1. Diving Right In: An Introduction to Capital Pool Companies By: Chris MacIntyre Geology Matters 2012 Conference October 29, 2012

2. 1.Introduction to Capital Pool Companies (CPCs) What is a CPC? History of the CPC Program CPC Statistics Why Create a CPC? 2.Overview of the CPC Process 3.IPO and Exchange Listing 4.Qualifying Transaction Overview

3. A CPC is defined in TSX Venture Exchange (TSXV) policy as a corporation: –That has filed and obtained a receipt for a preliminary CPC prospectus; and –In respect of which no final Exchange bulletin has been issued. A CPC is essentially a newly created company having no assets, other than cash, that pursues an initial public offering of its securities, listing on the TSXV, and later a qualifying transaction What is a CPC?

4. Established in 1986 by the Alberta Securities Commission as the Junior Capital Pool Program Became known as the Capital Pool Company Program following creation of the Canadian Venture Exchange (now the TSXV) in November 1999 From 1986 to December 31, 2011, over 2,282 CPCs created, of which 83% (i.e. 1,886 companies) have completed a qualifying transaction (Source: TSX Venture Exchange) History of the CPC Program

5. As at October 5, 2012, there were 242 CPCs listed on the TSXV 111 new CPCs were formed in 2011, up 13.2% from 2010 As at December 31, 2011, 96 former CPCs trading on Toronto Stock Exchange, and 566 trading on TSXV (Source: TSX Venture Exchange) CPC Statistics

6. In 2011, CPC IPO financings raised approximately $62.1 million As of March 31, 2011, there have been a total of 15 CPCs founded in Nova Scotia over the life of the CPC Program For the year ended December 31, 2011, 49 of 85 qualifying transactions completed were in the mining sector, and another 13 were in the oil and gas sector (Source: TSX Venture Exchange) CPC Statistics (contd)

7. Provides companies with an opportunity to raise capital through a public offering earlier in their development than ordinarily possible CPC program permits an IPO to be conducted even though the company has no assets other than cash, and no commercial operations Following the IPO, the company can use its pool of funds to evaluate assets or businesses for acquisition that will enable the company to become a regular Tier 1 or Tier 2 issuer on the TSXV Why Create a CPC?

8. 1.Form the CPC Appoint Directors and Officers – Must be residents of Canada or the U.S., or have demonstrated a positive association with one or more public companies subject to comparable regulatory regime –Directors must collectively demonstrate positive track record with junior companies, ability to raise financing, and technical experience in relevant sector Overview of the CPC Process

9. Issue seed shares –Minimum price per seed share is greater of $0.50 and 50% of the price of IPO shares –Minimum seed capital raised = greater of: (a) $100,000 and (b) 5% of the aggregate of all proceeds received by the CPC on the date of the final prospectus –Each director and officer must subscribe for at least $5,000 in seed shares –Maximum seed capital from shares issued below IPO price = $500,000 Overview of the CPC Process (contd)

10. 2.Initial Public Offering and Listing Determine jurisdiction(s) in which to complete offering Retain an agent who will sign the CPC prospectus as underwriter Application for conditional listing approval filed at same time as preliminary CPC prospectus Upon issuance of final receipt, final listing documents filed and TSXV issues bulletin Shares start trading 2 trading days after bulletin issued with.P designation beside symbol Overview of the CPC Process (contd)

11. 3.Qualifying Transaction Enter into agreement in principle to acquire significant assets that will permit listing requirements to be met Trading in shares halted, news release and material change report issued/filed, halt may be continued 75 days to file initial submission, including draft CPC information circular or filing statement Following closing of qualifying transaction, Exchange will issue final bulletin Shares trade 2 trading days after final bulletin issued with no.P designation beside symbol Overview of the CPC Process (contd)

12. Initial Listing Requirements for CPC –Directors/officers must meet TSXV requirements and must be residents of Canada or US, or have experience as a director/officer with a public company in a comparable regime –TSXV will look at individual directors/officers and the board as a whole to ensure management will be capable of identifying, investigating and acquiring assets/businesses which will result in the CPC meeting the TSXVs Initial Listing Requirements IPO and Exchange Listing

13. Initial Listing Requirements for CPC (cont.) –Must raise minimum amount of seed capital by issuing seed shares at minimum price set by TSXV –Minimum price at which IPO Shares can be issued is $0.10 –Gross proceeds from IPO must be equal to or greater than $200,000 but no more than $4,750,000 –Maximum aggregate gross proceeds from issuance of all IPO Shares, all seed shares and private placement shares cannot exceed $5,000,000 IPO and Exchange Listing (contd)

14. Initial Listing Requirements for CPC (cont.) –CPC must have minimum of 200 shareholders, each of whom must buy at least 1,000 shares, but any one purchaser may only purchase 2% of the total IPO Shares (or 4% factoring in associates/affiliates) –Other than the IPO Shares, the only additional securities that can be issued and outstanding are seed shares, stock options, Agents option, any securities issued pursuant to a private placement and any securities issued pursuant to the qualifying transaction IPO and Exchange Listing (contd)

15. Disclosure Requirements –A company seeking a listing as a CPC must file a prospectus and an undertaking to comply with the TSXVs restrictions regarding use of proceeds –Prospectus must provide full, true and plain disclosure of all material facts relating to the securities offered –CPC prospectus must adhere to Form 3A of the TSXV IPO and Exchange Listing (contd)

16. Agents –The CPC must have an Agent in each jurisdiction where the IPO is conducted –Each agent must be registered in a category that permits it to act as selling agent of the IPO shares, and at least one must be a member of the TSXV –Agent can be paid a maximum commission of 10% of the gross proceeds raised in the IPO –Any compensation paid to the Agent must be disclosed in the prospectus IPO and Exchange Listing (contd)

17. Agents Option The Agent may be granted options or rights to purchase shares of the CPC if... The option is a single, non-transferable option The number of shares issuable upon exercise of the option does not exceed 10% of the total number of IPO shares The exercise price per share under the option is not less than the IPO share price The option is only exercisable for 24 months after the date of listing of the CPC shares on the TSXV IPO and Exchange Listing (contd)

18. Prohibited Payments –Until the qualifying transaction has been completed, no payments can be made by the CPC to any non- arms length party, or to any person engaged in investor relations activities for the CPC, including any salaries, consulting fees, finders fees, loans, bonuses, etc. –Exceptions: reimbursement for reasonable expenses for office supplies, office rent and related utilities, reasonable expenses for equipment leases, and legal services IPO and Exchange Listing (contd)

19. Use of Proceeds –Until completion of the qualifying transaction, proceeds from the sale of shares can only be used to identify and evaluate assets or businesses and obtain shareholder approval for a qualifying transaction –This includes things like valuations, business plans, geological reports, financial statements, legal and accounting fees, Agent fees, which relate to the achievement of a qualifying transaction IPO and Exchange Listing (contd)

20. Use of Proceeds (contd) –Until completion of Qualifying Transaction, no more than the lesser of 30% of gross proceeds and $210,000 may be used for expenses that are not permitted expenses –This includes: listing and filing fees, administrative and general expenses, legal and audit expenses relating to the issue of securities, including preparation and filing of CPC Prospectus IPO and Exchange Listing (contd)

21. Trading Restrictions and Escrow –Other than IPO shares, the Agents option, incentive stock options and private placement shares approved by the TSXV, no securities of the CPC may be issued or traded in the period between issuance of receipt for preliminary prospectus and the time the shares begin trading, except with prior TSXV approval –Certain shares, including seed shares issued at a price lower than the IPO share price and all shares issued from treasury following the IPO but before completion of the qualifying transaction, will be escrowed and released incrementally over 36 months IPO and Exchange Listing (contd)

22. Agreement in Principle –The agreement in principle is any enforceable agreement setting out the main terms the parties have agreed to, and which identifies the assets or business to be acquired, the parties, the consideration to be paid and the conditions to any further formal agreement –Proposed acquisition of assets must enable CPC to meet listing requirements for a Tier 1 or Tier 2 issuer on TSXV –Upon reaching an agreement in principle, the CPC must immediately submit a news release describing the agreement in detail Qualifying Transaction

23. Initial Submission to TSX-V –Within 75 days after the announcement of the agreement in principle, the CPC must submit the following: Submission letter, with summary of the transaction Preliminary sponsor report (if applicable) Draft copies of information circular or filing statement Form 2J securityholder information List and copies of material contracts of CPC or any target company Copies of geological reports, valuations, appraisals or other technical reports Fee Qualifying Transaction (contd)

24. Information Circular/Filing Statement –In the case of a non-arms length transaction, or where shareholder approval is otherwise required, the CPC must submit and mail to shareholders an information circular in Form 3B1 that includes a summary of the transaction, financial statements of the CPC and detailed information about the target company or the assets to be acquired –Where the qualifying transaction is not a non-arms length transaction and shareholder approval not otherwise required, the CPC must prepare and file a filing statement in Form 3B2 Qualifying Transaction (contd)

25. Consider a CPC if... –Development stage company with no assets other than cash, no commercial operations, and no agreement in principle to acquire assets or business –Management experienced in running a public company and with the ability to raise capital –Other financing options unattractive or unavailable –Strategy for long-term development of business Seek input from advisors (lawyers, investment dealers) Conclusion

26. Questions / Comments? THANK YOU! Note: The foregoing has been prepared for information purposes only and may not be relied upon as legal advice. Diving Right In: An Introduction to Capital Pool Companies

27. Chris MacIntyre, Associate McInnes Cooper Purdy's Wharf Tower II 1300-1969 Upper Water Street Halifax, NS B3J 2V1 T: 902.444.8626 F: 902.425.6350 E: chris.macintyre@mcinnescooper.com