GOING PUBLIC IN CANADA

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MILLER THOMSON LLPGOING PUBLIC IN CANADA

1. OVERVIEW 1

Introduction 1

Canadian Regulatory Regime 1

The Toronto Stock Exchange and TSX Venture Exchange 2

Reasons to List in Canada 2

Advantages/Disadvantages of Going Public 3

2. METHODS OF GOING PUBLIC 4

Initial Public Offering 4

Reverse Takeover 4

TSX-V Capital Pool Company 4

TSX Special Purpose Acquisition Company 5

3. THRESHOLD ISSUES 6

Escrow Restrictions 6

Toronto Stock Exchange Minimum Listing Requirements 7

TSX Venture Exchange Minimum Listing Requirements 8

4. LISTING COSTS 10

5. PRELIMINARY STEPS 11

Preparing a Business Plan and Creating a Corporate Image 11

Preparing Financial Statements 11

Developing Reporting Systems 11

Modifying the Corporate Structure 11

Appointing Independent Directors 12

The Role of Experts 12

Special Considerations for U.S. Based Issuers 13

6. PROSPECTUS PROCESS 14

Introduction 14

Prospectus Exemptions 14

Preparing, Filing and Qualifying the Prospectus 14

Forms of Prospectus 17

Documents Filed Together with the Prospectus 20

Civil Liability 21

Multijurisdictional Disclosure System 22

7. ONGOING CONTINUOUS DISCLOSURE OBLIGATIONS 23

General 23

Financial Statements 23

Management Discussion & Analysis 24

Delivery of Financial Statements and MD&A to Securityholders 24

Forward-Looking Information 24

Annual Information Form 25

Proxies and Information Circulars 25

Executive Compensation 26

Material Change Reports 26

Business Acquisition Reports 27

Documents Affecting the Rights of Securityholders 27

Material Contracts 27

Exemptions for Foreign Issuers 28

8. CORPORATE GOVERNANCE REQUIREMENTS 29

Disclosure Requirements 29

Audit Committees 30

Nominating Committee 30

Compensation Committee 30

Disclosure Controls and Procedures and Internal Controls over Financial Reporting 31

Shareholder Meetings 31

Civil Liability for Misrepresentations in Secondary Market Disclosure 32

SCHEDULES

Schedule A - Minimum Requirements for Listing on the Toronto Stock Exchange and

the TSX Venture Exchange

Schedule B - Prospectus Timelines

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1. OVERVIEW

Introduction

This guide is an overview of the practical consid-erations for issuers considering a public offeringin Canada. Included in this guide is a discussionof the primary advantages and disadvantages ofgoing public in Canada, key structuring issues,how to obtain a listing on a Canadian exchange,the prospectus clearance process and continuousdisclosure and corporate governance obligationsfor public companies in Canada.

While this guide is not meant to be exhaustive, wehope that you will find it to be a useful referencesource. You should not act on information providedin this guide without consulting with legal counsel.Should you require further information about goingpublic in Canada or any specific topic discussedin this guide, Miller Thomson would be pleased toprovide you with that information upon request.

Canadian Regulatory Regime

Securities regulation in Canada is currently aprovincial jurisdiction. Each of the ten provincesand three territories is responsible for regulatingcapital markets in their own jurisdiction. Each hasits own administrative/quasi-administrativeagency that regulates securities markets (each, a“Securities Commission”).

While there is currently no federal securities reg-ulator in Canada, significant progress has beenmade to coordinate the system among theprovinces and territories. To help harmonizesecurities laws across Canada, the variousSecurities Commissions have adopted several“National Policies” and “National Instruments”,which are securities rules that apply throughoutCanada. In addition, certain “MultilateralInstruments” and “Multilateral Policies” have beenadopted, which are rules which apply in morethan one, but not in all, Canadian jurisdictions.Serious efforts are currently underway to createa single federal national securities regulator inCanada. In June, 2009, the government ofCanada announced the launch of the national

Canadian Securities Transition Office (“CSTO”) toassist in the establishment of a federal securitiesregulatory regime and a single federal regulatoryauthority. The CSTO is specifically responsible forthe development of a new federal Securities Actand the development of a transition plan.

All provinces and territories, except for Ontario,(the “passport regulators”) have signed on to a“passport system” which is a mutual recognitionsystem that provides a single window of access toCanada’s capital markets for domestic and foreignissuers. It enables participants to clear a prospectusor obtain a discretionary exemption and to registeras a dealer or adviser, by obtaining a decision fromthe securities regulator in their home province orterritory and having that decision apply in all otherparticipating jurisdictions. The jurisdiction that willtake the lead as principal regulator is the securitiesregulatory authority or regulator in the jurisdictionin which the issuer’s head office is located.

Although Ontario has not signed on to the passportsystem (i.e. it is not a “passport regulator”), thesystem has been designed to accommodate that.For example, if the principal regulator for a prospectusor exemption application is the Ontario SecuritiesCommission (“OSC”) and the prospectus orexemption application is also filed in one or morepassport jurisdictions, only the OSC will reviewthe prospectus or exemption application and thepassport jurisdictions will rely on the OSC’s review.In circumstances where the principal regulator is apassport regulator and the prospectus or exemptionapplication is also filed in Ontario, the principalregulator will review the prospectus or exemptionapplication, and the OSC, as a non-principal regulator,will coordinate its review with the principal regulator.

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The Toronto Stock Exchange and TSXVenture Exchange

The two principal exchanges for equity securitiesin Canada are the Toronto Stock Exchange (the“TSX”) and the TSX Venture Exchange (the “TSX-V”).TMX Group owns and operates both exchanges.The TSX is the market for senior issuers. The TSX-Vis the market for more junior issuers that have notyet met the requirements for listing on the TSX.

In order to secure a listing on the TSX or the TSX-V,an issuer that does not already have securities listedon the relevant exchange must complete a listingapplication which, together with supporting data,must demonstrate that the issuer is able to meetthe applicable minimum listing requirements ofthe exchange. The issuer must also sign a listingagreement to formally place on record theissuer’s commitment to comply with exchangerequirements for the continuance of its listing.

Reasons to List in Canada

Access to Large Market

The TMX Group marketplace is one of the largeststock markets in the world. It is second in the worldand first in North America in terms of number oflisted companies (1,462 on the TSX, 2,375 on theTSX-V). TMX Group is eighth in the world andthird in North America by total listed companymarket capitalization valued at $1.8 trillion as atyear-end of 2009. 1

Comparatively Lower Costs of Going Public

The costs of listing and maintaining a listing oneach of the TSX and the TSX-V are generallylower than the equivalent costs in other majormarkets such as those in New York or London.Furthermore, going public in the United Statestypically involves higher ongoing compliancecosts and greater risk due to the more litigiousenvironment and more rigorous regulatory system.

Financing Flexibility

The TMX Group exchanges enable issuers to raiseas little as $500,000 to substantial amounts,depending on their needs.

Access to a Strong Investor Market

The TMX Group exchanges attract significantinvestment from institutional and retail investorsin Canada and around the world. Approximately40% of the equity trading on the TMX Group’sexchanges originates from outside of Canada.

Special Advantages of the TSX Venture Exchange

The TMX Group offers junior issuers a streamlinedgraduation path from the TSX-V to the TSX. In2009, 20 issuers graduated from the TSX-V to theTSX. The TSX-V has also introduced the NEXboard, which allows companies that have fallenbelow the TSX-V’s ongoing listing standards whichwould otherwise be designated as “inactive” andgiven 18 months to meet the standards or bedelisted, to continue trading. The NEX board relievesthese issuers of the pressure of a delisting deadlineand allows them to remain more visible as potentialtakeover targets or investment opportunities.

Smaller Issuer Expertise

Generally speaking, the TMX Group exchangesprovide a less costly and less onerous regulatoryregime, enabling smaller cap companies to list moreefficiently than many exchanges outside of Canada.

Mining and Energy Expertise

The TMX Group lists the largest number of miningcompanies and the largest number of energycompanies in the world. Over 55% of the world’spublic mining companies and over 40% of theworld’s public energy companies are listed withthe TMX Group. Because of the TMX Group’sextensive experience with the mining and energyindustries, special rules exist to expedite the listingprocess for issuers in these industries.

1 TMX Group, “A Capital Opportunity: Guide to Listing”.

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Advantages/Disadvantages of Going Public

Going public is a major decision for any issuer.Public company status provides many advantages,but also imposes certain burdens that an issuershould consider before embarking on the process.

Advantages

The advantages of going public include:

• Access to capital – both for specific projects andfuture growth and typically on more favourableconditions than private equity financing, andwithout the interest costs of debt financing.

• Greater liquidity for existing and future share-holders – note, however, that securities held byprincipals may be subject to escrow requirementsimposed by statute and/or arrangements withunderwriters.

• Greater liquidity options for founders – foundersmay sell all their shares or use them as collateralfor personal loans.

• Increased credibility – the greater transparencyand visibility that comes with public issuer statusgenerally enhances corporate image and mayassist in developing relationships with the com-munity, customers and suppliers.

• Ability to use equity as compensation to man-agement – permits greater flexibility in compen-sation arrangements.

• Ability to use equity as compensation for pur-chases – enhances the ability of an issuerto complete mergers utilizing liquid stock asconsideration.

• Enhanced ability to borrow – the increase inequity base creates more leverage for growthby improving a company’s debt to equity ratio.

• Method of valuation through the market –provides a more accurate assessment of fairmarket value of the enterprise.

Disadvantages

• Up-front costs – initial costs of going public,including management time and internal resources.

• Ongoing costs – to meet continuous disclosureand corporate governance requirements of theexchanges and securities regulators.

• Decreased flexibility for founders – publiccompanies become subject to various restrictionsunder listing rules and that can impact activities,including issuing securities and related partytransactions, among other things.

• Greater pressure on management – to meetshareholder expectations of continuing successand profit as well as expectations of a broadervariety of stakeholders.

• Loss of confidentiality – due to extensive corporateand financial reporting obligations.

• Potential for civil liability – the issuer, directorsand certain advisors could all be held liable formisrepresentations in public disclosure documents.

• Potential loss of certain tax benefits – currentincome tax laws provide certain credits anddeductions to Canadian-controlled privatecorporations which are no longer available to acompany once it has gone public.

• Increased vulnerability to hostile takeovers –particularly where founders own less than themajority of the outstanding stock.

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2. METHODS OF GOING PUBLIC

Initial Public Offering

An initial public offering (an “IPO”) is the traditionalmethod of going public and the one which isdiscussed in greatest detail in this guide. An IPOis typically completed via a long form prospectusoffering in conjunction with an initial listing on astock exchange.

Reverse Takeover

A reverse takeover (an “RTO”) occurs when a privatecompany acquires control of a public company,typically a shell company with no active operationsbut which has a listing and reporting issuer status.The RTO might be structured in a number ofways, including: (a) issuing shares of the publiccompany in exchange for assets or shares of theprivate company, or (b) an amalgamation ormerger of the public shell and the private company.The resulting issuer from an RTO must continueto meet the original listing requirements of theTSX or TSX-V, as the case may be, and submit toa TSX approval process similar to that of an originallisting application. An RTO can, depending on thestructure, be completed more quickly and withless expense than an IPO.

TSX-V Capital Pool Company

The Capital Pool Company (“CPC”) program is aprogram operated by the TSX-V that providescompanies with an opportunity to obtain financingearlier in their development than would normallybe possible through a traditional IPO. The programpermits a new shell company (the CPC) with noassets, other than cash (a minimum of the greaterof $100,000 and 5% of total funds raised) and nocommercial operations, to carry out an IPO andbecome listed on the TSX-V. The funds raisedmust be used to identify and evaluate assets orbusinesses which, if acquired, will qualify the CPCfor regular listing on the TSX-V.

Going public as a CPC is a two-stage process. Inthe first stage, the company incorporates, preparesand files a prospectus (outlining management’sintention to raise between $200,000 and$4,750,000), issues shares (to at least 200 arm’slength shareholders, each of whom buys at least1,000 shares), completes the distribution and islisted. The second stage, which must be completedwithin 24 months of the prospectus offering, involvesthe CPC identifying an appropriate business as its“qualifying transaction”. The CPC prepares and fileswith the TSX-V a filing statement or informationcircular providing prospectus-level disclosureconcerning the business that is to be acquired,and obtains TSX-V approval. Shareholder approvalis typically not required. Typically, completion ofthe qualifying transaction is accompanied by aprivate placement financing and a name changefor the issuer.

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TSX Special Purpose Acquisition Company

Like the TSX-V, the TSX has initiated a programwhich allows for the listing of a shell company, aSpecial Purpose Acquisition Company (“SPAC”),that will later acquire an operating business withthe proceeds raised.

Like CPCs, a SPAC listing involves a “two-step”process. A SPAC must first be listed and raise aminimum of $30 million through its IPO, at least90% of which must be placed into escrow. Theproceeds are then to be used to acquire an operatingcompany (the “qualifying acquisition”) or assetswithin 36 months of such listing. The business orassets acquired must have an aggregate fair marketvalue equal to at least 80% of the value of theescrowed funds. Once the SPAC has completedits qualifying acquisition, which must meet TSXlisting requirements, it is treated as a regularissuer by the TSX.

Because SPACs are much larger than CPCs, they aresubject to more stringent regulatory requirements.The TSX has imposed a number of mandatory listingrequirements for SPACs, including the following:

• Financing – the SPAC cannot obtain any debtfinancing (excluding ordinary course short termtrade or accounts payables) other than con-temporaneously with, or after, completion of itsqualifying acquisition;

• Public Distribution – a SPAC seeking a TSX listingmust satisfy all of the criteria below:

(a) at least 1,000,000 freely tradeable securitiesare held by public holders;

(b) the aggregate market value of the securitiesheld by public holders is at least $30,000,000;and

(c) at least 300 public holders of securities,holding at least one board lot each; and

• Pricing – a SPAC seeking listing on the TSXmust issue securities pursuant to the IPO for aminimum price of $2.00 per share or unit.

The SPAC must prepare an information circularwith prospectus-level disclosure concerning thequalifying acquisition and the resulting issuer, whichit must submit to the TSX for approval prior tomailing it to shareholders. A SPAC must also file anon-offering prospectus with the appropriatesecurities commissions. The SPAC may only completethe acquisition if a majority of its securityholders,not including the founders, approve. If the transactionis approved, securityholders who voted against thequalifying acquisition have the right to converttheir securities for their pro rata portion of theescrowed funds. If the qualifying acquisition is notcompleted within the 36 months allowed, theSPAC must complete a liquidation distribution todistribute the escrowed funds to securityholderson a pro rata basis, at which point the SPAC willbe delisted.

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3. THRESHOLD ISSUES

Escrow Restrictions

General

National Policy 46-201 - Escrow for Initial PublicOfferings sets out a uniform policy of Canadianregulators regarding the circumstances in whichthe “principals” of an issuer must agree to escrowcertain securities in connection with a public offering.The purpose of the escrow policy is to increaseinvestor confidence by aligning the interests of theissuer’s management and principal securityholdersto those of the issuer by restricting their ability tosell their securities for a period of time followingan IPO.

“Principals” Must Escrow Shares

The escrow rules restrict “principals” from sellingor otherwise dealing with escrowed securities untilthey are released from escrow according to theterms of a standard form of escrow agreement.“Principals” include the following:

• a person or company that acted as a promoterof the issuer within the two years before theIPO prospectus;

• a director or senior officer of the issuer or anyof its material operating subsidiaries at the timeof the IPO prospectus;

• a person or company that holds securities carryingmore than 20% of the voting rights attached tothe issuer’s outstanding securities immediatelybefore and immediately after completion of theIPO;

• a person or company that holds securities carryingmore than 10% of the voting rights attached tothe issuer’s outstanding securities immediatelybefore and immediately after the issuer’s IPO,and has elected or appointed, or has the rightto elect or appoint a director or senior officerof the issuer or any of its material operatingsubsidiaries; and

• a principal’s spouse and their relatives who liveat the same address as the principal.

A principal that holds securities carrying less than1% of the voting rights attached to an issuer’s out-standing securities immediately after its IPO is notsubject to the escrow restrictions.

Release of Escrowed Securities

The release of escrowed securities varies dependingon the escrow classification of the issuer. For thispurpose, issuers are classified in one of the followingcategories:

• Exempt Issuer – an issuer that, following its IPO,has listed securities on the TSX and is classifiedby the TSX as an exempt issuer or has a marketcapitalization of at least $100 million.

• Established Issuer – an issuer that, following itsIPO, has securities listed on the TSX and is notclassified by the TSX as an Exempt Issuer, or hassecurities listed on the TSX-V and is a TSX VentureTier 1 issuer.

• Emerging Issuer – an issuer that, following itsIPO, is not an Exempt Issuer or an EstablishedIssuer.

In the case of Exempt Issuers, no escrow is imposed.Principals of Established Issuers will have theirescrowed securities released over an 18-monthperiod. Principals of Emerging Issuers will have theirescrowed securities released over a 36-monthperiod. The following table illustrates the releaseperiods for Established Issuers and Emergingissuers.

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Toronto Stock Exchange Minimum ListingRequirements

General

When companies apply for a listing on the TSX,they are grouped into one of three categories:Industrial (General), Mining or Oil and Gas. Allspecial purpose issuers such as exchange-tradedfunds, split share corporations, income trusts,investment funds and limited partnerships are listedunder the Industrial (General) category. All SPACsare listed under the Industrial (General) category.In instances where the primary nature of the busi-ness cannot be distinctly categorized, theexchange will designate the company to a listingcategory after reviewing the company’s financialstatements and other documentation. There aredifferent requirements for companies to obtain alisting, depending on the classification of theirbusiness. The TSX always maintains the discretionto list issuers that do not meet the minimum listingrequirements or refuse to list an issuer that meetsthe minimum requirements for listing.

Under TSX rules, it is possible to obtain an advanceview on whether the issuer in question wouldmeet the TSX listing requirements of any particularcategory.

Distribution, Market Capitalization and Public Float

To qualify for a TSX listing, an issuer must have atleast 1,000,000 freely tradable shares having anaggregate market value of at least $4,000,000($10,000,000 for issuers classified by the TSX astechnology issuers2) held by at least 300 publicholders. In some circumstances, technology issuersmust have a minimum market capitalization of$50 million.

Management

Companies applying for a listing on the TSX mustbe able to show evidence of a successful operationor, where the company is relatively new and itsbusiness record is limited, there must be otherevidence of management experience and expertise.In all cases, the quality of management of anapplicant company is an important factor for theTSX in considering a listing application.

Established Issuers Emerging Issuers

% Released Cumulative Amount CumulativeReleased Released Released

Date of 25% exempt 25% 10% exempt 10%the IPO from escrow from escrow

6 months 25% released 50% 15% released 25%

12 months 25% released 75% 15% released 40%

18 months 25% released 100% 15% released 55%

24 months _ _ 15% released 70%

30 months _ _ 15% released 85%

36 months _ _ 15% released 100%

*All percentages set out in the table are based on the initial amount of escrowed securities, not on the remaining escrowed securities at each point in time.

2 “Technology Issuers” include innovative growth companies engaged in hardware, software, telecommunications, data communications, information technology and new technologies.

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Management, including the board of directors,should have adequate experience and technicalexpertise relevant to the company’s business andindustry as well as adequate public companyexperience. Companies are required to have atleast two independent directors, a chief executiveofficer (“CEO”), a chief financial officer (“CFO”)who is not also the CEO, and a corporate secre-tary. See Section 5 – Preliminary Steps –Appointing Independent Directors for discussionof the meaning of “independent”.

The minimum original listing requirements for theTSX are set out in detail in Schedule A.

International Issuers

International issuers are issuers which are alreadylisted on another recognized exchange and areincorporated outside of Canada. International issuersare able to apply for listing on the TSX. There areno longer special or unique requirements for themanagement or the financial requirements forinternational issuers to list on the TSX. The criteriaused for original listing requirements are nowconsistent for all issuers, regardless of where theissuer is based. However, international issuers aregenerally required to have some presence in Canadaand must be able to demonstrate, as with allissuers, that they are able to satisfy all of theirreporting and public company obligations in Canada.This may be satisfied by having a member of theboard of directors or management, an employeeor a consultant of the issuer situated in Canada.

TSX Venture Exchange Minimum ListingRequirements

General

The TSX-V minimum listing requirements arespecifically designed for emerging companies andrecognize that they have different financial needsthan more established businesses. The TSX-Vclassifies issuers as “Tier 1” or “Tier 2” based onstandards, including historical financial performance,stage of development and financial resources.

Tier 1 is the highest tier of the TSX-V and isreserved for the more advanced issuers with themost financial resources. Tier 1 issuers benefit fromless stringent filing requirements. The majority ofTSX-V issuers trade as Tier 2 issuers.

The TSX-V categorizes Tier 1 and Tier 2 issuers byindustry segment and applies specific requirementsto each industry segment. Each Tier 1 and Tier 2issuer is grouped into one of the following cate-gories: (i) technology or industrial; (ii) mining; (iii)oil and gas; (iv) real estate or investment; or (v)research and development.

The basic distribution requirement for Tier 1 issuersis at least 1,000,000 securities of the class to belisted which are held by shareholders who are notpromoters, insiders or associates or affiliates ofinsiders, nor any member of the pro group3

(“Public Shareholder”), free of any resale restrictionsand having a market capitalization of at least$1,000,000.

The basic distribution requirement for Tier 2 issuersis at least 500,000 securities of the class to belisted which are held by Public Shareholders freeof any resale restrictions and having a marketcapitalization of at least $500,000.

The minimum original listing requirements of theTSX-V are set out in Schedule A.

3 Generally, the “pro group” includes dealer group members of the TSX-V and employees, partners, officers, directors and affiliates of members, along with associates of any such parties.

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Foreign Issuers

The TSX-V distinguishes foreign issuers fromdomestic issuers. Foreign issuers are issuers whosemajority of mind and management, or whose controlperson is a resident outside of Canada or the UnitedStates, or the majority of whose principal operatingassets are located outside of Canada or the UnitedStates. United States companies that are not foreignissuers are treated the same as Canadian issuersfor the purpose of the TSX-V.

TSX-V review procedures are more extensive forforeign issuers than for domestic issuers. Foreignissuers must have a “sponsor”, approved by theTSX-V, that must undertake review procedureswhich include site visits, title opinions, independentreports prepared by experts in the foreign juris-diction in the case of oil and gas issuers, a reviewof prior and concurrent financings, and where theforeign issuer engages auditors not from Canadaor the United States, the foreign issuer’s auditorsmust engage a Canadian auditor to advise onmatters of Canadian Generally AcceptedAccounting Principles (“GAAP”) and GenerallyAccepted Auditing Standards (“GAAS”) applicableto all financial statements audited or reviewed bythe foreign auditors and all reports and letters filedby the foreign auditors with the foreign exchange.

The TSX-V strongly recommends a pre-filing con-ference in an application for listing by a foreignissuer in order to canvass and address with theTSX-V issues relating to the issuer’s application.Where a foreign issuer chooses not to request apre-filing, the TSX-V will require additional time toreview the issuer’s application and may not respondwithin the normal time limits.

Maintaining a Listing on the TSX VentureExchange

The minimum requirements to maintain a listingon the TSX-V are lower than the thresholds forobtaining an initial listing for both Tier 1 and Tier 2issuers.

In order to maintain a listing in Tier 1, an issuermust have at least 750,000 listed shares whichare held by Public Shareholders free of any ResaleRestrictions and having a market capitalization ofat least $750,000.

For Tier 2 issuers to maintain a listing on the TSX-V,they must have at least 300,000 listed sharesheld by Public Shareholders free of any ResaleRestrictions and having a market capitalization ofat least $100,000.

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4. LISTING COSTS

The following table sets out an estimated range of fees that will be incurred in going public on the TSXand TSX-V.

Actual costs will, of course, vary from these estimatedranges depending on the nature and complexityof the transaction and relative sophistication ofthe issuer, its management, internal controls andreporting processes.

Other fees may include, but are not limited, to:

• Securities Commission prospectus filing fees

• Transfer agency fees

• Investor relations costs

• Geological or engineering reports

• Printing costs

• French language translation costs

• Valuation reports

• Directors’ and Officers’ liability insurance

• Ongoing costs relating to continuous disclosureobligations under Canadian securities laws.

Toronto Stock Exchange TSX Venture Exchange

Listing Fees $10,000 - $200,000 $7,500 - $40,000

Accounting and Auditing Fees $75,000 - $100,000 $25,000 - $100,000

Legal Fees $400,000 - $750,000 $75,000 +

Underwriters’ Commission 4 - 6% Up to 12%

Source: TMX Group

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5. PRELIMINARY STEPS

Preparing a Business Plan and Creating aCorporate Image

It is often useful for an issuer to have a businessplan prepared in advance of approaching potentialunderwriters and obtaining financing. The businessplan will also assist in drafting certain parts of theprospectus. Management should give carefulconsideration to the corporate image that thecompany will project when it goes to market. Theimage should provide an accurate reflection ofthe company, its business and its strengths. Thisshould be done carefully and well in advance ofgoing public since it is prohibited to “prime themarket” in anticipation of a public offering.

Preparing Financial Statements

As a general rule, a prospectus must include incomestatements, statements of retained earnings andcash flow statements for the previous three years,and balance sheets for the previous two yearsand for the most recently completed quarterlyperiod since the last year end. Generally, all annualand interim financial statements included in aprospectus, along with all continuous disclosureand other filings delivered by issuers to Canadiansecurities regulators, must be prepared in accor-dance with Canadian GAAP and annual financialstatements must be audited in accordance withCanadian GAAS and must be accompanied by anauditor’s report without reservation. There areexceptions available to permit, in some instances,preparation and audit in accordance with U.S.GAAP and U.S. GAAS or International FinancialReporting Standards. By preparing the necessaryfinancial statements in the years preceding thedecision to go public, the company will be in amuch better position to deal with the multitude ofother important tasks involved in going publicwithout the additional burden of concurrentlypreparing and auditing financial statements.

In January 2011, International Financial ReportingStandards will replace Canadian GAAP for mostCanadian public companies.

Developing Reporting Systems

Private companies tend to have much more informalmanagement reporting and control systems thanare required for public companies. A company shoulddevelop and implement appropriate reportingand control systems before the company goespublic since, among other things, the CEO and CFOare required to sign certificates that carry personalliability attesting to the company’s annual filingsand reporting and control systems and procedures.See Section 8 – Corporate Governance Requirements– Disclosure controls and procedures and internalcontrols over financial reporting.

Modifying the Corporate Structure

In some instances it may be preferable to takepublic only certain operating units of a consoli-dated business, as opposed to the entire company.In that case, it may be necessary to restructurethe company or transfer assets within the compa-ny among operating entities. Tax and accountingconsiderations are critical in evaluating whetherto restructure a company. For example, if a privatecompany has been structured to minimize taxes,the consequences of a corporate restructuring anddecision to go public must be carefully analyzedand assessed. Transferring assets among corporateentities may also necessitate valuations by aqualified third party.

The company’s constating documents, includingits articles and by-laws, will have to be reviewedto determine if they will need to be amended toreflect public company status. For instance, any“private company” restrictions will have to beremoved from the articles before completion ofthe offering.

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Appointing Independent Directors

National Instrument 58-101 – Disclosure of CorporateGovernance Practices (“NI 58-101”) and NationalPolicy 58-201 – Corporate Governance Guidelines(“NP 58-201”) provide guidance on what Canadiansecurities regulators currently consider to be thebest standards of corporate governance for publiccompanies. The guidelines set out in NI-201 are notmandatory, but issuers are encouraged to considerthe guidelines in developing their own corporategovernance practices.

Generally, it is considered good corporate gover-nance to have a majority of independent directors.For companies about to go public, this meansappointing new, independent directors to the board.For the purpose of NI 58-101 and NP 58-201, themeaning of “independence” is adopted fromSection 1.4 of National Instrument 52-110 – AuditCommittees. The test of independence is whetherthe director has any direct or indirect “materialrelationship” with the issuer. A “material relationship”is a relationship which could, in the view of theissuer’s board of directors, be reasonably expectedto interfere with the exercise of a member’sindependent judgment.

Directors’ and officers’ liability insurance will generallybe necessary.

The Role of Experts

Underwriters

The central role of the underwriters is to marketand sell the securities subject to the public offeringto institutional and retail investors. The “lead”underwriter is involved in coordinating theprocess from start to finish, working closely withall parties including the issuer, its lawyers andauditors. In order to fulfill its role of marketing,pricing and selling the securities, the lead under-writer will typically perform a thorough “due dili-gence” analysis of the issuer’s business, including,among other things, its management, businessplan, financial position and prospects. The leadunderwriter advises on how the deal should bestructured, the timing of offering and ultimatelythe price at which the securities should be issued.

Lawyers

Lawyers play a vital role in the IPO process.Lawyers are responsible for ensuring compliance

with securities laws, which involves navigatingthrough a web of securities laws and rules in therelevant provinces and territories of Canada.

The issuer and the lead underwriter (on behalf ofall of the underwriters) engage separate legalcounsel. Lawyers for the issuer take the lead rolein drafting the prospectus, communicating withsecurities regulators and the relevant stockexchange, including preparing the stockexchange listing application and clearing theprospectus with the securities regulators. Legalcounsel for the underwriters are responsible forconducting legal due diligence on the issuer toassist the underwriters in establishing a “due diligencedefence” to any claims based on faulty disclosure,reviewing material agreements of the issuer andreviewing and commenting on the prospectusand ancillary documents.

Accountants/Auditors

Accountants provide an advisory role in the IPOprocess and assist in the preparation of financialstatements for inclusion in the prospectus.

As experts, accountants file a consent with therelevant Securities Commissions to the inclusionor incorporation by reference, as the case may be,of their audit report in the prospectus. Theaccountants also file a statutory “comfort letter”with the relevant Securities Commissions withrespect to interim financial statements included inthe prospectus.

The accountants also provide a “long form comfortletter” to the underwriters. The long form comfortletter is broader in scope than that provided tothe Securities Commissions and is intended tobolster the due diligence defence of the under-writers by providing the underwriters with varyingdegrees of comfort on the financial disclosurescontained in the prospectus.

Other Experts

Certain expert reports may be required if technicalor other information is included in a prospectus.Examples of applicable expert reports mayinclude geological or engineering reports (for miningor oil and gas issuers), business plans, valuationsor appraisals.

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Special Considerations for U.S. Based Issuers

There are unique considerations for U.S. incorporatedissuers seeking to go public in Canada. If the U.S.issuer is not already a reporting company in theUnited States, the U.S. issuer could, conceivably,trigger public reporting obligations under Section12(g) of the United States Securities Exchange Actof 1934, as amended, (the “1934 Act”) by goingpublic in Canada if it meets certain asset andshareholder base size tests, even if it is not listedon a U.S. exchange and has never filed a registrationstatement with the SEC. Under section 12(g) ofthe 1934 Act, once an issuer has $10 million inassets and 500 shareholders of record on aworld-wide basis, U.S. reporting obligations aretriggered. Some private U.S. issuers that decideto go public in Canada have elected to redomicileto Canada by continuance (or otherwise) in orderto take advantage of certain accommodationsthat exist for “foreign private issuers”, as definedunder U.S. securities laws. A foreign private issueris any non-U.S. issuer other than one that meetsthe following: (i) more than 50% of its outstandingvoting securities are directly or indirectly held ofrecord by residents of the United States; and (ii)any one of the following: (a) the majority of itsexecutive officers or directors are U.S. residents orcitizens; (b) more than 50% of its assets are locatedin the United States; or (c) its business is administeredprincipally in the United States. The advantagesof securing foreign private issuer status are many.First off, a foreign private issuer will not be caughtby the section 12(g) reporting requirement unless300 or more of its world wide shareholders areresident in the United States. Secondly, even ifthe foreign private issuer triggers the section12(g) reporting requirement, it may qualify forwhat is known as a Rule 12g3-2(b) reportingexemption. This exemption permits a foreign privateissuer to avoid the U.S. reporting obligations providedthat the issuer furnishes its Canadian disclosurematerials to the SEC. The exemption is not availableif, during the prior 18 months, the issuer had a1934 Act reporting obligation due to filing aregistration statement or having a U.S. listing (orit acquired another issuer that did) or the issuer’ssecurities are quoted in an automated inter-dealerquotation system.

An additional consideration for a U.S.-basedissuer involves financial statement requirementsfor a Canadian prospectus and ongoing reportingpurposes. Generally, a U.S. incorporated issuer willbe required by its governing statute to preparefinancial statements in accordance with U.S.GAAP. Canadian rules permit a U.S. incorporatedissuer to reconcile its financial statements toCanadian GAAP, rather than preparing a full set ofduplicative Canadian GAAP financial statements.Nevertheless, GAAP reconciliation can be a costlyprocess from an audit point of view and, in somecircumstances, may not present the issuer’s financialstatements in the most desired light.

Another issue of concern for a U.S.-based companyconducting a public offering in Canada is compliancewith Regulation S. Regulation S provides certain“safe harbours” for offshore distributions by U.S.issuers. Typically, a U.S. issuer conducting aCanadian offering will, in order to avail itself of thesafe harbours provided by Regulation S, amongother things, emboss the share certificates with aRegulation S “restrictive legend.” The TSX hasestablished what is known as the “Dot S” market-place to accommodate U.S. - based issuers withsecurities bearing a Regulation S legend. Someissuers whose securities have traded in the Dot Ssystem have found that the Dot S market lacksliquidity and the process is cumbersome. In somecases, these factors have caused U.S. - based issuersto carry out a redomiciling transaction to Canadato avoid the Dot S trading system altogether.

U.S. incorporated issuers have a number ofoptions in terms of a redomiciling transaction.The decision as to whether to redomicile, and theform of any redomiciling transaction, may be drivenlargely by U.S. and Canadian tax considerations,which are beyond the scope of this paper.Included among those options are:

• a continuance of the issuer into a Canadianjurisdiction; and

• an RTO-type share exchange transactionwhereby the U.S. issuer is acquired by aCanadian shell company which then conductsthe public offering.

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6. PROSPECTUS PROCESS

Introduction

Unless an exemption is available, a company can-not “distribute” securities in Canada without aprospectus. The issuance or sale of previouslyunissued securities to Canadian residents constitutesa distribution, as does any sale by a “control person.”4

The information requirements of the prospectuscan vary depending on such factors as the natureof the securities offered, the type and size of theissuer and the industry in which the issuer operates.The prospectus must be prepared in accordancewith Canadian securities law form requirementsand must contain “full, true and plain disclosure ofall material facts relating to the securities issuedor proposed to be distributed”. The prospectusshould be presented in an “easy-to-read” format.

Prospectus Exemptions

The various exemptions from the requirement tofile a prospectus have generally been consolidatedunder National Instrument 45-106 - Prospectusand Registration Exemptions. One of the mostcommonly used exemptions is the accreditedinvestor exemption, which exempts sales tospecifically defined “accredited investors” thatpurchase as principal. “Accredited investors”include, among others, Canadian banks, loan andtrust companies, insurance companies, certainregistered advisers and dealers, governments andpension funds, and individuals earning a minimumannual income or holding assets of a minimumvalue. An exemption is also available for individualpurchasers subscribing in cash for securities of anissuer valued at $150,000 or greater. In all juris-dictions, except Ontario, executive officers, directorsand control persons of the issuer and certain oftheir close friends, family and business associatesare exempt. In Ontario, founders, affiliates offounders, control persons and certain familymembers of executive officers, directors orfounders of the issuer are exempt.

Preparing, Filing and Qualifying theProspectus

General

The first step in the public offering/prospectusprocess is to establish a “working group” to preparethe prospectus. The working group should includesenior officers of the issuer, representatives of theunderwriters, their respective counsel and theissuer’s auditors.

The draft preliminary prospectus is generally pre-pared primarily by the issuer and its counsel, butmembers of the working group actively contributeto the drafting. Preparation can take severalweeks depending upon the complexity of theissuer and its business, and whether any corporaterestructuring is required prior to going public.Once an issuer decides to go public, however,there is generally a push to move through theprocess as quickly as possible in order to offer thesecurities while the markets remain receptive andbefore market conditions change. Appendix Bsets out a complete going public timetable.

The prospectus process is a multi-step process.The first step involves preparing and filing apreliminary prospectus, which is, essentially adraft prospectus that excludes certain contentincluding pricing information until the finalprospectus is filed. Prior to filing, the preliminaryprospectus goes through a due diligence reviewby the issuer, the underwriters and their respectivecounsel to ensure accuracy. Once the preliminaryprospectus is certified by the issuer and the under-writers, it is filed with the Securities Commissions.During the period between the receipt of thepreliminary prospectus by the issuer from theSecurities Commissions and the final prospectusfiling, often called the “waiting period”, the under-writers may solicit expressions of interest, butmay not actually finalize any sales. The underwriters

4 Control person is defined under the Securities Act (Ontario) as a person or company, acting individually or in concert with a combination of persons or companies, who holds a sufficient number of the voting rights attached to all outstanding voting securities of an issuer tomaterially affect the control of the issuer, and, if a person or company holds more than 20 percent of such voting rights, that person or company or combination of persons or companies is deemed to hold a sufficient number of voting rights to materially affect control of the issuer. Depending on the facts, a person holding less than 20 percent may also beconsidered a control person.

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must maintain a list of all parties to whom a pre-liminary prospectus is sent and afterwards sendthe final prospectus to each such party. During thisperiod, the regulators will issue written commentletters noting “deficiencies” in the preliminary filingto which the working group will respond. The issuermust file a final prospectus within 90 days followingreceipt for the preliminary prospectus.

Prospectus Amendments

In the event that a material adverse changeoccurs in the affairs of the issuer at a time inwhich the preliminary prospectus has beenreceipted by the regulator but a final prospectushas not yet been receipted, an amendment to thepreliminary prospectus must be filed as soon aspracticable but no later than 10 days after thechange occurs. If an amendment to a preliminaryprospectus is filed, the amended preliminaryprospectus must be delivered as soon as practicableto each recipient of the preliminary prospectus.

In circumstances where a final prospectus hasbeen filed and receipted by the regulators but thedistribution to which it relates is not yet completedand either: (i) a material change in the affairs ofthe issuer occurs (whether adverse or positive); or(ii) the issuer and dealers add additional securitiesto the distribution not already covered by the finalprospectus, an amendment to the final prospectusmust be filed as soon as practicable but no laterthan 10 days after the date of the change. Sincestatutory rights of withdrawal are available to apurchaser for a period of two business days fromthe receipt or deemed receipt of a final prospectusor any amendment thereto, the issuer and thedealer group will want to ensure that the amendedfinal prospectus is delivered to each recipient ofthe final prospectus in order to start the clockrunning on the withdrawal rights.

Amendments to a preliminary or final prospectuscan take the form of an amended and restatedprospectus or an amendment that does not fullyrestate the prospectus.

Marketing Restrictions

Securities laws limit marketing activities and thecontent of any marketing material distributedduring a public offering. When a prospectusoffering is proposed, Canadian securities rulesgenerally prohibit any “act in furtherance of atrade” in those securities until a preliminaryprospectus is filed. Accordingly, once an issuerproposes to go public and has entered into pre-liminary discussions with an underwriter, it mustnot engage in activities such as press interviews,internet postings and the like that refer to, promoteor discuss the proposed offering in any way.However, normal media contact consistent withpast practice may continue, provided that the mediacontact is not designed to in any way promotethe offering or promote the business of the issuermore aggressively or differently than previouslywas the case.

Once a receipt is issued by the regulators for thepreliminary prospectus, limited marketing activitiesare permitted. During the period between the filingof the preliminary prospectus and the finalprospectus, the dealer group may solicit expressionsof interest from potential purchasers using thepreliminary prospectus. In addition, certain otherlimited marketing efforts are permitted in thisperiod, provided that certain precautions aretaken. In particular, the dealer group may utilize“greensheets” and conduct “road shows.” A“greensheet” is, essentially, a brief summary ofthe information contained in the preliminaryprospectus coupled with other publicly availableinformation prepared by the dealer group fordistribution to the retail and institutional salesforce to guide them in discussions with clients.The greensheet may not contain information thatis inconsistent with the preliminary prospectusand must not be distributed beyond the dealergroup’s sales force. “Road shows” are a series of

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meetings that may be organized by the dealergroup in various cities to market the offering.Generally speaking, the following proceduresshould govern any road show:

• attendance should be limited to registered brokersand institutional investors who qualify to purchasewithout a prospectus under “accredited investor”exemptions (i.e. no media or retail investors);

• any verbal representations, overhead slides orPowerPoint presentations should be strictly limitedto information contained in the preliminaryprospectus or information that is publicly available;

• no financial forecast or projection should begiven at the sessions that is not contained in thepreliminary prospectus; and

• hard copies of overhead slides and PowerPointpresentations should not be provided to attendees.

Pricing and Closing

Once the preliminary prospectus deficiencies areresolved and the Securities Commissions haveindicated that they are clear to receive final materials,the issuer and the underwriters will, based onmarket conditions prevailing at the time, “price”the offering, sign the underwriting or agencyagreement and file the final prospectus with allinformation completed. An issuer may contractwith an underwriter through a traditional under-writing arrangement or through a best effortsagency arrangement. Under the former arrangement,the underwriter takes on the sale risk by purchasingthe securities for resale to the public. If the under-writer is, for any reason, unable to resell any of thepurchased securities, it bears the market risk.Under the best efforts agency arrangement, thedealer group acts as agent for the sale of theshares by agreeing to use its best efforts to sell thesecurities, but not guaranteeing their sale. Typically,the underwriting arrangement carries a highersales commission than an agency arrangementto compensate the dealer group for the enhancedrisk.

Once a receipt is issued by the regulators for thefinal prospectus, the underwriters can proceed toconfirm sales and distribute the final prospectusin the jurisdictions in which the prospectus hasbeen qualified. An agreement to purchase securitiesis not immediately binding upon the purchasersand following receipt of the final prospectus orany related amendment, purchasers have up totwo days to withdraw from the purchase agreement.Also, if the prospectus discloses that a minimumvalue of funds is required to be raised, if suchamount is not raised within 90 days of theissuance of the final receipt, the subscriptionfunds must be returned to the subscribers in full.Additional time is permitted if amendments to theprospectus are filed and receipted.

At the closing, following the expiration of thepurchasers’ withdrawal rights, the issuer issuesthe securities to the underwriters against paymentfor them, less the underwriting or agency fee. Theunderwriters then allocate or retain them accordingto the subscriptions received and the underwritingarrangement.

Securities may be issued through the book-entry-only (“BEO”) system whereby the entire issue isregistered in the name of CDS Clearing andDepository Services Inc.'s nominee name (“CDS &Co.”). If so, physical share certificates are notissued to beneficial shareholders. Transactions inBEO securities take place through participants inthe CDS system (banks and dealers) and tradesare reflected on the records maintained by CDS ofthe positions of those participants. Alternatively,definitive certificates representing the securitiesmay be issued to the purchasers.

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The issuer typically applies for a TSX or TSX-V listingconcurrently with the filing of the preliminaryprospectus. Typically, the Exchange will “conditionallyapprove” the listing prior to filing the final prospectus.The securities will commence formal trading con-currently with closing, although “grey market”trading may occur between filing of the finalprospectus and closing. If, for any reason, closingdoes not occur, those “grey market” trades areunwound.

Forms of Prospectus

There are multiple forms of prospectusesdepending upon the circumstances of the issuer,each of which is described below.

Short Form Prospectus

This is a condensed prospectus that an issuer thatis already a public company and which has an upto date continuous disclosure record and anannual information form (“AIF”) may use as analternative to the long-form prospectus. This formof prospectus incorporates by reference the issuer’sAIF, financial statements and other continuousdisclosure documents already filed by the issuer.

In order to be able to use a short form prospectus,an issuer must:

• be a reporting issuer in at least one Canadianjurisdiction;

• file documents in electronic format on SEDARunder securities legislation or securities direc-tions;

• be up to date in all continuous disclosure filingsincluding its AIF and financial statements; and

• be listed and posted for trading on a “shortform eligible exchange” (i.e., TSX and Tiers 1 and2 of the TSX-V).

The advantage of a short form prospectus is thatthe regulatory review period is significantly shorterthan for a long form filing. The principal regulatoruses its best efforts to provide a first comment letterwithin three business days of the preliminary filingunless there is a novel or complex issue. Typically,the filing of the final prospectus occurs less than

a week after the filing of the preliminary prospectusand the issuer contracts with the underwriterthrough a “bought deal” arrangement, wherebythe underwriting agreement is entered into at thetime that the preliminary short form prospectus isfiled and the dealers are exposed to the marketrisk during the regulatory review period.

Generally, Canadian securities laws prohibit anymarketing activity in connection with an offeringof securities from the date that it becomes clearthat an offering of securities will occur (i.e., thedate that an issuer enters into or comes to anagreement or understanding with a dealer as to aproposed offering) until the time that a receipt isissued for a preliminary prospectus. Given theenhanced exposure that dealers assume in a “boughtdeal” structure, the rules have been modified toprovide a limited exception to these pre-marketingrestrictions. In a bought deal offering, the dealergroup may solicit expressions of interest (or “softcircles”) prior to filing the preliminary short formprospectus, if:

• the issuer has entered into an enforceableagreement with an underwriter who has agreedto purchase the securities (usually a short letteragreement to be superseded by a formalunderwriting agreement at the time of filing ofthe preliminary prospectus);

• the above agreement fixes the terms of thedistribution and requires the issuer to file apreliminary short form prospectus and obtain areceipt dated not more than four business daysafter the agreement is entered into;

• the issuer issues and files a new releaseannouncing the agreement immediately uponsigning;

• upon receipt of the preliminary short formprospectus, a copy of the prospectus is sent toeach person expressing an interest in purchasing;and

• no agreement of purchase and sale may beentered into with any purchasers until the finalshort form prospectus has been receipted.

Shelf Prospectus

This is a form of prospectus used by senior issuersto distribute securities of a particular type on acontinuous or delayed basis during a two yearperiod. The “base” shelf prospectus typicallyexcludes pricing and other specified informationwhich is subsequently filed (but not reviewed bythe regulators) by way of prospectus supplement.A supplement to a shelf prospectus must be filedtwo business days following the determination ofthe offering price for a tranche of securities soldunder the shelf prospectus. Clearing the baseprospectus with securities regulators typically followsa similar process and timing as clearing a shortform prospectus. When the issuer is ready tomake a distribution, it simply files a prospectussupplement (which is not subject to regulatoryclearance) which it then sends, along with the“base” shelf prospectus, to purchasers. A baseshelf prospectus can be used to qualify the dollarvalue of securities that the issuer reasonably expectsit will sell within a 25 month period following filing.The advantage of a shelf prospectus is that it providesan issuer with virtually immediate access to capitalmarkets as market conditions warrant, once thebase shelf prospectus has been set up. A shelfprospectus can be used to distribute commonshares, preferred shares, debt securities (includingmedium term notes) and other securities in anycombination.

SPAC Prospectus

As described in Section 2 – Methods of Going Public– TSX Special Purpose Acquisition Company, SPACsare shell companies which become listed on theTSX through a two-step process which requiresthem to complete a qualifying transaction whereby

they must acquire another business or assets. Inaddition to meeting the normal requirements forprospectuses, pursuant to a TSX Staff Notice, SPACsshould disclose the following in their prospectus:

• terms of the founders’ initial investment in theSPAC, which must include an agreement not totransfer founder securities prior to the qualifyingtransaction and that if there is a liquidation ordelisting, the founding securityholders willnot participate in the subsequent liquidationdistribution;

• a statement that, as of the filing of the prospectus,the SPAC has not entered into an acquisitionagreement for a potential qualifying acquisition;

• the target business sector or geographic areafor the qualifying acquisition, if such exists;

• the valuation method(s) the SPAC intends touse in valuing the qualifying acquisition, if suchis known;

• a statement that the SPAC will not secure debtfinancing before completion of the qualifyingacquisition other than in accordance with theSPAC rules;

• the proposed nature of permitted investmentfor the SPAC’s escrowed funds and any intendeduse of interest earned on such funds by suchpermitted investors;

• the anticipated location of funds for administrativeand working capital expenses; and

• any intention not to proceed with the proposedqualifying acquisition if too many securityholdersvote against it and exercise their conversionrights to convert their securities into a pro rataportion of the proceeds held in escrow.

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Capital Pool Company Prospectus

Like SPACs, CPCs are shell companies which mustundergo a two-stage process, including a qualifyingtransaction, to go public. See Section 2 – Methodsof Going Public – TSX-V Capital Pool Company formore information with respect to CPCs. The TSXVenture Exchange Company Manual Form 2A -Information Required in a CPC Prospectus providesvery specific guidance with respect to the wordingof a CPC prospectus. The TSX-V will issue commentsregarding the CPC prospectus. The CPC prospectusand all supporting final documents are filed withboth the TSX-V and the relevant SecuritiesCommissions. Once the Securities Commissionsissue a receipt for the final prospectus, the TSX-Vwill issue a bulletin with its final acceptance of thedocuments.

Long form prospectus

This form requires the most detailed level of dis-closure and is the form of prospectus typicallyrequired for an IPO (except in the case of CPCsand SPACs). A long form prospectus requiresvery detailed disclosure about the issuer and itspreparation involves input and cooperation fromthe entire working group. Because the documentis used both as a marketing document and tomeet legal disclosure requirements, drafting requiresa careful balance of appropriately disclosing theissuer’s business while also disclosing all risks inherentin the offering.

The prospectus must include the following information:

• general business information including:

• history of the issuer including recent significantacquisitions;

• description of the issuer’s operations, business,property and assets;

• business plan;

• legal proceedings relating to the issuer;

• description of officers, directors and shareholders;

• intended use of the proceeds;

• details with respect to any shares held inescrow;

• risk factors;

• outstanding options and prior issuances ofsecurities;

• management discussion and analysis of thecompany’s financial condition, liquidity andcapital resources and results of operations forthe last two years;

• related party transactions between the companyand its officers, directors or major shareholdersand their immediate families;

• audited financial information including: (i) balancesheets at the end of each of the last two financialyears; (ii) statements of income, retained earningsand cash flows for each of the last three financialyears; (iii) unaudited interim balance sheets forthe most recently completed interim periodended more than 45 days before the date of theprospectus; and (iv) unaudited income statements,statements of retained earnings and cash flowstatements for the interim period that endedmore than 45 days prior to the date of theprospectus and for the same period in the pre-ceding financial year;

• a discussion of any material changes in thecompany’s share and loan capital since the dateof the issuer’s audited financial statements;

• in the preliminary prospectus, a red herringstatement that the preliminary prospectus hasbeen filed and that the information may not becomplete;

• statement of rights of the purchaser, includingthe purchaser’s right to cancel the purchasecontract within two days of receiving the finalprospectus or any related amendments and thepurchaser’s right of rescission of the contract ora right of action in damages in the case of amisrepresentation; and

• certificates signed by the chief executive officer,chief financial officer and two authorized directorsof the issuer (other than the foregoing), anypromoter(s) of the issuer, the underwriters oragents attesting to the disclosure in theprospectus.

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Documents Filed Together with the Prospectus

Issuers must file certain additional documentsand/or disclosure with the Securities Commissionsand/or the TSX. Note that though the informationbelow must be filed, not all of the informationbecomes publicly disclosed on SEDAR.

Documents Affecting the Rights ofSecurityholders

A copy of the issuer’s articles and by-laws and, ifapplicable, any securityholder or voting trustagreement, securityholders’ rights plans or otherrelated material contract affecting the rights orobligations of the securityholders.

Material Contracts

The issuer must file a copy of all material contracts,except certain contracts entered into in the ordinarycourse of business.

Personal Information Forms

The issuer must file Personal Information Forms(“PIFs”) with the TSX for each person who will, atthe time of listing: (a) be a director or officer ofthe issuer; or (b) beneficially own or control, directlyor indirectly, securities carrying greater than 10% ofthe voting rights attached to all outstanding votingsecurities of the issuer.

Documentation from the Auditors

The auditors must provide the following:

• a written consent for the inclusion of or referenceto their audit report on the financial statementsor the issuer contained in the prospectus whichstates that they have no reason to believe thatthere are any misrepresentations in the prospectusthat are: (i) derived from the financial statementson which the person or company has reported,or (ii) within the knowledge of the person orcompany as a result of the audit of the financialstatements; and

• if a financial statement of an issuer or a businessincluded in, or incorporated by reference into, apreliminary or pro forma long form prospectusis accompanied by an unsigned auditor’s report,a signed letter addressed to the regulator fromthe auditor of the issuer or of the business preparedin accordance with the CICA Handbook.

Professional Consents and Letters

The issuer must obtain and file written consentsfrom any solicitor, auditor, accountant, engineer,appraiser, valuator, etc. whose opinion, statementor report is referenced in the prospectus. The effectof the consent is to relieve the issuer and certainothers, in some circumstances, for statutory civilliability in certain “expertised” portions of theprospectus and impose that liability on the expertwhere consent is filed.

Additional Disclosure for Oil and Gas Activities

Companies which participate in oil and gas activitiesmust meet additional disclosure requirements asset out in National Instrument 51-101 – Standardsof Disclosure for Oil and Gas Activities in respectof their oil and gas reserves. The prospectus mustcontain: (a) a statement of reserves data; (b) areport executed by an independent qualifiedreserves evaluator or auditor; and (c) a report fromthe senior officers and directors of the issuerconfirming their respective responsibilities relatingto such statement and report.

Oil and gas activity is considered to include:construction, drilling and production activitiesused to retrieve oil and gas from their naturalreservoir; extraction of hydrocarbons from oilsands; the search for crude oil or natural gas in theirnatural states and original locations; and theacquisition of properties or property rights tofacilitate removal of oil or gas from these properties.

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Additional Disclosure for Mineral Projects

Companies carrying on business in the miningsector must provide additional disclosure in theirprospectus including a technical report regardingeach mineral project on the property material tothe issuer. The disclosure must include certaininformation relating to: (a) the project descriptionand location; (b) accessibility, climate, localresources, infrastructure and physiography of theproject; (c) history of the project; (d) geologicalsetting; (e) exploration work conducted; (f)mineralization encountered; (g) type and extentof drilling; (h) sampling and analysis; (i) reliabilityof samples; (j) mineral resource and mineralreserves estimate; (k) mining operations; and (l)exploration and development activities.

Mineral projects are considered to include exploration,development or production activities, including aroyalty or similar interest in such activities in respectof diamonds, natural solid inorganic material ornatural solid fossilized organic material including baseand precious metals, coal and industrial minerals.

A “qualified person” such as an engineer orgeoscientist who meets certain qualificationsunder National Instrument 43-101 - Standards ofDisclosure for Mineral Projects must prepare orsupervise a technical report upon which anyscientific or technical information disclosed mustbe based. In some cases, the qualified personmust be independent of the issuer. Each qualifiedperson must also sign certificates and consentsrelating to each technical report.

French language requirements

If securities are being distributed or purchasersare being solicited in Quebec, the issuer mustcomply with the Quebec Charter of the FrenchLanguage which states, among other things, thatcontracts which are pre-determined by one partyand contracts containing printed standard clausesand their related documents must be prepared inFrench, unless the parties expressly agree that theagreements be drafted in English only. TheSecurities Act (Quebec) further specificallyrequires that offering documents, includingprospectuses, also be drafted in French. Note,however, that if the issuer is not offering securitiesin Quebec, it is not required to translate these

documents. Note that the Quebec SecuritiesCommission has indicated that it will object to aprospectus offering conducted outside ofQuebec with a concurrent private placement inQuebec of the same securities on the basis thatthose types of transactions are designed aroundFrench language translation requirements.

Civil Liability

Misrepresentations

A prospectus (whether long form, short form orshelf) must provide full, true and plain disclosureof all material facts regarding the securities towhich it relates. A misrepresentation in a prospectusor an amendment to a prospectus gives a purchaserunder that prospectus a statutory cause of actionfor damages against certain parties. A “misrep-resentation” is defined as: (a) an untrue statementof “material fact” which significantly affects, orwould reasonably be expected to have a significanteffect on, the market price or value of the securitiesbeing issued or proposed to be issued; or (b) anomission of a material fact that is required to bestated or is necessary to ensure that a statementis not misleading in the circumstances in which itwas made.

The parties that can be sued for damages are:

• the issuer or selling securityholder;

• each director of the issuer who was a directorat the time the prospectus was filed or a relatedamendment was filed;

• each underwriter who certifies the prospectus;

• each person or company who filed a consentrelating to the prospectus with respect to anyreport, opinion or statement made by such personor company in the prospectus; and

• each person or company who signed theprospectus (i.e., the CEO and CFO) other thanthose listed above.

In the case of the underwriters, issuer and sellingsecurityholder, the purchaser has an additional rightof rescission against these persons or companieswhich it may choose to exercise as an alternativeto damages.

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The Securities Act (Ontario) restricts security-holders from pursuing their statutory right ofaction for damages or rescission after more than:

(a) in the case of a claim for rescission, 180days after purchasing the securities; or

(b) in the case of a claim for damages, the earlierof: (i) 180 days after the purchaser firstlearned about the misrepresentation; and(ii) three years after the date of purchase ofthe securities.

Due diligence defence

Parties other than the issuer and selling security-holder (most notably, underwriters) have a defenceto any claim based on a misrepresentation in aprospectus if they can prove that they conductedsufficient due diligence to provide reasonablegrounds for them to believe there was no misrep-resentation. These parties undertake extensivedue diligence procedures to ensure that they willbe able to use this defence if necessary.

In order to establish the “due diligence” defence,the lead underwriter and its counsel will typicallytake a number of steps as part of the prospectuspreparation process. These steps may include:

• a thorough review of the minute books of the issuer;

• an examination of material contracts of the issuer;

• physical site visits to facilities;

• management and auditor meetings and interviews;

• an auditors’ long form comfort letter providingcomfort on financial information included in theprospectus;

• requests for “back up information” to substantiatefactual statements in the prospectus (known asthe “circle up” process); and

• formal oral due diligence sessions at which thedealer group puts a detailed list of questions tomanagement, the auditors and internal andexternal legal counsel prior to certifying and filingthe prospectus.

Multijurisdictional Disclosure System

The Multijurisdictional Disclosure System (“MJDS”)is a system implemented by the Canadian SecuritiesAdministrators (the “CSA”) and the United StatesSecurities and Exchange Commission (the “SEC”)which allows eligible U.S. issuers to publicly offersecurities in Canada using disclosure documentsprepared and cleared in compliance with U.S.securities laws (Northbound MJDS) and vice versafor eligible Canadian issuers wishing to publiclyoffer securities in the United States using disclosuredocuments prepared and cleared in compliancewith Canadian securities laws (Southbound MJDS).

In order for a U.S. issuer to rely upon NorthboundMJDS to conduct an offering in Canada, the issuermust meet the following criteria: (a) be a foreignissuer (i.e., non-Canadian) incorporated or organizedin a U.S. jurisdiction; (b) have been subject to andbe in compliance with U.S. reporting obligations;(c) not be an investment company for U.S. purposes;and (d) satisfy certain other eligibility criteria whichwill, in each case, depend on the type of securitiesbeing offered.

A U.S. issuer making an MJDS offering in Canadamust file in Canada the SEC registration statement(unless the offering is being made only in Canada)together with a Canadian version of the prospectuscontained in the registration statement whichtypically includes additional Canadian legends anddisclosure as well as Canadian-style certificates ofthe issuer and underwriters. The issuer must alsofile all documents incorporated by reference intothe prospectus in Canada.

If the offering is made in Quebec, a French languageversion of the prospectus and all documentsincorporated into it must be prepared. To minimizethe burden of such requirements, issuers mayobtain exemptions to limit the type of documentswhich must be incorporated by reference into theprospectus and the type of continuous disclosuredocuments required to be filed in Canada.

Because the prospectus and related materials arereviewed, commented on and cleared by the SEC,the Canadian securities regulator will normallyonly monitor these materials to confirm theircompliance with requirements specific to theCanadian rules governing Northbound MJDS, butwill not conduct any substantive review of them.

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General

Once an issuer has issued securities under aprospectus, or has securities listed on a Canadianexchange, it becomes a “reporting issuer” and issubject to ongoing reporting obligations. The keypurpose of ongoing disclosure is to keep the marketand investing public informed about the businessand affairs of reporting issuers. The central principleunderpinning the reporting requirements in Canadais that all investors should obtain material informationat the same time to create a level playing fieldamongst them. The System for Electronic DocumentAnalysis and Retrieval (“SEDAR”) provides electronicaccess to most documents filed by public companiesin Canada.

The continuous disclosure requirements for “ventureissuers” differ in certain respects from those ofmore seasoned reporting issuers. Venture issuersare reporting issuers that do not have any of theirsecurities listed or quoted on any of the TSX (otherthan the TSX-V), a U.S. marketplace, or a market-place outside of Canada and the U.S., other thanthe AIM or the PLUS markets operated by PLUSMarket Group plc. The most significant differenceis that venture issuers have longer filing deadlinesfor annual and interim financial statements andbusiness acquisition reports. In addition, a ventureissuer is not required to file an AIF and can file aless onerous form of CEO/CFO certification ofinterim and annual financial statements.

The following provides a brief summary of some ofthe primary continuous disclosure requirementsunder Canadian securities legislation for publiccompanies.

Financial Statements

Annual Financial Statements

A reporting issuer, other than a venture issuer,must file its audited annual financial statementson or before the 90th day after the end of its mostrecently completed financial year. In the case of aventure issuer, audited annual financial statementsmust be filed on the 120th day after the end of itsmost recently completed financial year.

Interim Financial Statements

A reporting issuer, other than a venture issuer,must file interim financial statements on the 45thday after the end of the applicable quarterly period.A venture issuer must file its interim financialstatements on or before the 60th day after theend of the applicable quarterly period.

Interim financial statements need not be audited;however, CSA Notice 52-301 – Audit Committeesrecommends that audit committees review interimfinancial information before being released to thepublic. Generally, most reporting issuers are requiredto have an audit committee under NationalInstrument 52-110 – Audit Committees.

If an auditor has not performed a review of theinterim financial statements, National Instrument51-102 – Continuous Disclosure Obligations providesthat the statements must be accompanied by anotice indicating that the financial statementshave not been reviewed by an auditor. Where anauditor was engaged to review interim financialstatements, but the auditor was unable to completethe review, the interim financial statements must beaccompanied by a notice indicating the same, andnoting the reasons why the auditor was unableto complete the review. Where an auditor hasperformed a review of the interim financial state-ments and the auditor has expressed a reservationin the auditor’s interim review report, the interimfinancial statements must be accompanied by awritten review report from the auditor.

Approval of Financial Statements

The board of directors of a reporting issuer mustapprove the annual audited financial statementsbefore they are filed. The board of directors is alsorequired to approve interim financial statementsbefore they are filed, but may delegate thatapproval to the audit committee.

7. ONGOING CONTINUOUS DISCLOSURE OBLIGATIONS

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Management Discussion & Analysis

Financial statements must be accompanied bythe Management Discussion & Analysis (“MD&A”).The MD&A is a narrative explanation, through theeyes of management, of how a public companyperformed during the period covered by thefinancial statements, and of the company’s financialcondition and future prospects. The MD&A shouldbe a discussion and analysis of the issuer’s businessas seen through the eyes of those who manage thebusiness, as opposed to a recitation of financialstatements in narrative form or an otherwiseuninformative series of technical responses toMD&A requirements.

The purpose of the MD&A is to provide readers withinformation necessary to form an understandingof the reporting issuer’s financial condition, changesin financial condition and results of operations.The MD&A should enhance the overall financialdisclosure and provide the context within whichfinancial information should be analyzed.

Although the MD&A is filed concurrently withfinancial statements, it does not form part of theissuer’s financial statements. As is the case withthe annual audited financial statements, the boardof directors must approve MD&A. In the case ofinterim MD&A, such board of directors may delegateapproval to the audit committee.

Delivery of Financial Statements and MD&Ato Securityholders

National Instrument 51-102 – Continuous Disclosure(“NI 51-102”) requires each reporting issuer toannually send a request form to the registeredand beneficial holders of its securities (other thandebt instruments), which securityholders may useto request a copy of the reporting issuer’s annualor interim financial statements and MD&A. If asecurityholder requests to receive the reportingissuer’s annual or interim financial statements,then the reporting issuer must send a copy of therequested statements to the person or companythat made the request, without charge, by nolater than 10 calendar days after the statementsare required to be filed or 10 calendar days afterthe issuer receives the request.

Forward-Looking Information

The use of forward-looking information andfuture-oriented financial information (“FOFI”) byreporting issuers in Canada is governed by NI 51-102.The requirements apply to all written disclosure offorward-looking information.

Companies are encouraged to provide forward-looking information in the disclosure they provideto the public, provided they have a “reasonablebasis” for the information. For example, thepreparation of the MD&A requires some degree ofprediction or projection since it requires a discussionof known trends or uncertainties that are reasonablylikely to affect the business.

Disclosure of any material forward-looking infor-mation must include the following disclosure:

• the information must be identified as forward-looking information;

• users must be cautioned that actual results mayvary from the forward-looking information andmust identify material risk factors that couldcause actual results to differ materially from theforward-looking information;

• the material factors or assumptions used todevelop forward-looking information must bestated; and

• the reporting issuer’s policy for updating forward-looking information if it includes procedures inaddition to those described in NI 51-102 relatingto updates to forward-looking informationrequired in the MD&A or MD&A supplement.

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In addition to the disclosure requirements set outabove, in reporting FOFI (being forward-lookinginformation about prospective results of opera-tions, financial position or cash flows based onassumptions about future economic conditionsand courses of action) or a financial outlook, theissuer must:

• base the information on assumptions that arereasonable in the circumstances;

• limit the period for which the information in theFOFI or financial outlook can be reasonablyestimated;

• use the accounting policies the reporting issuerexpects to use to prepare its historical financialstatements for the period covered by the FOFIor the financial outlook;

• state the date that management approved theFOFI or financial outlook, if the document con-taining the FOFI or financial outlook is undated;

• explain the purpose of the FOFI or financial out-look and caution the reader that the informationmay not be appropriate for other purposes.

No projections or other FOFI concerning the issuermay be disclosed in marketing materials or pre-sentations, including “green sheets”, unless suchinformation is included in the prospectus.

Annual Information Form

The Annual Information Form or AIF is a continuousdisclosure document that must be filed annuallyby reporting issuers that are not venture issuers.The purpose of the AIF is to describe the company,its corporate structure, a three year history ofcompany developments, any significant acquisitions,and a description of the issuer’s business activities,operations and risks, similar to the description ofthe business set out in a prospectus. The AIF isbroader in terms of the topics covered and thetime period covered in the MD&A and is also morequalitative than the MD&A. The AIF typically incorpo-rates by reference the MD&A filed with the annualaudited financial statements.

Although venture issuers are not required to filean AIF, one of the basic qualification requirementsfor use of a short form prospectus is having fileda current AIF. Accordingly, venture issuers who wishto use a short form prospectus will need to file acurrent AIF.

As with the deadline for filing annual financialstatements, the AIF must be filed on or before the90th day after the end of the reporting issuer’smost recently completed financial year.

Proxies and Information Circulars

When the management of a reporting issuer givesnotice of a meeting to its registered holders ofvoting securities, it must also send to each registeredholder who is entitled to the notice of meeting aform of proxy for use at the meeting. A proxy isa form by which a shareholder appoints a personor company to act on the shareholders’ behalf ata shareholder meeting.

Subject to certain exemptions, when managementsolicits proxies from shareholders, it must alsoprepare and distribute a management informationcircular. A management information circular mustinclude certain prescribed information, includingdisclosure regarding executive compensation,information on how to exercise a proxy and detailsof the matters to be voted on at the shareholdermeeting. See Section 7 – Ongoing ContinuousDisclosure Obligations – Executive Compensationfor more information on disclosure requirementsfor executive compensation.

An information circular must also includeprospectus-level disclosure about certain mattersif shareholder approval is required in respect of asignificant acquisition under which securities ofthe acquired business are being exchanged forthe issuer’s securities or in respect of a restructuringtransaction under which securities are to bechanged, exchanged, issued or distributed.

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Executive Compensation

Information circulars prepared for an annualmeeting of shareholders must include detaileddisclosure about the compensation paid to certainexecutive officers and directors in connectionwith their office or employment by a reportingissuer or a subsidiary of a reporting issuer.

An issuer must disclose all compensation paid toits CEO, CFO and its three other highest-paidexecutive officers (referred to collectively as“named executive officers” or “NEOs”) where thevalue of each such person’s total compensation isin excess of Cdn.$150,000. The stated value ofcompensation includes the aggregate of all com-pensation including the value of awards of shares,options and grants under other incentive plans, aswell as the value of certain perquisites, in additionto salary and discretionary bonuses.

An issuer must include compensation discussionand analysis (“CD&A”) in its proxy circular. TheCD&A is similar to the MD&A in the sense thatmanagement is required to describe and explainall significant elements of compensation awarded,earned, paid or payable to NEOs. This includes adiscussion of objectives of the compensationprogram, an explanation of what the program isdesigned to reward, a description of each elementof compensation and an explanation as to whythe company chose to pay each element, how theamount of each element of compensation isdetermined and how the decisions made fit withinthe issuer’s overall compensation objectives.

In addition, an issuer must include a performancegraph reflecting its cumulative shareholder totalreturn for the previous five years as compared toa broad equity market index and must include inthe CD&A a discussion of how the trend shown bythe performance graph compares to the trend inthe level of executive compensation paid over thesame period. Certain issuers, such as those listedon the TSX-V and those who have been reportingissuers in Canada for less than 12 months, amongother limited exceptions, are exempted frompreparing the performance graph.

Material Change Reports

If a “material change” occurs in the affairs of areporting issuer, it must immediately issue and filea news release disclosing the nature and substanceof the change and, no later than 10 days after theoccurrence of the material change, file a materialchange report. A “material change” is a change inthe business, operations or capital of the reportingissuer that would reasonably be expected to havea significant effect on the market price or value ofany of the securities of the reporting issuer. Alsocaught under the definition of “material change”is a decision to implement such a change madeby the board of directors or other persons actingin a similar capacity, or by senior management ofthe reporting issuer who believe that confirmationof the decision by the board of directors, or any otherpersons acting in a similar capacity, is probable.

A confidential material change report may befiled in circumstances where the reporting issueris of the opinion that disclosing a material changewould be unduly detrimental to the interests ofthe reporting issuer, or, where senior managementhas decided to implement a change and they believethat it is probable that the board of directors willconfirm such decision, provided that they have noreason to believe that persons with knowledge of thematerial change have made use of that knowledgeby purchasing or selling securities of the reportingissuer. Written reasons for non-disclosure mustbe provided to the regulator at the time of filingthe confidential report. Where a confidential reporthas been filed, the reporting issuer must advisethe regulator within 10 days of the initial filing, andevery 10 days, if it believes that the report shouldremain confidential. Also, if the reporting issuerbecomes aware, or has reasonable grounds tobelieve that securities of the reporting issuer arebeing traded with knowledge of the confidentialmaterial change, then the reporting issuer mustpromptly generally disclose the material change byissuing a press release and filing a non-confidentialmaterial change report.

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Reporting issuers must also comply with the pro-visions of the TSX and TSX-V, as applicable, whichrequire that the Market Surveillance Departmentof the Investment Industry Regulatory Organizationof Canada (“IIROC”) be notified of the confidentialinformation. IIROC is the national self-regulatoryorganization which oversees all investment dealersand trading activity on debt and equity market-places in Canada.

National Policy 51-201 – Disclosure Standards(“NP 51-201”) provides guidance on the meaningof materiality and notes that the definition of“material change” is based on a market impacttest. A fact is material when it (i) significantlyaffects the market price or value of a security; or (ii)would reasonably be expected to have a significanteffect on the market price or value of a security.In making materiality judgments, it is necessary totake into account a number of factors that cannotbe captured in a simple bright-line standard or test.

Business Acquisition Reports

A reporting issuer must file a Business AcquisitionReport (“BAR”) on Form 51-102F4 after completinga “significant acquisition”. An acquisition is con-sidered significant if the reporting issuer’s propor-tionate share of consolidated assets, consolidatedinvestments or consolidated income from continuingoperations associated with such an acquisitionexceeds 20% of the issuer’s consolidated assetsor consolidated income from continuing operations.For venture issuers, the significance level forconsolidated assets or consolidated investmentsis 40%. Acquisitions which fall below the thresholdlevels do not need to be disclosed in a BAR.

The BAR describes the significant business(es)acquired and the effect of the acquisition on thecompany. The BAR must be filed within 75 daysafter the date of the acquisition, which is extendedto 90 days (120 days for venture issuers) in somecircumstances. Except where there is an availableexemption, the BAR must also include auditedannual and interim financial statements of theacquired business, together with pro-forma financialstatements. The financial statements of an acquiredbusiness included in a BAR may be prepared inaccordance with one of several prescribedaccounting principles, including Canadian GAAP,U.S. GAAP and International Financial ReportingStandards.

Documents Affecting the Rights ofSecurityholders

A reporting issuer must file copies of the followingdocuments, including any material amendments,on SEDAR:

• articles of incorporation, amalgamation, con-tinuation or any other constating or establishingdocuments of the issuer;

• by-laws currently in effect;

• any securityholder or voting trust agreementthat the reporting issuer has access to and thatcan reasonably be regarded as material to aninvestor in securities of the reporting issuer;

• any securityholders’ rights plans or other similarplans; and

• any other contract of the issuer or a subsidiaryof the issuer that creates or can reasonably beregarded as materially affecting the rights orobligations of its securityholders generally.

Material Contracts

Reporting issuers must file a copy of any materialcontract which the issuer or any of its subsidiariesenter into, other than those entered into in theordinary course of business. Unless previouslyfiled, reporting issuers must file material contractsentered into within the last financial year or beforethe last financial year if that material contract isstill in effect.

The exemption for material contracts entered intoin the ordinary course of business does notinclude the following types of contracts, whichmust be filed even if entered into in the ordinarycourse of business: a contract to which directors,officers or promoters are parties other than acontract of employment, a continuing contract tosell the majority of the reporting issuer’s productsor services, or to purchase the majority of thereporting issuer’s requirements of goods, services,or raw materials, a franchise or licence or otheragreement to use a patent, formula, trade secret,process or trade name, an external management orexternal administration agreement, or a contract on

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which the reporting issuer’s business is substan-tially dependent. Financing or credit agreementswhich are material must be filed if they are notentered into in the ordinary course of business,but must be filed in any event if they have a directcorrelation with anticipated cash distributions.

Redacting or omitting certain provisions of materialcontracts prior to filing is permitted, subject tocertain exceptions, if an executive officer of thereporting issuer believes that the disclosure ofthat provision would be seriously prejudicial tothe interests of the reporting issuer or would violateconfidentiality provisions. However, provisionsrelating to debt covenants and ratios in financingor credit agreements, events of default or otherterms relating to the termination of the materialcontract, or other terms necessary for under-standing the impact of the material contract onthe business of the reporting issuer, may not beredacted or omitted.

Exemptions for Foreign Issuers

National Instrument 71-102

Foreign companies that are reporting issuers inCanada may be eligible for relief from certain ofthe Canadian continuous disclosure requirements.National Instrument 71-102 – Continuous Disclosureand Other Exemptions Relating to Foreign Issuers(“NI 71-102”) provides relief from many of thecontinuous disclosure requirements in securitieslegislation for two types of foreign issuers: (i)“SEC foreign issuers”; and (ii) “designated foreignissuers”.

SEC foreign issuers are “foreign reporting issuers”that have a class of securities registered under theUnited States Securities Exchange Act of 1934(the “1934 Act”), as amended and are not registeredor required to be registered as an investmentcompany in the United States. A “foreign reportingissuer” means a reporting issuer incorporated out-side Canada other than one in respect of which(a) outstanding voting securities carrying morethan 50% of the votes for the election of directorsare owned, directly or indirectly, by Canadianresidents; and (b) any one of the followingapplies: (i) the majority of executive officers ordirectors of the issuer are residents of Canada; (ii)more than 50% of the assets of the issuer arelocated in Canada; or (iii) the business of the

issuer is principally administered in Canada.Generally, SEC foreign issuers may satisfy theirCanadian continuous disclosure obligations relatingto material change reports, financial statements,AIFs, MD&A, business acquisition reports andproxies, proxy solicitation and information circularsby: (i) complying with the comparable U.S. con-tinuous disclosure obligations (i.e., as to form andcontent); (ii) sending those documents, whereapplicable, to Canadian securityholders in the samemanner and time as to U.S. shareholders; and (iii)filing those U.S. documents on SEDAR.

“Designated foreign issuers” are reporting issuersthat are incorporated outside of Canada, whichare subject to foreign disclosure requirements inone of 15 specified jurisdictions5 and do not havea class of securities registered under the 1934 Act.In addition, to be eligible for relief under NI 71-102,a designated foreign issuer cannot have morethan 10% of its outstanding equity securities, on afully diluted basis, held by Canadian residents.

Designated foreign issuers are generally able tosatisfy Canadian disclosure obligations relating tomaterial change reports, financial statements, AIFs,MD&A, business acquisition reports and proxies,proxy solicitation and information circulars by: (i)complying with the disclosure requirements ofthe foreign regulatory authority (i.e., as to formand content); (ii) filing the material on SEDAR; (iii)sending documents, where applicable, to Canadiansecurityholders; and (iv) complying with NationalInstrument 52-107 – Financial Disclosure (“NI 52-107”) as it relates to financial statements of theissuer that are included in any documents filedwith or furnished to the foreign regulatory authority.NI 52-107 deals with acceptable accounting principles,auditing standards, auditors and currencies.

MJDS

Certain U.S. incorporated companies may also beeligible for relief from certain continuous disclosurerequirements under National Instrument 71-101 –The Multijurisdictional System. The MJDS is specificto U.S. incorporated companies, whereas NI 71-102deals with a broader range of non-Canadian issuers.

5 Designated foreign jurisdictions include Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, SouthAfrica, Spain, Sweden, Switzerland or the United Kingdom of Great Britain and Northern Ireland.

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Disclosure Requirements

In connection with a distribution under a prospectusas well as with annual filing requirements, issuersmust make certain disclosures with respect to theircorporate governance policies. National Instrument58-101 – Disclosure of Corporate Governance Practicesrequires certain mandatory disclosures in themanagement information circular of a reportingissuer and, to a lesser extent, other documents,and requires the filing on SEDAR of any writtencode of business conduct and ethics put in placeby the issuer. These rules apply to reportingissuers other than investment funds, issuers ofasset-backed securities, designated foreign issuersand SEC foreign issuers, certain exchangeablesecurity issuers, certain credit support issuers andcertain wholly-owned subsidiary issuers.

Issuers subject to the Instrument must disclosethe following corporate governance informationin their management information circular or, if theydo not issue a management information circular,in their AIF:

• with respect to the board of directors, the directorsthat are “independent” from management andthe basis for such determination;

• the initial and continuing training provided todirectors;

• the board of directors’ code of conduct or adescription of the steps taken to encourage orpromote ethical business conduct as a culture;

• the nominating process for new directors;

• compensation of directors and officers and howsuch compensation was determined;

• the board committees; and

• whether the board, its committees and individualdirectors are assessed regarding their effective-ness and contribution.

Issuers, other than venture issuers, must also disclosethe following:

• whether the majority of the board is independent,and, if not, how the board maintains independentjudgment;

• if relevant, the names of the other issuers forwhich any directors hold directorships;

• whether independent directors hold regularlyscheduled meetings separately from the non-independent directors;

• each director’s attendance record;

• the board’s written mandate, or if there is nosuch mandate, a description of how the boardcarries out its role and responsibilities; and

• a description of the roles and responsibilities ofthe CEO, Chair and chair of each board committee.

Pursuant to National Policy 58-201 – CorporateGovernance Guidelines, the majority of a boardshould be made up of independent directors andthe Chair of the board should be independent.Board committees are established to permit boardsto fulfill their risk oversight responsibilities andshould have written mandates that set out theirpurpose, responsibilities, member qualifications,member appointment and removal, structure andoperations and manner of reporting to the board.

8. CORPORATE GOVERNANCE REQUIREMENTS

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Audit Committees

Pursuant to National Instrument 52-110 – AuditCommittees, reporting issuers other than investmentfunds, issuers of asset-backed securities, designatedforeign issuers and SEC foreign issuers, certainexchangeable security issuers, certain credit supportissuers and certain wholly-owned subsidiary issuers,must establish an audit committee to review theaccounting and financial reporting processes ofthe issuer and the auditing of its financial statements.The purpose of the committee is to improve thequality of the issuer’s financial disclosure, therebyincreasing investor confidence in capital markets.The audit committee is responsible for: (i) identifyingand managing the risks that could affect financialreporting reliability; (ii) overseeing the integrity ofthe issuer’s financial reporting process and systemof internal control as well as the external auditorsand internal audit process; (iii) recommending thenomination and compensation of external auditors;(iv) approving all non-audit services provided bythe external auditors; (v) overseeing companycompliance with applicable legal and regulatoryrequirements affecting financial reporting; and(vi) reviewing financial statements, MD&A andannual and interim earnings press releases.

The audit committee must be composed of atleast three directors. In the case of TSX-listedcompanies, all audit members must be independent(i.e., free of any direct or indirect material relation-ship between the director and the issuer whichmight reasonably be expected to interfere withthe member’s exercise of independence). In thecase of TSX-V-listed companies, only the majorityof members must be independent and none isrequired to be financially literate. Issuers must,however, disclose the fact that a particular memberis not independent or is not financially literate.

An issuer may qualify for exemption from theindependence and financial literacy requirementsin the following circumstances: (i) if at least oneaudit committee member is independent, inwhich case the issuer may obtain an exemption

for the first 90 days following the date of receiptfor its IPO prospectus; or (ii) if the directorbecomes financially literate within a reasonableperiod of time. The issuer’s board must believethat use of an exemption will not adversely impairthe committee’s ability to act independently andotherwise satisfy its obligations.

Nominating Committee

Pursuant to National Policy 58-101, which is aguideline but not a mandatory requirement, theboard of an issuer is encouraged to appoint anominating committee composed entirely ofindependent directors. This committee should havea written charter. The purpose of the nominatingcommittee is to identify individuals who are qualifiedto become board members and to recommendsuch nominees to the board. In making such rec-ommendations, the committee should considerthe competencies and skills that the boardrequires, the appropriate size of the board andthe skills and competencies of the current boardmembers and the nominees. If the board doesnot have a nominating committee comprised ofentirely independent directors, the managementinformation circular of the issuer must containdisclosure as to what steps the board takes toencourage an objective nomination process.

Compensation Committee

Pursuant to National Policy 58-101, the board of anissuer is encouraged to also appoint a compensationcommittee composed entirely of independentdirectors. This committee should also have a writtencharter and should determine and review CEOcompensation, taking into consideration the issuer’sgoals and objectives. The committee may also makerecommendations to the board with respect tonon-CEO officer and director compensation,incentive compensation plans and equity-basedplans. The committee also reviews any disclosureregarding executive compensation before it is madepublic. If the board does not have a compensationcommittee comprised of entirely independentdirectors, the management information circular ofthe issuer must contain disclosure as to what stepsthe board takes to encourage an objective processfor determining compensation of directors andofficers.

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Disclosure Controls and Procedures andInternal Controls over Financial Reporting

Pursuant to National Instrument 52-109 – Certificationof Disclosure in Issuers’ Annual and Interim Filings,reporting issuers (other than venture issuers) mustensure the existence of and annually evaluate dis-closure controls and procedures (“DC&P”) andinternal controls over financial reporting (“ICFR”).CEOs and CFOs of reporting issuers, or personsperforming similar functions, must individually certifyannual and interim filings and their responsibilityfor DC&P and ICFR. Venture issuers need only obtaina more basic certificate that does not include rep-resentations regarding DC&P and ICFR.

Each of the CEO and CFO of a reporting issuermust individually certify on an annual basis that:

• they have reviewed all annual public filings;

• there is no untrue statement of material fact oromission of material fact in the filings based ontheir own knowledge after having exercisedreasonable due diligence;

• the financial statements and other financialinformation in the annual filings fairly present inall material respects the financial condition, resultsof operations and cash flows of the issuer, basedon their knowledge having exercised reasonabledue diligence;

• the certifying officers have created:

• DC&P providing “reasonable assurance”that material information relating to theissuer is known by the individuals certifyingthat the information required to be dis-closed is recorded, processed, summarizedand reported within the time periods spec-ified by securities legislation; and

• ICFR providing “reasonable assurance”regarding the reliability of financial reportingand the preparation of financial statementsfor external purposes is in accordance withthe issuer’s GAAP requirements;

• material weaknesses relating to the designand limits to the scope of the ICFR andtheir impact on financial reporting havebeen disclosed;

• the certifying officer has evaluated theeffectiveness of the DC&P and the ICFR;

• the issuer disclosed changes that have orare reasonably likely to materially affect theissuer’s ICFR; and

• any fraud involving management or otheremployees with a significant role in the issuer’sICFR has been disclosed to the issuer’sauditors and to the board of directors or theaudit committee of the board of directors.

A similar certification is required for the reportingissuer’s interim filings as well.

See “Civil Liability for Misrepresentations inSecondary Market Disclosure” below for a discussionof the liability associated with a misrepresentationin a CEO/CFO certificate.

Shareholder Meetings

The conduct of shareholder meetings is generallygoverned by the corporate law of the issuer’sjurisdiction of incorporation, but securities lawsapply to the content and form of the proxies andmanagement and dissident information circularsdelivered in connection with a meeting of share-holders of a reporting issuer. Typically, corporatelaw requires that an annual meeting be held atleast once every 15 months and requires advancenotice to be given to shareholders. Corporate lawalso sets out requirements with respect to thetiming of delivery of notice of a meeting to share-holders and delivery by shareholders of a proxy.National Instrument 54-101 – Communication withBeneficial Owners of Securities of a Reporting Issuersets out how and when issuers must communicatewith their shareholders.

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Civil Liability for Misrepresentations inSecondary Market Disclosure

As is the case with prospectus disclosure, issuersmay face civil liability for misrepresentations inany secondary market disclosure which can ariseas a result of:

• a misrepresentation in a document released byor on behalf of the issuer;

• a misrepresentation made in a public oral state-ment on behalf of the issuer; or

• the failure of the issuer to timely disclose amaterial change.

An investor may bring an action against the issuerif such investor purchases or disposes of securitiesduring the period between the time when: (i) thedocument containing a misrepresentation wasreleased and the time the misrepresentation waspublicly corrected; (ii) the public oral statementwas made and the time when the misrepresentationcontained in the public oral statement was publiclycorrected; or (iii) the material change wasrequired to be disclosed and the disclosure of thematerial change.

The investor does not need to prove that theyrelied upon the misrepresentation. However, wherethe action is in respect of a misrepresentation con-tained in a document that is not a “core document”,a core document being a document such as anMD&A, AIF, information circular, annual financialstatements, interim financial statements or materialchange report, or a public oral statement, theinvestor must prove that the person or issuer:

(a) knew, when the misrepresentation wasmade, that the document or oral statementcontained the misrepresentation;

(b) deliberately avoided learning of the existenceof such misrepresentation; or

(c) was, through action or failure to act, guilty ofgross misconduct relating to the release of thedocument or making the public oral statementthat contained the misrepresentation.

The investor does not need to prove knowledge,wilful blindness or gross misconduct in the caseof a misrepresentation in a core document or forfailure to make a timely disclosure by the issuer oran officer of the issuer.

An issuer will not be liable if it can provide that theinvestor had knowledge of the misrepresentationprior to their acquisition or disposition of thesecurities in question. The issuer may also use a“reasonable investigation” defence if it can provethat: a reasonable investigation was conductedprior to the deficient disclosure; and at the time ofthe deficient disclosure, the defendant had noreasonable grounds to believe that: (i) there wasa misrepresentation in the document or oralstatement; or (ii) the information would not bedisclosed in a sufficiently timely manner.

The issuer may also rely upon statutory safe harbourdefences for reasonable forward-looking informationaccompanied by adequate cautionary language.Such a defence would not, however, apply withrespect to: (i) forward-looking information in financialstatements; or (ii) forward-looking information indocuments released in conjunction with an IPO.

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SCHEDULE AMINIMUM REQUIREMENTS FOR LISTING ON THE TORONTO STOCKEXCHANGE AND THE TSX VENTURE EXCHANGE*

* Extracted from TMX Group Inc.

TSX Venture Exchange – Industrial, Technology, Life Sciences, Real Estate or Investment

Initial Listing TSX Venture Tier 1 TSX Venture Tier 2 TSX Venture Tier 1 TSX Venture Tier 2Requirements Industrial/Technology/ Industrial/Technology/ Real Estate or Investment Real Estate or Investment

Life Sciences Life Sciences

Net Tangible Assets, $5,000,000 net tangible assets $750,000 net tangible assets Real Estate: $2,000,000 net tangible assetsRevenue or Arm’s or $5,000,000 revenue or $500,000 in revenue or $5,000,000 net tangible assets or $3,000,000 arm’s lengthLength Financing $2,000,000 arm’s length financing(as applicable) If no revenue, two year financing Investment:

management plan demonstrating $10,000,000 net tangible assetsreasonable likelihood of revenue If no revenue, two yearwithin 24 months management plan demonstrating

reasonable likelihood of revenuewithin 24 months

Adequate Working Adequate working capital and Adequate working capital and Adequate working capital and Adequate working capital andCapital and Capital financial resources to carry out financial resources to carry out financial resources to carry out financial resources to carry outStructure stated work program or execute stated work program or execute stated work program or execute stated work program or execute

business plan for 18 months business plan for 12 months business plan for 18 months business plan for 12 monthsfollowing listing; $200,000 following listing; $100,000 following listing; $200,000 following listing; $100,000unallocated funds unallocated funds unallocated funds unallocated funds

Adequate Working Adequate working capital and Adequate working capital and Adequate working capital and Adequate working capital andCapital

Property Issuer has significant interest in business or primary asset Real Estate:used to carry on business Issuer has significant interest in real property

Investment:No requirement

Prior Expenditures History of operations or validation of business Real Estate: Real Estate:and Work Program No requirement No requirement

Investment: Investment:Disclosed investment policy (i) disclosed investment policy;

and(ii) 50% of available fundsmust be allocated to at least2 specific investments

Management and Management, including board of directors, should have adequate experience and technical expertise relevant to the company’s businessBoard of Directors and industry as well as adequate public company experience. Companies are required to have at least two independent directors.

Distribution, Market Public float of 1,000,000 shares; Public float of 500,000 shares; Public float of 1,000,000 shares; Public float of 500,000 shares;Capitalization and 250 public shareholders each 200 public shareholders each 250 public shareholders each 200 public shareholders eachPublic Float holding a board Lot and having holding a board Lot and having holding a board Lot and having holding a board Lot and having

no resale restrictions on their no resale restrictions on their no resale restrictions on their no resale restrictions on theirshares; 20% of issued and shares; 20% of issued and shares; 20% of issued and shares; 20% of issued andoutstanding shares in the hands outstanding shares in the hands outstanding shares in the hands outstanding shares in the handsof public shareholders of public shareholders of public shareholders of public shareholders

Sponsorship Sponsor Report may be required

34

The listing requirements above must be met at the time of listing. Any funds raised or transactions closing concurrent with listing contribute to the company meeting the listing requirements.(1) Generally includes companies engaged in hardware, software, telecommunications, data communications, information technology and new technologies that are not currently profitable or able to forecast profitability.(2) Applicants should file a complete set of forecast financial statements covering the current and/or next fiscal year (on a quarterly basis). Forecasts must be accompanied by an auditor’s opinion that the forecast

complies with the CICA Auditing Standards for future-oriented financial information. Applicants should have at least six months of operating history.(3) Under certain circumstances, deferred development charges or other intangible assets can be included in net tangible asset calculations.(4) Companies with less than C$2 million in net tangible assets may qualify for listing if the earnings and cash flow requirements for senior companies are met.(5) “G&A” means general and administration expenses.(6) A quarterly projection of sources and uses of funds, for the relevant period, including related assumptions signed by the CFO must be submitted. Projection should exclude uncommitted payments from third

parties or other contingent cash receipts. R&D issuers should exclude cash flows from future revenues.(7) Exceptional circumstances may justify granting of a listing, notwithstanding minimum requirements – generally an affiliation with established business and/or exceptionally strong financial position is required.(8) (7), as well as for granting Exempt status. Special purpose issuers are generally considered on an exceptional basis.(9) “Advanced stage of development or commercialization,” generally restricted to historical revenues from the issuer’s main business or contracts for future sales. Other factors may also be considered.(10)Other relevant factors may also be considered.

TSX – Industrial, Technology and R&D

Minimum Listing TSX Non-Exempt TSX Non-Exempt TSX Non-Exempt TSX Non-Exempt TSX ExemptRequirements Technology Issuers 1,7 Research Forecasting Profitable Issuers 7 Industrial Companies 8

& Development Profitability 7

(R&D) Issuers 7

Earnings or Revenue Evidence of pre-tax Pre-tax earnings from Pre-tax earnings fromearnings from on-going on going operations on going operationsoperations for the current of at least $200,000 of at least $300,000or next fiscal year of in the last fiscal year in the last fiscal yearat least $200,000 2

Cash Flow Evidence of pre-tax cash Pre-tax cash flow of Pre-tax cash flow offlow from on going $500,000 in the last $700,000 in the lastoperations for the current fiscal year fiscal year, and anor next fiscal year of average of $500,000 for at least $500,000 2 the past 2 fiscal years

Net Tangible Assets $7,500,000 3 $2,000,000 3,4 $7,500,000 3

Adequate Working Funds to cover all Funds to cover all Working capital to carry on the business, and an appropriate capital structureCapital and planned development planned R&DCapital Structure expenditures, capital expenditures, capital

expenditures, and G&A 5 expenditures and G&A 5

expenses for 1 year 6 expenses for 2 years 6

Cash in Treasury Min. $10,000,000 in the Min. $12,000,000 in thetreasury, with majority treasury, with majorityraised by prospectus raised by prospectusoffering offering

Products and Services Evidence that products or Minimum 2 year services are at an advanced operating history thatstage of development includes R&D activities.or commercialization Evidence of technicaland that management expertise and resourceshas the expertise to advance its researchand resources to develop and developmentthe business 9 programs 10

Management and Management, including the board of directors, should have adequate experience and technical expertise relevant to the company’sBoard of Directors business and industry as well as adequate public company experience. Companies are required to have at least two independent directors.

Public Distribution 1,000,000 free trading 1,000,000 free trading public sharesand Market public sharesCapitalization $4,000,000 held by public shareholders

$10,000,000 held bypublic shareholders 300 public shareholders each holding a board lot

300 public shareholderseach holding a board lot

Minimum $50 millionmarket capitalization

Sponsorship Generally required Not required

(1) “G&A’ means general and administrative expenses.(2) “principal properties” means any other properties of the issuer in respect of which 20% or more of the available funds will be spent in the next 18 months.(3) “advanced exploration property” refers to one on which a zone of mineralization has been demonstrated in three dimensions with reasonable continuity indicated.

The mineralization identified has economically interesting grades.(4)A company must hold or have the right to earn and maintain a 50% interest in the qualifying property. Companies holding less than a 50% interest will be

considered on a case-by-case basis looking at program size. Stage of advancement of the property and strategic alliance.(5) “Tier 1 property” means a property that has substantial geological merit and is:

(i) a property in which the issuer holds a material interest; and(ii) a property on which previous exploration, including detailed surface geological, geophysical and/or geochemical surveying and at least an initial phase of

drilling or other detailed sampling (such as trench or underground opening sampling), has been completed; and(iii) an independent geological report recommends a minimum $500,000 Phase 1 drilling (or other form of detailed sampling) program based on the merits of previous

exploration results; or an independent, positive feasibility study demonstrates that the property is capable of generating positive cash flow from ongoing operations.

Mining Disclosure StandardsNational Instrument 43-101 is the Canadian Securities Administrators’ (“CSA”) policy that governs the scientific and technical disclosure by mining companies and thepreparation of technical reports. It covers oral statements as well as written documents and websites. NI 43-101 requires that all technical disclosure be based onadvice by a “qualified person”. Issuers are required to make disclosure of reserves and resources using definitions approved by the Canadian Institute of Mining,Metallurgy and Petroleum, except for disclosure pertaining to coal.

Technical Reports by Foreign Qualified AuthorsTechnical reports that accompany a listing application must be prepared by a qualified person who is a member of an approved professional association. Licences, certification or membership in the ASBOG, AIPG, AusIMM, IMMM, SAIMM, SACNASP, or IGI will normally be acceptable. CSA has published an FAQ that provides detailson the “qualified person” equivalents from other jurisdictions and other resources and reserve definitions that are acceptable with a brief reconciliation.

NI 43-101 is available athttp://www.osc.gov.on.ca/en/Regulation/Rulemaking/Rules/noticeRule_43101.pdf and the Frequently Asked Questions at http://www.osc.gov.on.ca/en/Regulation/Rulemaking/Notices/csanotices/2003/csan_43-302_faq-43_101_20030124.htm#faq.

Toronto Stock Exchange and TSX Venture Exchange – Exploration and Mining Companies

Minimum Listing TSX Venture TSX Venture TSX Non-Exempt TSX Non-Exempt TSX ExemptRequirements Tier 1 Tier 2 Exploration and Producer

Development Stage

Property Material interest in a Tier 1 Significant interest in qualifying Advanced Exploration Three years proven and Three years proven and Requirements property 5 property or, at discretion of Property 3. Minimum 50% probable reserves as probable reserves as

the Exchange, hold rights to ownership in the property estimated by an independent estimated by independent earn a significant interest in qualified person (if not in qualified personqualifying property with production, a productionsufficient evidence of not decision made)less than $100,000 expenditures in the past three years prior to application for listing

Recommended $500,000 on the Tier 1 $200,000 on the qualifying $750,000 on advanced Bringing the mine into Commercial level mining Work Program property 5 as recommended property as recommended exploration property as commercial production operations

by geological report by geological report recommended in independent technical report

Working Capital and Adequate working capital Adequate working capital Minimum $2,000,000 working Adequate funds to bring the Adequate working capitalFinancial Resources and financial resources to and financial resources to capital, but sufficient to property into commercial to carry on the business

carry out stated work carry out stated work complete recommended production; plus adequate Appropriate capitalprogram or execute business program or execute business programs, plus 18 months working capital for all structure.plan for 18 months following plan for 12 months following G&A, anticipated property budgeted capital expenditureslisting: $200,000 listing: $100,000 payments and capital and to carry on the business. unallocated funds unallocated funds expenditures. Appropriate Appropriate capital structure.

capital structure.

Net Tangible Assets $2,000,000 net tangible No requirement $3,000,000 net tangible $4,000,000 net tangible $7,500,000 net tangibleEarnings or Revenue assets assets assets; evidence indicating a assets; pre-tax profitability

reasonable likelihood of from ongoing operations future profitability supported in last fiscal year; pre-tax by a feasibility study or cash flow of $700,000 in historical production and last fiscal year and average financial performance of $500,000 for past two

fiscal years

Other Criteria Geological report Up-to-date comprehensive Up-to-date comprehensive technical report recommending completion technical report prepared prepared by independent qualified personof work order by independent qualified

person and 18 month projection (by quarter) of sources and uses of funds, signed by CFO

Management and Management, including board of directors, should have adequate experience and technical expertise relevant to the company’s businessBoard of Directors and industry as well as adequate public company experience. Companies are required to have at least two independent directors.

Distribution, Market Public float of $1,000,000 Public float of $500,000; $4,000,000 publicly held 1,000,000 free trading public shares;Capitalization shares; 250 public shareholders 200 public shareholders each 300 public holders with board lotsand Public Float each holding a board Lot holding a board Lot and

and having no resale having no resale restrictions restrictions on their shares; on their shares; 20% of issued

20% of issued and outstanding and outstanding shares shares in the hands of in the hands of publicpublic shareholders shareholders

Sponsorship Sponsor report may be required Required (may be waived Not requiredif sufficient previous 3rd party due diligence)

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(1) G&A means general and administrative expenses.(2) “Proved development reserves” are defined as those reserves that are expected to be recovered from existing wells and installed facilities, or, if facilities have not been installed, that would involve low expenditure,

when compared to the cost of drilling a well, to put the reserves on production.(3) “NI 51-101” National Instrument 51-101 - Standards of Disclosure for Oil & Gas Activities – available at: http://www.osc.gov.on.ca/Regulation/Rulemaking/Current/Parts/rule 20030926 51-101 rule.pdf.(4) Exceptional circumstances may justify the granting of Exempt status notwithstanding the minimum requirements – generally an affiliation with an established business and/or exceptionally strong financial position is required.(5) Reserve value of pre-tax NPV of cash flows using a 20% discount rate; constant pricing assumptions are used.

Toronto Stock Exchange and TSX Venture Exchange – Oil and Gas (Exploration or Producing) Companies

TSX Venture TSX Venture TSX Non-Exempt Oil & Gas TSX Exempt Oil & GasTier 1 Tier 2 Exploration and Issuers 4

Development Issuers

Net Tangible Assets, No requirement Pre-tax profitability from Earnings or Revenue ongoing operations in last fiscal

year. Pre-tax cash flow fromongoing operations of $700,000 in last fiscal year and average pre-tax cash flow from ongoing operations of $500,000 for the past two fiscal years.

Working Capital and Adequate working capital Adequate working capital Adequate funds to execute the Adequate working capital toFinancial Resources and financial resources to carry and financial resources to carry program and cover all other carry on the business.

out stated work program or out stated work program or capital expenditures & G&A 1 Appropriate capital structure.execute business plan for execute business plan for and debt service expenses for18 months following listing; 12 months following listing; 18 months with a contingency$200,000 unallocated funds. $100,000 unallocated funds. allowance; 18 month projection

of sources & uses of funds signed by CFO. Appropriate capital structure.

Distribution, Market Public float of 1,000,000 shares; Public float of 500,000 shares; At least 1,000,000 freely tradable shares with an aggregate market Capitalization 250 public shareholders each 200 public shareholders each value of $4,000,000; 300 public shareholders, each holding one and Public Float holding a board lot and having holding a board lot and having board lot or more

no resale restrictions on their no resale restrictions on theirshares; 20% of issued and shares; 20% of issued andoutstanding shares in the hands outstanding shares in the handsof public shareholders of public shareholders

Sponsorship Sponsor report may be required Not required

Property Exploration - $3,000,000 in Exploration – either (i) Issuer $3,000,000 proved developed $7,500,000 proved developedRequirements reserves of which a minimum of has an unproven property with reserves 2,5 reserves 2,5

$1,000,000 must be proved prospects or (ii) Issuer hasdeveloped reserves 2 and the joint venture interest andbalance probable reserves $5,000,000 raised byProducing - $2,000,000 in prospectus offeringproved developed reserves 2 Reserves – either (i) $500,000

in proved developed producingreserves or (ii) $750,000 in proved plus probable reserves

Recommended Exploration – satisfactory work Exploration – minimum of Clearly defined program toWork Program program (i) of no less than $1,500,000 allocated by Issuer to increase reserves

$500,000 and (ii) which can a work program as recommended reasonably be expected to in a geological report except increase reserves, as where Issuer has a joint venturerecommended in a geological interest and has raised report $5,000,000 in prospectus offeringProducing – No requirement Reserves – (i) satisfactory work

program and (ii) in an amount of not less than $300,000 if proved developed producing reserves have a value of less than $500,000 as recommended in geological report

Management and Management, including board of directors, should have adequate experience and technical expertise relevant to the company’s businessBoard of Directors and industry as well as adequate public company experience. Companies are required to have at least two independent directors.

Other Criteria Geological report recommending completion of work program Up-to-date technical report prepared by an independent technical consultant (NI 51-1013) 5

LONG FORM PROSPECTUS (FIRM COMMITMENT UNDERWRITING)

DAY 1 DAY 2 to 35 DAY 35 DAY 45 DAY 52

Organizational meetings, dealer engagement letter signed

Prospectus drafting sessions,due diligence, preparation

of marketing materials

File preliminary prospectus and obtain receipt

Receive comment letter Marketing meetings begin,resolve comments

DAY 66 DAY 67 DAY 68 DAY 74 DAY 75

Price offering and sign underwriting agreement

File final prospectus and obtain receipt

Commercially print final prospectus and deliver with

trade confirms

Statutory rights of withdrawal expire

Closing

SCHEDULE BPROSPECTUS TIMELINES

SHORT FORM PROSPECTUS (FIRM COMMITMENT UNDERWRITING)

DAY 1 DAY 2 to 7 DAY 7 DAY 10 DAY 10 to 21

Organizational meetings, dealer engagement letter signed

Prospectus drafting sessions,due diligence

File preliminary prospectus and obtain receipt

Receive comment letter Marketing meetings,resolve comments

DAY 21 DAY 22 DAY 27 DAY 28

Price offering, sign underwritingagreement, file final prospectus

and obtain receipt

Commercially print final prospectus and deliver with

trade confirms

Statutory rights of withdrawal expire

Closing

SHORT FORM PROSPECTUS (BOUGHT DEAL)

DAY 1 DAY 2 DAY 3 DAY 4 to 7 DAY 7

Organizational meetings Prospectus drafting sessions,due diligence

Binding engagement lettersigned, press release announcing

transaction

Dealers solicit expressions of interest

Sign formal underwriting agreement, price offering, file preliminary prospectus

and obtain receipt

DAY 10 DAY 13 DAY 17 DAY 18

Receive comment letter File final prospectus and obtain receipt

Statutory rights of withdrawal expire

Closing

VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENER-WATERLOO GUELPH TORONTO MARKHAM MONTRÉAL

Miller Thomson LLPwww.millerthomson.com