINANCEINCOMEANDRESULTSOFOPERATIONSAREDIFFICULTTOFORECASTANDMAYFLUCTUATESUBSTANTIALLY

Element’squarterlynetfinanceincomeandresultsofoperationsaredifficulttoforecast.Elementmayexperience substantial fluctuations in net finance income and results of operations from quarter to quarter.InvestorsshouldnotrelyonElement’sresultsofoperationsinanypriorreportingperiodtobeindicativeofitsperformanceinfuturereportingperiods.ManydifferentfactorscouldcauseElement’sresultsofoperationstovaryfromquartertoquarter,including:

thesuccessofElement’soriginationactivities;nddefaultrates;

creditlossesa

Element’sabilitytoenterintofinancingarrangements;

ngthetimingoftransactions;competition;seasonalfluctuationsinElement’sbusiness,incl

withregulatoryrequiremen tofanyfutureacquisitions;

udi ts;costsofcompliance

thetimingandaffec personnelchanges; changesinaccountingrules; changesinprevailinginterest

generalchangestotheCanadiarates;

n,U.S.andglobaleconomies;and politicalconditionsorevents.

Elementbasesitscurrentandfutureoperatingexpenselevelsanditsinvestmentplansonestimatesoffuture net finance income, origination activity and rate of growth. Element expects that its expenses willincrease in the future, and Elementmay not be able to adjust its spending quickly enough if its net finance

incomefallsshortofElement’sexpectations.AnyshortfallsinElement’snetfinanceincome,originationactivityorinitsexpectedgrowthratescouldresultindecreasesinitsshareprice.

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LITIGATIONMAYNEGATIVELYIMPACTELEMENT’SFINANCIALCONDITION

Fromtimetotimeintheordinarycourseofitsbusiness,Elementmaybecomeinvolvedinvariouslegalproceedings, including commercial, employment, class action and other litigation and claims, as well asgovernmentalandotherregulatoryinvestigationsandproceedings.Suchmatterscanbetime‐consuming,divertmanagement’sattentionandresourcesandcauseElementtoincursignificantexpenses.Furthermore,becauselitigation is inherently unpredictable, the results of any such actionsmay have a material adverse effect onElement’sbusiness,operatingresultsorfinancialcondition.

R I S K S R E L A T I N G T O O W N E R S H I P O F E L E M E N T C O M M O N S H A R E S

NOPRIORPUBLICMARKETFORELEMENTCOMMONSHARES

Prior to the listingofElementCommonShareson theTSXuponthecompletionof theAmalgamation,therewas no publicmarket for Element Common Shares. An active and liquidmarket for Element CommonSharesmaynotdevelop,or,ifdeveloped,maynotbemaintained.Ifanactivepublicmarketdoesnotdeveloporisnotmaintained,shareholdersofElementmayhavedifficultysellingElementCommonShares.

ADDITIONALREGULATORYBURDEN

Prior to the completion of the Amalgamation, Elementwas not subject to the continuous and timelydisclosurerequirementsofCanadiansecuritieslawsorotherrules,regulationsandpoliciesoftheTSX.Elementisworkingwith its legal,accountingandfinancialadvisorsto identifythoseareas inwhichchangesshouldbemadetoElement’sfinancialmanagementcontrolsystemstomanageitsobligationsasapubliccompany.Theseareasincludecorporategovernance,corporatecontrols,internalaudit,disclosurecontrolsandproceduresandfinancialreportingandaccountingsystems.Elementhasmade,andwillcontinuetomake,changesintheseandotherareas,includingElement’sinternalcontrolsoverfinancialreporting.However,thereisnoassurancethattheseandothermeasuresthatitmaytakewillbesufficienttoallowElementtosatisfyitsobligationsasapubliccompanyonatimelybasis.Inaddition,compliancewithreportingandotherrequirementsapplicabletopubliccompanies will create additional costs for Element and will require the time and attention of management.Elementcannotpredicttheamountoftheadditionalcostsitmayincur,thetimingofsuchcostsortheimpactthatmanagement’sattentiontothesematterswillhaveonElement’sbusiness.

VOLATILEMARKETPRICEFORELEMENTCOMMONSHARES

The market price for Element Common Shares may be volatile and subject to wide fluctuations inresponseto ollowing:

numerousfactors,manyofwhicharebeyondElement’scontrol,includingthef

actualoranticipatedfluctuationsinElement’squarterlyresultsofoperations;recommendationsbysecuritiesresearchanalysts;

the industry inwhich

changes in theeconomicperformanceormarketvaluationsofcompanies in

Elementoperates;additionordepartureofElement’sexecutiveofficersandotherkeypersonnel;

on outstanding Element Commonrelease or expiration of lock‐up or other transfer restrictionsShares;

salesorperceivedsalesofadditionalElementCommonShares;

37

significant acquisitions or business combinations, strategic partnerships, joint ventures or capitalcommitmentsbyorinvolvingElementoritscompetitors;

operating and share price performance of other companies that investors deem comparable toElement;and

news reports relating to trends, concerns, technological or competitive developments, regulatorytmarkets.changesandotherrelatedissuesinElement’sindustryortarge

Financial markets have recently experienced significant price and volume fluctuations that haveparticularlyaffectedthemarketpricesofequitysecuritiesofcompaniesandthathaveoftenbeenunrelatedtothe operating performance, underlying asset values or prospects of such companies. Accordingly, themarketpriceofElementCommonSharesmaydecline even if Element’s operating results, underlying asset valuesorprospectshavenotchanged.Additionally,thesefactors,aswellasotherrelatedfactors,maycausedecreasesinassetvaluesthataredeemedtobeotherthantemporary,whichmayresultinimpairmentlosses.Therecanbenoassurancethatcontinuingfluctuationsinpriceandvolumewillnotoccur.Ifsuchincreasedlevelsofvolatilityand market turmoil continue, Element’s operations could be adversely impacted and the trading price ofElementCommonSharesmaybemateriallyadverselyaffected.

NODIVIDENDS

Element’scurrentpolicyistoretainearningstofinancethegrowthanddevelopmentofitsoriginationbusinessandtootherwisereinvestinitsbusiness.Therefore,ElementdoesnotanticipatepayingcashdividendsonElementCommonSharesinthenearfuture.Element’sdividendpolicywillbereviewedfromtimetotimebyitsBoardofDirectorsinthecontextofElement’searnings,financialconditionandotherrelevantfactors.Untilthe time thatElementdoespaydividends,which itmayneverdo,Element’s shareholderswillnotbeable toreceiveareturnontheirElementCommonSharesunlesstheysellthem.

FUTURECAPITALREQUIREMENTS

Elementmayneedtoraiseadditionalfundsthroughpublicorprivatedebtorequityfinancingsinorderto:

fundongoingoperations; including more rapid expansion of Element’s business or the

nesses;ortake advantage of opportunities,acquisitionofcomplementarybusi

respondtocompetitivepressures.

Any additional capital raised through the sale of equity will dilute Element’s existing shareholders’percentageownershipofElementCommonShares.CapitalraisedthroughdebtfinancingwouldrequireElementtomakeperiodicinterestpaymentsandmayimposerestrictivecovenantsontheconductofElement’sbusiness.Furthermore,additional financingsmaynotbeavailableontermsfavourabletoElement,oratall.AfailuretoobtainadditionalfundingcouldpreventElementfrommakingexpendituresthatmayberequiredtoimplementElement’sgrowthstrategyandgrowormaintainElement’soperations.

Elementbelievesthatitscapacitytoexpanditsexistingsecuredborrowingfacilities,itsaccesstobanktermandconduit fundingcombinedwithaccess to the issuanceofequitywillbesufficient to fund itsnormaloperatingandcapitalexpendituresasElementgrows.

FUTURESALESOFELEMENTCOMMONSHARESBYEXISTINGSHAREHOLDERS

SalesofasubstantialnumberofElementCommonSharesinthepublicmarketcouldoccuratanytime.Thesesales,orthemarketperceptionthattheholdersofalargenumberofElementCommonSharesintendtosellElementCommonShares,couldreducethemarketpriceofElementCommonShares. Inaddition,GMPon

behalfoftheAgentsoftheOctoberPrivatePlacementmaywaivetheprovisionsoflock‐upagreements, ifany,with certain directors and officers of Element and allow these shareholders to sell their Element CommonSharesatanytime.Therearenopre‐establishedconditionsforthegrantofsuchawaiverbytheAgents,andanydecisionby themtowaive thoseconditionswoulddependonanumberof factors,whichmay includemarketconditions,theperformanceofElementCommonSharesinthemarketandElement’sfinancialconditionatthattime. If the restrictions in such lock‐up agreements are waived, additional Element Common Shares will beavailable forsale into thepublicmarket, subject toapplicablesecurities laws,whichcouldreduce themarketpriceforElementCommonShares.(SeeSecuritiesSubjecttoRestrictiononTransfer.)HoldersofElementoptions(“ElementOptions”)willhaveanimmediateincomeinclusionfortaxpurposeswhentheyexercisetheirElementOptions(that is, tax isnotdeferreduntil theysell theunderlyingElementCommonShares).Asaresult, theseholdersmayneed tosellElementCommonSharespurchasedon theexerciseofElementOptions in thesameyearthattheyexercisetheirElementOptions.ThismayresultinagreaternumberofElementCommonSharesbeing sold in the public market, and fewer long‐term holds of Element Common Shares by Element’smanagementandemployees.

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PUBLICATIONOFINACCURATEORUNFAVOURABLERESEARCHBYSECURITIESANALYSTSOROTHERTHIRD‐PARTIES

The trading market for Element Common Shares relies in part on the research and reports thatsecurities analysts and other third‐parties choose to publish about Element. Element does not control theseanalystsorotherthird‐parties.ThepriceoftheElementCommonSharescoulddeclineifoneormoresecuritiesanalystsdowngradeElementor ifoneormoresecuritiesanalystsorotherthird‐partiespublish inaccurateorunfavourableresearchaboutElementorceasepublishingreportsaboutElement.

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DESCRIPTIONOFSHARECAPITAL

G E N E R A L

TheauthorizedcapitalofElementconsistsofanunlimitednumberofElementCommonSharesandanunlimitednumber of preferred shares, issuable in series (the “Preferred Shares”). As atDecember31, 2011,there were 66,379,553 issued and outstanding Element Common Shares and no issued and outstandingPreferredShares.

E L E M E N T C O M M O N S H A R E S

EachElementCommonShareentitlestheholderto(i)onevoteatallmeetingsofshareholders(exceptmeetingsatwhichonlyholdersofaspecifiedclassofsharesareentitledtovote),(ii)toreceive,subjecttotheholdersofanotherclassofshares,anydividenddeclaredbyElement,and(iii)toreceive,subjecttotherightsofthe holders of another class of shares, the remaining property of Element on the liquidation, dissolution orwindingupofElement,whethervoluntaryorinvoluntary.

P R E F E R R E D S H

The Preferred Sharesmay at any time and from time to time be issued in one ormore series. Thedirectors of Elementmay fix, before the issuance thereof, the number of Preferred Shares of each series, thedesignation, rights, privileges, restrictions and conditions attaching to the Preferred Shares of each series,including,withoutlimitation,anyvotingrights,anyrighttoreceivedividends(whichmaybecumulativeornon‐cumulativeandvariableorfixed)orthemeansofdeterminingsuchdividends,thedatesofpaymentthereof,anyterms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation,dissolution or winding‐up of Element, any sinking fund or other provisions, the whole to be subject to theissuance of a certificate of amendment setting forth the designation, rights, privileges, restrictions and

A R E S

conditionsattachingtothePreferredSharesoftheseries.

ThePreferredSharesofeachseriesshall,withrespecttothepaymentofdividendsandthedistributionofassetsintheeventoftheliquidation,dissolutionorwindingupofElement,whethervoluntaryorinvoluntary,rankonaparitywiththePreferredSharesofeveryotherseriesandbeentitledtopreferenceovertheElementCommonShares.Ifanyamountofcumulativedividends(whetherornotdeclared)ordeclarednon‐cumulativedividendsoranyamountpayableonanysuchdistributionofassetsconstitutingareturnofcapitalinrespectofthePreferredSharesofanyseriesisnotpaidinfull,thePreferredSharesofsuchseriesshallparticipaterateablywiththePreferredSharesofeveryotherseriesinrespectofallsuchdividendsandamounts.

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MARKETFORSECURITIES

ThefollowingtableprovidesinformationregardingthepricerangeandvolumetradedfortheElementCommonSharesontheTSXonamonthlybasisforDecember2011,January2012andFebruary2012.ElementCommonShareswerelistedontheTSXonDecember16,2011.

  December 2011  January 2012  February 2012 

IntradayHigh($) 4.85  5.55  5.50 

IntradayLow($) 4.70  4.70  5.09 

Volume 4,097,834  7,342,409  3,410,111 

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SECURITIESSUBJECTTORESTRICTIONONTRANSFER

ThefollowingsecuritiesoftheCorporationaresubjecttocontinualrestrictionsontransferpursuanttotheLock‐UpAgreementsdescribedbelow:

DesignationofClass Numberofsecuritiesthataresubjecttoacontractualrestrictionontransfer

PercentageofClass

ElementCommonShares 5,365,103

8.082

InconnectionwiththeOctoberPrivatePlacement,eachpersonwhowasadirectororofficerofElementatthetimeofsuchprivateplacemententeredintoalock‐upagreement(collectively,the“Lock‐UpAgreements”).PursuanttotheLock‐UpAgreements,eachsuchdirectorandofficeragreednotto,directlyorindirectly, issue,sell, transfer, assign, pledge, make any short sale, grant any option for the sale of, or otherwise dispose ormonetize,oroffertoannounceanyintentiontodoso,inapublicofferingorbywayofaprivateplacementorotherwise, any Element Common Shares (but excluding any Element Common Shares acquired, directly orindirectly, from the exchange of Subscription Receipts) or any securities convertible or exchangeable intoElementCommonShares,ownedorunderthecontrolordirectionofthedirectororofficerorwithrespecttowhichthedirectororofficerhadbeneficialownershipasatOctober28,2011(collectively,the“Securities”)orenterintoanyswap,forwardorotherarrangementthattransfersalloraportionoftheeconomicconsequencesassociatedwith theownershipof theSecuritiesuntilDecember9,2012unless thedirectororofficerobtainspriorwrittenconsentofGMPSecuritiesL.P.(“GMP”),onbehalfof itselfandBarclaysCapitalCanadaInc.,BMONesbitt Burns Inc., CIBCWorldMarkets Inc. andNational Bank Financial Inc. (the Agents under the OctoberPrivatePlacement),orthereoccursatake‐overbid,planofarrangement,amalgamationorsimilartransactioninvolvingachangeofcontrolofElement.

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DIRECTORSANDOFFICERS

D I R E C T O R S

Thefollowingtablesetsforththefullname,provinceorstateandcountryofresidenceandprincipaloccupationsforeachDirector:

Name and Province/State  ence and Country of Resid Direct

2010

or since Principal  Occupation 

ChairmanandChiefExecutiveOfficeroftheCorporationsince2011;previouslyChiefExecutiveOfficerofHerbalMagicInc.from2009to2011andChiefExecutiveOfficerofCameronCapitalCorp.from2005to2009.Founder

StevenK.HudsonToronto,Ontario,Canada

andformerCEOofNewcourtCreditGroupInc.

JamesMoreToronto,Ontario,Canada

2010 SeniorExecutiveVicePresidentoftheCorporation;previouslyaManagingPartnerofCameronCapitalCorporationfrom2010to2011andaManagingDirectorofCIBCWorldMarketsDebtCapitalMarketsGroupfrom1998to2010.Mr.MoreceasedtobeViceChairmanandSecretaryoftheCorporationonFebruary23,2012.

BruceSmithToronto,Ontario,Canada

2011 PresidentandChiefOperatingOfficeroftheCorporation;previouslytheManagingDirectorandSeniorVicePresidentofVendorFinanceatCITFinancialLtd.from2006to2011.

NavinChandariaToronto,Ontario,Canada

2010 Founder,ChairmanandChiefExecutiveOfficerofConrosCorporation,whichownsLePageInc.,amanufactureranddistributorintheadhesiveandpackagingbusiness.

FraserClarkeToronto,Ontario,Canada

2010 PresidentandChiefExecutiveOfficerofHerbalMagicInc.since2011;previouslyPresidentandChiefOperatingOfficerofHerbalMagicInc.from2009to2011,Presidentof57146NL&LabInc.from2007to2009andPresidentandChiefExecutiveOfficerofHairClubforMenandWomenLtd.from2002to2007.

MichaelD.Harris,ICD.D(1)Toronto,Ontario,Canada

2010 SeniorBusinessAdvisoratCasselsBrock&BlackwellLLP,aCanadianlawfirm;previouslySeniorBusinessAdvisoratGoodmansLLPfrom2002to2010.

PierreLortie,ICD.DanadaSt‐Lambert,Québec,C

2011 SeniorBusinessAdvisoratFraserMilnerCasgrainLLP,aCanadianlawfirm;adirectorofTembec,Inc.andCanamGroupInc.

StephensB.Lowdenntario,CanadaPortCarling,O

2010 CorporateDirector;adirectorofTheBeckerMilkCompanyLimited,SCITIRocsTrust,SCITITrustandCanadianResourcesIncomeTrust.

LeslieMartinEtobicoke,Ontario,Canada

2010 FounderandChiefExecutiveOfficerofFirstLadyInternationalCorporation,amarketeranddistributorofhairandaccessoryproductsandthefounderandChiefExecutiveOfficerofEmperor(FarEast)Ltd.,aglobalproducerofhairsystemswithoperationsinChinaandFarEasternmarkets.

Dr.StevenSmall,ICD.DToronto,Ontario,Canada

2010 ChairmanandCEOofCapitalPartnersCorporation;founderanddirectorofKnightsbridgeHumanCapitalManagement;director,HerbalMagicWeightLossandNutritionCentersandLAWeightLossCenters;practicingcertifiedanaesthesiologistspecialist

PaulStoyan,ICD.DToronto,Ontario,Canada

2010 ChairmanofGardinerRobertsLLP,aCanadianlawfirm;directorofEnghouseSystemsLimited,aTSXlistedtechnologyandsoftwarecompany.

Notes (1) Mr. Harris was a director of Grant Forest Products Inc., which sought and obtained protection under the Companies’ CreditorsArrangementActinCanada(“CCAA”)onJune25,2009.Mr.HarriswasalsoadirectorofNaturade,Inc.(“Naturade”)untilAugust6,2009.Withinayearfollowinghisresignationasadirector,NaturadefiledavoluntarypetitionforbankruptcyprotectionunderChapter11oftheU.S.BankruptcyCode.

43

Name and Province/State  e  or since 

Principal  and Country of Residenc Direct

2011

Occupation 

PresidentofKatharEnterprisesInc.,aToronto‐basedfirmthatprovidescorporatefinance,mergers&acquisitionsandfinancialadvisoryservicestonationalandinternationalclients;previouslyaseniorpartneratDeloitte&ToucheLLPfrom1967until2006.

HaroldBridge,ICD.DOakville,Ontario,Canada

AllDirectors listedabovewillholdofficeuntil thecloseof thenextannualmeetingofshareholders,currentlyscheduledforJune6,2012.

O F F I C E R S O T H E R T H A N T H O S E R E F E R R E D T O A B O V E

V O T I N S E C U R I T I E S

As at December 31, 2011, the directors and officers of Element as a group owned, or controlled ordirected, directly or indirectly 5,927,128 common shares, representing 8.93% of the outstanding commonsharesinthecapitaloftheCorporation.

G

Name and Province/State  esidence and Country of R  

Principal  Occupation 

ChiefFinancialOfficeroftheCorporationsince2011;previouslytheChiefOperatingOfficerandChiefFinancialOfficerofMMVFinancialInc.,aprivateequity‐backedspecialtyfinancecompanyfrom2007to2011andaSenior

MichelBélandToronto,Ontario,Canada

VicePresidentandChiefFinancialOfficeratIsacsoftInc.from2003‐2007.

J.StephenSandsToronto,Ontario,Canada

ChiefCreditOfficeroftheCorporationsince2007;previouslyheldsenioroperationalandcreditunderwritingpositionatMercadoCapitalCorporationfrom2004to2007.

ToddHudsonEtobicoke,Ontario,Canada

ExecutiveVicePresident,OriginationsoftheCorporationsince2009;previouslyPresidentofHathwayFinancial,afinancecompanythatspecializedinsmalltomid‐sizedcommercialcreditsinthetransportation,constructionandindustrialequipmentmarketsfrom2003to2009.

MichelGrattonSt‐Lambert,Québec,Canada

SeniorVicePresident,Québecsince2011;previouslyPresidentofGestionCentriaCapital,Inc.,amanagementcompanyfrom2007to2009andFoundingPresidentofBromeFinancialCorporationInc.,anasset‐basedlendingservices,factoringandleasingcompanyfrom1994to2007.

TonyBergeronVerdun,Québec,Canada

ExecutiveVicePresident,ElementCapital,since2011;previouslySeniorVicePresidentatGECapital,acompanyofferingloans,equipmentleasing,cashflowprograms,assetfinancingandotherfinancialservicesinmorethan35countriesworldwidefrom1997to2011.

ChrisMarshallToronto,Ontario,Canada

SecretaryoftheCorporationsinceFebruary23,2012;previouslyGeneralCounselofMMVFinancialInc.,aprivateequity‐backedspecialtyfinancecompanyfrom2007to2011andanassociatelawyeratBlake,Cassels&GraydonLLPfrom2006until2007.Mr.MarshallreportstotheChiefFinancialOfficeroftheCorporation.

44

COMMITTEES

TheBoardofDirectorsoftheCorporationhasestablishedthefollowingfourCommittees:

AuditCommittee;

orateGovernanceCommittee;CompensationandCorp

CreditCommittee;and

AdvisoryCommittee.

A U D I T C O M M I T T E E

AUDITCOMMITTEE’SMANDATE

ThemandateoftheAuditCommitteeisattachedasAppendixAtothisAnnualInformationForm.

COMPOSITIONOFAUDITCOMMITTEE

ThemembersoftheAuditCommitteeareStephensB.Lowden(Chair),HaroldBridgeandFraserClarke.Each member of the Audit Committee is independent (as defined in National Instrument 52‐110 – AuditCommittees)andnonereceives,directlyorindirectly,anycompensationfromElementotherthanforserviceasamember of the Board of Directors and its committees. Allmembers of the Audit Committee are financiallyliterate(asdefinedunderNationalInstrument52‐110–AuditCommittees).

RELEVANTEDUCATIONANDEXPERIENCEOFAUDITCOMMITTEEMEMBERS

Inadditiontoeachmember’sgeneralbusinessexperience,theeducationandexperienceofeachAuditCommitteemember that is relevant to the performance of his or her responsibilities as an Audit Committeememberisasfollows:

StephensB.Lowden

Mr.Lowdenhasover30yearsofexperienceasafinancialconsultantincorporatefinance,mergersandacquisitions, divestitures, process improvement, marketing, strategic planning, governance and executivecompensation. Mr. Lowden previously served as Managing Partner of Ernst & Young LLP Toronto, and asExecutivePartnerandViceChairmanofSobecoErnst&YoungLLP.Mr.LowdenisaCharteredAccountantandholdsaBachelorofCommercefromtheUniversityofToronto.

H Bridge

From 1967 to 2006, Mr. Bridge served as a partner in the financial advisory, audit and consultingservicespracticeatDeloitte&ToucheLLPandasExecutiveVicePresidentandDirectoratDeloitte&ToucheCorporateFinanceCanadaInc. Mr.BridgeisChairmanoftheInternationalExaminationReviewBoardfortheCorporateFinanceDesignation(CF)fortheCanadianInstituteofCharteredAccountants(CICA).Mr.BridgehaslecturedontaxationandleasingissuesattheWorldBank,theConferenceBoardofCanada,Queen’sUniversityandtheUniversityofTorontoasAssociateProfessorofAccountingandSpecialLecturerinAdvancedAccountingandFinance.Mr.BridgeholdsaBachelorofCommercedegreeinFinance&AccountingfromtheUniversityofToronto, a Masters of Business Administration degree in Finance and Operations Research from Queen’sUniversity, isaFellowof theOntario InstituteofCharteredAccountants (FCA),an ICD.Ddesignation fromtheInstituteofCorporateDirectors&RotmanSchoolofManagementandaCorporateFinancedesignationfromtheCICA.

arold

45

F

Mr.ClarkeisthePresidentandChiefExecutiveOfficerofHerbalMagic.Mr.ClarkewasanAssociateatCCCInvestmentBankingandanAssociateatErnst&YoungLLP.Mr.ClarkeholdsaBachelorofCommercefromMemorialUniversityandisaCharteredAccountantandCharteredFinancialAnalyst.

raserClarke

PRE‐APPROVALPOLICIESANDPROCEDURES

TheAuditCommitteehasadoptedrequirementsregardingpre‐approvalofnon‐auditservicesaspartofitsAuditCommitteeMandate.TheAuditCommitteeMandaterequiresthattheAuditCommitteemustapproveinadvanceanyretaineroftheauditorstoperformanynon‐auditservicetoElement(togetherwithallnon‐auditservicefees)thatitdeemsadvisableinaccordancewithapplicablerequirementsandBoardapprovedpoliciesandprocedures.TheAuditCommitteemustconsidertheimpactofsuchserviceandfeesontheindependenceoftheauditor. TheAuditCommitteemaydelegatepre‐approvalauthority toamemberof theAuditCommittee,however,thedecisionsofanymemberoftheAuditCommitteetowhomthisauthorityhasbeendelegatedmustbepresentedtothefullAuditCommitteeatitsnextscheduledAuditCommitteemeeting.

AUDITFEES

Ernst & Young LLP has served as Element’s auditing firm since August 11, 2010. Fees payable byElement for the fiscalyearsendedDecember31,2011andMarch31,2011toErnst&Youngand itsaffiliateswere$892,000and$50,175,respectively,asfollows:

Years ended

(1)December 31                          March 31

2011 2011

AuditFees $264,000 $22,300

Audit‐RelatedFees $493,000  $‐

TaxFeesees

$22,000 $‐

O

T

therF

OTAL

$113,000 $27,875

$892,000 $50,175

(1)OnOctober2,2011,Elementchangeditsfinancialyear‐endtoDecember31,beginningonDecember31,2011. Previously,Element’syear‐endwasMarch31.

Thenatureofeachcategoryoffeesisdescribedbelow.

AUDITFEES

Audit feeswerepaidforprofessionalservicesrenderedbytheauditor inconnectionwiththeauditofElement’sDecember31, 2011 financial statements. In addition, audit feeswerepaid for services provided inconnectionwiththereviewofElement'sinterimfinancialstatements.

AUDIT‐RELATEDFEES

Audit‐related fees were paid for assurance and related services that are reasonably related to theperformance of the audit or review Element's financial statements and are not reported under the audit feeitemsabove.Audit‐relatedfeesduringthecurrentperiodrelateprimarilytoservicesprovidedinconnectiontothemultiple issuancesofcommonshares, theadoptionof InternationalFinancialReportingStandards (IFRS),the amalgamation of Element andMira II Acquisition Corp, and the receipt of a listing on the Toronto StockExchange.

TAXFEES

Taxfeeswerepaidfortaxcompliance,includingassistancewiththecompletionofroutinetaxschedulesandcalculations.

46

OTHERFEES

Other fees were paid for services other than audit fees, audited‐related fees and tax fees describedabove. Other fees in the current fiscal period relate primarily to duediligence services provided toElement.Otherfeesinthepriorfiscalperiodrelatetoassistancewithdocumentationofinternalcontrols.

PROCEDURESFOR

InaccordancewithNationalInstrument52‐110–AuditCommittees,Elementhasestablishedproceduresfor the receipt, retention and treatment of complaints received by Element regarding accounting, internalaccounting controls or auditing matters and for the confidential, anonymous submission by employees ofElementofconcernsregardingquestionableaccountingorauditingmatters.Forfurtherinformationrespectingtheseprocedures,seeAppendixA–AuditCommitteeMandateofthisAnnualInformationForm.

COMPLAINTS

C O M P E N S A T I O N A N D C O R P O R A T E G O V E R N A N C E C O M M I T T E E

TheCompensationandCorporateGovernanceCommittee’sresponsibilitiesandduties include,butarenotlimitedto,reviewofallissuesconcerningthecompensationgrantedtotheChiefExecutiveOfficer(“CEO”)andotherofficersandemployeesoftheCompany,anddeterminingandmakingrecommendationswithrespecttothecorporategovernanceoftheCorporation.

ThemembersoftheCompensationandCorporateGovernanceCommitteeareDr.StevenSmall(Chair),PaulStoyanandLeslieMartin.TheCompensationandCorporateGovernanceCommitteemeetsasfrequentlyasisrequiredtocarryoutitsduties.

C R E D I T C O M M I T T E E

The Credit Committee reports to and assists the Board in overseeing and reviewing informationregarding the Corporation’s credit risk management framework, including the significant policies,proceduresandpracticesemployedtomanagecreditrisk.Amongotherthings,theCreditCommittee:

reviewsandassessestheeffectivenessofandcompliancewiththeCorporation’sassetandliabilitymanagement, interest rateandmarket risk, liquidity, investment,hedging, cashmanagementandtreasurypoliciesand/orstrategies,andotherassetand liabilitymattersastheCommitteedeemsappropriate;

yandcashmanagement;reviewsthequalityoftheCorporation’sinvestmentportfolio,liquidit

overseestheCorporation’screditpractices,policiesandprocedures;

monitorsthedevelopment,originationandperformanceoftheCorporation’sassetportfoliofromacreditriskperspective, includingtaking intoaccountexistingandexpectedmarketandeconomictrends;and

reviewsrecommendationsofmanagement,andconsiders,evaluatesandapprovesonbehalfoftheBoard, specified transactions above the hold limits established by the Board as a ceiling on theapprovalauthorityoftheChiefCreditOfficer.

ThemembersoftheCreditCommitteearePierreLortie(Chair),Dr.StevenSmallandSteveHudson.

TheCreditCommitteemeetsasfrequentlyasisrequiredtocarryoutitsduties.

47

A D V I S O R Y C O M M I T T E E

ElementhasappointedanAdvisoryCommitteethatfunctionstoprovideadviceandinputtoMr.HudsonandtheCorporation,supplementaltoanyadviceandinputderivingfromElement’sothercommittees,regardingvariousmatters relating tomergers and acquisitions, the integration of anymerger or acquisition andmajorstrategicinitiatives.ThemembersoftheAdvisoryCommitteeareStevenHudson(Chair),PierreLortieandDr.Steven Small. The Advisory Committee meets when necessary, and calls on other directors to attend itsmeetingsfromtimetotime.

48

TRANSFERAGENTANDREGISTRAR

Element’s securities are transferable at the principal offices of its transfer agent and registrar,ComputershareInvestorServicesInc.inToronto.

EXPERTS

Ernst&YoungLLPisElement’sexternalauditor.Ernst&YoungLLPhasadvisedthatitisindependentwithrespect toElementwithinthemeaningof theRulesofProfessionalConductof theInstituteofCharteredAccountantsofOntario.

MATERIALCONTRACTS

The followingare theonlymaterial contracts,other than thosecontractsentered into in theordinarycourseofbusiness,whichElementhasenteredintosinceitsincorporationonMay11,2007andwithinthemostrecentlycompletedfinancialyearwhichremainineffect.

A M A L G A M A T I O N A G R E E M E N T

OnOctober28,2011,ElementandMiraenteredintotheAmalgamationAgreementpursuanttowhich,amongotherthings,ElementandMiraagreedtoamalgamateandtocontinueasanamalgamatedOntarioentityto be knownas “Element Financial Corporation”. Pursuant to theAmalgamationAgreement, holders ofMiracommonsharesreceived,foreachMirashare(aftertakingintoeffecttheconsolidationofMiracommonshares

ent.ona32.3077:1basis),onecommonshareinthecapitalofElem

TheAmalgamationismoreparticularlydescribedinGeneralDevelopmentoftheBusiness–DevelopmentoftheBusinessOvertheLastThreeYears

A G E N C Y A G R E E M E N T – O C T O B E R 2 0 1 1 P R I V A T E P L A C E M E N T

ElementandGMP,BarclaysCapitalCanada Inc.,BMONesbittBurns Inc.,CIBCWorldMarkets Inc.andNational Bank Financial Inc. (collectively, the “Agents”) entered into an agency agreement (the “AgencyAgreement”)onOctober28,2011.SubjecttothetermsoftheAgencyAgreement,ElementappointedtheAgentsas exclusive agents to the Corporation to arrange for the issuance and sale of up to 41,700,000 SubscriptionReceiptsatapriceof$4.20perSubscriptionReceipt foraggregategrossproceedsofupto$175,140,000ona“besteffortsbasis”(the“Offering”ortheOctoberPrivatePlacement).TheSubscriptionReceiptswereissuedinconnectionwiththeAmalgamationpursuanttotheAmalgamationAgreementdescribedabove.Pursuanttoandin accordance with the Subscription Receipt Indenture (as defined below), each Subscription Receipt wasautomaticallyexchanged,withoutanyfurtheractionbytheholderthereofandfornoadditionalconsideration,for one Pre‐Amalgamation Element Common Share on December 15, 2011 following the satisfaction of theescrowreleaseconditionssetoutintheSubscriptionReceiptIndenture.

As part of the offering, pursuant to separate lock‐up agreements, Element’s directors and executiveofficersagreednot tosellanyCommonSharesheldby them(orunder theircontrol) (butexcludingCommonShares acquired upon the exchange of Subscription Receipts) until December 9, 2012, subject to customaryexceptions.SeeSecuritiesSubjecttoRestrictiononTransfer.

FortheirservicesinconnectionwiththeOctoberPrivatePlacement,theOctoberAgentsreceivedfromElementanagencyfeeincashequalto6.0%ofthegrossproceedsrealizedbyElementinrespectofthesaleof

Subscription Receipts pursuant to the October Private Placement, except that, with respect to 3,981,002SubscriptionReceiptssoldtopurchasersidentifiedtotheOctoberAgentsbyElement,suchagencyfeewasequalto3.0%ofgrossproceedsrealizedbyElement.

49

S U B S C R I P T I O N R E C E I P T I N D E N T U R E

On October 28, 2011, in connection with the October Private Placement, Element, GMP andComputershareTrustCompanyofCanada(the“SubscriptionReceiptAgent”)enteredintoasubscriptionreceiptindenture(the“SubscriptionReceiptIndenture”).UpontheclosingoftheOctoberPrivatePlacement,thegrossproceeds (the “Escrowed Proceeds”) were deposited with the Subscription Receipt Agent, as trustee, andinvested in an interest bearing account (the Escrowed Proceeds, togetherwith all interest and other incomeearnedthereon,the“EscrowedFunds”).

EachSubscriptionReceiptwasautomaticallyexchanged,withoutany furtheractionon thepartof theholder thereof andwithout payment of additional consideration, immediately prior to the completion of theAmalgamationforonePre‐AmalgamationElementCommonShare.

A G E N C Y A G R E E M E N T – A P R I L 2 0 1 1 P R I V A T E P L A C E M E N T

Element and GMP and Barclays Capital Canada Inc., (collectively, the “April Agents”) entered into anagencyagreement(the“AprilAgencyAgreement”)onApril5,2011. Subject to the termsof theAprilAgencyAgreement, Element appointed the April Agents as exclusive agents to the Corporation to arrange for theissuanceandsaleof18,750,000units(atapriceof$4.00perunit)and336,206warrantsforcashconsideration,netoftransactioncostsofapproximately$69,995,206.Eachunitconsistedofonecommonshareandoneright.Eachrightentitledtheholdertoreceive0.1additionalcommonsharesifaliquidityeventdidnotoccurpriortotheliquiditydeadline.Element’slistingontheTSXonDecember16,2011satisfiedthedefinitionofa“Liquidityvent”.E

For their services theAprilAgents received fromElementanagency fee in cashequal to6.5%of thegrossproceedsrealizedbyElementinrespectofthesaleofunitspursuanttothisfinancingandanadvisoryfeeincashintheamountof$975,000inrespectofadvisoryservicesrenderedbytheAprilAgents.

A S S E T P U R C H A S E A G R E E M E N T

On July 26, 2011, Element and Element U.S. (as purchasers), Alter Moneta Corporation (a Canadiancorporation)andAlterMonetaCorporation(aDelawarecorporation)(asvendors)andIPC/AMH(Luxembourg)S.A.R.L., CDP Investissements Inc. and4389930Canada Inc. (as shareholders of the vendors) entered into anAsset Purchase Agreement to purchase the assets and assume the liabilities of the AlterMoneta Group L.P..Pursuant to the terms of the Asset Purchase Agreement, the purchase price for the acquired assets wasapproximately$161,200,000.ForasummaryoftheAssetPurchaseAgreement,seeNarrativeDescriptionoftheBusiness–Acquisitionsand JointVentures–SignificantAcquisitions–AlterMonetaAcquisition–AssetPurchaseAgreement.

S E C U R I T I Z A T I O N A G R E E M E N

Element and Element US (collectively “Securitizers”) entered into a Securitization Agreement with asecuritization conduit trust (the “Trust”) administered by an affiliate of a Canadian Schedule I bank (the“SecuritizationAgent”).PursuanttotheSecuritizationAgreement,theSecuritizers:(i)soldtotheTrustcertainspecified loans (eacha “Loan”)madebyAM to individualobligors (“Obligors”) to finance thepurchaseof the

T

equipmentandothermovableorpersonalpropertywhichiscollateralforthesecuredloan;and(ii)leasedtotheTrustunderconcurrentleasescertainequipmentandothermovableandpersonalpropertywhichwasleasedtoindividual obligors byAMunder leaseswhich are acquired by theTrust. As consideration for such sale andconcurrent lease, theTrustpaid theSecuritizers apurchaseprice amountat the timeof closinganaggregateamount of $120,700,000 (before taxes). For a summary of the Securitization Agreement, see NarrativeDescriptionoftheBusiness–AcquisitionsandJointVentures–SignificantAcquisitions–AlterMonetaAcquisition–

50

SecuritizationAgreement.

CopiesofthematerialcontractsmaybeviewedonSEDARatwww.sedar.com.

ADDITIONALINFORMATION

Additional information relating to Elementmay be found on SEDAR at www.sedar.com. Informationincludingdirectors’andofficers’remunerationandindebtedness,principalholdersofElement’ssecuritiesandsecuritiesauthorizedforissuanceunderElement’sstockoptionplanis,whereapplicable,containedinitslatestManagementProxyCircular.Additionalfinancialinformationisprovidedinthefinancialstatementsfortheninemonths ended December 31, 2011 and the accompanying Management’s Discussion and Analysis datedFebruary23,2012,whichhavebeenfiledonSEDAR.

A‐1

APPENDIXA

E L E M E N T F I N A N C I A L C O R P O R A T I O N A U D I T C O M M I T T E E M A N D A T E

1. Introduction

The Audit Committee (the “Committee” or the “Audit Committee”) of Element Financial Corporation(“Element”orthe“Corporation”)isacommitteeoftheBoardofDirectors(the“Board”).TheCommitteeshalloverseetheaccountingandfinancialreportingpracticesoftheCorporationandtheauditsoftheCorporation’sfinancialstatementsandexercisetheresponsibilitiesanddutiessetoutinthisAuditCommitteeMandate(this“Mandate”).

ThisMandatewasadoptedbytheBoardonDecember14,2011,andshallbecomeeffectiveimmediatelyuponthecompletionofthelistingoftheCorporation’s(orasuccessorthereto)commonsharesontheTorontoStockExchange.

2. Membership

NumberofMembers

TheCommitteeshallbecomposedofthreeormoremembersoftheBoard.

Independenceof Members

Eachmember of theCommitteemustbe independent. “Independent” shall have themeaning, as the contextrequires,giventoitinNationalInstrument52‐110AuditCommittees,asmaybeamendedand/orreplacedfromtimetotime.

Chair

AtthetimeoftheannualappointmentofthemembersoftheAuditCommittee,theBoardshallappointaChairoftheAuditCommittee.TheChair shallbeamemberof theAuditCommittee,presideoverallAuditCommitteemeetings,coordinatetheAuditCommittee’scompliancewiththisMandate,workwithmanagementtodeveloptheAuditCommittee’sannualwork‐planandprovidereportsoftheAuditCommitteetotheBoard.

FinancialLiteracyofMembers

At the time of his or her appointment to the Committee, eachmember of the Committee shall have, or shallacquirewithinareasonabletimefollowingappointmenttotheCommittee,theabilitytoreadandunderstandasetoffinancialstatementsthatpresentabreadthandlevelofcomplexityofaccountingissuesthataregenerallycomparable to the breadth and complexity of the issues that can reasonably be expected to be raised by theCorporation’sfinancialstatements.

TermofMembers

ThemembersoftheCommitteeshallbeappointedannuallybytheBoard.EachmemberoftheCommitteeshallserveatthepleasureoftheBoarduntilthememberresigns,isremoved,orceasestobeamemberoftheBoard.UnlessaChairiselectedbytheBoard,themembersoftheCommitteemaydesignateaChairbymajorityvoteofthefullCommitteemembership.

3. Meetings

NumberofMeetings

TheCommitteemaymeetasmanytimesperyearasnecessarytocarryoutitsresponsibilities.

A‐2

CallingofMeetings

TheChair,anymemberoftheAuditCommittee,theexternalauditors,theChairoftheBoardorLeadDirector,ortheChiefExecutiveOfficerortheChiefFinancialOfficermaycallameetingoftheAuditCommitteebynotifyingtheCorporation’sSecretarywhowillnotifythemembersoftheAuditCommittee.TheChairshallchairallAuditCommitteemeetingsthatheorsheattends,andintheabsenceoftheChair,themembersoftheAuditCommitteepresentmayappointachairfromtheirnumberforameeting.

Minutes;ReportingtotheBoard

TheCommitteeshallmaintainminutesorotherrecordsofmeetingsandactivitiesoftheCommitteeinsufficientdetail to convey the substance of all discussions held. Upon approval of theminutes by the Committee, theminutesshallbecirculatedtothemembersoftheBoard.However,theChairmayreportorallytotheBoardonanymatterinhisorherviewrequiringtheimmediateattentionoftheBoard.

Attendanceo Non‐Members

The external auditors are entitled to attend and be heard at each Committee meeting. In addition, theCommitteemay invite to ameeting any officers or employees of theCorporation, legal counsel, advisors andotherpersonswhoseattendanceitconsidersnecessaryordesirableinordertocarryoutitsresponsibilities.Atleastonceperyear,theCommitteeshallmeetwithmanagementinseparatesessionstodiscussanymattersthattheCommitteeorsuchindividualsconsiderappropriate.

f

MeetingswithoutManagement

The Committee shall hold unscheduled or regularly scheduled meetings, or portions of meetings, at whichmanagementisnotpresent.

Procedure

Theproceduresforcalling,holding,conductingandadjourningmeetingsoftheCommitteeshallbethesameasthoseapplicabletomeetingsoftheBoard.

AccesstoManagementandOutsideAdvisors

Indischarging the forgoingduties and responsibilities, theAuditCommittee shallhaveunrestrictedaccess tomanagement and employees of the Corporation and to the relevant books, records and systems of theCorporationas consideredappropriate.TheAuditCommittee shallhave theauthority to retainexternal legalcounsel,consultantsorotheradvisorstoassistitinfulfillingitsresponsibilities.TheCorporationshallprovideappropriatefunding,asdeterminedbytheBoard,fortheservicesoftheseadvisors.

4. DutiesandResponsibilities

TheCommitteeshallhavethefunctionsandresponsibilitiessetoutbelowaswellasanyotherfunctionsthatarespecificallydelegatedtotheCommitteebytheBoardandthattheBoardisauthorizedtodelegatebyapplicablelawsandregulations.Inadditiontothesefunctionsandresponsibilities,theCommitteeshallperformthedutiesrequiredof anaudit committeebyanyexchangeuponwhich securitiesof theCorporationare traded,or anygovernmentalorregulatorybodyexercisingauthorityovertheCorporation,asare ineffect fromtimetotime(collectively,the“ApplicableRequirements”).

Financia eportslR

(a) General

The Audit Committee is responsible for overseeing the Corporation’s financial statements and financialdisclosures. Management is responsible for the preparation, presentation and integrity of the Corporation’s

financialstatementsandfinancialdisclosuresandfortheappropriatenessoftheaccountingprinciplesandthereportingpoliciesusedbytheCorporation.TheauditorsareresponsibleforauditingtheCorporation’sannualconsolidatedfinancialstatementsandforreviewingtheCorporation’sunauditedinterimfinancialstatements.

A‐3

(b) ReviewofAnnualFinancialReports

TheAuditCommitteeshallreviewtheannualconsolidatedauditedfinancialstatementsoftheCorporation,theauditors’ report thereon and the relatedmanagement’s discussion and analysis of theCorporation’s financialconditionandresultsofoperation(“MD&A”).Aftercompletingitsreview,ifadvisable,theAuditCommitteeshallapproveandrecommendforBoardapprovaltheannualfinancialstatementsandtherelatedMD&A.

(c) ReviewofInterimFinancialReports

TheAuditCommitteeshallreviewtheinterimconsolidatedfinancialstatementsoftheCorporation,theauditors’reviewreportthereonandtherelatedMD&A.Aftercompletingitsreview,ifadvisable,theAuditCommitteeshallapproveandrecommendforBoardapprovaltheinterimfinancialstatementsandtherelatedMD&A.

(d) ReviewConsiderations

In conducting its review of the annual financial statements or the interim financial statements, the AuditCommitteeshall:

(i) meetwithm stanagementandtheauditorstodiscus

hefinancialstatementsandMD&A;

(ii) reviewthedisclosureinthefinancialstatements;

(iii) reviewtheauditreportorreviewreportpreparedbytheauditors;

(iv) discusswithmanagement,theauditorsandlegalcounsel,asrequested,anylitigationclaimaorothercontingencythatcouldh veamaterialeffectonthefinancialstatements;

(v) review the accounting policies followed and critical accounting and other significantestimates and judgements underlying the financial statements as presented bymanagement;

(vi) review any material effects of regulatory accounting initiatives or off‐balance sheetstructures on the financial statements as presented by management, includingrequirements relating to complex or unusual transactions, significant changes toaccounting principles and alternative treatments under Canadian generally accepted

topubliclyaccountableenterpaccountingprinciplesapplicable rises;

(vii) review any material changes in accounting policies and any significant changes inaccounting practices and their impact on the financial statements as presented bymanagement;

(viii) review management’s report on the effectiveness of internal controls over financialreporting;

(ix) review the factors identified by management as factors that may affect future financialresults;

(x) reviewresultsoftheCorporation’sauditcommitteewhistleblowerhotlineprogram;and

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(xi) reviewanyothermatters related to the financialstatements thatarebrought forwardbythe auditors, management or which are required to be communicated to the AuditCommitteeunderaccountingpolicies,auditingstandardsorApplicableRequirements.

(e) Approvalof OtherFinancialDisclosures

The Audit Committee shall review and, if advisable, approve and recommend for Board approval financialdisclosureinaprospectusorothersecuritiesofferingdocumentoftheCorporation,pressreleasesdisclosing,orbasedupon,financialresultsoftheCorporationandanyothermaterialfinancialdisclosure,includingfinancialguidanceprovidedtoanalysts,ratingagenciesorotherwisepubliclydisseminated.

Auditors

(a) General

TheAuditCommitteeshallberesponsibleforoversightoftheworkoftheauditors,includingtheauditors’workinpreparingor issuinganauditreport,performingotheraudit, revieworattestservicesoranyotherrelatedwork.

(b) NominationandCompensation

The Audit Committee shall review and, if advisable, select and recommend for Board approval the externalauditors to be nominated and the compensation of such external auditor. The Audit Committee shall haveultimateauthoritytoapproveallauditengagementtermsandfees,includingtheauditors’auditplan.

(c) ResolutionofDisagreements

TheAudit Committee shall resolve any disagreements betweenmanagement and the auditors as to financialreportingmattersbroughttoitsattention.

(d) DiscussionswithAuditors

Atleastannually,theAuditCommitteeshalldiscusswiththeauditorssuchmattersasarerequiredbyapplicableauditing ndardstobediscussedbytheauditorswiththeAuditCommittee.sta

(e) AuditPlan

At least annually, theAudit Committee shall reviewa summaryof the auditors’ annual audit plan. TheAuditCommitteeshallconsiderandreviewwiththeauditorsanymaterialchangestothescopeoftheplan.

(f) QuarterlyReviewReport

TheAuditCommitteeshallreviewareportpreparedbytheauditorsinrespectofeachoftheinterimfinancialstatementsoftheCorporation.

(g) Indepe nceofAuditors

At least annually, and before the auditors issue their report on the annual financial statements, the AuditCommitteeshallobtain fromtheauditorsa formalwrittenstatementdescribingall relationshipsbetweentheauditorsandtheCorporation;discusswiththeauditorsanydisclosedrelationshipsorservicesthatmayaffecttheobjectivityandindependenceoftheauditors;andobtainwrittenconfirmationfromtheauditorsthattheyare objective and independent within the meaning of the applicable Rules of Professional Conduct/Code ofEthicsadoptedbytheprovincial instituteororderofcharteredaccountants towhichtheauditorsbelongandotherApplicableRequirements.TheAuditCommitteeshalltakeappropriateactiontooverseetheindependenceoftheauditors.

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(iii) anymaterialissuesraisedbyanyinquiryorinvestigationbytheCorporation’sregulators;

(iv) the Corporation’s fraud prevention and detection program, including deficiencies ininternalcontrolsthatmayimpacttheintegrityoffinancialinformation,ormayexposetheCorporation to other significant internal or external fraud losses and the extent of thoselossesandanydisciplinaryaction inrespectof fraudtakenagainstmanagementorotheremployeeswhohaveasignificantroleinfinancialreporting;and

(h) EvaluationandRotationofLeadPartner

Atleastannually,theAuditCommitteeshallreviewthequalificationsandperformanceoftheleadpartner(s)oftheauditorsanddeterminewhetheritisappropriatetoadoptorcontinueapolicyofrotatingleadpartnersoftheexternalauditors.

(i) RequirementforPre‐ApprovalofNon‐AuditServices

TheAuditCommitteeshallapproveinadvanceanyretaineroftheauditorstoperformanynon‐auditservicetotheCorporation(togetherwithallnon‐auditservicefees)thatitdeemsadvisableinaccordancewithApplicableRequirementsandBoardapprovedpoliciesandprocedures.TheAuditCommitteeshallconsidertheimpactofsuch service and fees on the independence of the auditor. TheAudit Committeemay delegate pre‐approvalauthoritytoamemberoftheAuditCommittee.ThedecisionsofanymemberoftheAuditCommitteetowhomthis authority has been delegatedmust be presented to the full Audit Committee at its next scheduledAuditCommitteemeeting.

(j) ApprovalofHiringPolicies

TheAuditCommitteeshallreviewandapprovetheCorporation’shiringpoliciesregardingpartners,employeesandformerpartnersandemployeesofthepresentandformerexternalauditorsoftheCorporation.

(k) FinancialExecutives

The Committee shall review and discuss withmanagement the appointment of key financial executives andrecommendqualifiedcandidatestotheBoard,asappropriate.

Interna ontrolslC

(l) General

TheAuditCommitteeshallreviewtheCorporation’ssystemofinternalcontrols.

(m) Establishment,ReviewandApproval

The Audit Committee shall requiremanagement to implement andmaintain appropriate systems of internalcontrols inaccordancewithApplicableRequirements, including internal controlsover financial reportinganddisclosureandtoreview,evaluateandapprovetheseprocedures.Atleastannually,theAuditCommitteeshallconsiderand iew erev withmanagementandth auditors:

(i) the effectiveness of, or weaknesses or deficiencies in: the design or operation of theCorporation’s internal controls (including computerized information systemcontrols andsecurity); the overall control environment for managing business risks; and accounting,financial and disclosure controls (including, without limitation, controls over financialreporting),non‐financialcontrols,andlegalandregulatorycontrolsandtheimpactofanyidentifiedweaknessesininternalcontrolsonmanagement’sconclusions;

(ii) anysignificant changes in internal controlsover financial reporting thataredisclosed,orconsideredfordisclosure,includingthoseintheCorporation’speriodicregulatoryfilings;

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(v) any related significant issues and recommendations of the auditors together withmanagement’s responses thereto, including the timetable for implementation ofrecommendations tocorrectweaknesses in internal controlsover financial reportinganddisclosurecontrols.

CompliancewithLegalandRegulatoryRequirements

TheAuditCommitteeshall reviewreports fromtheCorporation’sSecretaryandothermanagementmemberson: legalor compliancematters thatmayhave amaterial impacton theCorporation; theeffectivenessof theCorporation’s compliance policies; and any material communications received from regulators. The AuditCommittee shall reviewmanagement’s evaluationof and representations relating to compliancewith specificapplicablelawandguidance,andmanagement’splanstoremediateanydeficienciesidentified.

AuditCommitteeHotlineWhistleblowerProcedures

TheAuditCommitteeshallestablishfor(a)thereceipt,retention,andtreatmentofcomplaintsreceivedbytheCorporation regarding accounting, internal accounting controls, or auditingmatters; and (b) the confidential,anonymous submission by employees of the Corporation of concerns regarding questionable accounting orauditingmatters.AnysuchcomplaintsorconcernsthatarereceivedshallbereviewedbytheAuditCommitteeand,iftheAuditCommitteedeterminesthatthematterrequiresfurtherinvestigation,itwilldirecttheChairoftheAuditCommitteetoengageoutsideadvisors,asnecessaryorappropriate,toinvestigatethematterandwillworkwithmanagementandthegeneralcounseltoreachasatisfactoryconclusion.

AuditCommitteeDisclosure

TheAuditCommitteeshallprepare,reviewandapproveanyauditcommitteedisclosuresrequiredbyApplicableRequirementsintheCorporation’sdisclosuredocuments.

Delegation

TheAuditCommitteemay,totheextentpermissiblebyApplicableRequirements,designateasub‐committeetoreviewanymatterwithinthisMandateastheAuditCommitteedeemsappropriate.

5. NoRightsCreated

This Mandate is a statement of broad policies and is intended as a component of the flexible governanceframeworkwithinwhich theAuditCommittee, functions. While it shouldbe interpreted in the contextof allapplicablelaws,regulationsandlistingrequirements,aswellasinthecontextoftheCorporation’sArticlesandBy‐laws,itisnotintendedtoestablishanylegallybindingobligations.

6. MandateReview

TheCommitteeshallreviewandupdatethisMandateannuallyandpresentittotheBoardforapproval.