GOING PUBLIC IN CANADA

GOING PUBLIC IN CANADA

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MILLER THOMSON LLP GOING 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 - Schedule B - Minimum Requirements for Listing on the Toronto Stock Exchange and the TSX Venture Exchange Prospectus Timelines

1. OVERVIEW Introduction This guide is an overview of the practical considerations for issuers considering a public offering in Canada. Included in this guide is a discussion of the primary advantages and disadvantages of going public in Canada, key structuring issues, how to obtain a listing on a Canadian exchange, the prospectus clearance process and continuous disclosure and corporate governance obligations for public companies in Canada. While this guide is not meant to be exhaustive, we hope that you will find it to be a useful reference source. You should not act on information provided in this guide without consulting with legal counsel. Should you require further information about going public in Canada or any specific topic discussed in this guide, Miller Thomson would be pleased to provide you with that information upon request. Canadian Regulatory Regime Securities regulation in Canada is currently a provincial jurisdiction. Each of the ten provinces and three territories is responsible for regulating capital markets in their own jurisdiction. Each has its own administrative/quasi-administrative agency that regulates securities markets (each, a Securities Commission ). While there is currently no federal securities regulator in Canada, significant progress has been made to coordinate the system among the provinces and territories. To help harmonize securities laws across Canada, the various Securities Commissions have adopted several National Policies and National Instruments, which are securities rules that apply throughout Canada. In addition, certain Multilateral Instruments and Multilateral Policies have been adopted, which are rules which apply in more than one, but not in all, Canadian jurisdictions. Serious efforts are currently underway to create a single federal national securities regulator in Canada. In June, 2009, the government of Canada announced the launch of the national Canadian Securities Transition Office ( CSTO ) to assist in the establishment of a federal securities regulatory regime and a single federal regulatory authority. The CSTO is specifically responsible for the development of a new federal Securities Act and 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 recognition system that provides a single window of access to Canada s capital markets for domestic and foreign issuers. It enables participants to clear a prospectus or obtain a discretionary exemption and to register as a dealer or adviser, by obtaining a decision from the securities regulator in their home province or territory and having that decision apply in all other participating jurisdictions. The jurisdiction that will take the lead as principal regulator is the securities regulatory authority or regulator in the jurisdiction in which the issuer s head office is located. Although Ontario has not signed on to the passport system (i.e. it is not a passport regulator ), the system has been designed to accommodate that. For example, if the principal regulator for a prospectus or exemption application is the Ontario Securities Commission ( OSC ) and the prospectus or exemption application is also filed in one or more passport jurisdictions, only the OSC will review the prospectus or exemption application and the passport jurisdictions will rely on the OSC s review. In circumstances where the principal regulator is a passport regulator and the prospectus or exemption application is also filed in Ontario, the principal regulator will review the prospectus or exemption application, and the OSC, as a non-principal regulator, will coordinate its review with the principal regulator. 01

The Toronto Stock Exchange and TSX Venture Exchange The two principal exchanges for equity securities in 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-V is the market for more junior issuers that have not yet 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 listed on the relevant exchange must complete a listing application which, together with supporting data, must demonstrate that the issuer is able to meet the applicable minimum listing requirements of the exchange. The issuer must also sign a listing agreement to formally place on record the issuer s commitment to comply with exchange requirements for the continuance of its listing. Reasons to List in Canada Access to Large Market The TMX Group marketplace is one of the largest stock markets in the world. It is second in the world and first in North America in terms of number of listed companies (1,462 on the TSX, 2,375 on the TSX-V). TMX Group is eighth in the world and third in North America by total listed company market capitalization valued at $1.8 trillion as at year-end of 2009. 1 Comparatively Lower Costs of Going Public The costs of listing and maintaining a listing on each of the TSX and the TSX-V are generally lower than the equivalent costs in other major markets such as those in New York or London. Furthermore, going public in the United States typically involves higher ongoing compliance costs and greater risk due to the more litigious environment and more rigorous regulatory system. Access to a Strong Investor Market The TMX Group exchanges attract significant investment from institutional and retail investors in Canada and around the world. Approximately 40% of the equity trading on the TMX Group s exchanges originates from outside of Canada. Special Advantages of the TSX Venture Exchange The TMX Group offers junior issuers a streamlined graduation path from the TSX-V to the TSX. In 2009, 20 issuers graduated from the TSX-V to the TSX. The TSX-V has also introduced the NEX board, which allows companies that have fallen below the TSX-V s ongoing listing standards which would otherwise be designated as inactive and given 18 months to meet the standards or be delisted, to continue trading. The NEX board relieves these issuers of the pressure of a delisting deadline and allows them to remain more visible as potential takeover targets or investment opportunities. Smaller Issuer Expertise Generally speaking, the TMX Group exchanges provide a less costly and less onerous regulatory regime, enabling smaller cap companies to list more efficiently than many exchanges outside of Canada. Mining and Energy Expertise The TMX Group lists the largest number of mining companies and the largest number of energy companies in the world. Over 55% of the world s public mining companies and over 40% of the world s public energy companies are listed with the TMX Group. Because of the TMX Group s extensive experience with the mining and energy industries, special rules exist to expedite the listing process for issuers in these industries. Financing Flexibility The TMX Group exchanges enable issuers to raise as little as $500,000 to substantial amounts, depending on their needs. 1 TMX Group, A Capital Opportunity: Guide to Listing. 02

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 issuer should consider before embarking on the process. Advantages The advantages of going public include: Access to capital both for specific projects and future growth and typically on more favourable conditions than private equity financing, and without the interest costs of debt financing. Greater liquidity for existing and future shareholders note, however, that securities held by principals may be subject to escrow requirements imposed by statute and/or arrangements with underwriters. Greater liquidity options for founders founders may sell all their shares or use them as collateral for personal loans. Increased credibility the greater transparency and visibility that comes with public issuer status generally enhances corporate image and may assist in developing relationships with the community, customers and suppliers. Ability to use equity as compensation to management permits greater flexibility in compensation arrangements. Ability to use equity as compensation for purchases enhances the ability of an issuer to complete mergers utilizing liquid stock as consideration. Disadvantages Up-front costs initial costs of going public, including management time and internal resources. Ongoing costs to meet continuous disclosure and corporate governance requirements of the exchanges and securities regulators. Decreased flexibility for founders public companies become subject to various restrictions under listing rules and that can impact activities, including issuing securities and related party transactions, among other things. Greater pressure on management to meet shareholder expectations of continuing success and profit as well as expectations of a broader variety of stakeholders. Loss of confidentiality due to extensive corporate and financial reporting obligations. Potential for civil liability the issuer, directors and certain advisors could all be held liable for misrepresentations in public disclosure documents. Potential loss of certain tax benefits current income tax laws provide certain credits and deductions to Canadian-controlled private corporations which are no longer available to a company once it has gone public. Increased vulnerability to hostile takeovers particularly where founders own less than the majority of the outstanding stock. Enhanced ability to borrow the increase in equity base creates more leverage for growth by improving a company s debt to equity ratio. Method of valuation through the market provides a more accurate assessment of fair market value of the enterprise. 03

2. METHODS OF GOING PUBLIC Initial Public Offering An initial public offering (an IPO ) is the traditional method of going public and the one which is discussed in greatest detail in this guide. An IPO is typically completed via a long form prospectus offering in conjunction with an initial listing on a stock exchange. Reverse Takeover A reverse takeover (an RTO ) occurs when a private company acquires control of a public company, typically a shell company with no active operations but which has a listing and reporting issuer status. The RTO might be structured in a number of ways, including: (a) issuing shares of the public company in exchange for assets or shares of the private company, or (b) an amalgamation or merger of the public shell and the private company. The resulting issuer from an RTO must continue to meet the original listing requirements of the TSX or TSX-V, as the case may be, and submit to a TSX approval process similar to that of an original listing application. An RTO can, depending on the structure, be completed more quickly and with less expense than an IPO. Going public as a CPC is a two-stage process. In the first stage, the company incorporates, prepares and files a prospectus (outlining management s intention to raise between $200,000 and $4,750,000), issues shares (to at least 200 arm s length shareholders, each of whom buys at least 1,000 shares), completes the distribution and is listed. The second stage, which must be completed within 24 months of the prospectus offering, involves the CPC identifying an appropriate business as its qualifying transaction. The CPC prepares and files with the TSX-V a filing statement or information circular providing prospectus-level disclosure concerning the business that is to be acquired, and obtains TSX-V approval. Shareholder approval is typically not required. Typically, completion of the qualifying transaction is accompanied by a private placement financing and a name change for the issuer. TSX-V Capital Pool Company The Capital Pool Company ( CPC ) program is a program operated by the TSX-V that provides companies with an opportunity to obtain financing earlier in their development than would normally be possible through a traditional IPO. The program permits a new shell company (the CPC) with no assets, other than cash (a minimum of the greater of $100,000 and 5% of total funds raised) and no commercial operations, to carry out an IPO and become listed on the TSX-V. The funds raised must be used to identify and evaluate assets or businesses which, if acquired, will qualify the CPC for regular listing on the TSX-V. 04

TSX Special Purpose Acquisition Company Like the TSX-V, the TSX has initiated a program which allows for the listing of a shell company, a Special Purpose Acquisition Company ( SPAC ), that will later acquire an operating business with the proceeds raised. Like CPCs, a SPAC listing involves a two-step process. A SPAC must first be listed and raise a minimum of $30 million through its IPO, at least 90% of which must be placed into escrow. The proceeds are then to be used to acquire an operating company (the qualifying acquisition ) or assets within 36 months of such listing. The business or assets acquired must have an aggregate fair market value equal to at least 80% of the value of the escrowed funds. Once the SPAC has completed its qualifying acquisition, which must meet TSX listing requirements, it is treated as a regular issuer by the TSX. Because SPACs are much larger than CPCs, they are subject to more stringent regulatory requirements. The TSX has imposed a number of mandatory listing requirements for SPACs, including the following: (c) at least 300 public holders of securities, holding at least one board lot each; and Pricing a SPAC seeking listing on the TSX must issue securities pursuant to the IPO for a minimum price of $2.00 per share or unit. The SPAC must prepare an information circular with prospectus-level disclosure concerning the qualifying acquisition and the resulting issuer, which it must submit to the TSX for approval prior to mailing it to shareholders. A SPAC must also file a non-offering prospectus with the appropriate securities commissions. The SPAC may only complete the acquisition if a majority of its securityholders, not including the founders, approve. If the transaction is approved, securityholders who voted against the qualifying acquisition have the right to convert their securities for their pro rata portion of the escrowed funds. If the qualifying acquisition is not completed within the 36 months allowed, the SPAC must complete a liquidation distribution to distribute the escrowed funds to securityholders on a pro rata basis, at which point the SPAC will be delisted. Financing the SPAC cannot obtain any debt financing (excluding ordinary course short term trade or accounts payables) other than contemporaneously with, or after, completion of its qualifying acquisition; Public Distribution a SPAC seeking a TSX listing must satisfy all of the criteria below: (a) at least 1,000,000 freely tradeable securities are held by public holders; (b) the aggregate market value of the securities held by public holders is at least $30,000,000; and 05

3. THRESHOLD ISSUES Escrow Restrictions General National Policy 46-201 - Escrow for Initial Public Offerings sets out a uniform policy of Canadian regulators regarding the circumstances in which the principals of an issuer must agree to escrow certain securities in connection with a public offering. The purpose of the escrow policy is to increase investor confidence by aligning the interests of the issuer s management and principal securityholders to those of the issuer by restricting their ability to sell their securities for a period of time following an IPO. Principals Must Escrow Shares The escrow rules restrict principals from selling or otherwise dealing with escrowed securities until they are released from escrow according to the terms of a standard form of escrow agreement. Principals include the following: a person or company that acted as a promoter of the issuer within the two years before the IPO prospectus; a director or senior officer of the issuer or any of its material operating subsidiaries at the time of the IPO prospectus; a person or company that holds securities carrying more than 20% of the voting rights attached to the issuer s outstanding securities immediately before and immediately after completion of the IPO; A principal that holds securities carrying less than 1% of the voting rights attached to an issuer s outstanding securities immediately after its IPO is not subject to the escrow restrictions. Release of Escrowed Securities The release of escrowed securities varies depending on the escrow classification of the issuer. For this purpose, issuers are classified in one of the following categories: Exempt Issuer an issuer that, following its IPO, has listed securities on the TSX and is classified by the TSX as an exempt issuer or has a market capitalization of at least $100 million. Established Issuer an issuer that, following its IPO, has securities listed on the TSX and is not classified by the TSX as an Exempt Issuer, or has securities listed on the TSX-V and is a TSX Venture Tier 1 issuer. Emerging Issuer an issuer that, following its IPO, is not an Exempt Issuer or an Established Issuer. In the case of Exempt Issuers, no escrow is imposed. Principals of Established Issuers will have their escrowed securities released over an 18-month period. Principals of Emerging Issuers will have their escrowed securities released over a 36-month period. The following table illustrates the release periods for Established Issuers and Emerging issuers. a person or company that holds securities carrying more than 10% of the voting rights attached to the issuer s outstanding securities immediately before and immediately after the issuer s IPO, and has elected or appointed, or has the right to elect or appoint a director or senior officer of the issuer or any of its material operating subsidiaries; and a principal s spouse and their relatives who live at the same address as the principal. 06

Established Issuers Emerging Issuers % Released Cumulative Amount Cumulative Released 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. Toronto Stock Exchange Minimum Listing Requirements 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. All special purpose issuers such as exchange-traded funds, split share corporations, income trusts, investment funds and limited partnerships are listed under the Industrial (General) category. All SPACs are listed under the Industrial (General) category. In instances where the primary nature of the business cannot be distinctly categorized, the exchange will designate the company to a listing category after reviewing the company s financial statements and other documentation. There are different requirements for companies to obtain a listing, depending on the classification of their business. The TSX always maintains the discretion to list issuers that do not meet the minimum listing requirements or refuse to list an issuer that meets the minimum requirements for listing. Under TSX rules, it is possible to obtain an advance view on whether the issuer in question would meet the TSX listing requirements of any particular category. Distribution, Market Capitalization and Public Float To qualify for a TSX listing, an issuer must have at least 1,000,000 freely tradable shares having an aggregate market value of at least $4,000,000 ($10,000,000 for issuers classified by the TSX as technology issuers 2 ) held by at least 300 public holders. In some circumstances, technology issuers must have a minimum market capitalization of $50 million. Management Companies applying for a listing on the TSX must be able to show evidence of a successful operation or, where the company is relatively new and its business record is limited, there must be other evidence of management experience and expertise. In all cases, the quality of management of an applicant company is an important factor for the TSX in considering a listing application. 07 2 Technology Issuers include innovative growth companies engaged in hardware, software, telecommunications, data communications, information technology and new technologies.

Management, including the board of directors, should have adequate experience and technical expertise relevant to the company s business and industry as well as adequate public company experience. Companies are required to have at least two independent directors, a chief executive officer ( CEO ), a chief financial officer ( CFO ) who is not also the CEO, and a corporate secretary. See Section 5 Preliminary Steps Appointing Independent Directors for discussion of the meaning of independent. The minimum original listing requirements for the TSX are set out in detail in Schedule A. International Issuers International issuers are issuers which are already listed on another recognized exchange and are incorporated outside of Canada. International issuers are able to apply for listing on the TSX. There are no longer special or unique requirements for the management or the financial requirements for international issuers to list on the TSX. The criteria used for original listing requirements are now consistent for all issuers, regardless of where the issuer is based. However, international issuers are generally required to have some presence in Canada and must be able to demonstrate, as with all issuers, that they are able to satisfy all of their reporting and public company obligations in Canada. This may be satisfied by having a member of the board of directors or management, an employee or a consultant of the issuer situated in Canada. TSX Venture Exchange Minimum Listing Requirements General The TSX-V minimum listing requirements are specifically designed for emerging companies and recognize that they have different financial needs than more established businesses. The TSX-V classifies issuers as Tier 1 or Tier 2 based on standards, including historical financial performance, stage of development and financial resources. Tier 1 is the highest tier of the TSX-V and is reserved for the more advanced issuers with the most financial resources. Tier 1 issuers benefit from less stringent filing requirements. The majority of TSX-V issuers trade as Tier 2 issuers. The TSX-V categorizes Tier 1 and Tier 2 issuers by industry segment and applies specific requirements to each industry segment. Each Tier 1 and Tier 2 issuer is grouped into one of the following categories: (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 issuers is at least 1,000,000 securities of the class to be listed which are held by shareholders who are not promoters, insiders or associates or affiliates of insiders, nor any member of the pro group 3 ( Public Shareholder ), free of any resale restrictions and having a market capitalization of at least $1,000,000. The basic distribution requirement for Tier 2 issuers is at least 500,000 securities of the class to be listed which are held by Public Shareholders free of any resale restrictions and having a market capitalization of at least $500,000. The minimum original listing requirements of the TSX-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. 08

Foreign Issuers The TSX-V distinguishes foreign issuers from domestic issuers. Foreign issuers are issuers whose majority of mind and management, or whose control person is a resident outside of Canada or the United States, or the majority of whose principal operating assets are located outside of Canada or the United States. United States companies that are not foreign issuers are treated the same as Canadian issuers for the purpose of the TSX-V. TSX-V review procedures are more extensive for foreign issuers than for domestic issuers. Foreign issuers must have a sponsor, approved by the TSX-V, that must undertake review procedures which include site visits, title opinions, independent reports prepared by experts in the foreign jurisdiction in the case of oil and gas issuers, a review of prior and concurrent financings, and where the foreign issuer engages auditors not from Canada or the United States, the foreign issuer s auditors must engage a Canadian auditor to advise on matters of Canadian Generally Accepted Accounting Principles ( GAAP ) and Generally Accepted Auditing Standards ( GAAS ) applicable to all financial statements audited or reviewed by the foreign auditors and all reports and letters filed by the foreign auditors with the foreign exchange. Maintaining a Listing on the TSX Venture Exchange The minimum requirements to maintain a listing on the TSX-V are lower than the thresholds for obtaining an initial listing for both Tier 1 and Tier 2 issuers. In order to maintain a listing in Tier 1, an issuer must have at least 750,000 listed shares which are held by Public Shareholders free of any Resale Restrictions and having a market capitalization of at least $750,000. For Tier 2 issuers to maintain a listing on the TSX-V, they must have at least 300,000 listed shares held by Public Shareholders free of any Resale Restrictions and having a market capitalization of at least $100,000. The TSX-V strongly recommends a pre-filing conference in an application for listing by a foreign issuer in order to canvass and address with the TSX-V issues relating to the issuer s application. Where a foreign issuer chooses not to request a pre-filing, the TSX-V will require additional time to review the issuer s application and may not respond within the normal time limits. 09

4. LISTING COSTS The following table sets out an estimated range of fees that will be incurred in going public on the TSX and TSX-V. 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 Actual costs will, of course, vary from these estimated ranges depending on the nature and complexity of the transaction and relative sophistication of the issuer, its management, internal controls and reporting 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 disclosure obligations under Canadian securities laws. 10

5. PRELIMINARY STEPS Preparing a Business Plan and Creating a Corporate Image It is often useful for an issuer to have a business plan prepared in advance of approaching potential underwriters and obtaining financing. The business plan will also assist in drafting certain parts of the prospectus. Management should give careful consideration to the corporate image that the company will project when it goes to market. The image should provide an accurate reflection of the company, its business and its strengths. This should be done carefully and well in advance of going public since it is prohibited to prime the market in anticipation of a public offering. Preparing Financial Statements As a general rule, a prospectus must include income statements, statements of retained earnings and cash flow statements for the previous three years, and balance sheets for the previous two years and for the most recently completed quarterly period since the last year end. Generally, all annual and interim financial statements included in a prospectus, along with all continuous disclosure and other filings delivered by issuers to Canadian securities regulators, must be prepared in accordance with Canadian GAAP and annual financial statements must be audited in accordance with Canadian GAAS and must be accompanied by an auditor s report without reservation. There are exceptions available to permit, in some instances, preparation and audit in accordance with U.S. GAAP and U.S. GAAS or International Financial Reporting Standards. By preparing the necessary financial statements in the years preceding the decision to go public, the company will be in a much better position to deal with the multitude of other important tasks involved in going public without the additional burden of concurrently preparing and auditing financial statements. Developing Reporting Systems Private companies tend to have much more informal management reporting and control systems than are required for public companies. A company should develop and implement appropriate reporting and control systems before the company goes public since, among other things, the CEO and CFO are required to sign certificates that carry personal liability attesting to the company s annual filings and reporting and control systems and procedures. See Section 8 Corporate Governance Requirements Disclosure controls and procedures and internal controls over financial reporting. Modifying the Corporate Structure In some instances it may be preferable to take public only certain operating units of a consolidated business, as opposed to the entire company. In that case, it may be necessary to restructure the company or transfer assets within the company among operating entities. Tax and accounting considerations are critical in evaluating whether to restructure a company. For example, if a private company has been structured to minimize taxes, the consequences of a corporate restructuring and decision to go public must be carefully analyzed and assessed. Transferring assets among corporate entities may also necessitate valuations by a qualified third party. The company s constating documents, including its articles and by-laws, will have to be reviewed to determine if they will need to be amended to reflect public company status. For instance, any private company restrictions will have to be removed from the articles before completion of the offering. In January 2011, International Financial Reporting Standards will replace Canadian GAAP for most Canadian public companies. 11

Appointing Independent Directors National Instrument 58-101 Disclosure of Corporate Governance Practices ( NI 58-101 ) and National Policy 58-201 Corporate Governance Guidelines ( NP 58-201 ) provide guidance on what Canadian securities regulators currently consider to be the best standards of corporate governance for public companies. The guidelines set out in NI-201 are not mandatory, but issuers are encouraged to consider the guidelines in developing their own corporate governance practices. Generally, it is considered good corporate governance to have a majority of independent directors. For companies about to go public, this means appointing new, independent directors to the board. For the purpose of NI 58-101 and NP 58-201, the meaning of independence is adopted from Section 1.4 of National Instrument 52-110 Audit Committees. The test of independence is whether the director has any direct or indirect material relationship with the issuer. A material relationship is a relationship which could, in the view of the issuer s board of directors, be reasonably expected to interfere with the exercise of a member s independent judgment. Directors and officers liability insurance will generally be necessary. The Role of Experts Underwriters The central role of the underwriters is to market and sell the securities subject to the public offering to institutional and retail investors. The lead underwriter is involved in coordinating the process from start to finish, working closely with all parties including the issuer, its lawyers and auditors. In order to fulfill its role of marketing, pricing and selling the securities, the lead underwriter will typically perform a thorough due diligence analysis of the issuer s business, including, among other things, its management, business plan, financial position and prospects. The lead underwriter advises on how the deal should be structured, the timing of offering and ultimately the 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 navigating through a web of securities laws and rules in the relevant provinces and territories of Canada. The issuer and the lead underwriter (on behalf of all of the underwriters) engage separate legal counsel. Lawyers for the issuer take the lead role in drafting the prospectus, communicating with securities regulators and the relevant stock exchange, including preparing the stock exchange listing application and clearing the prospectus with the securities regulators. Legal counsel for the underwriters are responsible for conducting legal due diligence on the issuer to assist the underwriters in establishing a due diligence defence to any claims based on faulty disclosure, reviewing material agreements of the issuer and reviewing and commenting on the prospectus and ancillary documents. Accountants/Auditors Accountants provide an advisory role in the IPO process and assist in the preparation of financial statements for inclusion in the prospectus. As experts, accountants file a consent with the relevant Securities Commissions to the inclusion or incorporation by reference, as the case may be, of their audit report in the prospectus. The accountants also file a statutory comfort letter with the relevant Securities Commissions with respect to interim financial statements included in the prospectus. The accountants also provide a long form comfort letter to the underwriters. The long form comfort letter is broader in scope than that provided to the Securities Commissions and is intended to bolster the due diligence defence of the underwriters by providing the underwriters with varying degrees of comfort on the financial disclosures contained in the prospectus. Other Experts Certain expert reports may be required if technical or other information is included in a prospectus. Examples of applicable expert reports may include geological or engineering reports (for mining or oil and gas issuers), business plans, valuations or appraisals. 12

Special Considerations for U.S. Based Issuers There are unique considerations for U.S. incorporated issuers seeking to go public in Canada. If the U.S. issuer is not already a reporting company in the United States, the U.S. issuer could, conceivably, trigger public reporting obligations under Section 12(g) of the United States Securities Exchange Act of 1934, as amended, (the 1934 Act ) by going public in Canada if it meets certain asset and shareholder base size tests, even if it is not listed on a U.S. exchange and has never filed a registration statement with the SEC. Under section 12(g) of the 1934 Act, once an issuer has $10 million in assets and 500 shareholders of record on a world-wide basis, U.S. reporting obligations are triggered. Some private U.S. issuers that decide to go public in Canada have elected to redomicile to Canada by continuance (or otherwise) in order to take advantage of certain accommodations that exist for foreign private issuers, as defined under U.S. securities laws. A foreign private issuer is any non-u.s. issuer other than one that meets the following: (i) more than 50% of its outstanding voting securities are directly or indirectly held of record by residents of the United States; and (ii) any one of the following: (a) the majority of its executive officers or directors are U.S. residents or citizens; (b) more than 50% of its assets are located in the United States; or (c) its business is administered principally in the United States. The advantages of securing foreign private issuer status are many. First off, a foreign private issuer will not be caught by the section 12(g) reporting requirement unless 300 or more of its world wide shareholders are resident in the United States. Secondly, even if the foreign private issuer triggers the section 12(g) reporting requirement, it may qualify for what is known as a Rule 12g3-2(b) reporting exemption. This exemption permits a foreign private issuer to avoid the U.S. reporting obligations provided that the issuer furnishes its Canadian disclosure materials to the SEC. The exemption is not available if, during the prior 18 months, the issuer had a 1934 Act reporting obligation due to filing a registration statement or having a U.S. listing (or it acquired another issuer that did) or the issuer s securities are quoted in an automated inter-dealer quotation system. An additional consideration for a U.S.-based issuer involves financial statement requirements for a Canadian prospectus and ongoing reporting purposes. Generally, a U.S. incorporated issuer will be required by its governing statute to prepare financial statements in accordance with U.S. GAAP. Canadian rules permit a U.S. incorporated issuer to reconcile its financial statements to Canadian GAAP, rather than preparing a full set of duplicative Canadian GAAP financial statements. Nevertheless, GAAP reconciliation can be a costly process from an audit point of view and, in some circumstances, may not present the issuer s financial statements in the most desired light. Another issue of concern for a U.S.-based company conducting a public offering in Canada is compliance with Regulation S. Regulation S provides certain safe harbours for offshore distributions by U.S. issuers. Typically, a U.S. issuer conducting a Canadian offering will, in order to avail itself of the safe harbours provided by Regulation S, among other things, emboss the share certificates with a Regulation S restrictive legend. The TSX has established what is known as the Dot S marketplace to accommodate U.S. - based issuers with securities bearing a Regulation S legend. Some issuers whose securities have traded in the Dot S system have found that the Dot S market lacks liquidity and the process is cumbersome. In some cases, these factors have caused U.S. - based issuers to carry out a redomiciling transaction to Canada to avoid the Dot S trading system altogether. U.S. incorporated issuers have a number of options in terms of a redomiciling transaction. The decision as to whether to redomicile, and the form of any redomiciling transaction, may be driven largely 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 Canadian jurisdiction; and an RTO-type share exchange transaction whereby the U.S. issuer is acquired by a Canadian shell company which then conducts the public offering. 13

6. PROSPECTUS PROCESS Introduction Unless an exemption is available, a company cannot distribute securities in Canada without a prospectus. The issuance or sale of previously unissued securities to Canadian residents constitutes a distribution, as does any sale by a control person. 4 The information requirements of the prospectus can vary depending on such factors as the nature of the securities offered, the type and size of the issuer and the industry in which the issuer operates. The prospectus must be prepared in accordance with Canadian securities law form requirements and must contain full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed. The prospectus should be presented in an easy-to-read format. Prospectus Exemptions The various exemptions from the requirement to file a prospectus have generally been consolidated under National Instrument 45-106 - Prospectus and Registration Exemptions. One of the most commonly used exemptions is the accredited investor exemption, which exempts sales to specifically defined accredited investors that purchase as principal. Accredited investors include, among others, Canadian banks, loan and trust companies, insurance companies, certain registered advisers and dealers, governments and pension funds, and individuals earning a minimum annual income or holding assets of a minimum value. An exemption is also available for individual purchasers subscribing in cash for securities of an issuer valued at $150,000 or greater. In all jurisdictions, except Ontario, executive officers, directors and control persons of the issuer and certain of their close friends, family and business associates are exempt. In Ontario, founders, affiliates of founders, control persons and certain family members of executive officers, directors or founders of the issuer are exempt. Preparing, Filing and Qualifying the Prospectus General The first step in the public offering/prospectus process is to establish a working group to prepare the prospectus. The working group should include senior officers of the issuer, representatives of the underwriters, their respective counsel and the issuer s auditors. The draft preliminary prospectus is generally prepared primarily by the issuer and its counsel, but members of the working group actively contribute to the drafting. Preparation can take several weeks depending upon the complexity of the issuer and its business, and whether any corporate restructuring is required prior to going public. Once an issuer decides to go public, however, there is generally a push to move through the process as quickly as possible in order to offer the securities while the markets remain receptive and before market conditions change. Appendix B sets out a complete going public timetable. The prospectus process is a multi-step process. The first step involves preparing and filing a preliminary prospectus, which is, essentially a draft prospectus that excludes certain content including pricing information until the final prospectus is filed. Prior to filing, the preliminary prospectus goes through a due diligence review by the issuer, the underwriters and their respective counsel to ensure accuracy. Once the preliminary prospectus is certified by the issuer and the underwriters, it is filed with the Securities Commissions. During the period between the receipt of the preliminary prospectus by the issuer from the Securities Commissions and the final prospectus filing, often called the waiting period, the underwriters may solicit expressions of interest, but may 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 to materially 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 be considered a control person. 14

must maintain a list of all parties to whom a preliminary prospectus is sent and afterwards send the final prospectus to each such party. During this period, the regulators will issue written comment letters noting deficiencies in the preliminary filing to which the working group will respond. The issuer must file a final prospectus within 90 days following receipt for the preliminary prospectus. Prospectus Amendments In the event that a material adverse change occurs in the affairs of the issuer at a time in which the preliminary prospectus has been receipted by the regulator but a final prospectus has not yet been receipted, an amendment to the preliminary prospectus must be filed as soon as practicable but no later than 10 days after the change occurs. If an amendment to a preliminary prospectus is filed, the amended preliminary prospectus must be delivered as soon as practicable to each recipient of the preliminary prospectus. In circumstances where a final prospectus has been filed and receipted by the regulators but the distribution to which it relates is not yet completed and either: (i) a material change in the affairs of the issuer occurs (whether adverse or positive); or (ii) the issuer and dealers add additional securities to the distribution not already covered by the final prospectus, an amendment to the final prospectus must be filed as soon as practicable but no later than 10 days after the date of the change. Since statutory rights of withdrawal are available to a purchaser for a period of two business days from the receipt or deemed receipt of a final prospectus or any amendment thereto, the issuer and the dealer group will want to ensure that the amended final prospectus is delivered to each recipient of the final prospectus in order to start the clock running on the withdrawal rights. Amendments to a preliminary or final prospectus can take the form of an amended and restated prospectus or an amendment that does not fully restate the prospectus. Marketing Restrictions Securities laws limit marketing activities and the content of any marketing material distributed during a public offering. When a prospectus offering is proposed, Canadian securities rules generally prohibit any act in furtherance of a trade in those securities until a preliminary prospectus is filed. Accordingly, once an issuer proposes to go public and has entered into preliminary discussions with an underwriter, it must not engage in activities such as press interviews, internet postings and the like that refer to, promote or discuss the proposed offering in any way. However, normal media contact consistent with past practice may continue, provided that the media contact is not designed to in any way promote the offering or promote the business of the issuer more aggressively or differently than previously was the case. Once a receipt is issued by the regulators for the preliminary prospectus, limited marketing activities are permitted. During the period between the filing of the preliminary prospectus and the final prospectus, the dealer group may solicit expressions of interest from potential purchasers using the preliminary prospectus. In addition, certain other limited marketing efforts are permitted in this period, provided that certain precautions are taken. In particular, the dealer group may utilize greensheets and conduct road shows. A greensheet is, essentially, a brief summary of the information contained in the preliminary prospectus coupled with other publicly available information prepared by the dealer group for distribution to the retail and institutional sales force to guide them in discussions with clients. The greensheet may not contain information that is inconsistent with the preliminary prospectus and must not be distributed beyond the dealer group s sales force. Road shows are a series of 15

meetings that may be organized by the dealer group in various cities to market the offering. Generally speaking, the following procedures should govern any road show: attendance should be limited to registered brokers and institutional investors who qualify to purchase without a prospectus under accredited investor exemptions (i.e. no media or retail investors); any verbal representations, overhead slides or PowerPoint presentations should be strictly limited to information contained in the preliminary prospectus or information that is publicly available; no financial forecast or projection should be given at the sessions that is not contained in the preliminary prospectus; and hard copies of overhead slides and PowerPoint presentations should not be provided to attendees. Pricing and Closing Once the preliminary prospectus deficiencies are resolved and the Securities Commissions have indicated that they are clear to receive final materials, the issuer and the underwriters will, based on market conditions prevailing at the time, price the offering, sign the underwriting or agency agreement and file the final prospectus with all information completed. An issuer may contract with an underwriter through a traditional underwriting arrangement or through a best efforts agency arrangement. Under the former arrangement, the underwriter takes on the sale risk by purchasing the securities for resale to the public. If the underwriter is, for any reason, unable to resell any of the purchased securities, it bears the market risk. Under the best efforts agency arrangement, the dealer group acts as agent for the sale of the shares by agreeing to use its best efforts to sell the securities, but not guaranteeing their sale. Typically, the underwriting arrangement carries a higher sales commission than an agency arrangement to compensate the dealer group for the enhanced risk. Once a receipt is issued by the regulators for the final prospectus, the underwriters can proceed to confirm sales and distribute the final prospectus in the jurisdictions in which the prospectus has been qualified. An agreement to purchase securities is not immediately binding upon the purchasers and following receipt of the final prospectus or any related amendment, purchasers have up to two days to withdraw from the purchase agreement. Also, if the prospectus discloses that a minimum value of funds is required to be raised, if such amount is not raised within 90 days of the issuance of the final receipt, the subscription funds must be returned to the subscribers in full. Additional time is permitted if amendments to the prospectus are filed and receipted. At the closing, following the expiration of the purchasers withdrawal rights, the issuer issues the securities to the underwriters against payment for them, less the underwriting or agency fee. The underwriters then allocate or retain them according to the subscriptions received and the underwriting arrangement. Securities may be issued through the book-entryonly ( BEO ) system whereby the entire issue is registered in the name of CDS Clearing and Depository Services Inc.'s nominee name ( CDS & Co. ). If so, physical share certificates are not issued to beneficial shareholders. Transactions in BEO securities take place through participants in the CDS system (banks and dealers) and trades are reflected on the records maintained by CDS of the positions of those participants. Alternatively, definitive certificates representing the securities may be issued to the purchasers. 16

The issuer typically applies for a TSX or TSX-V listing concurrently with the filing of the preliminary prospectus. Typically, the Exchange will conditionally approve the listing prior to filing the final prospectus. The securities will commence formal trading concurrently with closing, although grey market trading may occur between filing of the final prospectus and closing. If, for any reason, closing does not occur, those grey market trades are unwound. Forms of Prospectus There are multiple forms of prospectuses depending upon the circumstances of the issuer, each of which is described below. Short Form Prospectus This is a condensed prospectus that an issuer that is already a public company and which has an up to date continuous disclosure record and an annual information form ( AIF ) may use as an alternative to the long-form prospectus. This form of prospectus incorporates by reference the issuer s AIF, financial statements and other continuous disclosure 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 Canadian jurisdiction; file documents in electronic format on SEDAR under securities legislation or securities directions; be up to date in all continuous disclosure filings including its AIF and financial statements; and be listed and posted for trading on a short form eligible exchange (i.e., TSX and Tiers 1 and 2 of the TSX-V). The advantage of a short form prospectus is that the regulatory review period is significantly shorter than for a long form filing. The principal regulator uses its best efforts to provide a first comment letter within three business days of the preliminary filing unless 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 prospectus and the issuer contracts with the underwriter through a bought deal arrangement, whereby the underwriting agreement is entered into at the time that the preliminary short form prospectus is filed and the dealers are exposed to the market risk during the regulatory review period. Generally, Canadian securities laws prohibit any marketing activity in connection with an offering of securities from the date that it becomes clear that an offering of securities will occur (i.e., the date that an issuer enters into or comes to an agreement or understanding with a dealer as to a proposed offering) until the time that a receipt is issued for a preliminary prospectus. Given the enhanced exposure that dealers assume in a bought deal structure, the rules have been modified to provide a limited exception to these pre-marketing restrictions. In a bought deal offering, the dealer group may solicit expressions of interest (or soft circles ) prior to filing the preliminary short form prospectus, if: the issuer has entered into an enforceable agreement with an underwriter who has agreed to purchase the securities (usually a short letter agreement to be superseded by a formal underwriting agreement at the time of filing of the preliminary prospectus); the above agreement fixes the terms of the distribution and requires the issuer to file a preliminary short form prospectus and obtain a receipt dated not more than four business days after the agreement is entered into; the issuer issues and files a new release announcing the agreement immediately upon signing; upon receipt of the preliminary short form prospectus, a copy of the prospectus is sent to each person expressing an interest in purchasing; and no agreement of purchase and sale may be entered into with any purchasers until the final short form prospectus has been receipted. 17

Shelf Prospectus This is a form of prospectus used by senior issuers to distribute securities of a particular type on a continuous or delayed basis during a two year period. The base shelf prospectus typically excludes pricing and other specified information which is subsequently filed (but not reviewed by the regulators) by way of prospectus supplement. A supplement to a shelf prospectus must be filed two business days following the determination of the offering price for a tranche of securities sold under the shelf prospectus. Clearing the base prospectus with securities regulators typically follows a similar process and timing as clearing a short form prospectus. When the issuer is ready to make a distribution, it simply files a prospectus supplement (which is not subject to regulatory clearance) which it then sends, along with the base shelf prospectus, to purchasers. A base shelf prospectus can be used to qualify the dollar value of securities that the issuer reasonably expects it will sell within a 25 month period following filing. The advantage of a shelf prospectus is that it provides an issuer with virtually immediate access to capital markets as market conditions warrant, once the base shelf prospectus has been set up. A shelf prospectus can be used to distribute common shares, preferred shares, debt securities (including medium term notes) and other securities in any combination. SPAC Prospectus As described in Section 2 Methods of Going Public TSX Special Purpose Acquisition Company, SPACs are shell companies which become listed on the TSX through a two-step process which requires them to complete a qualifying transaction whereby they must acquire another business or assets. In addition to meeting the normal requirements for prospectuses, pursuant to a TSX Staff Notice, SPACs should disclose the following in their prospectus: terms of the founders initial investment in the SPAC, which must include an agreement not to transfer founder securities prior to the qualifying transaction and that if there is a liquidation or delisting, the founding securityholders will not participate in the subsequent liquidation distribution; a statement that, as of the filing of the prospectus, the SPAC has not entered into an acquisition agreement for a potential qualifying acquisition; the target business sector or geographic area for the qualifying acquisition, if such exists; the valuation method(s) the SPAC intends to use in valuing the qualifying acquisition, if such is known; a statement that the SPAC will not secure debt financing before completion of the qualifying acquisition other than in accordance with the SPAC rules; the proposed nature of permitted investment for the SPAC s escrowed funds and any intended use of interest earned on such funds by such permitted investors; the anticipated location of funds for administrative and working capital expenses; and any intention not to proceed with the proposed qualifying acquisition if too many securityholders vote against it and exercise their conversion rights to convert their securities into a pro rata portion of the proceeds held in escrow. 18

Capital Pool Company Prospectus Like SPACs, CPCs are shell companies which must undergo a two-stage process, including a qualifying transaction, to go public. See Section 2 Methods of Going Public TSX-V Capital Pool Company for more information with respect to CPCs. The TSX Venture Exchange Company Manual Form 2A - Information Required in a CPC Prospectus provides very specific guidance with respect to the wording of a CPC prospectus. The TSX-V will issue comments regarding the CPC prospectus. The CPC prospectus and all supporting final documents are filed with both the TSX-V and the relevant Securities Commissions. Once the Securities Commissions issue a receipt for the final prospectus, the TSX-V will issue a bulletin with its final acceptance of the documents. Long form prospectus This form requires the most detailed level of disclosure and is the form of prospectus typically required for an IPO (except in the case of CPCs and SPACs). A long form prospectus requires very detailed disclosure about the issuer and its preparation involves input and cooperation from the entire working group. Because the document is used both as a marketing document and to meet legal disclosure requirements, drafting requires a careful balance of appropriately disclosing the issuer s business while also disclosing all risks inherent in the offering. The prospectus must include the following information: general business information including: history of the issuer including recent significant acquisitions; 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 in escrow; risk factors; outstanding options and prior issuances of securities; management discussion and analysis of the company s financial condition, liquidity and capital resources and results of operations for the last two years; related party transactions between the company and its officers, directors or major shareholders and their immediate families; audited financial information including: (i) balance sheets at the end of each of the last two financial years; (ii) statements of income, retained earnings and cash flows for each of the last three financial years; (iii) unaudited interim balance sheets for the most recently completed interim period ended more than 45 days before the date of the prospectus; and (iv) unaudited income statements, statements of retained earnings and cash flow statements for the interim period that ended more than 45 days prior to the date of the prospectus and for the same period in the preceding financial year; a discussion of any material changes in the company s share and loan capital since the date of the issuer s audited financial statements; in the preliminary prospectus, a red herring statement that the preliminary prospectus has been filed and that the information may not be complete; statement of rights of the purchaser, including the purchaser s right to cancel the purchase contract within two days of receiving the final prospectus or any related amendments and the purchaser s right of rescission of the contract or a right of action in damages in the case of a misrepresentation; and certificates signed by the chief executive officer, chief financial officer and two authorized directors of the issuer (other than the foregoing), any promoter(s) of the issuer, the underwriters or agents attesting to the disclosure in the prospectus. 19

Documents Filed Together with the Prospectus Issuers must file certain additional documents and/or disclosure with the Securities Commissions and/or the TSX. Note that though the information below must be filed, not all of the information becomes publicly disclosed on SEDAR. Documents Affecting the Rights of Securityholders A copy of the issuer s articles and by-laws and, if applicable, any securityholder or voting trust agreement, securityholders rights plans or other related material contract affecting the rights or obligations of the securityholders. Material Contracts The issuer must file a copy of all material contracts, except certain contracts entered into in the ordinary course of business. Personal Information Forms The issuer must file Personal Information Forms ( PIFs ) with the TSX for each person who will, at the time of listing: (a) be a director or officer of the issuer; or (b) beneficially own or control, directly or indirectly, securities carrying greater than 10% of the voting rights attached to all outstanding voting securities of the issuer. Documentation from the Auditors The auditors must provide the following: a written consent for the inclusion of or reference to their audit report on the financial statements or the issuer contained in the prospectus which states that they have no reason to believe that there are any misrepresentations in the prospectus that are: (i) derived from the financial statements on which the person or company has reported, or (ii) within the knowledge of the person or company as a result of the audit of the financial statements; and if a financial statement of an issuer or a business included in, or incorporated by reference into, a preliminary or pro forma long form prospectus is accompanied by an unsigned auditor s report, a signed letter addressed to the regulator from the auditor of the issuer or of the business prepared in accordance with the CICA Handbook. Professional Consents and Letters The issuer must obtain and file written consents from any solicitor, auditor, accountant, engineer, appraiser, valuator, etc. whose opinion, statement or report is referenced in the prospectus. The effect of the consent is to relieve the issuer and certain others, in some circumstances, for statutory civil liability in certain expertised portions of the prospectus and impose that liability on the expert where consent is filed. Additional Disclosure for Oil and Gas Activities Companies which participate in oil and gas activities must meet additional disclosure requirements as set out in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities in respect of their oil and gas reserves. The prospectus must contain: (a) a statement of reserves data; (b) a report executed by an independent qualified reserves evaluator or auditor; and (c) a report from the senior officers and directors of the issuer confirming their respective responsibilities relating to such statement and report. Oil and gas activity is considered to include: construction, drilling and production activities used to retrieve oil and gas from their natural reservoir; extraction of hydrocarbons from oil sands; the search for crude oil or natural gas in their natural states and original locations; and the acquisition of properties or property rights to facilitate removal of oil or gas from these properties. 20

Additional Disclosure for Mineral Projects Companies carrying on business in the mining sector must provide additional disclosure in their prospectus including a technical report regarding each mineral project on the property material to the issuer. The disclosure must include certain information relating to: (a) the project description and location; (b) accessibility, climate, local resources, infrastructure and physiography of the project; (c) history of the project; (d) geological setting; (e) exploration work conducted; (f) mineralization encountered; (g) type and extent of drilling; (h) sampling and analysis; (i) reliability of samples; (j) mineral resource and mineral reserves estimate; (k) mining operations; and (l) exploration and development activities. Mineral projects are considered to include exploration, development or production activities, including a royalty or similar interest in such activities in respect of diamonds, natural solid inorganic material or natural solid fossilized organic material including base and precious metals, coal and industrial minerals. A qualified person such as an engineer or geoscientist who meets certain qualifications under National Instrument 43-101 - Standards of Disclosure for Mineral Projects must prepare or supervise a technical report upon which any scientific or technical information disclosed must be based. In some cases, the qualified person must be independent of the issuer. Each qualified person must also sign certificates and consents relating to each technical report. French language requirements If securities are being distributed or purchasers are being solicited in Quebec, the issuer must comply with the Quebec Charter of the French Language which states, among other things, that contracts which are pre-determined by one party and contracts containing printed standard clauses and their related documents must be prepared in French, unless the parties expressly agree that the agreements be drafted in English only. The Securities Act (Quebec) further specifically requires that offering documents, including prospectuses, also be drafted in French. Note, however, that if the issuer is not offering securities in Quebec, it is not required to translate these documents. Note that the Quebec Securities Commission has indicated that it will object to a prospectus offering conducted outside of Quebec with a concurrent private placement in Quebec of the same securities on the basis that those types of transactions are designed around French language translation requirements. Civil Liability Misrepresentations A prospectus (whether long form, short form or shelf) must provide full, true and plain disclosure of all material facts regarding the securities to which it relates. A misrepresentation in a prospectus or an amendment to a prospectus gives a purchaser under that prospectus a statutory cause of action for damages against certain parties. A misrepresentation is defined as: (a) an untrue statement of material fact which significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of the securities being issued or proposed to be issued; or (b) an omission of a material fact that is required to be stated or is necessary to ensure that a statement is not misleading in the circumstances in which it was made. The parties that can be sued for damages are: the issuer or selling securityholder; each director of the issuer who was a director at the time the prospectus was filed or a related amendment was filed; each underwriter who certifies the prospectus; each person or company who filed a consent relating to the prospectus with respect to any report, opinion or statement made by such person or company in the prospectus; and each person or company who signed the prospectus (i.e., the CEO and CFO) other than those listed above. In the case of the underwriters, issuer and selling securityholder, the purchaser has an additional right of rescission against these persons or companies which it may choose to exercise as an alternative to damages. 21

The Securities Act (Ontario) restricts securityholders from pursuing their statutory right of action for damages or rescission after more than: (a) in the case of a claim for rescission, 180 days after purchasing the securities; or (b) in the case of a claim for damages, the earlier of: (i) 180 days after the purchaser first learned about the misrepresentation; and (ii) three years after the date of purchase of the securities. Due diligence defence Parties other than the issuer and selling securityholder (most notably, underwriters) have a defence to any claim based on a misrepresentation in a prospectus if they can prove that they conducted sufficient due diligence to provide reasonable grounds for them to believe there was no misrepresentation. These parties undertake extensive due diligence procedures to ensure that they will be able to use this defence if necessary. In order to establish the due diligence defence, the lead underwriter and its counsel will typically take a number of steps as part of the prospectus preparation 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 providing comfort on financial information included in the prospectus; requests for back up information to substantiate factual statements in the prospectus (known as the circle up process); and formal oral due diligence sessions at which the dealer group puts a detailed list of questions to management, the auditors and internal and external legal counsel prior to certifying and filing the prospectus. Multijurisdictional Disclosure System The Multijurisdictional Disclosure System ( MJDS ) is a system implemented by the Canadian Securities Administrators (the CSA ) and the United States Securities and Exchange Commission (the SEC ) which allows eligible U.S. issuers to publicly offer securities in Canada using disclosure documents prepared and cleared in compliance with U.S. securities laws (Northbound MJDS) and vice versa for eligible Canadian issuers wishing to publicly offer securities in the United States using disclosure documents prepared and cleared in compliance with Canadian securities laws (Southbound MJDS). In order for a U.S. issuer to rely upon Northbound MJDS to conduct an offering in Canada, the issuer must meet the following criteria: (a) be a foreign issuer (i.e., non-canadian) incorporated or organized in a U.S. jurisdiction; (b) have been subject to and be in compliance with U.S. reporting obligations; (c) not be an investment company for U.S. purposes; and (d) satisfy certain other eligibility criteria which will, in each case, depend on the type of securities being offered. A U.S. issuer making an MJDS offering in Canada must file in Canada the SEC registration statement (unless the offering is being made only in Canada) together with a Canadian version of the prospectus contained in the registration statement which typically includes additional Canadian legends and disclosure as well as Canadian-style certificates of the issuer and underwriters. The issuer must also file all documents incorporated by reference into the prospectus in Canada. If the offering is made in Quebec, a French language version of the prospectus and all documents incorporated into it must be prepared. To minimize the burden of such requirements, issuers may obtain exemptions to limit the type of documents which must be incorporated by reference into the prospectus and the type of continuous disclosure documents required to be filed in Canada. Because the prospectus and related materials are reviewed, commented on and cleared by the SEC, the Canadian securities regulator will normally only monitor these materials to confirm their compliance with requirements specific to the Canadian rules governing Northbound MJDS, but will not conduct any substantive review of them. 22

7. ONGOING CONTINUOUS DISCLOSURE OBLIGATIONS General Once an issuer has issued securities under a prospectus, or has securities listed on a Canadian exchange, it becomes a reporting issuer and is subject to ongoing reporting obligations. The key purpose of ongoing disclosure is to keep the market and investing public informed about the business and affairs of reporting issuers. The central principle underpinning the reporting requirements in Canada is that all investors should obtain material information at the same time to create a level playing field amongst them. The System for Electronic Document Analysis and Retrieval ( SEDAR ) provides electronic access to most documents filed by public companies in Canada. The continuous disclosure requirements for venture issuers differ in certain respects from those of more seasoned reporting issuers. Venture issuers are reporting issuers that do not have any of their securities listed or quoted on any of the TSX (other than the TSX-V), a U.S. marketplace, or a marketplace outside of Canada and the U.S., other than the AIM or the PLUS markets operated by PLUS Market Group plc. The most significant difference is that venture issuers have longer filing deadlines for annual and interim financial statements and business acquisition reports. In addition, a venture issuer is not required to file an AIF and can file a less onerous form of CEO/CFO certification of interim and annual financial statements. The following provides a brief summary of some of the primary continuous disclosure requirements under Canadian securities legislation for public companies. Financial Statements Annual Financial Statements A reporting issuer, other than a venture issuer, must file its audited annual financial statements on or before the 90th day after the end of its most recently completed financial year. In the case of a venture issuer, audited annual financial statements must be filed on the 120th day after the end of its most recently completed financial year. Interim Financial Statements A reporting issuer, other than a venture issuer, must file interim financial statements on the 45th day after the end of the applicable quarterly period. A venture issuer must file its interim financial statements on or before the 60th day after the end of the applicable quarterly period. Interim financial statements need not be audited; however, CSA Notice 52-301 Audit Committees recommends that audit committees review interim financial information before being released to the public. Generally, most reporting issuers are required to have an audit committee under National Instrument 52-110 Audit Committees. If an auditor has not performed a review of the interim financial statements, National Instrument 51-102 Continuous Disclosure Obligations provides that the statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. Where an auditor was engaged to review interim financial statements, but the auditor was unable to complete the review, the interim financial statements must be accompanied by a notice indicating the same, and noting the reasons why the auditor was unable to complete the review. Where an auditor has performed a review of the interim financial statements and the auditor has expressed a reservation in the auditor s interim review report, the interim financial statements must be accompanied by a written review report from the auditor. Approval of Financial Statements The board of directors of a reporting issuer must approve the annual audited financial statements before they are filed. The board of directors is also required to approve interim financial statements before they are filed, but may delegate that approval to the audit committee. 23

Management Discussion & Analysis Financial statements must be accompanied by the Management Discussion & Analysis ( MD&A ). The MD&A is a narrative explanation, through the eyes of management, of how a public company performed during the period covered by the financial statements, and of the company s financial condition and future prospects. The MD&A should be a discussion and analysis of the issuer s business as seen through the eyes of those who manage the business, as opposed to a recitation of financial statements in narrative form or an otherwise uninformative series of technical responses to MD&A requirements. The purpose of the MD&A is to provide readers with information necessary to form an understanding of the reporting issuer s financial condition, changes in financial condition and results of operations. The MD&A should enhance the overall financial disclosure and provide the context within which financial information should be analyzed. Although the MD&A is filed concurrently with financial statements, it does not form part of the issuer s financial statements. As is the case with the annual audited financial statements, the board of directors must approve MD&A. In the case of interim MD&A, such board of directors may delegate approval to the audit committee. Delivery of Financial Statements and MD&A to Securityholders National Instrument 51-102 Continuous Disclosure ( NI 51-102 ) requires each reporting issuer to annually send a request form to the registered and beneficial holders of its securities (other than debt instruments), which securityholders may use to request a copy of the reporting issuer s annual or interim financial statements and MD&A. If a securityholder requests to receive the reporting issuer s annual or interim financial statements, then the reporting issuer must send a copy of the requested statements to the person or company that made the request, without charge, by no later than 10 calendar days after the statements are required to be filed or 10 calendar days after the issuer receives the request. Forward-Looking Information The use of forward-looking information and future-oriented financial information ( FOFI ) by reporting issuers in Canada is governed by NI 51-102. The requirements apply to all written disclosure of forward-looking information. Companies are encouraged to provide forwardlooking information in the disclosure they provide to the public, provided they have a reasonable basis for the information. For example, the preparation of the MD&A requires some degree of prediction or projection since it requires a discussion of known trends or uncertainties that are reasonably likely to affect the business. Disclosure of any material forward-looking information must include the following disclosure: the information must be identified as forwardlooking information; users must be cautioned that actual results may vary from the forward-looking information and must identify material risk factors that could cause actual results to differ materially from the forward-looking information; the material factors or assumptions used to develop forward-looking information must be stated; and the reporting issuer s policy for updating forwardlooking information if it includes procedures in addition to those described in NI 51-102 relating to updates to forward-looking information required in the MD&A or MD&A supplement. 24

In addition to the disclosure requirements set out above, in reporting FOFI (being forward-looking information about prospective results of operations, financial position or cash flows based on assumptions about future economic conditions and courses of action) or a financial outlook, the issuer must: base the information on assumptions that are reasonable in the circumstances; limit the period for which the information in the FOFI or financial outlook can be reasonably estimated; use the accounting policies the reporting issuer expects to use to prepare its historical financial statements for the period covered by the FOFI or the financial outlook; state the date that management approved the FOFI or financial outlook, if the document containing the FOFI or financial outlook is undated; explain the purpose of the FOFI or financial outlook and caution the reader that the information may not be appropriate for other purposes. No projections or other FOFI concerning the issuer may be disclosed in marketing materials or presentations, including green sheets, unless such information is included in the prospectus. Annual Information Form The Annual Information Form or AIF is a continuous disclosure document that must be filed annually by reporting issuers that are not venture issuers. The purpose of the AIF is to describe the company, its corporate structure, a three year history of company developments, any significant acquisitions, and a description of the issuer s business activities, operations and risks, similar to the description of the business set out in a prospectus. The AIF is broader in terms of the topics covered and the time period covered in the MD&A and is also more qualitative than the MD&A. The AIF typically incorporates by reference the MD&A filed with the annual audited financial statements. Although venture issuers are not required to file an AIF, one of the basic qualification requirements for use of a short form prospectus is having filed a current AIF. Accordingly, venture issuers who wish to use a short form prospectus will need to file a current AIF. As with the deadline for filing annual financial statements, the AIF must be filed on or before the 90th day after the end of the reporting issuer s most recently completed financial year. Proxies and Information Circulars When the management of a reporting issuer gives notice of a meeting to its registered holders of voting securities, it must also send to each registered holder who is entitled to the notice of meeting a form of proxy for use at the meeting. A proxy is a form by which a shareholder appoints a person or company to act on the shareholders behalf at a shareholder meeting. Subject to certain exemptions, when management solicits proxies from shareholders, it must also prepare and distribute a management information circular. A management information circular must include certain prescribed information, including disclosure regarding executive compensation, information on how to exercise a proxy and details of the matters to be voted on at the shareholder meeting. See Section 7 Ongoing Continuous Disclosure Obligations Executive Compensation for more information on disclosure requirements for executive compensation. An information circular must also include prospectus-level disclosure about certain matters if shareholder approval is required in respect of a significant acquisition under which securities of the acquired business are being exchanged for the issuer s securities or in respect of a restructuring transaction under which securities are to be changed, exchanged, issued or distributed. 25

Executive Compensation Information circulars prepared for an annual meeting of shareholders must include detailed disclosure about the compensation paid to certain executive officers and directors in connection with their office or employment by a reporting issuer or a subsidiary of a reporting issuer. An issuer must disclose all compensation paid to its CEO, CFO and its three other highest-paid executive officers (referred to collectively as named executive officers or NEOs ) where the value of each such person s total compensation is in excess of Cdn.$150,000. The stated value of compensation includes the aggregate of all compensation including the value of awards of shares, options and grants under other incentive plans, as well as the value of certain perquisites, in addition to salary and discretionary bonuses. An issuer must include compensation discussion and analysis ( CD&A ) in its proxy circular. The CD&A is similar to the MD&A in the sense that management is required to describe and explain all significant elements of compensation awarded, earned, paid or payable to NEOs. This includes a discussion of objectives of the compensation program, an explanation of what the program is designed to reward, a description of each element of compensation and an explanation as to why the company chose to pay each element, how the amount of each element of compensation is determined and how the decisions made fit within the issuer s overall compensation objectives. In addition, an issuer must include a performance graph reflecting its cumulative shareholder total return for the previous five years as compared to a broad equity market index and must include in the CD&A a discussion of how the trend shown by the performance graph compares to the trend in the level of executive compensation paid over the same period. Certain issuers, such as those listed on the TSX-V and those who have been reporting issuers in Canada for less than 12 months, among other limited exceptions, are exempted from preparing the performance graph. Material Change Reports If a material change occurs in the affairs of a reporting issuer, it must immediately issue and file a news release disclosing the nature and substance of the change and, no later than 10 days after the occurrence of the material change, file a material change report. A material change is a change in the business, operations or capital of the reporting issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the reporting issuer. Also caught under the definition of material change is a decision to implement such a change made by the board of directors or other persons acting in a similar capacity, or by senior management of the reporting issuer who believe that confirmation of the decision by the board of directors, or any other persons acting in a similar capacity, is probable. A confidential material change report may be filed in circumstances where the reporting issuer is of the opinion that disclosing a material change would be unduly detrimental to the interests of the reporting issuer, or, where senior management has decided to implement a change and they believe that it is probable that the board of directors will confirm such decision, provided that they have no reason to believe that persons with knowledge of the material change have made use of that knowledge by purchasing or selling securities of the reporting issuer. Written reasons for non-disclosure must be provided to the regulator at the time of filing the confidential report. Where a confidential report has been filed, the reporting issuer must advise the regulator within 10 days of the initial filing, and every 10 days, if it believes that the report should remain confidential. Also, if the reporting issuer becomes aware, or has reasonable grounds to believe that securities of the reporting issuer are being traded with knowledge of the confidential material change, then the reporting issuer must promptly generally disclose the material change by issuing a press release and filing a non-confidential material change report. 26

Reporting issuers must also comply with the provisions of the TSX and TSX-V, as applicable, which require that the Market Surveillance Department of the Investment Industry Regulatory Organization of Canada ( IIROC ) be notified of the confidential information. IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. National Policy 51-201 Disclosure Standards ( NP 51-201 ) provides guidance on the meaning of materiality and notes that the definition of material change is based on a market impact test. A fact is material when it (i) significantly affects the market price or value of a security; or (ii) would reasonably be expected to have a significant effect on the market price or value of a security. In making materiality judgments, it is necessary to take into account a number of factors that cannot be captured in a simple bright-line standard or test. Business Acquisition Reports A reporting issuer must file a Business Acquisition Report ( BAR ) on Form 51-102F4 after completing a significant acquisition. An acquisition is considered significant if the reporting issuer s proportionate share of consolidated assets, consolidated investments or consolidated income from continuing operations associated with such an acquisition exceeds 20% of the issuer s consolidated assets or consolidated income from continuing operations. For venture issuers, the significance level for consolidated assets or consolidated investments is 40%. Acquisitions which fall below the threshold levels do not need to be disclosed in a BAR. The BAR describes the significant business(es) acquired and the effect of the acquisition on the company. The BAR must be filed within 75 days after the date of the acquisition, which is extended to 90 days (120 days for venture issuers) in some circumstances. Except where there is an available exemption, the BAR must also include audited annual and interim financial statements of the acquired business, together with pro-forma financial statements. The financial statements of an acquired business included in a BAR may be prepared in accordance with one of several prescribed accounting principles, including Canadian GAAP, U.S. GAAP and International Financial Reporting Standards. Documents Affecting the Rights of Securityholders A reporting issuer must file copies of the following documents, including any material amendments, on SEDAR: articles of incorporation, amalgamation, continuation or any other constating or establishing documents of the issuer; by-laws currently in effect; any securityholder or voting trust agreement that the reporting issuer has access to and that can reasonably be regarded as material to an investor in securities of the reporting issuer; any securityholders rights plans or other similar plans; and any other contract of the issuer or a subsidiary of the issuer that creates or can reasonably be regarded as materially affecting the rights or obligations of its securityholders generally. Material Contracts Reporting issuers must file a copy of any material contract which the issuer or any of its subsidiaries enter into, other than those entered into in the ordinary course of business. Unless previously filed, reporting issuers must file material contracts entered into within the last financial year or before the last financial year if that material contract is still in effect. The exemption for material contracts entered into in the ordinary course of business does not include the following types of contracts, which must be filed even if entered into in the ordinary course of business: a contract to which directors, officers or promoters are parties other than a contract of employment, a continuing contract to sell the majority of the reporting issuer s products or services, or to purchase the majority of the reporting issuer s requirements of goods, services, or raw materials, a franchise or licence or other agreement to use a patent, formula, trade secret, process or trade name, an external management or external administration agreement, or a contract on 27

which the reporting issuer s business is substantially dependent. Financing or credit agreements which are material must be filed if they are not entered into in the ordinary course of business, but must be filed in any event if they have a direct correlation with anticipated cash distributions. Redacting or omitting certain provisions of material contracts prior to filing is permitted, subject to certain exceptions, if an executive officer of the reporting issuer believes that the disclosure of that provision would be seriously prejudicial to the interests of the reporting issuer or would violate confidentiality provisions. However, provisions relating to debt covenants and ratios in financing or credit agreements, events of default or other terms relating to the termination of the material contract, or other terms necessary for understanding the impact of the material contract on the business of the reporting issuer, may not be redacted or omitted. Exemptions for Foreign Issuers National Instrument 71-102 Foreign companies that are reporting issuers in Canada may be eligible for relief from certain of the Canadian continuous disclosure requirements. National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers ( NI 71-102 ) provides relief from many of the continuous disclosure requirements in securities legislation for two types of foreign issuers: (i) SEC foreign issuers ; and (ii) designated foreign issuers. SEC foreign issuers are foreign reporting issuers that have a class of securities registered under the United States Securities Exchange Act of 1934 (the 1934 Act ), as amended and are not registered or required to be registered as an investment company in the United States. A foreign reporting issuer means a reporting issuer incorporated outside Canada other than one in respect of which (a) outstanding voting securities carrying more than 50% of the votes for the election of directors are owned, directly or indirectly, by Canadian residents; and (b) any one of the following applies: (i) the majority of executive officers or directors of the issuer are residents of Canada; (ii) more than 50% of the assets of the issuer are located in Canada; or (iii) the business of the issuer is principally administered in Canada. Generally, SEC foreign issuers may satisfy their Canadian continuous disclosure obligations relating to material change reports, financial statements, AIFs, MD&A, business acquisition reports and proxies, proxy solicitation and information circulars by: (i) complying with the comparable U.S. continuous disclosure obligations (i.e., as to form and content); (ii) sending those documents, where applicable, to Canadian securityholders in the same manner and time as to U.S. shareholders; and (iii) filing those U.S. documents on SEDAR. Designated foreign issuers are reporting issuers that are incorporated outside of Canada, which are subject to foreign disclosure requirements in one of 15 specified jurisdictions 5 and do not have a 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 more than 10% of its outstanding equity securities, on a fully diluted basis, held by Canadian residents. Designated foreign issuers are generally able to satisfy Canadian disclosure obligations relating to material change reports, financial statements, AIFs, MD&A, business acquisition reports and proxies, proxy solicitation and information circulars by: (i) complying with the disclosure requirements of the foreign regulatory authority (i.e., as to form and content); (ii) filing the material on SEDAR; (iii) sending documents, where applicable, to Canadian securityholders; and (iv) complying with National Instrument 52-107 Financial Disclosure ( NI 52-107 ) as it relates to financial statements of the issuer that are included in any documents filed with 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 be eligible for relief from certain continuous disclosure requirements under National Instrument 71-101 The Multijurisdictional System. The MJDS is specific to U.S. incorporated companies, whereas NI 71-102 deals 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, South Africa, Spain, Sweden, Switzerland or the United Kingdom of Great Britain and Northern Ireland. 28

8. CORPORATE GOVERNANCE REQUIREMENTS Disclosure Requirements In connection with a distribution under a prospectus as well as with annual filing requirements, issuers must make certain disclosures with respect to their corporate governance policies. National Instrument 58-101 Disclosure of Corporate Governance Practices requires certain mandatory disclosures in the management information circular of a reporting issuer and, to a lesser extent, other documents, and requires the filing on SEDAR of any written code of business conduct and ethics put in place by the issuer. These rules apply to reporting issuers other than investment funds, issuers of asset-backed securities, designated foreign issuers and SEC foreign issuers, certain exchangeable security issuers, certain credit support issuers and certain wholly-owned subsidiary issuers. Issuers subject to the Instrument must disclose the following corporate governance information in their management information circular or, if they do not issue a management information circular, in their AIF: with respect to the board of directors, the directors that are independent from management and the basis for such determination; the initial and continuing training provided to directors; the board of directors code of conduct or a description of the steps taken to encourage or promote ethical business conduct as a culture; Issuers, other than venture issuers, must also disclose the following: whether the majority of the board is independent, and, if not, how the board maintains independent judgment; if relevant, the names of the other issuers for which any directors hold directorships; whether independent directors hold regularly scheduled meetings separately from the nonindependent directors; each director s attendance record; the board s written mandate, or if there is no such mandate, a description of how the board carries out its role and responsibilities; and a description of the roles and responsibilities of the CEO, Chair and chair of each board committee. Pursuant to National Policy 58-201 Corporate Governance Guidelines, the majority of a board should be made up of independent directors and the Chair of the board should be independent. Board committees are established to permit boards to fulfill their risk oversight responsibilities and should have written mandates that set out their purpose, responsibilities, member qualifications, member appointment and removal, structure and operations and manner of reporting to the board. the nominating process for new directors; compensation of directors and officers and how such compensation was determined; the board committees; and whether the board, its committees and individual directors are assessed regarding their effectiveness and contribution. 29

Audit Committees Pursuant to National Instrument 52-110 Audit Committees, reporting issuers other than investment funds, issuers of asset-backed securities, designated foreign issuers and SEC foreign issuers, certain exchangeable security issuers, certain credit support issuers and certain wholly-owned subsidiary issuers, must establish an audit committee to review the accounting and financial reporting processes of the issuer and the auditing of its financial statements. The purpose of the committee is to improve the quality of the issuer s financial disclosure, thereby increasing investor confidence in capital markets. The audit committee is responsible for: (i) identifying and managing the risks that could affect financial reporting reliability; (ii) overseeing the integrity of the issuer s financial reporting process and system of internal control as well as the external auditors and internal audit process; (iii) recommending the nomination and compensation of external auditors; (iv) approving all non-audit services provided by the external auditors; (v) overseeing company compliance with applicable legal and regulatory requirements affecting financial reporting; and (vi) reviewing financial statements, MD&A and annual and interim earnings press releases. The audit committee must be composed of at least three directors. In the case of TSX-listed companies, all audit members must be independent (i.e., free of any direct or indirect material relationship between the director and the issuer which might reasonably be expected to interfere with the member s exercise of independence). In the case of TSX-V-listed companies, only the majority of members must be independent and none is required to be financially literate. Issuers must, however, disclose the fact that a particular member is not independent or is not financially literate. An issuer may qualify for exemption from the independence and financial literacy requirements in the following circumstances: (i) if at least one audit committee member is independent, in which case the issuer may obtain an exemption for the first 90 days following the date of receipt for its IPO prospectus; or (ii) if the director becomes financially literate within a reasonable period of time. The issuer s board must believe that use of an exemption will not adversely impair the committee s ability to act independently and otherwise satisfy its obligations. Nominating Committee Pursuant to National Policy 58-101, which is a guideline but not a mandatory requirement, the board of an issuer is encouraged to appoint a nominating committee composed entirely of independent directors. This committee should have a written charter. The purpose of the nominating committee is to identify individuals who are qualified to become board members and to recommend such nominees to the board. In making such recommendations, the committee should consider the competencies and skills that the board requires, the appropriate size of the board and the skills and competencies of the current board members and the nominees. If the board does not have a nominating committee comprised of entirely independent directors, the management information circular of the issuer must contain disclosure as to what steps the board takes to encourage an objective nomination process. Compensation Committee Pursuant to National Policy 58-101, the board of an issuer is encouraged to also appoint a compensation committee composed entirely of independent directors. This committee should also have a written charter and should determine and review CEO compensation, taking into consideration the issuer s goals and objectives. The committee may also make recommendations to the board with respect to non-ceo officer and director compensation, incentive compensation plans and equity-based plans. The committee also reviews any disclosure regarding executive compensation before it is made public. If the board does not have a compensation committee comprised of entirely independent directors, the management information circular of the issuer must contain disclosure as to what steps the board takes to encourage an objective process for determining compensation of directors and officers. 30

Disclosure Controls and Procedures and Internal Controls over Financial Reporting Pursuant to National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, reporting issuers (other than venture issuers) must ensure the existence of and annually evaluate disclosure controls and procedures ( DC&P ) and internal controls over financial reporting ( ICFR ). CEOs and CFOs of reporting issuers, or persons performing similar functions, must individually certify annual and interim filings and their responsibility for DC&P and ICFR. Venture issuers need only obtain a more basic certificate that does not include representations regarding DC&P and ICFR. Each of the CEO and CFO of a reporting issuer must individually certify on an annual basis that: they have reviewed all annual public filings; there is no untrue statement of material fact or omission of material fact in the filings based on their own knowledge after having exercised reasonable due diligence; the financial statements and other financial information in the annual filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, based on their knowledge having exercised reasonable due diligence; the certifying officers have created: DC&P providing reasonable assurance that material information relating to the issuer is known by the individuals certifying that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified by securities legislation; and ICFR providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes is in accordance with the issuer s GAAP requirements; material weaknesses relating to the design and limits to the scope of the ICFR and their impact on financial reporting have been disclosed; the certifying officer has evaluated the effectiveness of the DC&P and the ICFR; the issuer disclosed changes that have or are reasonably likely to materially affect the issuer s ICFR; and any fraud involving management or other employees with a significant role in the issuer s ICFR has been disclosed to the issuer s auditors and to the board of directors or the audit committee of the board of directors. A similar certification is required for the reporting issuer s interim filings as well. See Civil Liability for Misrepresentations in Secondary Market Disclosure below for a discussion of the liability associated with a misrepresentation in a CEO/CFO certificate. Shareholder Meetings The conduct of shareholder meetings is generally governed by the corporate law of the issuer s jurisdiction of incorporation, but securities laws apply to the content and form of the proxies and management and dissident information circulars delivered in connection with a meeting of shareholders of a reporting issuer. Typically, corporate law requires that an annual meeting be held at least once every 15 months and requires advance notice to be given to shareholders. Corporate law also sets out requirements with respect to the timing of delivery of notice of a meeting to shareholders and delivery by shareholders of a proxy. National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer sets out how and when issuers must communicate with their shareholders. 31

Civil Liability for Misrepresentations in Secondary Market Disclosure As is the case with prospectus disclosure, issuers may face civil liability for misrepresentations in any secondary market disclosure which can arise as a result of: a misrepresentation in a document released by or on behalf of the issuer; a misrepresentation made in a public oral statement on behalf of the issuer; or the failure of the issuer to timely disclose a material change. An investor may bring an action against the issuer if such investor purchases or disposes of securities during the period between the time when: (i) the document containing a misrepresentation was released and the time the misrepresentation was publicly corrected; (ii) the public oral statement was made and the time when the misrepresentation contained in the public oral statement was publicly corrected; or (iii) the material change was required to be disclosed and the disclosure of the material change. The investor does not need to prove knowledge, wilful blindness or gross misconduct in the case of a misrepresentation in a core document or for failure to make a timely disclosure by the issuer or an officer of the issuer. An issuer will not be liable if it can provide that the investor had knowledge of the misrepresentation prior to their acquisition or disposition of the securities in question. The issuer may also use a reasonable investigation defence if it can prove that: a reasonable investigation was conducted prior to the deficient disclosure; and at the time of the deficient disclosure, the defendant had no reasonable grounds to believe that: (i) there was a misrepresentation in the document or oral statement; or (ii) the information would not be disclosed in a sufficiently timely manner. The issuer may also rely upon statutory safe harbour defences for reasonable forward-looking information accompanied by adequate cautionary language. Such a defence would not, however, apply with respect to: (i) forward-looking information in financial statements; or (ii) forward-looking information in documents released in conjunction with an IPO. The investor does not need to prove that they relied upon the misrepresentation. However, where the action is in respect of a misrepresentation contained in a document that is not a core document, a core document being a document such as an MD&A, AIF, information circular, annual financial statements, interim financial statements or material change report, or a public oral statement, the investor must prove that the person or issuer: (a) knew, when the misrepresentation was made, that the document or oral statement contained the misrepresentation; (b) deliberately avoided learning of the existence of such misrepresentation; or (c) was, through action or failure to act, guilty of gross misconduct relating to the release of the document or making the public oral statement that contained the misrepresentation. 32

SCHEDULE A MINIMUM REQUIREMENTS FOR LISTING ON THE TORONTO STOCK EXCHANGE AND THE TSX VENTURE EXCHANGE* 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 2 Requirements 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 assets Revenue 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 length Length 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 assets reasonable likelihood of revenue If no revenue, two year within 24 months management plan demonstrating reasonable likelihood of revenue within 24 months Adequate Working Adequate working capital and Adequate working capital and Adequate working capital and Adequate working capital and Capital and Capital financial resources to carry out financial resources to carry out financial resources to carry out financial resources to carry out Structure 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 months following listing; $200,000 following listing; $100,000 following listing; $200,000 following listing; $100,000 unallocated funds unallocated funds unallocated funds unallocated funds Adequate Working Adequate working capital and Adequate working capital and Adequate working capital and Adequate working capital and Capital 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: Disclosed investment policy Investment: (i) disclosed investment policy; and (ii) 50% of available funds must be allocated to at least 2 specific investments Management and Board of Directors Management, including board of directors, should have adequate experience and technical expertise relevant to the company s business 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 each Public 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 their shares; 20% of issued and shares; 20% of issued and shares; 20% of issued and shares; 20% of issued and outstanding shares in the hands outstanding shares in the hands outstanding shares in the hands outstanding shares in the hands of public shareholders of public shareholders of public shareholders of public shareholders Sponsorship Sponsor Report may be required 33 * Extracted from TMX Group Inc.

TSX Industrial, Technology and R&D Minimum Listing TSX Non-Exempt TSX Non-Exempt TSX Non-Exempt TSX Non-Exempt TSX Exempt Requirements 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 from earnings from on-going on going operations on going operations operations for the current of at least $200,000 of at least $300,000 or next fiscal year of in the last fiscal year in the last fiscal year at least $200,000 2 Cash Flow Evidence of pre-tax cash Pre-tax cash flow of Pre-tax cash flow of flow from on going $500,000 in the last $700,000 in the last operations for the current fiscal year fiscal year, and an or 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 structure Capital and planned development planned R&D Capital 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 the treasury, with majority treasury, with majority raised by prospectus raised by prospectus offering offering Products and Services Evidence that products or Minimum 2 year services are at an advanced operating history that stage of development includes R&D activities. or commercialization Evidence of technical and that management expertise and resources has the expertise to advance its research and resources to develop and development the business 9 programs 10 Management and Board of Directors Management, including the board of directors, should have adequate experience and technical expertise relevant to the company s 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 shares and Market public shares Capitalization $4,000,000 held by public shareholders $10,000,000 held by public shareholders 300 public shareholders each holding a board lot 300 public shareholders each holding a board lot Minimum $50 million market capitalization Sponsorship Generally required Not required 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. 34

Toronto Stock Exchange and TSX Venture Exchange Exploration and Mining Companies Minimum Listing TSX Venture TSX Venture TSX Non-Exempt TSX Non-Exempt TSX Exempt Requirements 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 person qualifying property with production, a production sufficient 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 capital Financial 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 capital program 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 expenditures listing: $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 tangible Earnings 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 person of work order by independent qualified person and 18 month projection (by quarter) of sources and uses of funds, signed by CFO Management and Board of Directors Management, including board of directors, should have adequate experience and technical expertise relevant to the company s business 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 lots and 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 public public shareholders shareholders Sponsorship Sponsor report may be required Required (may be waived Not required if sufficient previous 3rd party due diligence) (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 Standards National Instrument 43-101 is the Canadian Securities Administrators ( CSA ) policy that governs the scientific and technical disclosure by mining companies and the preparation of technical reports. It covers oral statements as well as written documents and websites. NI 43-101 requires that all technical disclosure be based on advice 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 Authors Technical 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 details on 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 at http://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 Oil and Gas (Exploration or Producing) Companies TSX Venture TSX Venture TSX Non-Exempt Oil & Gas TSX Exempt Oil & Gas Tier 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 from ongoing 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 to Financial 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 for 18 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 their shares; 20% of issued and shares; 20% of issued and outstanding shares in the hands outstanding shares in the hands of 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 developed Requirements 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 has developed reserves 2 and the joint venture interest and balance probable reserves $5,000,000 raised by Producing - $2,000,000 in prospectus offering proved developed reserves 2 Reserves either (i) $500,000 in proved developed producing reserves or (ii) $750,000 in proved plus probable reserves Recommended Exploration satisfactory work Exploration minimum of Clearly defined program to Work 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 venture recommended in a geological interest and has raised report $5,000,000 in prospectus offering Producing 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 Board of Directors Management, including board of directors, should have adequate experience and technical expertise relevant to the company s business 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 (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. 37 36

SCHEDULE B PROSPECTUS TIMELINES 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 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 underwriting agreement, 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 letter signed, 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

Miller Thomson LLP www.millerthomson.com VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENER-WATERLOO GUELPH TORONTO MARKHAM MONTRÉAL