A Guide to Going Public – KPMG

A Guide to GOING PUBLIC kpmg.ca/ipo Contents Introduction...... 2 Applying for a stock exchange listing...... 29 Regulatory review...... 30 Deciding whether to go public...... 4 Developing marketing materials...... 31 Why go public?...... 6 Marketing...... 32 What are the advantages and disadvantages for Pricing...... 32 your company?...... 6 Finalize documents...... 33 Is your company ready?...... 8 The closing...... 33 Are the markets ready for you?...... 8 Pricing considerations...... 9 Continuing as a public company...... 34 Assess the impact on your company...... 9 Transition ...... 36 Costs of going public...... 10 Implement strategic operating plans...... 36 Duration of the process...... 10 Regulatory matters...... 36 Make the decision...... 11 Continuous disclosure requirements...... 37 Investor relations...... 42 Preparing to go public...... 12 Perform a thorough review of your company...... 14 Further information...... 43 Deciding on the corporate and management structure. . . 17 Tax considerations...... 44 Assembling the team: internal and external members. . . . 17 Markets and forms of going public...... 47 Develop a timeline and framework for Acronyms defined...... 51 project management...... 20 Glossary...... 52 Developing the offering ...... 21 Appendices ...... 54 Executing your IPO...... 23 Appendix 1: Contents of a prospectus ...... 55 Preparing your prospectus...... 26 Appendix 2: Selecting and working with Content of a prospectus...... 28 the underwriters...... 59 Underwriters’ due diligence...... 28 Appendix 3: Stock compensation plans...... 63

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© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 2 A Guide to Going Public INTRODUCTION Are you thinking of taking your company public?

T aking your company public is an the beginning of a new life in the exciting and challenging process public spotlight . For others, it may for leaders like yourselves – the be the achievement of a major entrepreneur, the chief executive business and financial reward . Being officer, the chief financial officer – public brings prestige and visibility and for all the other stakeholders with all the players in the market – involved in the process . For some, customers, suppliers, employers, going public may be the culmination and the financial community . of one long-term strategic goal and

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L ike any other initiative that brings high long-term rewards, the going public process is not without its challenges: complex accounting rules and reporting requirements, pressures on time and resources, and managing new stakeholders – the board, shareholders, and, possibly, new management . But you can confidently face these by managing their impact if you are well informed and prepared for the challenges that lie ahead .

That’s where KPMG comes in – we work with our clients to help examine whether going public is the right choice for their company . Then, if they decide that they want to follow this route, we can help them through the IPO process and beyond, as they operate in the public company environment .

“We had been thinking about our strategy for growth and value creation for quite some time and considered a number of other options – but then going public was the best option that brought together multiple business goals. We committed to the process as a team, listened to our advisers, maintained control of the process, and it worked out more smoothly than we had expected.”

We have developed this publication to help you gain that understanding . By providing you with a practical, realistic perspective of what is involved in this process, we want to help you make an informed decision . We review factors to consider before you make the decision . Then, if you decide to take your company public, we discuss how you can plan and execute your IPO, and ultimately, what you might expect from life as a public company .

We hope you find this book to be a useful source of reference as you embark upon this exciting journey .

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DECIDING whether to go public

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KEY CONSIDERATIONS

1 Why go public? Your decision to go public should follow from your longer-term strategic objectives – seeking opportunities for growth, value creation or an exit strategy . It’s a big decision . You will need to have a clear understanding of the process and assess the impact it will have on you and your company .

2 Is your company ready? You must step back and evaluate your company and its future potential from an investor’s perspective . Most successful companies invite investor confidence, have the “right stuff” and structure to provide for profitable growth, and have a solid core business to generate shareholder value over the longer-term .

3 Are the markets ready for you? Assess how the markets will receive the offering . The timing of the offering is critical . Timing decisions depend on economic factors, market conditions and pricing considerations – right up to the day the securities are offered for sale . You should expect that your underwriters will play a vital role in advising you on market readiness .

4 Assess the impact on your company and make the decision Before going public, assess the impact that this change will have on you and your company’s infrastructure, and decide whether you are ready to make the necessary commitment – before, during, and after the IPO process .

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1 Why go public? What are the advantages Growing companies constantly search for new capital . Going public is one way to obtain and disadvantages for your that capital, but it takes time and money – and a lot of both . company? Typically, this decision is the culmination of a longer-term strategic plan for your company . Some of the advantages You may be an entrepreneur who started a business around a good idea . A successful Access to capital strategic formula has created shareholder value and now your company is ready Going public provides opportunity for for the next step . Reaching where you are today may have stretched your internal growth and expansion of your business operational and external borrowing capacity . You are seeking access to the public by offering a wider range of sources to equity markets for additional investors . raise capital . You may want to finance key acquisitions, retire existing debt, buy out Consider what your life will be like afterwards. existing shareholders, invest in research The IPO is not an end in itself – when you go public and development, or move into larger and you will be dealing with investors, the press and will more diverse markets . face more public scrutiny. Improved financial status Going public increases your company’s You may have founded a successful business and want to crystallize the value you have equity base and creates more leverage for built up in the company . Or, you may be an investor in the private equity sector, looking financing growth . It can also improve your for an exit strategy or to receive a return on your investment . You may have a succession debt to equity ratio, which can help you plan, involving you, your family or your employees . borrow additional funds as needed and may allow you to renegotiate your existing Think about the time and money . Remember that going public is only one of a number debt on more favourable terms . of financing options . Before making your decision, it is not unusual to spend some time determining whether going public is the best option for your company . Higher visibility An IPO and distribution of shares to a wider, more diverse investor base can create greater public awareness of your products and services . The visibility may give you a competitive advantage over privately held companies in the same industry . This profile may make it easier for you to expand nationally or internationally .

Increased employee motivation and retention A public company can provide an enhanced stock-based compensation strategy for attracting and retaining managers and key employees . A stock- based compensation plan is a way to give employees an opportunity to share in the financial success of the company through an equity compensation component .

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Enhanced wealth and liquidity for Increased demands on time and Loss of control the owner resources An IPO dilutes the ownership of the Creation of a public market for your shares Going public creates extensive new company . At the IPO stage, the owners increases liquidity, and provides a market reporting requirements, including can make certain that they maintain guide to calculate your wealth and net preparing and filing annual and quarterly control after the completion of the IPO worth . Subject to certain restrictions, you financial statements, MD&A, the AIF, and by ensuring they continue to hold the may sell your shares in an IPO or sell your CEO/CFO certifications on disclosure majority of the voting shares . Future shares into the market at a later date . controls and procedures as well as public financings or issuing shares for Publicly traded shares may also be more internal control over financial reporting . acquisitions will dilute their ownership acceptable as collateral for personal loans . These requirements demand a significant percentage, and create the possibility commitment of time and resources by that the original owners will lose The disadvantages senior management and other personnel . future control . You may also need to make changes to Increased scrutiny and accountability Potential for increase in income taxes As a public company, you lose privacy your existing accounting and reporting Current income tax laws provide for in matters related to your company’s systems in order to meet these reporting special credits and deductions to business operations, competition, requirements . Canadian-controlled private corporations . executive officers’ compensation, material Reduced flexibility in decision making These deductions and credits will not contracts and customers . Extensive Corporate decision making for major be available to the company once it public disclosure rules require details in activities, which may have been informal has gone public, and may result in an public offerings and continuous disclosure and flexible, will now require approval of increase in taxes . documents, such as the MD&A . As a the board of directors or shareholders . public company, the information you must Costs Obtaining director or shareholder approval provide to the public is also available to Being a public company is costly . Costs can be a lengthy process . For example, your competition . Some of this information are incurred during the planning stage if a special shareholder meeting must be may be sensitive (e .g ., operating results and for the initial offering . Underwriters’ convened, appropriate advance notice for the company or geographic segments, commissions are negotiated based on must be provided to all shareholders compensation of senior officers) . the size of the offering . Other costs and proxy-filing requirements must be vary, depending on the structure and You are also under constant pressure to satisfied . Your management team must complexity of each offering . Subsequently meet market expectations and explain the consider the public shareholders’ rights operating as a public company, you will decisions made and actions undertaken to in any major decisions . An experienced incur further costs . your shareholders and different players in board, with independent directors, can be the market . an invaluable ally in meeting expectations .

“I think very few people truly appreciate how demanding the IPO process is, and how critical it is to understand what you’re getting into before you begin the process. Planning is key… it took longer than we expected and we were surprised at how much behind-the-scenes work was required at every stage of the process.”

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2 Is your company ready? 3 Are the markets ready When considering whether your company is ready to go public, take into account the for you? following questions: The next critical step is considering the 1 . Do you have a clear picture of the formula that your company uses to make money? timing and preliminary pricing for the Can you communicate it? Can you provide investors with a proven track record? Do offering . Your underwriters play a key role you have a strategic vision and business plan for the future? Can you demonstrate here . Most companies select more than the strength of your competitive positioning – now and in the future? one underwriter, with one who manages 2 . Is your core business solid and capable of sustaining growth and shareholder value or leads the offering . in the future? The right underwriters 3 . Are your processes aligned with your direction? The better the reputation your 4 . Do you have the appropriate infrastructure to provide relevant, timely and reliable underwriters have for successful public information about your performance? offerings in your company’s industry, 5 . Is your management team strong, well-rounded and experienced in applying and the more readily your offering is likely supporting your company’s goals and objectives? to be accepted . Experience with IPOs is also an asset . Underwriters who can 6 . Do you have an experienced board, including outside, independent directors? assemble a strong underwriting syndicate Do you have an experienced audit committee? Do your board and audit committee can help the sale and distribution of meet the regulatory independence requirements? Are the board members well the offering . Since underwriters have informed and willing to assume the responsibilities and personal liabilities taken different distribution capabilities, you want on by directors of a public company? to match the underwriters with the size 7 . Are you and your management team ready to commit significant time – probably of the offering . more than you anticipate – to the process of going public and managing the aftermarket effects? Timing Your timing decision should consider 8 . Have you considered the impact of going public on the company’s tax status? economic factors, market conditions and On your compensation? On the compensation of your management team and pricing . You want to minimize the risk of employees? going public at a time when the market 9 . Are you willing and able to live in the public spotlight? To relinquish significant is not ready for your company . control? To live with the risks and rewards of continuous pressure of growing shareholder value? To deal with regulators? Economic and market factors The stock market experiences cycles: 10 . Have you obtained an independent assessment of your company’s potential it reacts to business and political news as a public company? and events, suffers technical corrections or can run hot on certain issues or industries and cold on others . Because You can perform your own assessment of readiness by IPOs generally take the form of common starting to manage as a public company before you actually shares, the market for going public is go through the offering process – from putting appropriate influenced by inflation, economic growth, management teams, reporting systems and governance interest rates and general stock market conditions . structure in place, to assessing whether you can live under the constant pressure of meeting investor and regulator demands. This Judging timing in a cyclical market is exercise will highlight areas that need attention. Preparing early, before both a science and an art . Your objective is to enter the market as it crests in your you face undue time pressures from the offering process, will help you to favour . You and your financial adviser will be well-prepared, reduce your risks and avoid significant surprises. undertake several actions .

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Research capital markets for the In reaching your decision you and your an intermediary – the underwriters . industry sector underwriters assess the market’s The price you receive for the company Information of this nature is readily predisposition to new shares . The market will be determined by your track record, available and can be gathered early in for IPOs will vary . In periods of low IPO the company’s future potential and the the process . Most investment firms activity, you may not achieve the full market into which you are selling . specialize in certain industries and potential value of your company . The public invests funds in search technologies . It is important to have You will also conduct research into of growth and a return consistent underwriters who can understand your comparable companies for pricing with or better than other investment company’s products and your company’s indicators . Your company’s value is opportunities . This expectation puts position in the industry . determined, in part, by comparing it to pressure on you and your management Compare stock exchanges similar public companies in your industry team to continue building shareholder To support the stock price, provide liquidity or closely related sectors . value through profitable growth, to investors and increase the profile of the The underwriters project the capital to even after you have gone public . company, you want your stock to be actively be provided from the offering on your While you may not know most of the traded . Different stock markets perform company’s financial position and the new investors in your company, you differently . Think about the characteristics results of operations . They then use have significant responsibilities and of your particular company when you projected financial statements and accountability to them . assess your options . Refer to the “Markets key financial ratios, such as leverage After your company goes public, and Forms of Going Public” section under ratios, earnings multiples, and efficiency investors and securities regulators “Further Information” which provides ratios, to compare your company with will expect to have extensive timely information on some of the exchanges similar public companies . They consider and relevant information about the frequently used by Canadian companies . differences, review price earnings ratios, company and its prospects . Be Consider the market for a secondary issue and obtain a valuation . prepared for this scrutiny . For this If you are seeking some personal liquidity, The next step is to consider the number reason, determine whether your you may wish to offer some of the existing of shares to be issued and the issue price . company is able to deal with this shares as a secondary offering along Your underwriters will suggest the number additional stress on its governance, with the initial offering . Such an offering of shares that should be enough to obtain value chain and infrastructure . Often, may help obtain a broader distribution . It a broad distribution, provide liquidity and corporate information systems are may, however, be viewed as a bail out by a sufficient public float in the aftermarket, neither designed for nor capable of the investing public if the percentage of and interest institutional investors . providing the volume and variety of secondary shares is high . information required . A combination of good underwriters, timing and an effective pricing strategy Assuming you perform well, however, Pricing considerations can help you to manage the timing and the good news is that access to the public capital markets should continue You and your financial adviser will conduct pricing risks associated with going public . to become easier . a preliminary investigation and arrive at a range of prices at which your shares could be sold to the public . 4 Assess the impact on This price range can change, sometimes your company considerably, throughout the process . Compliance with these requirements Economic and market conditions up to demands a level of commitment of the day the securities are offered for time and resources across the business sale may significantly affect the offering segments of a public company . In price . In the end, however, both the essence, you are selling a part of your company and underwriters agree to company to the investing public through the offering price .

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Costs of going public Auditing and accounting The costs will vary depending on the Fees are incurred for audits of financial complexity of the transaction and the Underwriting statements required to be included in depth of the in-house skills . Typically the The underwriters’ commission is one of the the listing or offering document, the costs of an IPO range between seven to largest costs of going public . For IPOs, the auditors’ review of the related documents, 10 percent of the amount of the funds commission typically ranges from five to including comment letters from securities being raised . This includes the underwriters’ seven percent of the size of the offering and regulators and for providing consents commission, the accounting, tax, legal, is negotiated between the parties . Factors to the regulatory authorities and to the translation, marketing and other costs . that affect the percentage negotiated include company, and comfort letters to the It would be prudent to consult with the size of the offering, type of security underwriters . your tax advisers on the related tax being sold, nature of the underwriting The costs will vary depending on the considerations for different types commitment, nature of the company’s incremental information required to be of costs . Refer to the section on business and its state of development, audited, the nature of the accounting “Tax Considerations ”. current market condition and the going issues encountered, whether financial rate for similar types of offerings . Costs need to be weighed against the forecasts and pro forma financial strategic advantages of being public . The underwriters are also often provided statements are included and the Make a strategic assessment of your with an over-allotment option, allowing nature of comments received from the company and use a team-based planning them to subscribe for additional shares regulatory authorities . process to produce a well-articulated from the company if they are able to sell business plan . This process and the more shares than originally planned . The Marketing, translation and printing resulting plan will help you judge the over-allotment option is a way to allow the Expect to incur costs for preparing soundness of your reasons to go public . underwriters to participate in the offering . marketing and presentation material The business plan can also serve as Underwriters use it as a tool to generate for the road show to the investment valuable input to your advisers if you stability in the aftermarket trading . community . If the prospectus will be filed decide to go public . in Québec, you will also incur costs for Legal translating all the required documents . Legal fees are incurred for preparing the Duration of the process Printing costs will vary, depending on listing or offering document, and drafting the size of the documents and whether The length of the IPO process – from and reviewing material contracts . Again, any amended versions of the documents the time you make the decision to go the costs will vary depending on the are filed . public to the day you close the IPO complexity of the public offering, structure transaction – can vary significantly . of the company, level of restructuring Other costs Your timeline will depend on several required and comments from the Other costs include securities factors, including how well you plan regulatory authorities . commissions’ filing fees, listing fees, the process, how well positioned your Both the company’s legal counsel and directors’ fees, travel expenses, costs company is in the market, the experience the counsel for the lead underwriter for preparing any valuation, environmental of your underwriters, your management will be involved throughout the process . or engineering reports, and indirect cost team and your professional advisers, Typically, the underwriter’s agreement of the time commitment required from as well as other factors not within your will require that the company reimburse management and staff involved in the control, such as market conditions and the underwriter’s legal counsel fee . IPO preparation process . regulatory changes .

The key is to control the costs without sacrificing the quality of the process and the public information produced. It doesn’t take much to lose control of costs. The best way to control ‘cost creep’ is to understand the process, be prepared and manage the process with clear accountabilities.

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Keep in mind that this process and the life that you have to get used to afterwards might be very different, not bad, just different. Remember the decisions a public company makes may have a pervasive impact on its stakeholders.

Make the decision At this point, you should have sufficient understanding of the process, the level of commitment of time and resources required and the costs involved . You have also considered the advantages and disadvantages of taking your company public and the alternative methods of financing available to you . You have assessed the market, considered the impact of going public on your company and assessed whether you are ready to manage as a public company . By this point, you should have incurred only a small fraction of the total time and costs of going public . Given all the information available and assessments made to date, additional questions to consider during this phase: • Does going public fit into your strategic objectives? • Do you have the resources to execute your plan, bring the process to completion and continue as a public company? • Are you and your team committed to this process?

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PREPARING to go public

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KEY CONSIDERATIONS

1 Perform a thorough review of your company Presenting the market with a well-prepared company not only provides investors with a more attractive investment alternative, but also gives a strong indication of how you do business . This investor confidence will be a significant factor in determining the effort required to sell your offering . Performing a thorough review of your company now will also facilitate its transition to life as a public company .

2 Decide on the corporate and management structure Analyze your existing corporate and capital structure with your advisers . Select structures that are simple and flexible, and can be adapted to the changing needs of a public company over time . In addition, re-examine your management structure, including management roles, responsibilities, authorities and reporting structures .

3 Assemble the teams: internal and external Going public is a big decision . The process involved requires specialized skills and experience . Bringing together a talented team from the inside – members of your board and company management – and from the outside (e g. ., underwriters, lawyers, auditors, financial or tax advisers investor relations) is a key element of a successful offering .

4 Develop a timeline and framework for project management The execution phase, from preparing the preliminary prospectus to finalizing the documents, is an intensive period of about three months . Many related activities also occur during this phase involving your advisers, management and the regulators . You will want to maintain control throughout this process . A person on your team experienced in project management can help to manage and coordinate these activities .

5 Develop the offering In developing the offering, build on the research done when assessing if the market is ready for you . This step involves making preliminary decisions about: • The type of securities to be issued • The number of securities to be issued • The price at which they will be issued • The exchanges where the securities will be traded – options available in Canada, and whether you would consider listing in the US, UK or another market .

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1 Perform a thorough review Potential investors often favour a focused required to devote time to the information company with a strong position in a few gathering, due diligence and reporting of your company markets over a company that dabbles in required in the process of going public . The objectives of this review are to many markets . If your company operates Once the company is public, these improve the likelihood of a successful more than one distinct business, you may additional responsibilities continue – offering and to enable the company to decide to take only certain segments of under a higher degree of scrutiny . the company public . continue as a public company . Recruiting additional talent can bring In creating this publication, we have Products strength to your management team focused on the perspective of a company Assess your product line to identify and can help improve the chances that is planning to list on a Canadian stock products with good potential and those of a successful public offering . For exchange and file a prospectus in every with more limited prospects . example, a CFO who has previously undergone the going-public process province . The investment community typically can be a valuable addition to your This review takes time . Consider the focuses on your company’s products management team . following aspects of your company: and services as drivers for the growth potential to sustain shareholder value . • Business definition Financial plans Your company may have opportunities to Refine or develop your financial plans, • Strategic assessment grow through product-line extensions, taking into account your business strategy expanding geographic coverage, improving • Value chain activities (e .g ., core and the effect of the public offering on quality or planning for product succession . operations) your company . Describing what you Consider eliminating the losers and look intend to do with the money raised from • Infrastructure (e .g ., business closely at marginal products . the sale of your securities to the public information systems, compensation is an important part of telling the story plans and redundant assets) Strategic assessment of your company . Strategic positioning of the company • Governance (e .g ., board of directors, Establish the vision for your company Be realistic in your financial plans . If contracts, litigation, audited financial and the primary objectives that will shape underwriters or potential investors believe statements and taxation) . the future direction, in both the short and that your plans are unrealistic, they can You will need to communicate the long term . quickly lose interest in your company . story of your business and vision to the Define the formula that your company Value-chain activities underwriters and potential investors . uses to make money and build shareholder It is essential to clearly define the Review core operations to ensure that value . Describe your strategic vision and business and perform a detailed strategic they are consistent with your future business plan for the future . assessment, establishing the vision and direction and that they are efficient . You can expect underwriters to look closely shaping the future direction . Formalize the Be involved in developing the story of your at your core operations . Value-chain results of this review in a business plan . company . You are the best person to tell processes focus on activities that add this story . Business definition value to the customer and, ultimately, Management to the shareholder . Markets Assess the strength of your management Review your current position in the You may want to analyze your value-chain team . The investment community places industries in which your company operates processes in several ways: improving considerable focus on a company’s and in the markets that it serves . Consider the efficiency and effectiveness of the management team and its ability to future trends . Decide which markets you process; helping to control support costs; deliver shareholder value . want to operate in going forward . Develop managing both cost and value; or finding exit plans for segments that you no longer In addition to fulfilling its routine additional sources of differentiation . want to pursue . responsibilities, management will be

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Infrastructure and retaining key employees . Refer to • Adopting a strategic-planning process Business information systems the section “Appendices”, in particular and approving, on at least an annual Assess whether your systems will be Appendix 3 for some of the options basis, a plan that takes into account, adequate to provide relevant, reliable available to you, and their accounting among other things, the opportunities timely, and appropriate information and tax implications . and risks of the company to meet the continuous disclosure Redundant assets • Identifying the principal risks of the requirements of being a public company Identify any non-core assets in your company’s business and ensuring the (e .g ., quarterly and annual financial company (e .g ., idle facilities or equipment, implementation of appropriate systems statements, press releases, and financial undeveloped real estate) and consider to manage these risks and non-financial information contained in alternatives, such as disposing of the assets • Succession planning, including the MD&A and the AIF) . or putting them into a separate company appointing, training, and monitoring Information systems should be capable of owned by the current shareholders . senior management producing both financial and operational Generally, it is preferable to remove • Adopting a communication policy for information . They should also have non-core assets from the company the company, specifically addressing the flexibility to accommodate new when going public to help ensure that a social media strategy and the developments in accounting standards the appropriate valuation is applied to inherent risks, such as threats to and regulatory pronouncements . core assets . confidential or competitive information, Compensation plans intellectual property, reputational A properly supported infrastructure Review the appropriateness of risk and the potential for regulatory that is adequate for your needs should compensation and employment infractions . arrangements for principals (owner- provide management with the flexibility • Developing the company’s internal managers) and other key employees . to focus their attention on growing control and management information In a closely held company, your the company and creating shareholder systems compensation arrangements may value, instead of their spending time have been primarily tax-driven . These on the routine administrative and • To the extent feasible, becoming arrangements will likely no longer be financial reporting matters required of satisfied with the integrity of the appropriate as your company goes public . a public company . CEO and other executive officers Consider base compensation, incentives and ensuring they create a culture Governance such as bonus and option plans, employment of integrity throughout the company . Board of Directors contracts and conditional arrangements . Directors recruited from outside the Assess the strength and capabilities of company can bring experience, excellent The current policy requires issuers your board and recruit new members business contacts, specialized expertise to disclose all direct and indirect if you need to enhance its strength or and an independent perspective to your compensation provided to certain address any weaknesses . executive officers and directors for board . In particular, directors having services they have provided to the In a public company, your board assumes previous experience with IPOs can be a company . This information for the NEO an enhanced stewardship role and should valuable resource . Where possible, the should include compensation paid, made assume oversight responsibility for the board of directors should be in place payable, awarded, granted, given or following matters: before closing . Any changes made to otherwise provided for the financial year the board’s composition after going • Determining the company’s approach public require shareholder approval . and the decision making process related to corporate governance, including to compensation . developing a set of corporate A CSA policy provides that a company Being a public company can give you governance principles and guidelines should maintain a majority of independent greater flexibility to introduce a stock- that are specifically applicable to directors on the board . based compensation strategy for attracting the company

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Recent Canadian Securities rules adopted require issuers to provide disclosure on term limits or other mechanisms for renewal . The rules also require disclosure, on an annual basis, of an issuers policy for identification and nomination of women directors, measures taken to implement the policy and progress in achieving the policy objectives . As a public company, you are required to establish an audit committee in accordance with specific guidelines provided by the securities regulators . You may also need to establish other committees, such as nomination and compensation . The roles of the board and the audit committee are discussed in more detail on pages 36 and 37 .

Contracts With the assistance of your legal counsel, analyze the appropriateness of contractual obligations by performing a review of significant contracts, including shareholder agreements, employment and compensation contracts, debt and lease agreements, shareholder or management loans, management agreements and major supply contracts . Arrangements with shareholders and officers who served your company well when it was private may not be appropriate as your company goes public . For example, agreements between a limited number of shareholders in a private company regarding matters such as rights of first refusal or buyouts, may become inoperable in the public world of numerous shareholders and minority rights . Under certain regulatory requirements, the company will have to file copies of material contracts on SEDAR . Such contracts are required to be disclosed, even if they contain information that is of interest to your competitors .

Litigation Review outstanding litigation involving your company . Outstanding litigation can create uncertainty in potential investors’ eyes . If possible, resolve it before going public .

Audited financial statements Have your annual financial statements audited . Your prospectus document must generally include audited financial statements for up to three years immediately prior to the date of your prospectus . For venture issuers only two years will be required . These financial statements must conform to IFRS . Reviewing your existing accounting policies now may reduce questions from securities regulators later . Particularly with larger multi-provincial or cross-border offerings, many underwriters and investors are more comfortable with the offering if the financial statements have been audited by a national firm of public accountants . If you conclude that a change in auditors is appropriate, doing it early may simplify the offering process .

Taxation Review the tax impact of being a public company. Some advantages of going public include the ability to have shares of your company more easily qualify for deferred income plans, such as RRSPs . In contrast, shares of private corporations generally qualify only in limited circumstances . Further, publicly-held shares can be donated to registered charities without the donor having to realize a capital gain . Going public also carries some tax disadvantages . Examples include the loss of the small business deduction, reduced ITCs and loss of the “capital dividend account” used to pay tax-free dividends to shareholders . The loss of the small business deduction, when the company goes public, is somewhat equalized by the enhanced dividend tax credit that applies to dividends paid out of income not subject to preferential tax rates enjoyed by CCPCs . Refer to the chapter “Tax Considerations” for more information .

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2 Deciding on the corporate and management structure 3 Assembling the team: Corporate structure internal and external members Analyze the company’s existing corporate and capital structure with your legal and Going public is a monumental decision . tax advisers . Structures created to facilitate tax and estate planning arrangements The process involved not only is extremely as a non-public company may not be appropriate for a public company . Investigate demanding, but also requires specialized opportunities to simplify the existing structure . skills and experience . A talented team, consisting of members of your board, Consider making the appropriate changes to incorporating documents to remove any company management and external private-company clauses and pre-emptive rights, eliminating conflicts of interests, advisers (e g. ., underwriters, lawyers, reviewing the existing ownership and share structure, and making any required auditors) is a key element of a successful corporate reorganizations . offering . A public company offers limited liability protection to its investors and is governed This section examines the roles of the by the Canada Business Corporations Act or a provincial corporations act . These acts following team members: outline the major rights of corporations and the obligations of the company toward • Chief Executive Officer shareholders . • Chief Financial Officer Structuring transactions and assessing their impact on the company should be ongoing • Board of Directors considerations . Actions such as purchasing shares versus assets or purchasing interest • Management team in a limited partnership versus a corporation, can have differing implications from tax, cash-flow and accounting perspectives . Structuring considerations can therefore be • Financial Advisers critical and should be done at the right time, in consultation with your advisers . • Underwriters • Lawyers Management structure • Auditors The company should also decide on the management structure it will adopt going • Tax Advisers forward . Management roles, responsibilities, authorities and the reporting structure for • Valuation Specialists and Appraisers all levels of management should be clearly defined and laid out in a formal document . The structure should be flexible enough to adapt to the changing needs of the company • Investor Relations firm over time . Establish performance benchmarks that are realistic and achievable, yet • Financial printer challenging . Management should be assessed against those benchmarks . • Share Registrar and Transfer Agent .

Accept that the process is complex and that it is important to have sufficient resources and advisers to undertake the exercise effectively and efficiently.

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Chief Executive Officer The CFO should be strategic, skilled in Board of Directors The CEO is the team leader . Although building relationships, with a drive to The board of directors participates as part the CEO will likely delegate significant focus on risks across the company to of the company’s team . It will conduct its portions of the project to the management ensure that they are being measured own due diligence through the process . group and external advisers, he or and managed . The CFO serves as a The board can be an invaluable source she should remain in the driver’s seat . bridge between the business units, of experience, advice and counsel The actual role can vary based on the management, board and shareholders . throughout the process – especially if circumstances, but the CEO typically: During the IPO process, the CFO will a director has previously participated in taking a company public . • Drives the strategic decision to assume a key role in executing the go public process . Typically, the CFO: The audit committee is appointed by the board of directors to assist it in fulfilling • Evaluates the company’s readiness • Serves as the key representative of the company in matters relating to the its oversight responsibilities . • Works with the underwriters to assess financial information content of the Management team market acceptance prospectus, and as a liaison between The company’s executives play a central the external advisers, regulatory • Recruits the team role in taking the company public and in authorities and underwriters • Monitors progress, including its ongoing success as a public company . • Assists the CEO in project managing achievement of key milestones During the planning phase, management the IPO process – from setting and is typically involved in: • Participates in key decisions throughout monitoring timelines, to marketing and the process closing the transaction . • Implementing changes to prepare the company to be public • Is actively involved in the marketing The CFO has overall responsibility for the of the company to the investment financial reporting process that includes • Helping to select professional advisers community both internal and external reporting . as the company goes public, negotiating the advisers’ fees and ensuring delivery • Ensures that the company is in a Internal reporting involves reporting to of service position to follow through with the the CEO and the board on budgets, offering and make an effective transition forecasts and other areas as needed . • Helping to manage the prospectus into a public company . External reporting includes preparing process, closing, sale of the securities and filing the annual and interim financial and aftermarket activities . Performing this role will be demanding, statements, the MD&A, annual reports, exhausting and exhilarating . The CEO The management team works with the the AIF, management circulars and must be prepared to be flexible in financial advisers, underwriters, auditors and subsequent prospectus offerings . As part responding to market changes as the lawyers to schedule the offering process, of his or her external reporting, the CFO is offering is developed and priced . The CEO prepare materials related to the offering required to make regulatory certifications should also have the vision and the ability (e .g ., the prospectus, marketing materials), on such areas as the effectiveness of to be prepared to step back periodically, respond to regulators’ comments and internal control . As a result, various as the deal evolves, and ensure that going finalize documents related to the offering . subcommittees that are set up internally public continues to make sense from a to perform these functions also report After the public offering, the management business perspective . directly to the CFO . team is involved in investor relations activities and regulatory filings that are Chief Financial Officer Additionally, the CFO holds responsibility part of life as a public company . Over time, the role of the CFO has for financing decisions, including managing become more prominent in the eyes of the debt-to-equity leverage, managing the In short, significant demands will be made the regulators . For the most part, CFOs cash flow including preparing forecasts on management’s time before, during and are under more intense scrutiny and have and budgets and arranging for appropriate after the public offering . Management must greater responsibilities than ever before, financing through issuance of debt, equity be prepared for these responsibilities and shoulder-to-shoulder with the CEO . or other securities . be capable of executing them .

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Financial Advisers Various firms actively underwrite IPOs . Auditors Financial advisers experienced in the These firms range from major national The auditing firm can play a significant process can help the company prepare investment bankers to smaller regional and varied role in the complex process of for the offering by: brokerage firms . Many of the smaller helping you go public . Consequently, your firms specialize in specific industries . auditing firm should be experienced and • Coordinating the preparation of a Refer to the section “Appendices”, in well qualified to provide both the audit and corporate profile that incorporates all particular, Appendix 2 to gain additional specialized services required for your IPO . the necessary prospectus requirements information on how to select the right (this profile can help to facilitate the underwriters and the steps involved in Most companies select a firm that is preparation of the prospectus later on) working with the underwriters . experienced in securities offerings and in dealing with securities commissions, • Providing assistance in determining Lawyers and that is well known in the investment the information required for the community . The right firm will also provide audited historical and interim financial Lawyers play a critical role in helping you prepare and execute your public offering . continuing counsel and assistance in statements for inclusion in the Their primary responsibilities are to dealing with the many financial reporting prospectus ensure that you comply with all applicable and other obligations of a public company . • Coordinating the presentation of any securities laws and regulations, and to To audit public companies, the auditing forecasts and related disclosures advise you of any exemptions for which firm has to be registered with the you may be eligible . • Developing a model to assist in Canadian Public Accountability Board . identifying the valuation parameters for Because of the highly-technical and The audit files related to your accounts the company, funds to be raised, equity complex-nature of securities law, look may be subject to that Board’s inspection . stake to be sold to the company and for a legal team with broad experience Your auditors must be independent . For number of shares to be issued in securities law and in handling IPOs . public companies, the assessment of If your external counsel does not have the independence requires the consideration • Providing strategic direction and necessary securities law expertise, they of specific factors . Review these assisting in the selection of the may recommend a firm that does . The requirements to ensure that any potential underwriters, including attending all the auditors or underwriters can also provide independence issues are addressed early . meetings, discussions and negotiations recommendations . The auditors of many private companies that management considers appropriate have worked closely with the company over throughout the offering process . The lawyers can assist with the pre-public planning stages . They can: the years on a wide variety of issues, and Often, the lead underwriter plays the role will continue to do so in the future . Their • Review your existing contractual of primary financial adviser and works involvement in the going-public process is arrangements and suggest any closely with the other advisers . necessary changes and revisions part of their ongoing association with the success and growth of your company . Underwriters • Help you amend your articles of Your auditors can assist by: The experience of underwriters in the incorporation and bylaws, as company’s industry and in IPOs can necessary • Advising on what financial statements make a significant contribution toward • Recommend and help implement are required in your prospectus the goal of a successful public offering . any changes to your capital structure • Auditing the required financial statements Underwriters are the vehicle through that may be required to facilitate the • Reviewing any required interim financial which your company’s securities will be public offering statements sold to the public . • Assist in structuring stock options • Advising you on appropriate frameworks and other stock compensation plans . and accounting policies “Never Your lawyers will often assume a • Responding to questions raised by the underestimate coordinating role in preparing your securities regulators the workload and prospectus and stock exchange listing • Supporting the underwriters in their due do not rely solely on application(s), working closely with diligence activities, including issuing a management – make your management team and your other comfort letter to the underwriters . sure you have the right complement professional advisers . They will review the entire prospectus and listing application(s) The resources and experience of your of advisers. Share the burden early and advise you on which information auditors should help you better manage before the complexity makes this is legally relevant . They will also advise the risks associated with becoming and difficult.” on the form of presentation and being a public company . the procedures necessary to verify its accuracy . kpmg .ca/ipo

When the investing public is buying or selling Tax Advisers “If you manage shares, the share registrar and transfer agent The tax advisers should be an integral the process part of the team to help you assess handle the paperwork involved, as directed the potential implications on the new properly, you create in the various corporations acts . Particularly corporate structure and to help minimize a win-win situation – if you intend to offer shares in more than any adverse tax consequences of going everyone knows what one province, select a transfer agent with public since certain tax provisions are to expect, you limit the number and appropriate national representation . applicable only to private enterprises . You impact of surprises, you can control The share registrar also maintains an should consult with your tax advisers on the costs, and deliver on your accurate list of shareholders for the any pre-IPO reorganization or planning on promises. “ prompt distribution of dividends, as well a tax-efficient basis . as notices of shareholders’ meetings, Involving Tax Advisers from the initial annual reports and other corporate stages is critical . Financial printer communications that are important to Selection of a financial printer for the maintaining the company’s corporate Valuation Specialists and Appraisers prospectus is a seemingly mundane issue . image in the investment marketplace . During the IPO process, the services of However, due to the highly specialized valuation specialists or appraisers can be nature of prospectus preparation, 4 Develop a timeline and useful by providing an independent opinion an experienced financial printer can on the value of your company or the contribute significantly to the timeliness framework for project assets being acquired or divested by your and efficiency of the public-offering management company . On an ongoing basis valuation process . Furthermore, significant time Now that you have performed a thorough specialists can assist you in valuing ongoing demands are placed on the printer in the review of the company and assembled acquisitions, long-term compensation final stages of the prospectus preparation a strong team, it is time to develop the plans or convertible securities offered by process . Revised drafts are often required road map for going public . This entails your company . These professionals can within 24 hours or less and the final developing a timeline and a framework for also help you determine the fair values of prospectus is often printed only the night managing the process . Now it is time to certain items required to be reported on a before it is to be filed . chart the details you will need to address . fair value basis on the financial statements, Your financial printer should have an up- All team members should be actively under IFRS . to-date knowledge of the requirements involved in the process . Seek input with respect to paper size, format, size of from team members with previous IPO Investor Relations firm type and related technical matters, as well experience . Ask for their insights into the Engaging investor relations professionals as the specialized facilities to deal with process, the time and effort required at is becoming an increasingly popular the accuracy, timing and security needs each stage, and potential roadblocks that means of acquiring certain skills and of a public offering . The printer should could be encountered; then, build these expertise that can help to better market also be able to prepare materials in a factors into your timeline . your company – both during the process form appropriate for electronic filing (e .g ., of going public and afterward to help SEDAR) as required by the CSA . If you The execution phase, from preparing the increase ongoing investor interest . are filing your prospectus in the US, you preliminary prospectus to finalizing the Smaller public companies that want the must file electronically with the SEC for documents, is an intensive period of about benefits of a professional investor relations inclusion in the EDGAR database . three months . Many parallel activities program, but cannot justify the cost of occur, involving advisers, management employing investor relations professionals, Share Registrar and Transfer Agent and regulators . The CEO should maintain may find that outsourcing some or all of An important aspect of the going-public control throughout this process . An their needs can be an effective alternative . process involves preparing for future experienced CFO on the team can help Larger public companies often augment relations with the investing public and manage and coordinate these activities . their internal resources with the skills and the new shareholders . The task of Develop the timeline with specific market awareness of such individuals . coordinating the distribution of corporate benchmarks . Identify and assign specific The investor relations approach should communications to this important responsibilities, and put in place a process address a social media strategy and audience generally rests with the transfer to monitor progress against the specific plan to mitigate related risks during agent, acting on behalf of the company . timeline . the IPO process .

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5 Developing the offering that the offering price be within a In short, pricing your stock is more of an range typical for the industry in which art than a science and your underwriters’ Developing the offering builds on the you operate . experience qualifies them to advise research done when assessing market you in estimating an appropriate price . The number of shares offered and the acceptance, and involves making Although establishing as high as possible offering price are directly related; the preliminary decisions about: may hold considerable appeal particularly offering price can therefore be moved into if a secondary offering of existing • The type of securities to be issued the range by splitting or consolidating your shareholders’ stock is included avoid • The number of securities to be issued company’s shares . overpricing . • The price at which they will be issued Price of securities Underwriters typically advise a company • Where the securities will be traded Determining an appropriate offering price to set a price that will encourage an for your securities is perhaps one of the active aftermarket in the shares . By • Marketing plans . most difficult and subjective decisions that pricing to allow for a modest price rise Type of securities you and your underwriters must make . in the immediate aftermarket, investor The lead underwriters typically determine Most IPOs consist of common stock, interest can be quickly stimulated . A new a price range for the securities being although an IPO could consist of units that issue will occasionally realize substantial offered at the beginning of the road show . include both common stock and warrants price increases in the early weeks of Refer to the information on developing to purchase additional shares of common the aftermarket, leading some people to marketing materials for details on the road stock . Other possibilities are available . conclude that the offering price had been show on page 31 . Some companies issue debt, preferred seriously understated . In most cases, stock, multiple voting shares or units that The final pricing decision is not made until however, it reflects public optimism include common stock and convertible just before the underwriting agreement is more than underwriting error, and within debentures . A company cannot, however, signed – generally, the day before or early a relatively short time the stock price issue only convertible securities in the on the day the final prospectus is filed . But generally returns to the more realistic absence of an established public market the background research, comparisons, levels anticipated by the underwriters . for the common stock that would be analysis and discussions begin well Markets where securities will be traded obtained on conversion . before that date . Realistically, the process of going public In determining the types of security to Offering prices are often referred to and involves two components: becoming a be issued, consider such factors as the compared on the basis of price-earnings public company by obtaining regulatory cash-flow consequences of interest ratios . One of the most important approval from the securities commissions and dividend requirements for debt considerations is comparing a proposed and finding a market or exchange for your and preferred stock, your resulting price to other current public offerings or company’s shares to trade . Although these debt-to-equity ratio, the potential dilution existing public companies in your industry . two processes are distinct, they often occur introduced by stock warrants and Various other factors are also considered . simultaneously so that a company is in a income tax implications . Many factors can affect the price that position for its shares to trade as soon as possible after it receives regulatory approval . Number of securities your shares can command, including the projected impact on your company’s The equity markets comprise numerous You must decide how many shares will be earnings resulting from the proposed use stock exchanges . These exchanges offered . Underwriters follow general rules of the new funds, your past and projected vary in nature based on their prestige on the number of shares necessary to rate of growth, the quality of past earnings and reputation; their liquidity – the support active trading in the aftermarket . (e .g ., whether they include extraordinary volume and dollar amount of trading These rules relate to or non-recurring gains or losses), balance activity; their breadth (regional, national • The minimum shares necessary for a sheet strength and tangible asset backing, or international); their listing and sufficiently broad distribution . Many potential dilution (e .g ., through outstanding maintenance requirements; the nature of companies are therefore advised to split warrants), vulnerability to competition, the companies that are attracted or listed their stock to establish an appropriate relative management strength, planned (e .g ., size, industry, nature); and the fees number of shares for the offering acquisitions, size of the offering and being they charge . in a glamour or hot industry . • The appropriate price range for the shares . Many underwriters prefer

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Some of the more popular by junior issuers . Such OTC markets • Reporting and corporate conduct may appeal to junior companies because rules are imposed by the major stock exchanges include the fees and costs of compliance are exchanges . Note, however, that many much lower . of the exchange rules represent good CANADA corporate practice equally advisable for Toronto Stock Exchange – www .tmx .com Whether in anticipation of an immediate unlisted companies . listing or simply to consider the available TSX Venture Exchange – www .tmx .com options, all new public companies Marketing plans should consider the following relative UK Your pre-prospectus marketing efforts advantages of an exchange listing: Main Market of London Stock Exchange – should be well planned and should www .londonstockexchange .com • Marketability and collateral value are begin as soon as you decide to go public . generally considered to be enhanced Increasing or building the investing public’s US by a stock exchange listing because awareness of your company will not New York Stock Exchange – www .nyse .com market values are readily determinable happen overnight . All other factors being National Securities Dealers Automated and transactions can be consummated equal, pre-prospectus positioning can Quotation System – www .nasdaq .com more quickly make your offering easier to sell . • Prestige and respectability are typically Note that no sales may be made and You must consider many factors in making associated with companies listed on no offers to buy may be accepted before your listing decision . Each exchange or a securities exchange . The extent to you obtain a receipt from the securities market has differing characteristics that may which these perceptions influence regulators for your final prospectus . influence your decision . If your company decisions by investors, analysts, Your marketing activity during the does not meet the listing requirements for creditors and others is debatable certain exchanges, it would be precluded pre-prospectus period will likely include: • Published security prices in major from these markets until it meets their • Defining your target market and newspapers and exchange and listing requirements . Your underwriters are developing your strategy . In other other finance-related websites well positioned to advise you on the relative words, identifying the potential buyers focus principally on listed companies . merits of each exchange . of your stock and their characteristics Together with published comments (e .g ., institutional or retail, speculator or Since obtaining a listing on a particular in the financial press concerning the long-term investor, regional or national) stock exchange may be a precondition of company’s annual report and future the investment dealer’s underwriting your earnings prospects, this provides a • Identifying and selecting an investor offering, it is important to ensure that your vehicle to bring the company’s name relations firm to help develop and company meets the listing requirements to the attention of the investing public implement marketing plans of your preferred exchange . • Some institutional investors are • Beginning to meet with the investment Over-the-counter markets restricted to investing only in listed community and the financial media to Two markets in the above table are securities and others may be more develop contacts and communicate over-the-counter markets, created as attracted to a listed security . Moreover, company activities alternatives to listing on an exchange – to the extent that a stock exchange • Develop and or update website that will Canadian Securities Exchange (CSE) and listing increases the marketability of meet the needs of your investors once the National Securities Dealers Automated large blocks of shares, institutional you go public . Quotation System or NASDAQ . They investors may be more likely to invest were set up to facilitate capital formation in listed securities

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EXECUTING your IPO

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KEY CONSIDERATIONS

1 Prepare your preliminary prospectus Your team accumulates business, financial and other information that provides potential investors with full, true and plain disclosure of all material facts related to the securities to be issued and it also presents this information in a prospectus document .

2 Underwriters’ due diligence Your underwriters will conduct a thorough review of your company and its operations to ensure that your prospectus provides full, true and plain disclosure . This in-depth process includes discussions with senior management, inspections of significant operating facilities, and reviews of the company itself, financial information and material agreements .

3 Apply for a stock exchange listing You will need to complete the appropriate documentation and provide the information required by the stock exchange to apply for a listing . Generally, this process runs parallel with the preparation of the preliminary prospectus and the underwriters’ due diligence .

4 Regulatory review Your preliminary prospectus is filed with securities regulators in the jurisdictions in which you wish to sell securities . The securities commissions will coordinate the review of your prospectus and provide you with a letter describing any deficiencies noted in their review (referred to as a comment letter) . Once the securities regulators receive satisfactory responses to these concerns, you will be in a position to file your final prospectus .

5 Marketing Your prospectus is, in part, a marketing document, but it is important to augment it with other marketing tools . Once the preliminary prospectus is filed, securities legislation permits the company to commence limited selling efforts . During this period, your underwriting syndicate distributes marketing materials to potential investors and solicits expressions of interest . This process typically involves developing a road-show presentation and working with your underwriters to develop a green sheet (a summary of the proposed offering containing prospectus and other information) . On the road show, you sell your story to potential investors .

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KEY CONSIDERATIONS

6 Pricing Since pricing reflects the market’s valuation of your company, monitor market conditions, comparable companies and your offering’s potential pricing throughout the process of going public . This activity will culminate in a round of final negotiations with your underwriters in the day or two prior to filing your final prospectus . At this point, you are reasonably certain you can complete your public offering .

7 Finalize documents With the final terms of the offering now complete, you update your prospectus to reflect the pricing information and address changes required to satisfy regulatory bodies . When your team is satisfied with the final prospectus, you file it, along with certain other information, with the relevant securities commissions . Once you obtain receipts from these commissions, your underwriters are able to sell your securities .

8 The closing The closing meeting signifies the successful completion of your offering . You receive the proceeds of your offering in exchange for shares of your company . The closing also concludes the going public process . You begin your life as a public company and assume the increased accountabilities that exist in the public domain .

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Having made this decision, you have prepared your company for the transition to 1 Preparing your prospectus public life and have developed a good game plan for the next phase – the execution . A prospectus is a legal document The execution phase of going public is an intense part of the process . So much will containing: happen in a fairly short period and many different people will be involved . • Information about your company’s The following diagram provides an overview of the major activities of the business execution phase .The timing in the diagram is illustrative .The entire execution • A description of the securities to phase typically takes two to three months to complete . be issued • Information about the principal purpose Execution phase: Overview for which the proceeds from the sale of the securities are intended . The prospectus is a public offering document intended to ensure that Prepare Preliminary Prospectus Draft potential investors receive “full, true Underwriters’ Due Diligence Update and plain disclosure of all material Regulatory Review facts relating to the securities issued” [Ontario Securities Act, Sec 56 (1)] . Developing Marketing Materials Prepare Accordingly, your prospectus should Marketing Efforts contain a balanced view of both the positive and negative factors affecting your Pricing Monitor Market Conditions Final Pricing company and the securities being offered . Update Prospectus Finalize Documents To facilitate the acceptance of a prospectus in more than one province and to provide DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 for uniformity of administration, provincial regulators have developed procedures for File File Closing the underwriters or a company to follow Preliminary Final Prospectus Prospectus in order to qualify a prospectus in more than one province . For offerings that will

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Execution phase: Prepare preliminary prospectus team to review your strategic goals and vision for future direction so they are appropriately reflected in the prospectus . Draft Typically, the lawyers play a coordinating role in this team effort and deadlines are agreed upon for providing the required DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 information and drafts to the lawyers . File Often, for reference, this group looks Preliminary at prospectuses of similar companies Prospectus previously filed onSEDAR website . • Initial working group meeting of team Once the components of the preliminary • Collect and assemble material for inclusion in preliminary prospectus prospectus have been drafted, they • Prepare first draft of the preliminary prospectus are brought together in a first draft and circulated to team members for their • Circulate draft to team review . Your preliminary prospectus • Make revisions and prepare additional drafts (will likely involve team in several usually undergoes several revisions drafting sessions) before all team members are satisfied • Finalize preliminary prospectus with the final document . • File with securities commission Filing the preliminary prospectus • Receive receipt from securities commission . When all outstanding issues have been resolved, the preliminary prospectus is ready for filing . As required by securities be made in more than one province, a Preliminary prospectus legislation, the company must prepare a certificate and file it with the preliminary company must qualify its prospectus in One of the main purposes of the prospectus . The company’s certificate each province . preliminary prospectus is to enable the would be in substantially the following form: In most provinces, the prospectus is underwriters to assess the extent of public prepared in two stages: a preliminary interest in the securities being offered . In The foregoing constitutes full, true and prospectus and a final prospectus . The certain instances, you may need to file an plain disclosure of all material facts principal difference between these two amended prospectus, for example, when relating to the securities offered by this stages of the prospectus is the exclusion there is a material change in the facts prospectus as required by the securities in the preliminary prospectus of certain included in the preliminary prospectus . If legislation of [applicable jurisdictions]. information not yet available . The excluded the prospectus is being filed in Québec, The certificate must be signed by the information typically includes the final make arrangements to ensure that all the CEO, CFO, two directors on behalf of the offering price of the securities (or interest contents of the prospectus, including the board and all promoters of the company . rate or dividend rate in the case of debt financial statements, are being translated Similarly, the underwriters must include a securities or preferred shares); the into French on a timely basis to avoid signed certificate in the following form: underwriting discount or commission; delays or problems in meeting the filing any other information dependent upon dates set out in the timetable . To the best of our knowledge, information, or relating to the price and underwriting and belief, this prospectus constitutes discount; and the signed auditors’ report Preparing your preliminary prospectus full, true and plain disclosure of all on the financial statements . All other Preparing the preliminary prospectus is a material facts relating to the securities information contained in the preliminary detailed and time-consuming process . The offered by this prospectus as required by prospectus must, however, comply first step is generally the initial working the securities legislation of [applicable with the requirements of the relevant group meeting – your company executives jurisdictions]. acts, regulations and policy statements meet with your lawyers, auditors, At this stage, the prospectus is essentially respecting the form and content of a underwriters and your underwriters’ complete, except for certain information prospectus . The preliminary prospectus lawyers . At this meeting, responsibility that will not be finalized until the day or two should be viewed by the team as the final is assigned for gathering information and before the date the final prospectus is filed offering document other than the excluded preparing various parts of the prospectus . and qualified . The final prospectus includes information discussed above . This meeting is a good time for your

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the price at which the securities will be may not be sold until a receipt for the • The related regulations under the offered, the underwriters’ commission, prospectus is obtained from the securities securities act the net proceeds and any required final regulatory authority(ies) . • National policies developed jointly revisions to the preliminary prospectus . If a material adverse change occurs by the provinces to facilitate the Further, any auditors’ communications during either the period after the filing of acceptance of a prospectus in more included in the prospectus would typically the preliminary prospectus and before than one province, and to provide not be signed until the final prospectus the final prospectus, or after a receipt for uniformity of administration of is issued . At the time the preliminary is obtained for the final prospectus but interprovincial offerings prospectus is filed with the unsigned before distribution under the prospectus • The CPA Canada Handbook, which auditors’ communications, securities is completed, an amendment must be prescribes GAAP for purposes of regulators generally require a letter from filed as soon as possible, but at least financial statements included in a the auditors providing a status report on within 10 days . prospectus or other filing . the auditors’ work to that date . Preparing and filing an amended These requirements are highly-technical and The preliminary prospectus is then filed prospectus require you to follow ever-changing . Consequently, companies with the securities commissions and a procedures similar to those for other work closely with their auditors and lawyers receipt is obtained . filings, and include costs such as those for support in interpreting and applying the related to the underwriters’ updating due Copies of the preliminary prospectus, also requirements . diligence procedures, and reprinting and known as a “red herring,” are concurrently redistribution . Although prospectuses may be referred provided to the underwriting syndicate to by form numbers, they are in fact for distribution to prospective investors . prepared in a narrative and reasonably The preliminary prospectus is known as Content of a prospectus flexible format . The form specifies certain a red herring because it must include the Securities legislation provides guidance minimum disclosures, and a standardized following statement printed in red ink on on the information content, sequence sequence and style has evolved over the front cover: and form of a prospectus . Information time . Nevertheless, a significant degree A copy of this preliminary prospectus has requirements vary depending on of subjectivity and judgment is required been filed with the securities regulatory several factors, including the nature of in drafting these disclosures . Refer to authority(ies) in [each of/certain of the the securities to be offered, the type the section “Appendices”, in particular province/provinces and territories of and size of the company issuing the Appendix 1 which summarizes the specific Canada] but has not yet become final securities, and the industry in which content requirements . for the purpose of the sale of securities . the company operates . Information contained in this preliminary Various forms of prospectus are specified 2 Underwriters’ due diligence prospectus may not be complete and or allowed in different circumstances . For Your underwriters and their legal counsel may have to be amended . The securities example, certain forms of prospectus are will thoroughly review your company and prescribed specifically for companies in its operations . This in-depth due diligence The prospectus specialized industries, such as finance, process should include conducting rules and natural resources or mutual funds . discussions with senior management, inspecting significant operating facilities, In preparing your prospectus, note that information conducting background checks on board the required content may come from requirements in the and senior management members, and various sources, including: document are extensive, but fighting reviewing material agreements as well as them only delays the process and • The related securities act business and financial information . increases costs. For anyone going • National Instrument 41-101, General Why do underwriters perform due through the process, the advice is: Prospectus Requirements, including diligence procedures? Form 41-101F1, which specifies follow the results, work with your Underwriters perform due diligence the contents of a prospectus (this team, consult with your advisers procedures to improve their understanding form harmonizes the prospectus of your company to facilitate marketing and, most important of all, don’t take requirements across all provinces and your securities to potential investors . shortcuts – sooner or later, they provides for uniformity of administration catch you off guard. of interprovincial offerings)

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Execution phase: Underwriters’ due diligence Finally, due diligence meetings are generally held shortly before the dates of the preliminary and final prospectuses . Update These meetings bring together your lead underwriters, CEO, financial executives, company lawyers, auditors and the DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 underwriters’ lawyers . The meeting is File File held primarily to allow the underwriters to Preliminary Final raise any questions about the offering and Prospectus Prospectus your company . It also allows others to ask • Review drafts of preliminary prospectus any remaining questions to establish their • Site visits individual due diligence defences . • Read contracts, minutes, other documents • Underwriters’ discussions with management 3 Applying for a stock • Due diligence meetings with management, company’s legal counsel, auditors exchange listing • Due diligence meetings to update due diligence procedures Most companies apply for a conditional listing on one or more stock exchanges even before their shares are sold to the public; others may allow their shares Underwriters also need to mitigate their potential liability under securities legislation for to trade initially on the unlisted or misrepresentations in prospectuses . Securities legislation outlines civil liability provisions OTC market . for underwriters with respect to misrepresentations in prospectuses . Underwriters can mitigate this potential liability by performing a “reasonable investigation as to Companies intending to list on a stock provide reasonable grounds for a belief that there had been no misrepresentation ”. This exchange must complete the appropriate reasonable investigation is commonly referred to as due diligence . listing application and provide any additional information as required by the What is involved in underwriters’ due diligence? exchange, such as information to support Expect that this process will be demanding and require the company to devote the future viability of the company . considerable resources preparing for, and participating in, due diligence . You can expect Companies listed on an exchange are your lawyers (on behalf of the board and the company) and your underwriters’ lawyers subject to the provisions of their listing to probe deeply into your company and its affairs . Their procedures will likely involve agreement as well as the exchange conducting in-depth discussions with senior management, inspecting the company’s requirements and policies that deal with more significant operating facilities and other assets, and reviewing material agreements such matters as timely disclosure, insider as well as business and financial information . Your company’s officers and directors trading and founder stock . should be prepared to answer candidly numerous questions on: Once the listing is granted, any condition • All aspects of the company of the listing must be fulfilled and the • Statements made in the prospectus about the company and the offering security posted for trading within 90 days of receiving the listing approval . Listing • Management’s experience, compensation arrangements and contracts or fees differ significantly depending on the transactions with the company . exchange, but they generally include an In carrying out their due diligence procedures, your underwriters may request a initial application fee, an original listing comfort letter from your auditors . This letter outlines the procedures specified by the fee payable when the listing application underwriters and carried out by your auditors for certain information contained in the is approved and an annual sustaining prospectus and sets out your auditors’ findings . Generally, the letter is dated as of the fee . These fees depend on the number date of the final prospectus . A draft of the letter is typically provided to the underwriters of shares issued or, on some exchanges, at an early stage to ensure that all parties agree with the specified procedures to be the market value of the shares . conducted by the auditors .

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Execution phase: Regulatory review

DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

• File preliminary prospectus in all jurisdictions, including the French version in Québec • Receipt issued for preliminary prospectus • First comment letter (primary jurisdiction) • Second comment letter (other jurisdictions) • Written responses to comment letter

4 Regulatory review Each province and territory has a separate securities act . Provincial securities administrators and their staff review all prospectuses for adequacy of disclosure in accordance with their regulations and other pronouncements . While levels of review intensity vary, IPOs receive thorough reviews by an accountant, a lawyer and sometimes a specialist for an offering in a specialized industry, such as natural resources . After the preliminary prospectus is filed, the principal regulator and, possibly, a non-principal regulator review it . You can expect a non-principal regulator to use its best efforts to advise the principal regulator of any significant concerns within five working days of the filing . The principal regulator should then use its best efforts to send a first comment letter within 10 working days of the filing, outlining all required revisions, additional information or questions . The principal regulator may provide further comments at a later date, for example, as a result of the issuer’s response letter . The securities administrators may require that certain disclosures of adverse business conditions or other weaknesses in the offering be given increased prominence by cross-referencing to the cover page, supplying more information or simply moving the relevant disclosures to the front sections of the prospectus . They may ask you to support certain claims or statements made in the prospectus or to remove them if they consider the support inadequate . They may also take issue with a particular choice of accounting policy or request additional disclosures in the financial statements . Few first-time prospectuses complete the review process without any comments . The experience of your professional advisers in identifying those sensitive areas and anticipating potential problems can help reduce the number of comments received . Depending on the nature of the deficiencies noted, your IPO team can assist in addressing and rectifying them .

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Execution phase: Developing marketing materials

Prepare

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• Prepare “green-sheet” and road-show materials (e .g ., slides) • Rehearse road-show presentation • Make logistical arrangements for road show

Developing marketing materials Your prospectus is a public offering document and contains a large amount of information about your company, its directors and its officers . Typically your preliminary prospectus is supported by two other sources of information about the company: a green sheet and a road show . The prospectus is typically developed first and provides the content for these other communications . Under your direction, your underwriters prepare the green sheet, summarizing certain key information extracted from the prospectus, together with other information such as data on comparable stocks . The road show is a series of presentations, typically 60 to 90 minutes in length, with the company’s prepared presentation lasting approximately 30 minutes . These presentations are generally made over a five-to-10-day period to institutionalinvestors and investment dealers . Because the road-show presentations feature key members of the management team, they provide the investment community with an opportunity to meet and assess these executives . The road show typically will cover your company’s: • Vision and strategy • Competitive position in the industry • Relationships with its customers, suppliers and other key parties • Financial results and performance . This presentation is normally followed by a question-and-answer period . During the road show, your company will be judged on not only content but also style and presentation . Your goal is to make an excellent impression in a relatively short period of time . Consequently, your road show should be well-rehearsed and well-orchestrated, without being perceived as too slick . In many respects, the key members of the management team are being judged on the perception they create about their integrity, ability to lead and vision of the company’s future . Many companies engage an investor relations firm to help develop the message, prepare the presentation that delivers it and coach the presenters . This firm can also handle the logistical arrangements for the presentation .

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Execution phase: Marketing 6 Pricing In developing the offering, you made Marketing and selling efforts preliminary decisions about the number of shares you are intending to sell and the desired price range for those shares . DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 However, market conditions change and, accordingly, the final pricing typically does • Obtain receipt for preliminary prospectus not occur until a day or two before the • Conduct road show final prospectus is filed . • Underwriters obtain expressions of interest from potential investors Pricing is affected by changes in general • Obtain receipt for final prospectus market conditions (e .g ., stock market • Orders from potential investors confirmed levels and interest rates) . Staying attuned to market conditions can reduce the surprise factor when making the final pricing decision . 5 Marketing The level of interest in your company and its offering also affects the final pricing . After the company receives the regulators’ receipt for the preliminary prospectus, the The interest expressed during road underwriters begin their selling efforts . shows and the limited selling efforts of The road show, as previously discussed, provides an opportunity for registered underwriters during the period between salespersons, institutional investors and industry analysts to meet your company’s filing your preliminary prospectus and management team and ask questions about your offering and your company . The tour filing the final prospectus may be higher may cover several cities, particularly those where the major underwriters are located and or lower than anticipated when the where investor interest is expected to be high . The team must ensure that selling efforts offering was developed . Accordingly, the deal only with information already made public through the prospectus . underwriters may indicate that the market will not support the planned price or size A copy of the preliminary prospectus is provided to each prospective investor, who may and may recommend revising the terms then express interest in your shares based on the expected price range . No sales may of your offering . Alternatively, conditions be made, however, and no offers to buy may be accepted before may suggest that a higher price or the company receives the receipt for the final prospectus from the securities regulators . larger offering may be possible . Pricing is subjective and based on input Execution phase: Pricing from various sources and parties . The players in this process all have differing interests . Recognize, therefore, that there Monitor Market Conditions Final Pricing is always room for negotiation – and be prepared for it . There is a fine line between DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 overpricing your offering and leaving too much on the table . Proper pricing can help • Monitor general market conditions to encourage an active aftermarket for • Assess interest in offering as a result of road show and limited selling effort your company’s stock, thereby building • Incorporate pricing information in final prospectus confidence in your company .

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Execution phase: Finalize documents that must be executed in conjunction with your offering . These can include: • Amalgamation of entities Update Prospectus • Secondary offerings • Share redemptions DAYS 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 • Redemption of debt File Closing • Revision of banking agreements Final Prospectus • Asset sales • Option arrangements • Respond to regulatory comments • Employment contracts • Update prospectus for pricing, etc . • Employee incentive programs . • File final prospectus Although it is preferable to deal with many • Obtain receipt for final prospectus of these matters as you prepare to go public, it is not always possible . The need for these agreements and other documents 7 Finalize documents developments have occurred since the may arise from the unique characteristics preliminary prospectus was originally and structuring of your offering . When all the securities commission filed . Once the company receives a comments have been cleared, the receipt from the appropriate securities 8 The closing company negotiates the number of commissions, the sale and distribution of The final settlement, or closing, generally securities to be offered and the price securities may begin . Investors that have occurs one to three weeks after the signing with the underwriters and signs the expressed an interest in your offering of the underwriting agreement . The closing underwriting agreement . You are now during the marketing stage must receive meeting is generally attended by all parties in a position to revise and finalize your a copy of the final prospectus before they involved in the process . At this meeting, the prospectus . can purchase shares . net proceeds of the offering are provided The final prospectus is filed when all The complexity of your offering and other to the company, the securities sold are regulatory deficiencies have been dealt events that occur in the period around your provided to the underwriters and various with, and your company and advisers closing will determine the nature and extent documents are signed and exchanged as are satisfied that no material undisclosed of legal agreements and other documents necessary to the legal process .

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CONTINUING as a public company

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KEY CONSIDERATIONS

1 Transition As you go through the IPO process, the experience of your board, management team and professional advisers, as well as your readiness to operate as a public company, will be the major factors in determining how smoothly you will make the transition to operating as a public company .

2 Implement strategic operating plans Going public was a strategic decision . Funds were raised to help accomplish those strategic plans . Now that you have the money, you are expected to follow through .

3 Regulatory matters As a public company, you are required to comply with securities legislation and the rules of applicable stock exchanges . Regulators do focus on the governance of public companies and their expectations of boards of directors as well as board committees continue to evolve . Public companies must meet extensive continuous disclosure requirements, including filing annual and quarterly financial statements, MD&A, the AIF, quarterly and annual CEO and CFO certifications, and the information circular .

4 Investor relations With your offering completed, your new shareholders, potential shareholders and the investment community at large all have an ongoing interest in the affairs and results of your company . Developing a proactive and ongoing investor relations strategy is a critical component in sustaining an active aftermarket interest in your company .

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1 Transition 2 Implement strategic operating plans The closing of the offering marks the One of your fundamental reasons for going public was that you had identified a strategic beginning of your life as a public company . need for capital . You developed and sold your business case to the market and investors The first challenge involves making a have now rewarded you by providing this capital . In assessing your business case and successful transition . You change the way in making their purchase decision, investors evaluated, among other things, the planned you do things: the process of making use of proceeds . Now that they have provided you with the required capital, your decisions, assessing the impact of those investors clearly expect you to implement the plan . decisions on the much wider base of Obviously, the timing of the achievement of these objectives will vary . Using proceeds to stakeholders and on the stock price, retire debt or pay for a recent acquisition can be easier to accomplish in a relatively short ensuring regulatory compliance and time . On the other hand, using proceeds for extracting and processing a proven mineral so on . reserve will occur over a longer period . The transition period may trigger a change in attitude on the part of 3 Regulatory matters senior management, as they become accustomed to operating under constant The securities commissions publish rules, policies and notices that are updated from direct and indirect scrutiny . This shift can time to time . As a public company, you are required to stay current on changes to the require considerable time and effort . legislation and to comply with securities legislation and the rules of the applicable stock The team that was developed during the exchanges . Certain corporate activities pertaining to shareholder meetings, insider planning stages of the initial offering will trading and the sale of shares will also be governed by legislation and regulation . play a key role in helping the company Regulatory issues affecting your company can broadly be categorized as: adjust to its new life . • Governance You can expect to spend time and • Continuous disclosure requirements resources to maintain and grow your • Other issues . market position and investor interest . This change will involve putting in place an effective investor relations program Governance and ensuring that you get support from Board of Directors your underwriters to maintain good The board of directors is elected by the shareholders . Its primary role is to assume distribution and support of your stock, overall responsibility for the stewardship of the company, overseeing the activities of and stimulate continuing interest from management in order to ensure that the company and the investors’ long-term interests the analyst community . are being served . In recent years, the role of the board has become more visible and the board has more accountability to investors and regulators . To help the board fulfill its mandate, the CSA has issued Corporate Governance Transition is Guidelines . Companies are encouraged to consider the guidelines while developing their immediate. own policies and practices . The guidelines seek to achieve a balance between providing Following the protection to investors and fostering fair and efficient capital markets and confidence in IPO, be prepared those markets . These guidelines take into account the impact of corporate governance to comply with all developments in the US and around the world . The CSA recognizes that corporate the financial and governance is under constant evolution . non-financial reporting The current policy recommends that a majority of the directors, including the chair or a requirements and lead director, should be independent . In general, a person is considered independent if he or she has no direct or indirect material relationship with the company . meeting the expectations of a public company board. The current policy also requires issuers to adopt a policy related to identification and nomination of women directors . Issuers who have not adopted such a policy are required to disclose the reason for not having a policy . Issuers are required to disclose whether, and if so, how the nominating committee considers the level of representation of women on the board in considering candidates for nomination . The number and proportion (in percentage terms) of women directors on the board, including those of subsidiary entities is also required to be disclosed .

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The board should adopt a written • Pre-approve the types of non-audit Compensation committee mandate in which it acknowledges its services that an external auditor can There continues to be strong public responsibilities for stewardship of the and cannot provide and shareholder focus on executive company . Such a mandate should include compensation for executives of public • Be directly responsible for overseeing things such as clear position descriptions companies . the internal audit processes for the chair of the board, CEO and The board should consider appointing subcommittees . The board should also • Oversee the company’s compliance a compensation committee composed adopt a written code of business conduct with applicable legal and regulatory entirely of independent directors . and ethics designed to promote integrity requirements affecting financial reporting and deter wrong-doing . • Provide an avenue for effective The committee should consider options communication among the audit and establish a properly risk-managed Board Committees committee, external auditors, compensation package that rewards To fulfill their responsibility to provide management, internal auditors and innovation and appropriate risk taking, risk oversight, most boards appoint the board of directors . balancing incentive generation with committees to oversee the common risks risk-bearing costs . Canadian securities legislation requires faced by the company . Risks can be wide every public company to have an audit The compensation committee reviews ranging and include, for example, financial committee composed of a minimum of CEO compensation in the context of reporting, reputation, litigation, ethics, three independent members of the board relevant corporate goals and objectives, technology, or health, safety, and the of directors . The audit committee members evaluates the CEO’s performance in light of environment . must also be financially literate . The those goals and objectives, and determines Board committees should have written external auditors must report directly to an appropriate level of compensation for mandates establishing their purpose, the audit committee . Required disclosures the CEO based on this evaluation . responsibilities, member qualifications, regarding the audit committee must also The committee should also make member appointment and removal, be included in the company’s AIF . recommendations to the board on non-CEO structure and operations, and manner The audit committee rules are sensitive officer and director compensation, incentive of reporting to the board . to the unique characteristics of Canada’s compensation plans and equity-based The securities legislation requires capital markets . Smaller companies, plans, and should review disclosures every public company to have an audit including those listed on the TSX-V are related to executive compensation before committee and also recommends exempt for certain requirements, including the information is made public . that a company consider appointing a audit committee composition and nominating committee and a compensation reporting obligation requirements . Continuous disclosure committee . The role of these committees is discussed below . Nominating committee requirements The board should consider appointing a Canadian securities legislation includes Audit committee nominating committee composed entirely a policy regarding disclosure of corporate All public companies are required to have of independent directors . governance practices . All entities must an audit committee to focus, on behalf include the required disclosures in their The nominating committee identifies of the board, on oversight of the financial AIF or, in some cases, in the management individuals qualified to become new board reporting process . information circular . members and recommends to the board The audit committee’s primary duties and the new nominees for the next annual The policy is fairly detailed and requires responsibilities are to: meeting of shareholders . In making its disclosure of many aspects of the • Identify and monitor the management decisions, the committee should consider board, including the identity of all of the principal risks that could affect the competencies and skills that the board directors, both independent and non- the reliability of financial reporting considers to be necessary for it to possess independent; a description of the board as a whole, the appropriate size of the board, mandate; measures taken for orientation, • Oversee the integrity of the company’s as well as the skills and competencies of continuing education and ethical business financial reporting process, the system the current board members, and the skills conduct; the process for nomination and of internal control over financial and competencies each new member will compensation of directors and officers, reporting and accounting compliance bring into the boardroom . Before making and the process used for assessing • Be directly responsible for overseeing recommendations, the board should ensure the effectiveness and contributions of the work of the external auditors, that each new nominee will be able to the board and its members . Entities including monitoring the independence devote sufficient time and resources to his are advised to consult with their legal and performance of the external auditors or her board duties . counsel when developing the disclosures . kpmg .ca/ipo

The long arm of securities legislation For venture issuers, certain concessions are • Disclosure of external auditor service extends far beyond the initial offering of available . For instance, venture issuers will fees by category, specifically under a security . One of the regulators’ primary have the option to provide disclosures in the captions of Audit, Audit-Related, Tax and objectives is to ensure that disclosure form of quarterly highlights, rather than a full All Other Fees . similar to that contained in the prospectus interim MD&A . Essentially, venture issuers • Legal proceedings and regulatory actions is available to securities markets at are companies with unlisted securities or • Additional information . all times . with securities listed or quoted only on the TSXV, CSE or AIM . They do not have any of These requirements include: Financial statements their securities listed or quoted on any of Annual financial statements must be • Annual Information Form the TSX, a US marketplace or a marketplace prepared by the company and audited by • Financial statements outside Canada and the US, other than AIM . its auditors . These financial statements • Management’s discussion and analysis Annual Information Form must be prepared in accordance with IFRS, accompanied by an auditors’ report, • Information circular An AIF must be filed annually within and filed with the relevant securities • Disclosure of material changes 90 days of the end of the financial regulators within 90 days after the end year . Companies listed on the TSXV are • Business acquisition report of the company’s fiscal year (for venture exempt from this requirement . The AIF • Certifications . issuers, within 120 days) . is a disclosure document intended to These areas are discussed in more provide material information essential In addition, the company must file detail below. to a proper understanding of the nature interim financial statements each of the company, its operations and quarter, within 45 days after the end Typically, the annual audited financial prospects for the future . of the respective quarter (for venture statements, MD&A and much of the issuers within 60 days) . These interim information contained in the AIF are The AIF contains many disclosures financial statements do not require an included in an annual report sent to the typically required in a long-form audit or review . For most companies, shareholders . In addition, companies are prospectus, including: the auditors perform a review of these required to file with regulators copies of • Incorporation financial statements in order to assist material documents, such as bylaws and • General development of the business the audit committee to discharge its material contracts . • Narrative description of the business responsibilities for these statements . The securities commissions perform If the auditors have not performed a • Description of the capital structure regular reviews of continuous disclosure review of the interim financial statements, • Market for securities document filings . They provide individual the statements must be accompanied comments to companies and also publish • Directors and officers by a notice indicating that the financial public comments . • Information on interest of experts and statements have not been reviewed auditor independence by an auditor .

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Management’s discussion and analysis • Information to help make an informed income and the level of the company’s The financial statements must be judgment about the matters being voted investment in the acquired company . on at the meeting accompanied by MD&A . A business acquisition report should also • A statement of executive compensation MD&A is supplemental analysis and include information on the profile of the explanation that accompanies but does • Information on the indebtedness of company, a description of the company not form part of the financial statements . directors and officers being acquired and the consideration exchanged, nature and description of MD&A provides management with the • Information on the interests of insiders any related parties involved, and details opportunity to explain in narrative form in material transactions its current financial situation and future on whether the acquisition will cause • Details of management contracts . prospects . It is intended to enable material changes to the business affairs of the company . investors to look at the company through Disclosure of material changes the eyes of management by providing One of the objectives of the securities Financial statements required to be both a historical and prospective analysis legislation is to ensure that all investors, included or incorporated by reference in of the company’s business . Securities not just insiders, receive important this report include comparative annual regulators provide guidance on the information regarding changes in a financial statements of the acquired specific content of the MD&A, and have company’s affairs on a timely basis . company for its most recently completed focused on MD&A filings as part of their Accordingly, you must file a press release financial year ended before the acquisition continuous disclosure review program . forthwith when a material change occurs date . The current year financial statements The securities legislation requirements in your company’s affairs . Within 10 days are required to be audited, but the for the information to be reported in the of the change in affairs, you must also comparative information is not . Interim annual and interim MD&A are extensive . file a material change report with the financial statements of the acquired They require detailed comparative securities regulator, which describes, company are also required for its most information and discussion on the in detail, the material change and its recently completed interim period ended operations of the company, as well impact on your company . after the date of the audited balance sheet as discussion on risk areas, material and before the acquisition date . Pro forma A material change is a change in the contracts, compliance with covenants, financial statements are also required for business, operations or capital of the future capital projects and anticipated non-venture issuers . company that would reasonably be changes in accounting policies and their expected to have a significant effect on the Certifications implications . Consequently, management market price or value of any of the securities will need to devote a considerable amount Certification requirements differ significantly of the company . It is prudent to seek legal of time and effort to comply with these for venture and non-venture issuers . advice if you are unsure whether a change requirements . in the business is a material change . Non-venture issuers The annual and interim financial Securities legislation requires CEOs statements and MD&A must be approved Business acquisition report and CFOs to certify in their annual by the board of directors before filing . If the company completes a significant certificates that they are responsible for The board may delegate approval of the acquisition, it must file a business establishing and maintaining disclosure interim financial statements and the acquisition report within 75 days after the controls and procedures and internal related MD&A to the audit committee . date of acquisition . If the most recently control over financial reporting . They also completed financial year of the acquired have to certify that they have designed Information circular company ended 45 days or less before ICFR to provide reasonable assurance Generally, an information circular is the date of the acquisition, the company regarding the reliability of financial sent to all holders of voting securities will have 90 days after the acquisition to reporting and preparation of financial when management gives notice of a file this report (120 days in the case of statements in accordance with GAAP . shareholders’ meeting . The information companies listed on the TSXV) . The certifying officers should disclose the control framework used to design these circular is also filed with the applicable To assess whether an acquisition controls and procedures . Further, they securities regulators . is considered significant, consider must disclose their conclusion about the quantitative criteria that must be met, in The information circular is intended to effectiveness of disclosure controls and terms of the size of the assets, level of provide each security holder with: procedures and the operating effectiveness of ICFR in their annual MD&A .

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The CEO and CFO should also certify that the company has disclosed in its MD&A any Other issues changes in ICFR that occurred during the most recent interim period that either have, or are likely to have, a material effect on the company’s ICFR . Annual meetings and proxy solicitations The certificates should also provide information about any material weakness in the design As a public company, your annual or operating effectiveness of ICFR, including remediation plans or reasons for not planning to meetings become a major event at remediate the weakness . which you report on the progress of your company over the past year to your In the quarter in which an issuer becomes public, however, the CEO and CFO are not shareholders and others, such as analysts required to certify on the design and operating effectiveness of controls related to and members of the media . disclosure controls and procedures, nor on the design and operating effectiveness, if applicable, of controls related to ICFR . In preparation, you need to give your shareholders notice of the meeting and Venture issuers send out appropriate materials, as outlined Venture issuers are not required to certify on the design and operating effectiveness of in the earlier section on the information controls related to disclosure controls and procedures, nor on the design and operating circular . Since your shareholders may be effectiveness of controls related to ICFR . Venture issuers must, however, review the annual widely dispersed and may be unable to filing and, based on the certifying officer’s knowledge after having exercised reasonable attend the shareholders’ meeting, you diligence, issue a basic certificate . must send them a form of proxy, allowing them to appoint a person or company as Use of non-GAAP financial measures in disclosure filings their nominee to act on their behalf at Non-GAAP measures are frequently used by companies in their disclosure documents in the meeting . order to provide a supplemental explanation of financial and operating results . However, Shareholders may elect to receive the as non-GAAP measures do not have any standardized definitions, they have the potential proxy material online, and choose to vote of not being comparable and could be presented in a misleading fashion . When a online . They may also choose whether company chooses to include non-GAAP measures in its public filings (prospectuses or not they want to receive the annual and continuous disclosure filings), it must adhere to the specific rules concerning the general meeting materials distributed disclosures of non-GAAP measures, such as including a clear definition, reconciling to them . This option is limited only to it to the most appropriate GAAP measure and clearly explaining reconciling items . general meetings – for special meetings, Examples of non-GAAP measures include return on assets; earnings before interest, taxes, you are required to mail the material to depreciation, and amortization (EBITDA); net operating income; and distributable cash . shareholders . Proxy advisory firms Continuous disclosure filings Proxy advisory firms play a role in the All continuous disclosure filings for public companies can be found on SEDAR and are proxy voting process by providing services therefore accessible to the public through the SEDAR website . that facilitate investor participation in SEDAR is an initiative of the CSA to facilitate electronic filing and public dissemination of the voting process such as analyzing certain disclosure documents required to be filed under Canadian securities legislation . proxy materials and providing vote Documents on SEDAR include most of the documents that are legally required to be recommendations . Some proxy advisory filed with the CSA and many documents that may be filed with the Canadian exchanges . firms also provide other types of services Prospectuses and other continuous disclosure documents (including AIF, financial to issuers, including consulting services statements, proxy materials, press releases, and material change reports) must be filed on corporate governance matters . The electronically . CSA recently adopted a Policy that sets out recommended practices for proxy Filings can be made in one of two ways: you can become a SEDAR subscriber and make advisory firms in relation to the services your own filings, or filings can be made on your behalf by filing agents that are SEDAR they provide to their clients and their subscribers (e .g ., law firms, financial printers and others that normally assist in the activities . This Policy provides guidance preparation of filings) . to proxy advisory firms and is designed The SEDAR website also contains profiles of all public companies with basic information, to promote transparency in the processes such as company addresses, contact information and stock exchange listings . leading to a vote recommendation and the

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development of proxy voting guidelines, Consequently, public companies should The changes to the act differentiate and foster understanding among market take appropriate measures to ensure between core and non-core documents . participants about the activities of proxy that controls are in place to protect A core document includes a prospectus, advisory firms . The guidance addresses the confidentiality of such sensitive takeover bid circular, issuer bid circular, conflicts of interest, the determination information . director’s circular, rights offering circular, of vote recommendations, the MD&A, AIF, an information circular, annual Anyone who must become privy to such development of proxy voting guidelines and interim financial statements and information needs to be made aware and communications with clients, material change reports . Core documents of the proscription against trading on market participants, other stakeholders, are the continuous and timely disclosure or tipping such information . For this the media and the public . documents a company is required to file reason, it may also be advisable for with securities regulatory authorities . Sale of shares one individual to coordinate all press statements and contacts with analysts, All other documents are considered to While your company’s shares can reporters and others . be non-core documents . The distinction now be traded publicly, there may be between core and non-core documents is restrictions or limitations imposed The System for Electronic Disclosure important . Whether a misrepresentation by the securities commissions, stock by Insiders or SEDI was established by is made in a core or a non-core document exchanges or underwriters . These the securities regulators to facilitate the affects the burden of proof that a plaintiff restrictions or limitations generally relate filing and dissemination of insider reports bears to support a claim, as well as the to shareholders that own large portions of in electronic format via the Internet . nature of the defence that a company, the outstanding shares of the company . director or officer must establish to These restrictions or limitations may Civil liability for secondary market mitigate his or her exposure to liability . prevent these shareholders from selling disclosure their shares for a certain period of time or Section 138 of the Ontario Securities The act provides many defences to the may impose certain conditions on the sale Act establishes a secondary market civil company and its directors and officers of these shares . liability regime . This legislation outlines once a misrepresentation has been legal liability of companies, their directors, demonstrated to exist in a document . After the closing of the IPO, the board officers and experts such as lawyers for However, two primary defences are should develop a policy addressing any misrepresentations in continuous expected to be used . these regulatory requirements and disclosure documents and public oral should ensure that this policy is enforced Reasonable investigation performed statements . The amendments also throughout the company . (due diligence) defence address failure to disclose information If a director, officer or company can prove on a timely basis . Insider trading that, prior to the release of the document Any shareholder controlling 10 percent or The legislation provides a right of action containing the misrepresentation, he or more of the voting rights in the company’s for damages to a person or company she (or his or her company) conducted securities, as well as all directors and who acquires or sells securities of the a reasonable investigation and, at the senior officers, are required to report their responsible company between the time time of the release of the document, holdings and all changes in those holdings when a misrepresentation is made in had no reasonable grounds to believe to the securities regulator on a timely basis . a released document or in a public oral that the document contained the It is illegal for anyone to trade in a statement and the time it is publicly misrepresentation, then he or she is not company’s securities on the basis of corrected . considered to be liable in relation to the misrepresentation . insider information . This law applies A second right of action is provided to a equally to those directly privy to the person or company that acquires or sells Reliance on an expert defence insider information (e .g ., directors, officers securities of the responsible company A person or a company can also use the and employees) and anyone to whom between the time a material change was defence of relying on an expert such as they tip such information before it is made required to have been disclosed and a lawyer or actuary . To use this defence, public . Both the insider (whether or not the time the disclosure is subsequently the document must include, summarize or personally benefiting) and the person who made . Collectively, these rights provide quote from a report, statement or opinion receives a tip may be subject to liability for a secondary market civil liability regime made by the expert . The person or company damages to everyone who traded in the over companies, directors, officers must also have obtained the written consent security during the period of such illegal and experts . to the use of his or her report . insider trading .

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Prompt Offering Prospectus system Social media continues to be a popular Companies that have been subject to the periodic reporting requirements of the Ontario medium of disseminating information to Securities Act (or the applicable securities laws in other jurisdictions in some cases) are and communicating with shareholders, in some cases eligible to use the POP system . This system allows the filing of a short- potential investors and the financial form prospectus and incorporation by reference of previously filed continuous disclosure community . It is being used for engaging filings, such as the AIF and interim reports . It significantly streamlines the time, effort, customers in real time to adding and expense involved in a public offering by existing public companies . The eligibility sales channels and enhancing market criteria for using the POP system are detailed and, consequently, companies are advised research . But for all its advantages, to seek the help of their legal counsel in assessing their eligibility . Most TSX–listed social media also brings inherent risk . companies should be eligible to use the POP system . This can include threats to confidential or competitive information, intellectual property, reputational risk and potential 4 Investor relations for regulatory infractions . Sometimes, a To maintain market interest in your securities, your efforts should be directed not only to single public failure can have far greater existing investors in your company–the shareholders–and also to potential investors . Various ramifications on the reputation than media can be used to reach this financial community . The volume of information required multiple successes achieved through use by the investment community, and the speed at which it wants it, is increasing . To respond of social media . It is therefore imperative to this phenomenon and deal with regulatory and corporate governance issues, many that Boards and management teams companies are developing information disclosure strategies and policies . implement a clear cut governance strategy as part of their social media investment . Securities analysts play a significant role in the financial community . They are often They should be aware of, understand, part of the research departments of brokerage houses and investment dealers . Their and manage the risks and create a culture assessments of your company will therefore influence the investment advice provided where everyone in the organization to their investor clients . Securities analysts will not only analyze your annual reports understands the risks and how to and other available information, but also often conduct interviews with your company’s mitigate them . management to gain further insight into your operations, plans and prospects . Your company’s management should welcome such interviews and even initiate them when All continuous disclosure documents possible . Management should also seek opportunities to appear before local investment filed in Canada are made available to societies or groups of securities analysts who meet regularly to hear presentations by the general public through the SEDAR senior management of public companies . website . Such documents cannot be posted only on your company’s Web site . Many companies maintain an up-to-date investor relations package for securities analyst presentations and general corporate publicity . This package may include a The public potentially has access description of the company and its products or services, a brief history of the company, to information about your company information on its management team, selected financial data and any other information through many other websites . Securities considered relevant . commission databases, exchange websites, financial news organizations, investment dealers, investment research organizations, blogs, discussion boards and many other sites will contain information about your company that the public may access in researching and analyzing your company . Your investor relations strategy may include monitoring the nature of information about your company on the Internet .

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FURTHER Information

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TAX CONSIDERATIONS

While certain tax advantages will be lost by private corporations . For example, than non-CCPCs . CCPCs are also entitled when the company becomes public, when an individual realizes a capital gain to cash refunds on a portion of their other opportunities can be created . of $100, the individual pays income tax expenditures if they are not able to use It is therefore important to conduct on half of the capital gain; the other half the ITCs to offset federal income taxes a complete review of corporate and is not taxed . When a private corporation payable . Certain provinces offer ITCs that personal tax arrangements during the realizes the same capital gain, the private may vary, depending on whether or not planning stages before a public offering . corporation is taxed on half of the gain and the corporation is a CCPC . Proper tax planning can enable the the other half is added to the corporation’s Corporate restructuring company and its shareholders to enhance CDA . The CDA can be distributed as a Corporate restructuring prior to a public tax benefits prior to going public . It can tax-free dividend to the corporation’s offering may be advantageous for tax also help ensure that the company, once Canadian resident shareholders . When planning or other reasons . It may be public, is structured advantageously the company goes public, it can no longer necessary to reorganize share capital for tax purposes . pay out a tax-free dividend from its CDA . or combine various subsidiaries of a There are differences between the Consequently, if your company has a corporate group or to remove certain taxation of public companies and private balance in its CDA, consider paying a real estate or other assets prior to the ones . Consult with your tax advisers tax-free dividend out of that account offering . In some cases, companies and carefully and thoroughly explore the before going public . have merged with one or more other various tax implications associated with a companies with complementary Refundable dividend tax on hand decision to go public . The following pages operations in order to form a larger, Dividends paid by CCPCs (and certain provide only a brief overview of some more complete organization that will other private companies) may trigger a of the more significant aspects of tax have stronger investor appeal . planning that you should consider . tax refund to the company in the year the dividends are paid . The tax refund is A variety of tax-effective methods are Like most business decisions, the decision calculated by reference to the amount available to accomplish the restructuring to go public involves tax implications and of the dividend and the balance in the of corporations or partnerships or to considerations, for both your company and company’s notional RDTOH account . The transfer assets with no immediate tax its shareholders . RDTOH account tracks “refundable taxes ”. consequences . These methods include For example, the RDTOH is increased amalgamations, windups, certain asset Corporate tax issues by a portion of the federal tax paid on sales and share-for-share exchanges . Small business deduction certain types of investment income and Exercise care when planning corporate Privately-held corporations that are certain dividends received by private restructurings as there are often very controlled by Canadian residents corporations . In order not to lose the tax complex . Adverse tax consequences may (referred to as Canadian-controlled private refund, dividends should be paid prior to result or opportunities may be missed . corporations or CCPCs) are entitled to a the company’s going public . Commodity taxes reduced corporate tax rate on a portion Investment tax credits The implications of taxes other than of their active business income . When a Investment tax credits are earned by income taxes are often overlooked in corporation becomes publicly held, the doing qualified research and development connection with corporate restructurings reduced rate is no longer available . in Canada . Federal ITCs are available prior to going public . Various commodity Capital dividend account to offset federal income taxes payable . taxes, such as goods and services tax, The capital dividend account is a concept The rate of ITCs available for qualified excise tax, retail sales tax and land used to complete the integration of R&D expenditures depends on the type transfer tax, may have a substantial corporate and personal income tax on of corporation . CCPCs are entitled to a impact on any transaction in which capital gains (and other receipts) realized higher ITC rate for R&D expenditures ownership of goods is involved .

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As with planning for income taxes, it If a non-CCPC or public company grants Estate planning is important that the commodity tax options, tax is generally payable by the If tax or estate planning arrangements implications of a proposed transaction employee when the stock option is currently in place are unique to your be thoroughly analyzed, taking care that exercised . The taxable employment benefit company, you may need to make the proposed transaction does not give is reduced by one-half provided the shares changes to bring them in line with what rise to an unwarranted sales tax liability . are considered to have the characteristics is acceptable for public corporations . of common shares, the employee deals Other tax implications If you have no such estate planning at arm’s length with the company, and Other tax implications for a private arrangements in place, it is often the exercise price is not less than the fair corporation going public include: convenient to implement them when market value of the shares at the time the your company is going public and you • Acquisition-of-control rules – There may option was granted . expect growth in the value of the public be an acquisition of control if a new If options are granted by a CCPC, tax is company . Estate freezing, a commonly- person or group of persons controls the payable by the employee only when the used technique in estate planning, involves corporation after it becomes public . This employee subsequently sells the shares . issuing shares to other family members change results in tax consequences, The half deduction is also available if the so that subsequent growth in the value including a deemed taxation year-end, shares are held for at least two years . If of the public company accrues to the an automatic write-down of accrued the two-year holding period is not met, other family members – usually children losses on various types of assets the deduction could still be available if the or grandchildren . For example, a holding and restrictions on the availability of conditions above for non-CCPCs are met . company could be set up and the existing losses incurred before the acquisition owners of shares of the company going of control Enhanced dividend tax credit public could transfer those shares to the Although CCPCs are entitled to a reduced • Reassessment period – The federal new holding company for fixed-value corporate tax rate on a portion of their and provincial reassessment period preferred shares . Other family members active business income and are entitled to is extended by a year for a public could subscribe for common shares of the “refundable taxes” on certain investment corporation holding company that would appreciate in income, a higher tax rate is applicable to • Deadline for payment of taxes – Final value as the shares of the public company dividends paid to individual shareholders . payment of taxes payable for “small” does, with all future appreciation of those CCPCs is due three months after the A higher dividend tax credit rate applies shares accruing to them . end of a taxation year, rather than two to dividends (eligible dividends) paid to Increasing tax cost months after the end of a taxation year Canadian individual residents by public It is possible to increase the tax cost of for a public corporation . companies and by CCPCs out of income shares of a corporation by the amount of taxed at the federal general corporate rate . previously-taxed retained earnings of the CCPCs cannot pay eligible dividends from Shareholder tax issues corporation through a carefully planned income that has benefited from the small Stock options series of transactions . It may be beneficial business deductions or investment income Stock options can be an effective tool to crystallize such retained earnings that is subject to refundable tax treatment . to enhance employee motivation and into the tax cost of the shares prior to loyalty, and can provide employees Capital gains deferral implementing the IPO . with significant tax advantages . Stock Individuals are able to defer the Capital gains exemption options are generally more attractive for recognition of some or all of their capital It may be advantageous for individual employees of public companies as the gains arising on the disposition of eligible shareholders to file an election to deem shares acquired have a ready market . CCPC shares (referred to as small to have the shares of the private company From a tax perspective, employees must business investments), to the extent the disposed of prior to the company’s report any benefits derived from the proceeds received are used to make other becoming public . This filing would allow exercise of the options as an employment small business investments and provided the individual to crystallize accrued benefit . The tax treatment of stock options that certain other conditions are met . This capital gains by triggering a capital gain issued by private and public companies rollover is not available on shares of public and utilizing any available capital gains differs in some respects . corporations .

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exemption . Consideration should be given shares, they do not need to include any • Accounting or auditing fees in to the amount of any unrealized capital amount of the taxable benefit in their connection with the preparation of gains on other qualifying properties held employment income . This exemption reports on financial statements and by the individual and the anticipated date applies if certain requirements are met . review of statistical data for inclusion of disposition of those assets . in the prospectus Deductibility of IPO-related costs • Cost of printing the prospectus and Deferred income plans A corporation undertaking an IPO may share certificates One advantage of owning shares of a likely incur IPO-related expenses . The public company is that the shares qualify deductibility of the full amount of the • Filing fees required by any public more easily as investments for deferred expense will depend on whether it can be regulatory body with which the income plans (such as RRSPs), compared argued that it was incurred prospectus must be filed for with privately held shares that qualify only on account of income or capital . Certain acceptance . in limited circumstances . expenses related to going public may Certain expenses may be deductible on generally be deductible over five years . Charitable donations a current basis, while still others may From a tax perspective, an advantage in Some examples of these expenses qualify as “eligible capital expenditures ”. owning shares of a public company relates include: Seventy-five percent of eligible capital to charitable donations . To encourage expenditures are deductible on a declining • Commissions or fees paid to securities donations of publicly listed shares to balance basis at a rate of seven percent dealers charities, the donor will be exempt per year . Finally, certain expenses may not from any capital gains tax . Similarly, if • Legal fees in connection with be deductible for tax purposes . A careful employees of publicly-held companies the preparation and approval review of all expenses incurred should exercise a stock option and donate the of a prospectus be conducted .

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MARKETS AND FORMS OF GOING PUBLIC

This chapter provides a brief overview included in an IPO prospectus from three a company should carefully evaluate all of alternatives available to Canadian to two years . Other concessions have factors and assess its readiness before companies – listing on Canadian been permitted related to interim MD&A, deciding to go public in the US . exchanges, listing on certain exchanges business history and significance tests on In 2012, the JOBS Act was signed into outside Canada (US and UK), or taking business acquisitions . law . One of the main objectives of this the route of a capital pool company legislation was to increase the number of structure for listing in Canada . Going public in the companies electing to complete an IPO The information in this chapter on US and to provide those companies a transition and UK exchanges highlights only the United States period, or, “on-ramp,” to the public market . significant differences between listing on The market size, investor interest and the The IPO on-ramp provisions, which are those exchanges and listing on the TSX . visibility of the US securities marketplace contained in the act, reduce a number of Consult your advisers before making the has made it one of the most attractive and disclosure, corporate governance and other decision to list on other markets or when popular sources of capital in the world . regulatory requirements for a new category considering other forms of going public . of issuer, referred to as an “emerging Market growth company” . As in Canada, the US securities Going public in Canada marketplace comprises exchanges and The on-ramp provisions of the JOBS Act offer EGCs a number of incentives during and Most Canadian companies choose to OTC markets . and is mainly regulated after the process of going public, including: establish a listing on a Canadian exchange . by the SEC . Each state may have its own The TSX, the senior equity market, has securities laws, although many states • Confidential submission and review established certain basic requirements for have adopted the Uniform Securities of the IPO registration statements – its listings . The TSXV provides emerging Act to ease the process of filing in thereby allowing EGCs to explore companies with access to public equity multiple states . the possibility of an IPO without capital . Its minimum listing requirements The largest stock exchanges in the US are exposing any confidential information are tailored to a company’s industry the NYSE, NASDAQ and NYSE MKT LLC, to competitors or the market generally sector, stage of development, financial but other regional stock exchanges exist until 21 days before it beings to the performance and operational resources . across the country . conduct it’s road show and without risking the humiliation related to pulling Detailed information on these two Process the IPO should the EGC feel necessary exchanges is readily available on the The process for going public in the US TSX website . We therefore encourage • Reduced financial statement audit and is generally similar to the process in you to visit that site for the most current disclosure requirements – EGCs will be Canada . The benefits of having access to information . required to disclose only two years of a much larger and diverse investor base audited financial statements (including The TSX Venture Exchange also offers a should be weighed against the additional those of acquired businesses) rather special listing vehicle, the capital pool costs to be incurred for compliance with that the original three year requirement, company program, described at the end of more extensive and complex accounting, two years (rather than five years) of this chapter . auditing and reporting standards for selected financial information for the Recent amendments to prospectus listed companies in the US . The costs years including and after the earliest requirements provide additional relief to of non-compliance to the company in audited period presented and two years venture issuers by reducing the number of terms of damage to reputation and risk of MD&A for the periods covered by the years of audited financial statements to be of litigation can be extensive . Therefore, audited financial statements

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• Reduced executive compensation can use its tradable common stock as Public company compliance disclosure requirements – the act has full or partial consideration for future requirements streamlined and simplified disclosures, transactions . Annual and quarterly reports which are required of smaller reporting Public companies in the US must file companies . An EGCs registration Disadvantages of listing in US markets annual reports . The annual reports include statement does not need to include a The costs of an IPO in the US and the audited financial statements prepared in detailed compensation discussion and ongoing costs of continuing as a public accordance with – or for foreign private analysis section or certain tables of company can be high compared with issuers, reconciled to – US GAAP . They executive compensation a Canadian TSX listing . The following also include MD&A and risk factors . The considerations give rise to such • The option to participate in oral annual report must be filed within 90 days additional costs . or written “test-the-waters” after the year-end . communication with certain More complex and extensive Companies must also file quarterly reports institutional or highly-sophisticated standards and securities regulations within 45 days after the end of the interim prospective investors to gauge The core management team and external period . These quarterly reports include the interest before or after filing; and advisers, such as lawyers and auditors, unaudited interim financial statements need to be skilled and experienced in • Exemptions from the attestation of a and contain less information than the dealing with the extensive securities public accounting firm as related to the annual reports . legislation requirements and more issuers internal controls required by complex US accounting and auditing The deadlines for filing the annual and section 404(b) of the Sarbanes-Oxley standards . US disclosure requirements quarterly reports are shorter if the Act, as well as reduced disclosure are onerous, and compliance costs company meets the definitions of an (financial and compensation) for future can be high . “accelerated filer” or a “large accelerated periodic reports and other reports filed filer” under the US securities legislation . with the SEC . Tax considerations The tax regime in the US differs from its Current reports must be filed within four Advantages of listing in US markets Canadian counterpart . Take care in order business days of the occurrence of certain Access to capital markets in the US to ensure that the company and the events and occurrences deemed material The US market offers a company access offering are structured optimally from a to investors . to additional capital because of its volume US tax perspective . A Canadian company Certifications of trading, the appetite of the marketplace listing in the US should be aware of The certification requirements for CEOs and the sophistication of the investors . the tax rules surrounding cross-border and CFOs are conceptually similar to those These elements may not be available in transactions and trades, and should also in Canada, but with some differences in the Canadian marketplace . The additional consider its responsibilities and obligations form and content . The main difference liquidity for securities listed in the US with respect to any withholding tax is that companies have to certify on the may also enhance shareholder value and requirements . operating effectiveness of ICFR and this decrease the company’s cost of capital . Litigation risks and cost of litigation certification must also be accompanied Increased exposure and liquidity Relative to the Canadian environment, by an auditors’ report something that is Listing in the US can help a company gain the US has a higher risk of litigation . not required under current legislation in increased exposure and build reputation Contributing factors include the extensive Canada . However, this is a requirement in the marketplace . This profile may make and onerous securities rules and reporting of companies listed in the US under the the company more attractive for mergers requirements for which compliance may requirements of the Sarbanes-Oxley with other US companies . It can also give be more difficult; the higher number Act (SOX) of 2002, which meet certain a company the opportunity to acquire US of awards in corporate cases, relative requirements primarily based on market currency for undertaking US transactions to Canada; and, in general, stronger capitalization . Also on EGC is exempt . In and can enable it to increase its customer corporate and public attitudes toward the year of going public, the requirement base . Additionally, a public company corporate litigation . to certify on the operating effectiveness

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of ICFR is waived for management . Canadian companies must file the that any company wishing to list with AIM Also in the US, you get one year off for applicable Canadian prospectus with the must adhere to the Exchange’s AIM Rules . management auditor . Furthermore, no SEC and provide additional information The first step join AIM is to identify auditors report on ICFR is required . required by the MJDS registration form . and appoint a Nominated Adviser The registration form requires companies (Nomad) who will help the company Listing and reporting options for to reconcile their financial statements to come to market . Nomads have a Canadian companies US GAAP, unless the reporting framework deep understanding of the needs and is IFRS . The SEC will generally not review Foreign private issuer aspirations of companies seeking the prospectus, as it relies on the review A company that is listed on a US exchange admission to AIM and are highly by Canadian regulators . but is incorporated outside the US (other experienced in guiding them through than a foreign government) is considered A similar process is available to US the process of going public . Refer to the to be a “foreign private issuer,” unless companies filing in Canada . LSE for a full listing of approved Nomads . more than 50 percent of its outstanding voting securities are held, directly or The issuer must also select other advisers indirectly, by US residents and any one Going public in the United who will be integral in supporting a company of the following statements is true: through the admission process . These Kingdom advisers usually include an underwriter, • The business is principally administered The London Stock Exchange (“LSE”), being law firms, public accountants and investor in the US one of the old exchanges and one of the relations firms . After selecting its advisers, • A majority of its executive directors or world’s most prominent capital markets . the company will need to prepare an officers are US citizens or residents . The LSE comprises of four main markets: admission document that includes details about its directors, financial position, • More than 50 percent of its assets are Main Market business activities and strategy . This located in the US . The Main Market enables companies to is prepared in close consultation with Only in conjunction with your legal counsel access capital and gain the key benefits the Nomad . should you make the decision whether of higher profile and liquidity . The Main Market is regulated by the UK Listing Professional Securities Market (PSM) a company meets the definition of a Authority and requires companies to The Professional Securities Market is foreign private issuer . If a company meets meet its high standards of disclosure, a specialized market designed to suit the definition, it may be able to avoid or governance and regulation . It classifies the specific needs of raising of capital lessen certain onerous requirements for listing companies as either in the Premium through the issue of specialist debt domestic registrants, including quarterly segment or the Standard segment, securities or depositary receipts (DRs) reporting and US proxy rules . these classifications help determine the to professional investors . The US/Canada Multi-jurisdictional standards and regulations, which will apply Issuers of debt or DRs are not required Disclosure System to the listed entity . to report historical financial information The MJDS is a joint initiative of the CSA Alternative Investment Market using IFRS or an equivalent standard, and the SEC to ease the process for either in listing documents or as a AIM, launched in 1995, is a market Canadian companies listing in the US as continuing obligation . Instead, issuers can regulated by the London Stock Exchange . well as US companies listing in Canada . use their domestic accounting standards . It allows qualified Canadian companies It was specifically designed for growing to issue securities in the US and meet markets and targets smaller, growing Specialist Fund Market (SFM) companies . An AIM listing provides their reporting obligations on the basis of The SFM is the London Stock Exchange’s companies with access to markets in disclosure documents prepared in Canada regulated market for highly-specialized London and Europe . and reviewed by Canadian regulators, and investment entities that wish to target vice versa . In order to qualify, companies AIM has been designed with for the institutional, highly knowledgeable should have a public float of at least needs of emerging companies and is an investors or professionally advised US$75 million . exchange regulated market, which means investors only .

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The SFM targets specialist investment for quarterly filings and 90 days for Through the IPO, the CPC must raise a managers seeking a flexible and adaptable annual filings) . minimum of $200,000 and a maximum route to accessing permanent capital from of $4,750,000 . The maximum amount a highly-sophisticated global investor base . Disadvantages of the CPC program that a CPC can raise before completing Generally speaking, investment managers • There is less liquidity and recognition a qualifying transaction is $5,000,000 . handling large hedge funds, private equity due to lower prominence and coverage CPCs also have to comply with policies funds and certain emerging market and of the TSXV among the analyst community that dictate the type of business they specialist property funds are the key can conduct, the payments prohibited players within the SFM . • Investors generally invest in a CPC at to be made to non-arm’s-length parties a low price and therefore tend to sell and how the proceeds obtained from the quickly once they are able to recognize Capital pool company initial IPO are permitted to be used . For a profit on the sale . The capital pool company program is example, the only business permitted operated by the TSXV . The program serves Process to be undertaken by a CPC is identifying as a corporate finance vehicle, providing Going public through the CPC involves and evaluating assets or companies companies with an opportunity to obtain two main stages . The first stage includes with a view to completing a qualifying financing earlier in their development incorporating the CPC, initial financing transaction and, unless the qualifying compared with what might be possible by the founders, completing the IPO and transaction is completed, a CPC must through a normal IPO . The program listing on the TSXV . The second stage not carry on any business . Similarly, permits a newly created CPC that has completes the qualifying transaction, in no form of remuneration can be paid no assets other than cash and has not which the CPC acquires significant assets to a non-arm’s-length party until the and lists the company on the TSXV as a commenced commercial operations, qualifying transaction is completed; the Tier 1 or Tier 2 company . to conduct an IPO and achieve a listing only permitted payments are reasonable on the TSXV . The CPC then uses these Specific requirements govern the minimum expenses for office rent and related funds to identify and evaluate assets and number of shares to be issued and utilities, certain equipment leases, office companies for acquisition . shareholders for the formation of a CPC . supplies, certain legal expenses and Similarly, minimum market distribution certain expenses incurred in identifying Advantages of the CPC program requirements determine whether you qualify assets or companies for completing the • The owners start out with an existing as a Tier 1 or Tier 2 company . Additionally, qualifying transaction . shareholder base that can help address each stage has specific requirements for any future liquidity issues filing an information circular, prospectus, Making the decision certain financial statements and consents Policy 2 .4 of the TSX Venture Exchange • The owners are able to obtain a listing from your auditors . Corporate Finance Manual provides more quickly To form a CPC, the principals will a detailed description of these • The owners will deal mainly with contribute an amount between $100,000 requirements . If you are thinking of going the stock exchange rather than the and $500,000 through the purchase of public through the CPC program, consult securities commissions seed shares of a company incorporated with your legal and accounting advisers . • The reporting requirements on the in a Canadian jurisdiction . The minimum Before making any decisions, ensure you TSXV are less onerous, and the price for the sale of seed shares is $0 .05 are fully aware of all the requirements filing deadlines are longer (60 days or 50 percent of the price at which shares and have a good understanding of for quarterly filings and 120 days for are sold to the public on the IPO . The CPC the process and how it will affect you annual filings) than the TSX (45 days will then proceed with the IPO process . and your existing business .

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ACRONYMS DEFINED

AIF Annual Information Form ICFR Internal Control over POP Prompt Offering Prospectus Financial Reporting AIM Alternative Investment R&D Research and Development Market IFRS International Financial RDTOH Refundable Dividend Tax Reporting Standards CCPC Canadian Controlled Private on Hand Corporation IPO Initial Public Offering RRSP Registered Retirement CDA Capital Dividend Account ITC Investment Tax Credit Savings Plan CPA Chartered Professional LSE London Stock Exchange SEC Securities and Exchange Accountants of Canada Commission MD&A Management’s Discussion & CSA Canadian Securities Analysis SEDAR System for Electronic Administrators Document Analysis and MJDS Multijurisdictional Disclosure Retrieval CEO Chief Executive Officer System SEDI System for Electronic CFO Chief Financial Officer NASDAQ National Securities Dealers Disclosure by Insiders Automated Quotation CSE Canadian Securities System TSX Toronto Stock Exchange Exchange NEO Named Executive Officer TSXV Toronto Stock Exchange – CPC Capital Pool Company Venture Nomad Nominated Adviser EDGAR Electronic Data Gathering UK United Kingdom Analysis and Retrieval NYSE New York Stock Exchange US United States FOFI Future-Oriented Financial OSC Ontario Securities Information Commission GAAP Generally Accepted OTC Over-the-counter Accounting Principles

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GLOSSARY

Aftermarket: The public market for a Consent letter: A letter provided by Founder stock: Shares issued to selected company’s securities after the IPO . the company’s independent auditors to persons (e .g ., company insiders and Also known as the secondary market . the company consenting to the use of its promoters) prior to a public offering at a report in the prospectus . price less than the public offering price . Analyst: A person, often employed by a firm of investment dealers, who follows Core operations: See value chain . Green-shoe option: See over-allotment certain companies and analyzes their option . Dilution: The effect on the prospective financial statements for the purpose of purchasers’ equity interest caused by a Green sheet: A sheet prepared by the providing investment advice . disparity between the public offering price underwriters, summarizing information Annual general meeting: A meeting that per share and net tangible book value contained in the prospectus and is held by companies on an annual basis, per share of the company immediately information on comparable companies, allowing management to report on the preceding the offering . to assist registered securities dealers in progress of the company over the past year understanding the key elements of an Disclosure controls and procedures: to the shareholders and others who may offering . Controls and other procedures designed attend the meeting, such as analysts and to provide reasonable assurance that Insider trading: Trading in a company’s members of the media . It also provides information required to be disclosed by a securities by company insiders or others an opportunity for the shareholders to company under the applicable securities with access to non-public information interact with management and to vote on legislation is recorded, processed, about the company . significant issues facing the company . summarized and reported on a timely basis . Investment bankers or dealers: Financial Best-efforts underwriting: An agency Due diligence: The responsibility of those institutions that specialize in advising agreement in which the underwriters preparing and signing the prospectus to companies on available sources of agree to use only their best efforts to sell conduct a reasonable investigation so financing and on the optimum time for the shares on the company’s behalf . The underwriters do not commit to purchase as to provide a reasonable basis for the a public offering of securities; often also any unsold shares (See, in contrast, belief that the statements made in the act as underwriters for a public offering . prospectus are true and do not omit any firm-commitment underwriting) . Internal control over financial reporting: material facts . Black-Scholes model: A mathematical The process (including all policies model developed by Fischer Black and Escrow agreement: An agreement and procedures) designed to provide Myron Scholes used to calculate the generally imposed by a securities reasonable assurance regarding the value of options and other underlying commission that specified securities reliability of financial reporting and the derivatives . (usually common shares) will be held by preparation of financial statements for a trustee for the account of a shareholder external purposes, in accordance with Capitalization or capital structure: and that they may not be sold, assigned, generally accepted accounting principles . The company’s debt and equity structure . released from escrow or transferred Lead underwriters: Also known as within escrow without the express Closing meeting: The final meeting for principal underwriters, they organize consent of the securities commission . the purpose of exchanging company the underwriting syndicate and are the securities for the proceeds of the offering . Exercise price: The fixed price at which an primary contact with the company . option holder can purchase the underlying Comfort letter: A letter provided by Letter of intent: A preliminary, securities of the company . Also known as a company’s independent auditors non-binding agreement between the strike price . detailing procedures performed at the underwriters and a company specifying request of the underwriters . This letter Firm-commitment underwriting: A the terms that will be contained in supplements the underwriters’ due type of underwriting agreement in which the actual underwriting agreement . diligence review . the underwriters agree to purchase all This letter precludes a company from Comment letter: A letter from the staff the shares in the offering and then resell hiring another underwriter and often of a securities commission describing them to the public . Any shares not sold authorizes the underwriters to incur deficiencies noted in its review to the public are paid for and held by the expenses in connection with the of a preliminary prospectus . underwriters for their own account . proposed offering . kpmg .ca/ipo

Market makers: The lead underwriters securities (See, in contrast, secondary Secondary market: See aftermarket . and some or all of the co-underwriters who offering) . Secondary market civil liability regime: offer to buy or sell shares from the public, Principal jurisdiction: The securities A regime that provides a right of action helping to sustain financial community commission of the province or territory for damages to a person or a company interest and provide aftermarket support selected by the company to coordinate the that acquires or sells securities of the for a company’s shares . review of a prospectus filed in more than responsible company based on either National policies: Policies developed one province or territory . a misrepresentation made in a public jointly by the provincial securities document or an oral statement or a failure Private placement: Sales of securities commissions to facilitate the acceptance to provide required timely disclosures . These not involving a public offering and exempt of a prospectus in more than one statutory rights potentially apply against the from prospectus requirements pursuant to province and to provide for uniformity of responsible company, its directors, officers, certain specific exemptions . administration of interprovincial offerings . influential persons, and experts . Promoter: Those who took the initiative Non-GAAP financial measure: A Secondary offering: A public offering of in founding the company and those who numerical measure of a company’s shares owned by existing shareholders received in connection with its founding historical or future financial performance, (See, in contrast, primary offering) . and in consideration of services or financial position or cash flow that is property contributed 10 percent or more Securities and Exchange Commission not required by GAAP, which (1) either of the shares of either the company or (SEC): The US agency responsible for the excludes amounts that are included in proceeds from the sale of the shares of administration of US federal securities laws . the most directly comparable measure the company . calculated and presented in accordance Strike price: See exercise price . with GAAP; or (2) includes amounts Prospectus: A legal document that Transfer agent: See registrar and transfer that are excluded from the most directly discloses information about the company agent . comparable measure calculated and and the offering and is distributed by the Underwriters: The lead underwriter presented in accordance with GAAP . underwriters to prospective investors . Its content is specified by securities acts and and the other investment dealers that Over-allotment option: An option regulations . Also referred to as the offering form the underwriting syndicate . Their allowing the underwriters to purchase document . primary function is to sell securities to up to a specified number of additional the investing public (See also investment shares from the company in the event Proxy: A shareholder’s written bankers or dealers) . they sell more shares than agreed in the authorization for some other person to Underwriting agreement: An agreement underwriting agreement (also known as a represent that shareholder and vote the containing the details of the company’s green-shoe option) . respective shares at a shareholders’ meeting . arrangements with the underwriters, Over-the-counter market: The market for including the type of underwriting (i .e ,. securities not listed on a stock exchange . Red herring: The preliminary prospectus best efforts or firm commitment), the that is distributed to the underwriters Pre-emptive rights: The right of a underwriters’ remuneration, the offering for further distribution to prospective shareholder to maintain his or her price and the number of shares . investors . It includes a narrative in red proportionate share of ownership in a ink on the cover (a red herring) stating Underwriting syndicate: The group company by subscribing to a proportionate that the prospectus is not yet final (See of underwriters or investment dealers share of new securities being issued by preliminary prospectus) . assembled by the lead underwriters to the company . sell securities . Registrar and transfer agent: An agent Preliminary prospectus: The preliminary Value chain: The sequence of direct for the company that issues the securities prospectus is filed with the securities activities that add value to the customer . In a sold to investors, maintains current commissions and provided by the manufacturing company, these may include records of all shareholders and their underwriters to prospective investors . design, purchasing, fabrication/assembly, addresses, and maintains the records It does not disclose the offering price, distribution, marketing and sales functions . for subsequent transfers of securities underwriters’ commission or net upon resale . Vesting: The act of becoming fully entitled proceeds . Also known as a red herring . to the stock option grant . Road show: A series of meetings in Price-earnings ratio: The price of a different locations allowing members of Working group: The parties involved share of common stock divided by the underwriting syndicate and certain in preparing the prospectus, including earnings per share . prospective investors to ask company’s company management, the company’s Primary offering: An offering by management questions relating to the lawyers, auditors, underwriters and the a company of previously unissued company and the offering . underwriters’ lawyers . kpmg .ca/ipo

APPENDICES

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APPENDIX 1: CONTENTS OF A PROSPECTUS

This appendix provides a brief description • The securities to be distributed, • Nature and result of any material of the main contents of a prospectus . including the offering price and reorganization of the company expected net proceeds National Instrument 41-101, General • Any patents, trademarks, licenses, Prospectus Requirements, includes • Use of proceeds franchises and concessions held Form 41-101F1, which specifies the • Risk factors • Any significant dependence on a contents of a prospectus filed at the • Summary of financial information product or service time of an initial public offering. (This particular requirement cannot be • Changes in the business during the Cover page satisfied by a cross-reference to another current financial year . section of the prospectus) . Shows key facts about the offering, Refer to paragraph 5 .3 to 5 .5 of 41-101F1 including the name of the company; the Corporate Structure for specific requirements when the issuer title, amount and a brief discussion of has asset-backed securities outstanding, Provides the full corporate name, location the securities offered; a table showing mineral projects, and oil and gas of its principal or lead and registered the offering price, underwriting discounts operations . offices, details of its incorporation and and commissions and proceeds to the a description of the inter-corporate company; over-allotment options and the Use of proceeds relationships among the company and its date of the prospectus . Discloses the estimated net proceeds subsidiaries . to be realized from the offering and the Risk factors and the market for the business objectives the issues expects to company’s securities (e .g ., conditional Describe the business accomplish using the net proceeds as well approval for stock exchange listing) or the Provides investors with insight into the as significant events that must occur for fact that no market exists, are disclosed . company’s business operations . Items the business objectives to be achieved in The names of the underwriters involved addressed in this section generally the specified time period defined . If any with the offering is also disclosed . include: provisions or arrangements are made for Table of contents • The business carried on and intended to a portion of the net proceeds to be held be carried on by the company Usually included in the inside cover page in trust or to be subject to the fulfillment of the document . • General development of the company of any conditions, the details of these and the business during the last three circumstances are disclosed . Particular Summary of Prospectus years; for venture issuers two years will disclosures are required if more than Provides an overview of the information be required 10 percent of the net proceeds are to be contained in the prospectus, both used to acquire assets, or to reduce or • Principal products or services and their favourable and adverse, that in the opinion retire indebtedness incurred within the markets of the company is most likely to influence two preceding years . an investor’s decision to purchase the • All material acquisitions and dispositions security . The summary should include a by the company during the past three Dividends or distributions description of: years and the impact of these on the Discloses the cash dividends or operating results and financial position distributions declared for each class of • The principal business of the company of the company; for venture issuers two securities for the current and for each and its subsidiaries years will be required of the three most recently completed financial years . A company is also required

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to disclose any restrictions that could implications and often is accompanied Escrowed securities and securities prevent it from paying dividends or by the auditors’ commentary or lawyers’ subject to contractual restriction distributions, as well as its dividend opinion with respect to the tax implications . on transfer or distribution policy and any intended When shares are offered, the description Outlines the type and number of each change in such policy . of the security, dividend and voting rights, class of voting securities of the company and liquidation and conversion rights are held in escrow under an escrow MD&A disclosed . The terms of any warrants or agreement or that are subject to a MD&A is supplemental analysis and rights offered are also described . When contractual restriction on transfer and the explanation that accompanies, but does debt is offered, the interest rate, maturity, percentage that number represents of not form part of the financial statements . security, redemption, sinking fund and the outstanding securities of that class . MD&A provides management with the conversion rights are described . opportunity to explain in narrative form The company should also disclose the the company’s current financial situation Consolidated capitalization name of the depository, if applicable . When conditions governing the release and future prospects . MD&A is intended Discloses the company loan and share of the shares from escrow exist, the to allow investors to look at the company capital structure, both before and after conditions are detailed . through the eyes of management by the offering since the date of the issuers providing both a historical and prospective financial statements for its most recently Principal shareholders and selling analysis of the business of the company . completed financial period included in the security holders The securities legislation requirements prospectus . The pro forma capital structure Discloses the identity of the holder, for the information to be reported in the after the offering is adjusted to reflect the number of securities held, and the annual and interim MD&A are extensive . the securities issued and the intended percentages of each class of securities Management will need to devote a use of the proceeds (e .g ., to reduce for each principal and selling shareholder, considerable amount of time and effort long-term debt) . if any . A principal shareholder is a person to comply with the requirements, as the or company that is the direct or indirect Options to purchase securities MD&A may not have been prepared by beneficial owner of or exercises control the company prior to going public . Describes the type and number of or direction over more than 10 percent of securities, the purchase price and, any class or series of voting securities of Earnings coverage ratios when ascertainable, the market value of the company . Discloses earnings coverage ratios for options to purchase securities from the distributions of preferred shares and for company or any of its subsidiaries . The Directors and executive officers distributions of debt securities having a prospectus should also provide detail Lists the names and municipality of term to maturity in excess of one year . on by whom the securities are held residence of each director and executive Cash flow coverage disclosure may be or proposed to be held and which are officer, and indicates their respective used only as a supplement to earnings outstanding as of a date within 30 days positions and offices with the company coverage, and only if the method of prior to the date of the preliminary and their principal occupations within calculation is fully disclosed . Disclose prospectus . the five preceding years . This section the dollar amount of the numerator also requires a disclosure of existing or required to achieve a ratio of one-to-one, Prior sales potential conflicts of interest between if the earnings coverage ratio is less that If you have issued securities of the same the company or a subsidiary, and a one-to-one . class within the last 12 months, the director or officer of the company or prospectus should disclose details about a subsidiary . Board committees are Details of the offering these issues, including the number, price disclosed and the members of each Describes the securities being offered, range, volumes traded, etc . committee are identified . including a description of any income tax

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Executive compensation Plan of distribution Promoters Includes a Statement of Executive Describes the underwriting and plan of Discloses the names and ownership Compensation that contains significant distribution for the securities offered, interests; the nature, ownership and amount disclosures regarding compensation, including the names of the underwriters in of tangible assets (e .g ., real property) or including aggregate remuneration paid the group, the nature of the underwriters’ intangible relationships (e g. ., contract for or payable with respect to office or obligation (e .g ., firm commitment or service) of promoters within the last two employment, pension benefits and the best efforts) and the date by which the years immediately preceding the date of aggregate of other forms of remuneration . underwriters will purchase the securities . the prospectus . Additional disclosures are The prospectus must describe any When the distribution is a best-efforts required if the promoter has been a director, intention to make material changes to offering, disclosure is also made of chief executive officer or chief financial that compensation . any minimum amount required to be officer in the previous 10 years of the raised, the maximum amount that can prospectus date . Indebtedness of directors and executive be expected to be raised, and the date officers until which the offering will remain open . Legal proceedings and regulatory Provides extensive disclosure of the types, Additional disclosures may be required actions amounts and terms of indebtedness of in certain circumstances when the Describes any material legal proceedings, each individual who at any time during distribution is to fund a new business . whether pending or contemplated as well the most recently completed financial as other than ordinary routine litigation year was a director or executive officer Risk factors incidental to the company . Disclosure is of the company . There are some exceptions Highlights factors material to the also required of any penalties or sanctions available for “routine” indebtedness . company that a reasonable investor imposed by a court relating to securities would consider relevant to an investment legislation or by a securities regulatory Audit committees and corporate in the securities distributed, such as authority and any settlement agreements governance cash flow and liquidity problems, if entered into with such court or regulatory Discloses information about the any; experience of management; the authority . company’s audit committee and its general risks inherent in the business; corporate governance practices . environmental and health risks; Interest of management and others in Regarding the audit committee, a reliance on key personnel; the arbitrary material transactions company is required to disclose establishment of the offering price; Describes and states the approximate the audit committee’s charter and regulatory constraints; economic or amount of any material interest of the composition, fees paid to external political conditions; absence of operating directors, executive officers, principal auditors, pre-approval policies history or operating profit; and any other shareholders, and their associates or and applicable oversight disclosures matter that in the opinion of the company affiliates in any transaction within the among other things . or selling security holder would be likely preceding three years, or any proposed Regarding corporate governance, the to influence the investor’s decision to transaction that has materially affected company is required to disclose the purchase the securities . The risks should or will materially affect the company or identity of both independent and non- be disclosed in order of their seriousness . any subsidiary . independent directors, the mandate of the Information is also provided in situations board, position descriptions, process for in which the purchaser of the offered Auditors, transfer agents, and registrars determining compensation and nomination securities may become liable to make Provides the names and addresses of the of directors, other committees, and additional payments beyond the price company’s auditors, transfer agents and assessment process among other things . of the security . registrars .

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Material contracts some fashion . Such information may Unaudited interim financial Describes briefly the nature, parties, include, but is not limited to: statements Includes unaudited interim financial dates, and consideration of all material • Previously audited financial statements statements for the most recently contracts entered into within two years and financial statements to be, or in the completed interim period ended more of the date of the prospectus . These process of being, audited contracts must also be made available than 45 days before the date of the • Unaudited interim financial statements for public inspection . prospectus (60 days for issuers listed • Audited annual and unaudited on the venture exchange) . An interim Experts interim financial statements for period is defined as a completed three, Disclose each person or company who an acquired company six, nine-month period that commenced is named as having prepared or certified • Pro forma financial statements . immediately following the end of the most recently completed financial year . a report, valuation, statement or opinion Previously audited financial in the offering document, in addition statements Financial statements of an acquired state the profession or business which Audited financial statements complete with company gives authority to the report, valuation, their notes which comply with IFRS, for a If the company is proposing to make a statement or opinion . prescribed number of years are typically significant probable acquisition or has required in a long-form prospectus . made a significant acquisition during the Other material facts current or any of the past three completed Preparation of these financial statements Discloses any other material facts relating fiscal years, the company may need to often leads to certain compilation, to the offered securities, not disclosed include prescribed financial statements accounting, and auditing issues, such as: elsewhere, that are necessary in order of the acquired company . for the prospectus to contain full, true • The need to adjust financial statements Pro forma financial statements and plain disclosure . to comply with standards for To assist investors in understanding the public companies (e .g ., segmented nature and effect of proposed transactions Rights of withdrawal and rescission information, tax-rate reconciliation, contemplated in the prospectus, pro forma Discloses the statutory rights of earnings per share) withdrawal exercisable within two financial statements may be required or • The treatment of changes in accounting business days after receipt or deemed desirable . In such cases, actual historical policies and corrections of prior-period receipt of a prospectus and the applicable cost financial statements are adjusted errors that arose during the period statutory remedies for rescission or to reflect the proposed transactions . Pro covered by the statements and that damages in the event the prospectus forma financial information may be used have retroactive impact contains a misrepresentation . to reflect significant business acquisitions • The treatment of operations and dispositions, reorganizations, unusual List of Exemptions from Instrument discontinued during the period covered asset exchanges and debt restructurings . by the financial statements List all exemption from the provisions Future-oriented financial information of the Instrument (NI-41-101) and the • The preparation of notes to the Future-oriented financial information is not related forms, granted to the issuer financial statements, requiring careful required to be included in a prospectus applicable to the distribution or the consideration of previous disclosures or offering document . The OSC will allow prospectus . and events subsequent to the previous forecasts or, in some cases, projections reporting dates to be included provided they meet the Financial statements • The need to evaluate accounting stringent requirements as set out by Securities legislation prescribes an policies previously followed to the securities regulators . If you intend array of financial information to be determine if any will result in difficulties to include FOFI in your prospectus, disclosed in a prospectus on which the in obtaining clearance from the various consult your legal counsel to gain an auditors may be required to report in securities commissions . understanding of the requirements .

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APPENDIX 2: SELECTING AND WORKING WITH THE UNDERWRITERS

Selecting the underwriters is completed (except for any expense may not be required, your underwriters reimbursement that a company may have should have experience in the industry as Be prepared agreed to), they will clearly not want to a basis for pricing your stock, selecting Selecting the lead underwriters best commit significant time and resources if an appropriate underwriting syndicate suited to your situation should begin with they are not reasonably confident that the and providing credibility in the eyes of an evaluation of your company and its offering will be successfully completed . investors and industry analysts . future plans . Consider the current and Before approaching underwriters, it is Distribution capability potential market for your product . If your advisable to develop a formal business Depending on the size of your offering, the geographic coverage is national, you may plan that describes your company, its number of geographic markets in which wish to retain a national firm – one with products, past performance and future you wish to offer the securities and the strong representation across Canada – to plans . This plan will serve as both a brief type of investor you hope to reach (retail capitalize on and enhance your corporate introduction to your company and a sales and/or institutional), the lead underwriters image . However, if your product sales tool when approaching the underwriters . may need to establish an underwriting market and desired share distribution are The quality of your business plan will play syndicate consisting of a number of other regional, a local firm – one that is strong in an important role in the underwriters’ underwriting firms to accomplish your your particular market area – may be able initial assessment of your company and its objectives . to better serve your needs . prospects . A broad distribution will not only provide If your industry is specialized, you may a larger market for your shares but also want to seek underwriters that focus Evaluating the underwriters help to avoid concentration of major on your industry . If you plan to diversify, The next step is to develop a list of blocks of shares in the hands of one or through acquisition or internally, consider underwriters that appear to meet the a few persons . Your underwriters should using an investment dealer that also has criteria that has been set (e .g ., national have appropriate experience, a broad experience in that new industry . You can or regional, industry specialization) . client base and a retail or institutional avoid repeating the selection process by The financial advisers, auditors, investor orientation that is consistent choosing underwriters that can fill both lawyers and bankers can assist you in with your needs . your current and anticipated needs, in the identifying appropriate underwriters and hope of building a long-term professional in performing a preliminary evaluation Aftermarket performance relationship . of them based on the following: An important part of the underwriters’ service is to provide aftermarket In many respects, selection is a two-way Reputation support for your shares . This support is process . Not all underwriters may be The reputation of the lead underwriters is a accomplished by the lead underwriters interested in your offering . Some do significant factor considered by prospective and some or all of the underwriting not handle IPOs or are interested only investors . A well-respected underwriting syndicate acting as market makers in your in offerings above certain minimum firm can also form a strong underwriting shares – offering to buy or sell shares from amounts . Others may decline on the syndicate to sell your securities . basis of their assessment of your the public or in the inter- dealer market, company’s or industry’s future prospects . Experience and generally sustaining the financial The underwriters’ reputation depends The underwriters should have experience community’s interest in your shares largely on the success of the offerings in underwriting IPOs and in the type of through continuing timely dissemination they underwrite . Because underwriters securities you intend to offer . Although of information about your company’s are compensated only if the offering specialization in your particular industry progress .

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Research department • How well have the underwriters of your company and the offering . If the A critical component of aftermarket maintained an interest in your company offering is attractive, underwriters will interest is the underwriters’ continuing after the initial distribution? investigate your company and sell their analysis and distribution of information • What happened to your share price services to you . about your company and your industry . in the aftermarket? Also consider whether to retain more Your underwriters’ research department • How were the price movements related than one lead underwriter . The use of should have the resources necessary to the appropriateness of the initial co-leading underwriters, particularly for to produce that information . It should offering price? The level of aftermarket larger offerings, can be advantageous with also have a reputation that commands support from the underwriters? And respect to initial market coverage, research the respect of investors, particularly other factors? capabilities and aftermarket support . institutional investors and the financial community in general . • How do the lead underwriters continue While holding discussions with these to promote your company through underwriters and in selecting your lead Continuing investment dealer regular research reports? underwriters from among those willing services to handle your offering, remember that • Do the lead underwriters provide other The lead underwriters should have the you will be working closely with the financial advice? resources to continue to provide your individuals assigned to your account . company with investment dealer services . • Would you use them to underwrite You must therefore also feel comfortable These services include assistance in another offering? with them on a personal level . obtaining additional capital as the need • Should I know anything else about this arises (whether from private or public underwriting firm? sources), advising on proposed mergers Working with your • Would you recommend the or acquisitions, and generally providing a underwriters underwriters? full range of investment dealer services . You will work closely with your lead The selection process Do your homework underwriters in the preparatory stages Once you have, formally or informally, of your offering, through the completion Some underwriters may also be prepared evaluated several underwriters based of the offering and often long into the to help you contact principal shareholders on these criteria, you can develop a future on subsequent public offerings, in several of the companies they have short list of underwriters to approach acquisitions, or mergers . recently underwritten for an expression of directly . Opinions vary as to how many satisfaction with the underwriters’ service . Underwriters examine a company and underwriters you should approach . Some You may wish to ask such shareholders its prospects similar to the way that advisers warn against shopping for the following questions: an investor would, but much more underwriters and suggest approaching intensively . Their examination begins with • How satisfied were you with the only one firm at a time . Others advise the business plan . The plan can spark their underwriters in providing all the that some shopping – and the resulting interest or lead to immediate rejection . services they promised? competition – are to your advantage . Accordingly, the plan should be well • How well did the underwriters display The number of underwriters approached prepared and present your company in an interest in and knowledge of your depends partly on the attractiveness of its best light . But here, and in all future industry and company? your offering . If the offering is larger and dealings with the underwriters, you must likely to be attractive to the larger firms, scrupulously avoid any misrepresentation . • Were there any last-minute surprises or you may decide to approach three or four If the underwriters find they have been demands from the underwriters? underwriters . It is important, however, to misled, they will abort the offering – • How satisfied are you with the breadth inform all prospective underwriters that leaving you with delays, lost time and of the underwriting syndicate and you are approaching other underwriters a tarnished reputation that few other placement of your shares? and to provide details about all aspects underwriters will accept .

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Company assessments The following common factors should be shares that must be sold for the offering If the underwriters decide to investigate considered in negotiating terms with your to be completed . underwriters . further, they will examine various aspects Offering size and price of your company . Depending on your Letter of intent Underwriters generally will not, and company, they will conduct some of the The final underwriting agreement is cannot, guarantee an offering price and following assessments: usually not signed until the morning of the total proceeds in advance . The offering • Interview key executives to assess your day the final prospectus is filed and the price is finalized only very shortly before management strength distribution begins . Many underwriters the final prospectus is filed, as it must will prepare a letter of intent, which is respond to current market conditions . • Review your financial statements signed by the lead underwriters and in depth, challenge your accounting If the underwriters are unwilling to predict company management . The letter of policies and consider your financial an offering price, as many underwriters intent often outlines the agreed-upon projections are, they will generally estimate a range underwriters’ commission, estimated for the offering price based on existing • Evaluate your company and products offering price, and other negotiated market conditions at the time of their in relation to your industry terms . It does not generally create legal estimate . While such estimates are obligation for either your company or the • Contact your suppliers and customers in no way binding and will change in underwriters to proceed with the offering . response to changing market conditions • Assess your market share, technological The letter may, however, create a binding up to the date that distribution of the advantages or disadvantages, and obligation for the company to pay certain offering begins, they reduce the chance market growth potential, as well as expenses incurred even if the offering is of misunderstandings and last-minute consider the intended use of the not completed . surprises . proceeds of the offering Type of underwriting Distribution • Ask your auditors to apply specified There are two common types of The size of your offering, the number of procedures to selected items of a underwriting agreements: firm geographic markets in which you wish financial nature in your prospectus . commitment and best efforts . to offer your securities and the type of In short, they will perform a thorough In a firm-commitment underwriting investor you hope to reach (individual evaluation of your company to decide agreement, the underwriters agree to and/or institutional) all determine the ideal whether to handle your offering and, if purchase all the shares in the offering and size and composition of your underwriting they are then selected, to help price and then resell them to the public . Any shares syndicate . promote it . that are not sold to the public are paid for Aftermarket support and held by the underwriters for their own Negotiating terms An important aspect of the underwriter’s account . This agreement provides you After agreeing in principle to proceed service is to provide aftermarket support with the most assurance of raising the with the offering, you will discuss and for your shares to keep the market active, required funds . negotiate in more detail the terms and to add price stability and to encourage characteristics of your offering . While cost In a best-efforts underwriting agreement, share-price appreciation . Strong is not the most important consideration the underwriters simply agree to use performance by your underwriters in this in selecting your lead underwriters, their best efforts to sell the shares on regard will contribute to easier future the underwriters’ compensation is behalf of your company . Some best-efforts access to the capital markets . Reach an a significant amount . Compensation arrangements are “all or nothing,” in which understanding with your underwriters arrangements should be clearly agreed case the offering is withdrawn if all shares as to the nature and extent of post-IPO upon prior to commencing with the cannot be sold within a specified period . support that they will provide . offering . Others set a lower minimum number of

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Underwriting commission to purchase up to a specified number of Right of first refusal The underwriting commission, or discount, additional shares from the company in the Some underwriters will request a right of is generally the single largest expense event the underwriters sell more shares first refusal on any future underwritings in a public offering . Typically, for IPOs, than are agreed to in the underwriting by your company . While such a request the rate of commission ranges from six agreement . The prospectus must disclose may seem innocuous, it can have adverse to 10 percent of the size of the offering . existence of an over-allotment option (also consequences with respect to future Debt offerings generally result in lower known as a green-shoe option, named offerings . Other underwriters will be rates of commission than do common after the Green Shoe Manufacturing reluctant to invest the time and resources stock offerings . In determining the rate of Company, which introduced this necessary to evaluate a proposed offering commission, underwriters consider factors technique) . if they are aware that they may be pre- such as size of the offering, competitive empted by another underwriter’s right of Reimbursement of underwriters’ rates for offerings of similar size, the type first refusal . If a right of first refusal cannot expenses of underwriting (e .g ., firm commitment or be avoided, consider negotiating either a best efforts) and the market for the shares . It is not uncommon, particularly for time limit, after which the right expires or All of these factors determine how much smaller offerings, for the lead underwriters a provision that the right expires any time effort the underwriters must invest to sell to request reimbursement for some it is available but not exercised . your shares . There may also be a trade-off of their expenses incurred for your between the rate of commission and other offering . For example, often the company Termination clause forms of compensation, particularly for reimburses legal fees incurred by the The underwriting agreement typically smaller offerings . underwriters . Legal fees will increase includes a termination clause, whereby with the number of provinces in which each underwriter has the option to Underwriters’ warrants you offer your shares, as a result of terminate the agreement without any Some underwriters will negotiate for stock each province’s filing requirements . liability on the part of that underwriter . warrants in addition to their commission . You may therefore wish to discuss the Certain conditions under which Such warrants are more common when area of geographic distribution in the the agreements can be terminated dealing with smaller underwriters and negotiation stage, before the underwriting include adverse changes in market smaller offerings . syndicate is established by your lead conditions, material changes to the Over-allotment option underwriters . You may also be able to business of the company and changes Often the underwriters are also given an negotiate limits to the reimbursement to laws and regulations of significant over-allotment option, which allows them of underwriters’ expenses . consequence .

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APPENDIX 3: STOCK COMPENSATION PLANS

Stock option plans Share purchase plans This plan gives employees the right, but Under this plan, the employee sets aside after-tax funds in order to purchase stock of not the obligation, to purchase shares the company . The employer may or may not match the contribution, thereby enabling at a pre-determined (exercise or strike) employees to obtain the stock at a discount and making the plan more attractive to price . The employee does not have to employees . However, the upfront money required to be contributed by the employee pay money up front; the employee has in order to purchase the shares may make the plan less attractive . to pay only when the option is exercised . Any discount provided to employees (either through employer contributions or The option can be designed to include otherwise) must be reported as a taxable benefit to the employee at the time the vesting requirements to assist in retaining shares are purchased . Employers can claim a deduction for contributions provided . employees . However, stock options Any employer contributions should be reported as compensation expense by the provide limited risk to the employees as company in the year the shares are purchased . they participate only in the upside and not in the downside . If the share price falls below the exercise price, the value of this Phantom stock plans plan as a motivational tool may be limited . Phantom stock plans are plans in which employees receive shares of a company that, For a public company, this plan generally while not being actual shares, mirror the movements of the actual share price of the results in a taxable benefit to employees company . Any resulting profits are then paid out to the employees under pre-determined upon exercise . In general, the taxable terms and conditions . The payout may be in the form of cash . benefit is equal to the value of the The use of this plan avoids the dilution of ownership interest, as actual shares are shares in excess of the exercise price . generally not issued under this plan . The employees must report as a taxable benefit any If certain conditions are met, the benefit amount received through such a plan in the year of receipt, and the employer may claim is reduced by 50 percent . Under limited the same as a deduction . circumstances, the benefit can be deferred to the date of sale up to an The accounting for phantom shares will vary depending upon the specific provisions of amount of $100,000 . Any loss realized on the plan . Generally, the company is required to record the obligation as a liability and a subsequent disposition of the shares mark the liability to market until cancelled, forfeited, or exercised . is typically a capital loss that cannot be used to offset the employment income Stock appreciation rights reported upon exercise . The employer generally cannot claim a deduction for the Stock appreciation rights are a modified form of phantom stock in which employees are benefit that is reported by the employees . provided a cash payout in the amount of the appreciation of the price of the underlying However, if the employee has the stock . The payout may also be given in the form of shares as opposed to actual cash . option to receive cash in lieu of shares, This plan requires no initial cash outlay by the employee, and the employer can avoid any the employer could generally obtain a dilution of ownership by paying out cash (actual shares need not be issued under such a deduction . plan) . As no shares are issued, the employee cannot vote or otherwise participate in the decision making of the company . The fair value of the options, determined using an option pricing model such as The amount received by the employee is treated as an employment benefit to be the Black-Scholes model, should be reported as income in the year the cash or shares are received . The employer may claim recognized as compensation expense by a deduction for the amount paid to the employee, but not if shares are issued . The value the company over the vesting period of of the vested stock appreciation rights must be recognized as compensation expense by the option . the company in the year of vesting .

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Restricted stock plan A restricted stock plan is a plan in which stock is granted to employees at a discount or at a nominal or no-charge amount, but is subject to restrictions such as meeting certain performance goals or vesting conditions . These restrictions can be structured in various ways to align the company’s objectives with those of the employees (e .g ., creating long-term goals that would help retain employees) . From a shareholder’s perspective, this plan can result in a dilution of ownership interests, as actual shares are issued . The uncertainty surrounding the restriction may also make it less attractive to employees . Therefore, careful consideration should be given to the design and nature of the restriction, to ensure it is aligned with matters in which the employee has control . The employee must include in employment income any benefit received under this plan . In general, the benefit is equal to the value of the shares in excess of any amount paid by the employee .

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© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . KPMG’S IPO SERVICES PRACTICE For more information on the matters discussed in this publication, please contact your KPMG contact or Salma Salman, National IPO Practice Leader . We welcome the opportunity to meet with you to discuss in further detail any aspect of the IPO process as it relates to your organization .

Salma Salman National IPO Practice Leader 416-777-8285 ssalman@kpmg .ca kpmg .ca/ipo

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity . Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future . No one should act on such information without appropriate professional advice after a thorough examination of the particular situation . © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 9670 The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International . kpmg .ca/ipo