NIN 92/20 - Draft Form 12A, Prospectus For A Junior Industrial Issuer, And Related Disclosure Initiatives [NIN - Rescinded]

The British Columbia Securities Commission is publishing for comment with this notice draft Form 12A, a new form of prospectus that sets out in detail the disclosure required of a junior industrial issuer. This notice provides background information with respect to the development and requirements of Form 12A and invites comments on specific issues.

After implementation of Form 12A, the current Form 12 will remain the disclosure document for industrial issuers that are not required to file an assessment report under the Revised Draft Policy, as defined below. However, the Commission intends to amend current Forms 12, 13 and 14 to add disclosure regarding underwriters' conflicts of interest based on section 1.10, 6.3 and Item 19 of Form 12A.

The Commission invites comments on these parts of Form 12A prior to amending Forms 12, 13 and 14.

This notice also discusses other initiatives that the Commission is currently considering to improve the existing disclosure requirements for issuers listed on the Vancouver Stock Exchange (the "Exchange").

BACKGROUND

In May of 1990, the Commission released for comment Draft Local Policy Statement 3-04 (the "Draft Policy"). In NIN#90/14, which accompanied the Draft Policy, the Commission indicated that, in order to assist issuers in meeting disclosure requirements, Form 12 would be revised to set out in detail the disclosure that must be contained in the prospectus of an issuer that is required to file an assessment report under the Draft Policy. A revised version of the Draft Policy (the "Revised Draft Policy") is being published for comment with NIN#92/19 concurrently with this notice and Form 12A. Interested persons are encouraged to review the Revised Draft Policy and NIN#92/19 in conjunction with their review of Form 12A.

Form 12A has been developed with a great deal of assistance from the committee that helped develop both the Draft Policy and the Revised Draft Policy. This committee consists of accountants, consultants, lawyers, brokers and representatives of the Exchange.

Form 12A is longer than existing Form 12 because Form 12A

- represents a codification of deficiencies that are routinely raised during the review process of a junior industrial issuer's preliminary prospectus;

- requires all the disclosure about the issuer's business, some of which would currently be found in the technical report;
- requires disclosure of conflicts of interest as contemplated by Part 13.1 of the Securities Regulation;

- incorporates certain notices that require disclosure in the prospectus (e.g NIN #89/36 regarding the experience of directors, officers, promoters and control persons);

- requires disclosure with respect to fiscal agency agreements, a recent innovation in the local market; and

- includes cross references to, and excerpts from, the Securities Act, the Regulation and certain policies to provide a comprehensive guide to the disclosure requirements for a prospectus of a junior industrial issuer.

The lack of guidance in the existing Form 12 has resulted in generally inadequate preliminary prospectus filings. This has often necessitated the expenditure of considerable resources by both the issuer and the Corporate Finance Division of the Commission prior to a final receipt being issued for the prospectus. In addition, the duplication of disclosure regarding the issuer's business in the prospectus and the technical report has also resulted in the expenditure of resources by both the issuer and the Corporate Finance Division in attempting to ensure that the disclosure in the two documents is consistent.

The Commission anticipates that Form 12A, together with the new form of assessment report in the Revised Draft Policy, will significantly reduce the aggregate time and costs associated with the filing of a prospectus by a junior industrial issuer.

DISCUSSION OF ISSUES

Issues on which comments are being specifically sought are discussed below. Form 12A includes other changes to the existing Form 12. The Commission encourages comments on any aspect of Form 12A that raises concern.

Extent of Disclosure

The Securities Act requires that a prospectus containing full, true and plain disclosure be delivered to purchasers. The prospectus enables interested potential investors and analysts to make informed investment decisions or recommendations. The Commission has received comments that investors generally do not read prospectuses; instead they rely on brokers in making investment decisions. Notwithstanding these comments, it should be noted that the prospectus is the principal disclosure document enabling an issuer to gain access to public capital markets, the basis for purchasers' rights of action and the foundation for the issuer's continuous disclosure.

The Commission has received comments to the effect that the required disclosure in Form 12A may be
excessive and difficult for users to comprehend.

Are there any specific disclosure requirements contained in Form 12A that will result in disclosure that, in most situations, would have no influence on an investor's investment decision or an analyst's recommendation?

Format of Form 12A
A number of states of the United States of America have adopted, and the Securities and Exchange Commission of the United States of America has proposed for small business issuers, a question and answer prospectus format. The Commission is of the view that revising Form 12A to model the U.S. style disclosure document would make the form considerably longer than the current draft of Form 12A.4

Would a question and answer format be easier to use for issuers and their advisors than Form 12A while continuing to provide the level of disclosure for investors contemplated by Form 12A?

Prospective Financial Information

Section 5.2 - Stated Business Objectives

This section requires that the issuer state the business objectives that it expects to accomplish, using the funds available upon the successful completion of its prospectus offering. The instructions to this item prohibit the use of specific prospective financial information, such as sales expressed in terms of dollars or units, in describing the issuer's stated business objectives. For example, an issuer could not state that it expects to generate X dollars in sales during the 12 month period following the completion of the offering.

The Commission notes that issuers having operating histories similar to those issuers required to file an assessment report have rarely achieved their publicly disclosed estimates of expected sales or net income. In addition, prior to the Canadian Institute of Chartered Accountants ("CICIA") introducing an audit requirement for future oriented financial information ("FOFI"), studies had indicated that FOFI published by more senior companies frequently and materially overestimated future sales and earnings.

While recognizing the difficulties with the accuracy of FOFI or other specific prospective financial information, a number of representations have been made that this information is needed by a prospective investor to fully assess the investment merits of an issuer. In addition, although the provisions of section 109(3) of the Securities Regulation prohibit the distribution of a forecast to purchasers unless it is set out in the prospectus, the Commission has received representations that prohibiting use of specific prospective financial information in the issuer's stated business objectives will be impossible to enforce because this information, in any event, will likely be provided to investors. The Commission has also received comments to the effect that, because an issuer filing a prospectus in accordance with Form 12A is required to file an assessment report in accordance with the Revised Draft Policy and because the consultant's opinions contained in the assessment report directly relate to the issuer's stated business objectives, this will minimize the likelihood of the issuer setting out business objectives that include unrealistic or misleading specific prospective financial information.

In the Commission's view, an issuer filing a prospectus on Form 12A is generally unable to develop FOFI or other specific prospective financial information that could be considered credible, reliable and not misleading. However, where achievement of sales is a stated business objective of the issuer, Form 12A proposes that this objective must be stated in general terms. In addition, under Local Policy Statement 3-02, the Superintendent may consent to the inclusion of FOFI in a prospectus. Where this occurs, the issuer can include specific financial information extracted from the FOFI in its prospectus.

The Commission invites comments on whether

- a junior industrial issuer can provide any prospective financial information that will be reliable, accurate and not misleading,

- a junior industrial issuer can provide specific prospective financial information (e.g., sales by number of units or dollars) that would be reliable, accurate and not misleading,

- there is a specific stage of the issuer's development at which the issuer is able to provide prospective financial information that will be reliable, accurate and not misleading, and to what extent the ability to provide this information depends on whether it is being disclosed in general or specific terms,

- the extent of disclosure of specific prospective financial information should be mandated; for example, that no reference to gross sales can be made without a reference to net income after taxes, and

- the prospectus should contain any prospective financial information unless this information is supported by FOFI prepared and audited in accordance with the CICA Handbook and Draft National Policy Statement No. 48.

Expenditure Budget and Break Even Analysis

The Commission currently requires the inclusion of a monthly expenditure budget and a break even analysis in a technical report prepared in accordance with existing Local Policy Statement 3-04.

The expenditure budget is intended to provide prospective investors with information on the nature, extent and timing of expenditures that the issuer proposes to make using the funds available upon completion of the offering. In addition, it provides a plan against which shareholders and other users can compare actual expenditures and evaluate the efficiency and effectiveness of management in achieving its stated business objectives.

The break even analysis is intended to provide prospective investors with additional information to assist them in making an informed investment decision.

The Commission has received comments that an expenditure budget and break even analysis should not be required. Reasons provided for not requiring an expenditure budget and break even analysis include uncertainties involved in a junior industrial issuer forecasting its future financial results. In addition, for the expenditure budget, there were concerns expressed that a monthly budget suggests a level of certainty as to the timing of expenditures that does not exist and a concern by certain consultants with respect to their association with information that is not subject to independent verification. To a great extent, the arguments against the inclusion of an expenditure budget and break even analysis in prospectuses of junior industrial issuers are also arguments against the presentation of FOFI.

Form 12A does not require an expenditure budget or break even analysis in the prospectus. It does require disclosure of each critical event that must occur for the business objectives to be accomplished and the time period in which each of these critical events is expected to occur. The Commission intends that this disclosure will provide much of the information currently included in the expenditure budget. For example, if a critical event identified in the issuer's stated business objectives is to acquire specific equipment for the manufacture of a product, the issuer would disclose the nature of the equipment to be acquired, its full cost and the timing of its intended acquisition. This disclosure is required to be in sufficient detail to allow shareholders, the public and analysts to compare the issuer's actual results included in its continuous disclosure filings with its stated business objectives disclosed in the prospectus.

The Commission invites comments on whether

- an expenditure budget or break even analysis provides useful information to prospective investors in a junior industrial issuer,

- a junior industrial issuer can prepare an expenditure budget or break even analysis that would be reliable, accurate and not misleading,

- if the expenditure budget provides useful information, it should be presented on a monthly or quarterly basis,

- the required disclosure in Form 12A of the timing and nature of each critical event is clear enough to ensure issuers will provide sufficiently detailed information to allow the public to assess the reasonableness of management's plans and, subsequent to the offering, the issuer's success in achieving each critical event in its stated business objectives, and

- there is alternative disclosure that should be required in the prospectus in lieu of expenditure budgets and the proposed disclosure on critical events (e.g., a more detailed breakdown of the use of proceeds).

Section 5.10 - Marketing Plans and Strategies

Section 5.10(c) requires, where known, that the issuer disclose its selling price and direct cost per unit. This information is considered to be important to potential investors and analysts so that they can make their own assessment of the issuer's prospective viability. However, given the stage of development of issuers required to file in accordance with Form 12A, this type of information may not be reliable. In addition, this type of information could give competitors access to information that may, in certain circumstances, adversely affect the issuer's operations.

Should the selling price and direct cost per unit be included in a prospectus by an issuer required to file a prospectus in accordance with Form 12A?

Part 9 - Payments to Insiders and Promoters

This Part requires information in addition to that required by Form 41 (Statement of Executive Compensation). In particular, individual disclosure of the name and compensation of the five highest paid executive officers and disclosure of proposed compensation to be paid to all executive officers is required. This requirement incorporates current practice.

Would any other type of disclosure be more appropriate?

OTHER INITIATIVES

Form 12A is relevant in respect of other proposed initiatives to improve disclosure requirements and streamline the offering process for issuers listed on the Vancouver Stock Exchange. These initiatives are discussed below and certain comments are invited.

Exchange Offering Prospectus

The Securities Amendment Act, 1992 repeals the statement of material facts exemption contained in section 58(1)(c). The Commission recommended this amendment due to the technical problems associated with use of the exemption, particularly when the exemption is used to qualify shares acquired on a private placement for resale. This amendment will be brought into force once the form of exchange offering prospectus ("EOP") and the circumstances in which it may be used have been finalized. As is currently the case with a statement of material facts, where issuers are entitled to use an EOP, the primary review of an EOP would be conducted by the Exchange.

Since an EOP is a prospectus and must contain full, true and plain disclosure of all material facts relating to the securities being offered, the required disclosure contained in the EOP form will be comparable to that contained in the Form 12A.

Are there any items of disclosure included in Form 12A that should not be included in the EOP form (e.g. prior sales), and should additional information be included in the EOP form (e.g. price range and trading volume)?

Junior POP System

NIN #92/21 is concurrently being published for comment with this notice and Form 12A. NIN#92/21 describes a proposal regarding the introduction of a prompt offering prospectus system for issuers listed on the Exchange (the "Junior POP System"). This proposal contemplates use of a short form EOP by qualified issuers listed on the Exchange that file an annual disclosure document, called an annual information form for junior issuers. Interested persons are encouraged to review NIN#92/21 for a discussion of the proposed contents of the annual information form for junior issuers and the short form EOP.

Reverse Take Overs and Listing Applications

A person may obtain a listing on the Exchange for a business by means of an initial public offering, a direct application for a listing on the Exchange or a reverse take over ("RTO") of, or sale of the business to, an issuer that is already listed. Regardless of the method by which the person obtains a listing for its business on the Exchange, the extent of disclosure and due diligence by a registrant should be essentially the same.

The Commission invites comments on whether

- an issuer should, in all circumstances, be required to file a prospectus in accordance with Form 12A in order to obtain a listing on the Exchange,

- an issuer listed on the Exchange should, in all circumstances, be required to file a prospectus in accordance with Form 12A in order to complete an RTO or the acquisition of a new business, and

- an issuer should be able to obtain a listing on the Exchange or effect an RTO or acquisition of a new business provided it retains a registrant to conduct a due diligence review and certify a disclosure document filed with the Exchange that contains disclosure with respect to the issuer that is comparable to Form 12A.

Quarterly Reports

The Commission is also in the process of revising the current Form 61 to, among other things, specifically require an ongoing reconciliation to an issuer's stated business objectives as disclosed in the issuer's prospectus, EOP or other disclosure document. Comments will be requested separately on the revised Form 61 when it is published for comment.

TRANSITION

In order to assist the Commission in ensuring that the final Form 12A will improve the prospectus review process and result in the prospectus of a junior industrial issuer being an effective disclosure document, an issuer and its advisors are encouraged to apply to the Superintendent for permission to file its prospectus prepared in accordance with this draft of Form 12A prior to Form 12A being finalized. The Superintendent will provide expedited review of documents filed by these issuers. Where an issuer wishes to utilize Form 12A during the comment period, the consultant's assessment report must be prepared in accordance with the Revised Draft Policy.

Applications should be addressed to the Deputy Superintendent, Corporate Finance and should include a brief description of the issuer's business and business objectives and a copy of the issuer's most recent financial statements in draft form.

REQUESTS FOR COMMENT

The Commission is requesting written comments on the Revised Draft Policy, particularly on the issues raised in this notice. Comment letters should be submitted by September 30, 1992 to

Adrienne Wanstall
Executive Director, Policy & Legislation
British Columbia Securities Commission
1100 - 865 Hornby Street
Vancouver, B.C. V6Z 2H4

In order to provide the maximum benefit to the Commission, the comments should identify the specific issue being addressed, and where applicable, fully explain any problems with the proposed provision and provide an alternative solution.

Comment letters submitted in response to Requests for Comment are placed in the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed in the public file, freedom of information legislation in future may require the Commission to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.

DATED at Vancouver, British Columbia, on July 16, 1992.

Douglas M. Hyndman
Chairman

DRAFT FORM 12A

INFORMATION REQUIRED IN PROSPECTUS OF AN INDUSTRIAL ISSUER REQUIRED TO FILE AN ASSESSMENT REPORT UNDER LOCAL POLICY STATEMENT 3-04

The prospectus required under Section 42(2) of the Securities Act for an industrial issuer that is required to file an assessment report under Local Policy Statement 3-04 shall be in the following form.

DRAFT FORM 12A

Securities Act

INFORMATION REQUIRED IN PROSPECTUS OF AN INDUSTRIAL ISSUER REQUIRED TO FILE AN ASSESSMENT REPORT UNDER LOCAL POLICY STATEMENT 3-04

GENERAL INSTRUCTIONS

1. Refer to Appendix A for the meaning of all defined terms used in this Form, except certain terms defined in the Securities Act, S.B.C. 1985, c. 83 (the "Act"), Securities Regulation, B.C. Reg. 270/86 (the "Regulation") and the Interpretation Act, R.S.B.C 1979, c. 206. Terms defined in Appendix A are capitalized.

2. The Superintendent will require this form to be used by industrial issuers that are not required to file an assessment report under Local Policy Statement 3-04 where the Superintendent has waived the requirement to file an assessment report as a result of the issuer having previously filed an assessment report under Draft LPS 3-04 or a technical report under the existing Local Policy Statement 3-04 and the issuer has accomplished the business objectives as stated in the report.

3. The Superintendent may also require this form to be used by other industrial issuers that are not required to file an assessment report under Local Policy Statement 3-04.

4. This form provides a guideline to issuers in determining the extent of disclosure that is required to provide investors with full, true and plain disclosure of all material facts. Depending on the circumstances of the particular issuer, disclose additional information where necessary.

5. Where the context reasonably requires, "issuer" includes the issuer's subsidiaries and proposed subsidiaries. An entity can only be considered a proposed subsidiary if the entity will be a subsidiary on completion of the offering.

6. Where information as to the identity of a person is disclosed, the person is not an individual and is not at Arm's Length, disclose the name of any individual who is an insider by virtue of paragraph (c) of the definition of insider in the Act.

7. Whenever disclosure is required to be made of costs paid or to be paid by the issuer, disclose the portion of the costs paid or to be paid to insiders or holders of performance shares.

8. All disclosure contained in the prospectus must be factual and verifiable.

9. Where an item states that information shall be provided "if applicable", the required information need not be provided if the item does not apply or would be answered in the negative.

10. Each item outlines disclosure requirements. Instructions to assist you in providing this disclosure are indicated by bullets () and are printed in smaller type.

1. FACE PAGE DISCLOSURE

1.1 Required language - State in bold print at the top of the face page of the prospectus the following:

THIS PROSPECTUS CONSTITUTES A PUBLIC OFFERING OF THESE SECURITIES ONLY IN THOSE JURISDICTIONS WHERE THEY MAY BE LAWFULLY OFFERED FOR SALE AND THEREIN ONLY BY PERSONS PERMITTED TO SELL SUCH SECURITIES. NO SECURITIES COMMISSION OR SIMILAR AUTHORITY IN CANADA HAS IN ANY WAY PASSED UPON THE MERITS OF THE SECURITIES OFFERED HEREUNDER AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE.

1.2 Preliminary prospectus disclosure - State in red ink the statement required by section 89(2) of the Regulation.

1.3. Final prospectus disclosure - State in bold print the following:

THE SECURITIES OFFERED BY THIS PROSPECTUS MAY BE LAWFULLY SOLD IN [insert the names of the jurisdictions].

1.4. Basic disclosure about the offering - Provide the following information:

NEW ISSUE [and/or] SECONDARY OFFERING DATE
[PRELIMINARY] PROSPECTUS

Name of Issuer
Head Office Address
Telephone Number
[total number and type of securities offered and price per security]

1.5 Distribution spread - Provide details of all securities offered for cash in substantially the following form:

Price to Public Agents discounts Proceeds to issuer
or commissions or selling security-holder

Per security ......... ........... ..............

Total ......... ........... ..............

- Where amounts are not known to the issuer at the date of the preliminary prospectus, the issuer may estimate the amounts in the table provided a notation to that effect is made under the table.

- Only commissions paid or payable in cash by the issuer or selling security holder or discounts granted are to be included in the table. Other commissions or consideration, including warrants, finders fees or similar payments, shall be set out following the table.

- Where the prospectus discloses a plan of distribution not involving an underwriting or other subscription guarantee, the closing of the distribution under the prospectus must be subject to a minimum subscription and, where the prospectus also discloses a maximum subscription, totals must be provided for both the minimum and maximum subscriptions.

- If any of the securities being offered are for the account of a security holder, name the security holder and state the number of the securities owned by that security holder, the number to be offered and the number to be owned by that security holder after the completion of the distribution.
- Disclose how the price paid to the issuer was established, whether by negotiation with the Agent, arbitrarily by the issuer, or otherwise.

1.6 Market for securities

(a) In a preliminary prospectus, state the following:

An application has been made to conditionally list the securities offered under this prospectus on the ___________ Exchange. Listing is subject to the issuer fulfilling all the listing requirements of the Exchange.

(b) In a final prospectus, state the following:

The ___________ Exchange has conditionally listed the securities being offered under this prospectus. The listing is subject to the issuer fulfilling all of the listing requirements of the __________ Exchange, including prescribed distribution and financial requirements, and the securities being listed, posted and called for trading on or before _________.

1.7 Risk factors - State the following, with the indicated sentence in bold type:

THE ISSUER OF THE SECURITIES OFFERED UNDER THIS PROSPECTUS HAS A LIMITED OR UNPROFITABLE FINANCIAL HISTORY. A PURCHASE OF THE SECURITIES OFFERED BY THIS PROSPECTUS MUST BE CONSIDERED SPECULATIVE. INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR INVESTMENT IN ITS ENTIRETY. REFER TO "RISK FACTORS" ON PAGE ___.

1.8 Comparison of public and insider ownership - Compare, in percentages, the securities being offered under the prospectus and the aggregate number of securities to be held by promoters, insiders, holders of performance shares and Agents upon the completion of the offering.

1.9 Foreign issuers - If the issuer is incorporated under the laws of a jurisdiction other than Canada or a province or territory of Canada, state the following (with the bracketed information completed as appropriate):

"[All of] [Certain of] the directors and officers of the Issuer and [all of] [certain of] the experts named herein reside outside of Canada. [[Substantially] all of the assets of these persons and of the Issuer may be located outside of Canada.] The Issuer has appointed [insert name and address of agent for service] as its agent for service of process in Canada, but it may not be possible for investors to effect service of process within Canada upon the directors, officers and experts referred to above. It may also not be possible to enforce against the Issuer, its directors and officers and [certain of] the experts named herein judgments obtained in Canadian courts predicated upon the civil liability provisions of applicable securities laws in Canada."

1.10 Agent - State the name and address of the Agent. If the issuer or selling security holder is a related or connected parties of the Agent, summarize the nature of the relationship. Provide a cross reference to "Relationship between Issuer or Selling Security Holder and Agent".

2. TABLE OF CONTENTS

Include a table of contents setting out the headings of each section in the prospectus and the page number on which each section starts.

3. SUMMARY OF PROSPECTUS

State:

"The following is a summary of the principal features of this Offering. More detailed information is contained in the body of the Prospectus".

Provide a brief description of the following items:

(a) the principal business of the issuer, its subsidiaries and proposed subsidiaries,

(b) the names and position of each member of Management,

(c) the securities offered by the issuer, including the offering price and the net proceeds expected to be realized by the issuer,

(d) the intended use of the Funds Available, including the amount allocated for each use,

(e) the stated business objectives that the issuer expects to accomplish using the Funds Available,

(f) the specific risks relating to the business disclosed in paragraph (a), and

(g) any other information considered appropriate under the circumstances.

- Appropriate cross references must be made to items and page numbers in the prospectus.

- The description of the principal business in paragraph (a) must include a table setting out, for each of the last two financial years and any interim periods for which financial statements are included in the prospectus, sales, net income (loss), research and development expenses, deferred development expenses and any other material financial information considered appropriate in the circumstances.

- Normally, the summary should not exceed two pages in length.

4. CORPORATE STRUCTURE

4.1 Name and incorporation - State

(a) the full name of the issuer and the address of its registered office and its address for service in Canada;

(b) the laws under which the issuer was incorporated or organized and the date the issuer came into existence;

(c) the full name of each of the issuer's subsidiaries or proposed subsidiaries, the laws under which they were incorporated or organized and the date they came into existence;

(d) if applicable, that the issuer has been a party to any amalgamation, arrangement or continuance or has changed its name and, if so, the laws governing the event; and

(e) relevant details of the issuer's form of organization and structure, if the issuer is not a company.

4.2 Intercorporate relationships - Illustrate by way of a diagram or otherwise the intercorporate relationships among the issuer, its parent, subsidiaries and proposed subsidiaries. For each subsidiary, state the percentage of voting securities owned or to be owned by its parent.

If the securities offered under the prospectus are being issued in connection with, or pursuant to, an amalgamation, merger, reorganization or arrangement, illustrate by way of a diagram or otherwise the intercorporate relationships both before and after the completion of the proposed transaction.

5. BUSINESS OF THE ISSUER

5.1 Description and general development - Describe the business carried on and intended to be carried on by the issuer, including Products that the issuer is or will be developing or producing.

- Disclose the year of commencement of operations and summarize the general development of the business of the issuer during the five Preceding Years, or such shorter period as the issuer may have been in existence. Provide disclosure for earlier periods if material to an understanding of the development of the business.

- In describing developments, include disclosure of the following: the nature and results of any bankruptcy, receivership or similar proceedings; the nature and results of any material reorganization; material changes in the types of products produced or services rendered; and any material changes in the method of conducting the business.

- As part of the disclosure of the general development of the business of the issuer, include an analysis of the issuer's results of operations for the periods covered by the financial statements included in the prospectus, the current status of the issuer's operations, and the anticipated impact of these historical operations on the future activities of the issuer. Include, to the extent reasonably practicable, a description of the impact of acquisitions or dispositions disclosed in section 53 on the operating results and financial position of the issuer.

- In this section, "issuer" includes the issuer's subsidiaries, proposed subsidiaries and predecessor(s).

- Where any subsidiary or predecessor is not material to the issuer's current business, summarize its prior activities.

5.2 Stated business objectives - State the business objectives that the issuer expects to accomplish using the Funds Available and the time period in which these business objectives are expected to be achieved.

Describe each significant event that must occur for the business objectives to be accomplished and state the specific time period in which each event is expected to occur.

- The issuer's stated business objectives must not include any specific prospective financial information, such as sales expressed in terms of dollars or units. However, achievement of sales is considered to be an important objective because the issuer is currently marketing its product or service, or will be marketing its product or service to achieve its stated business objectives, the objective must be stated in general terms.

- For example, the issuer may state that its objective is to generate sufficient funds from sales to pay its operating costs for a specified period following completion of the offering. In addition, under Local Policy Statement 3-02, the Superintendent may consent to the inclusion of future oriented financial information in a prospectus. Where this occurs, the issuer's stated business objectives can include specific financial information extracted from the future oriented financial information.

- Examples of significant events would include hiring of key personnel, making major capital acquisitions, implementing marketing plans and strategies and commencing production and sales.

- Where the closing of the distribution under the prospectus is subject to a minimum subscription, the description of the issuer's stated business objectives should reflect both the minimum and maximum net proceeds to be derived by the issuer.

- In this section, "issuer" includes the issuer's subsidiaries and proposed subsidiaries.

5.3 Acquisitions and dispositions - If applicable, disclose any material acquisitions and dispositions relating to the issuer's current business made by the issuer during the five Preceding Years, or such shorter period as the issuer may have been in existence, and any intended material acquisitions or dispositions, including particulars of

(a) the nature of the assets acquired or disposed of or to be acquired or disposed of,

(b) the actual or proposed date of each acquisition or disposition,

(c) the name of the vendor or purchaser and whether the transaction was or will be at Arm's Length,

(d) for an acquisition or disposition not at Arm's Length, the vendor's out of pocket costs, as described in Local Policy Statement No. 3-07,

(e) the consideration, both monetary and non-monetary, paid or to be paid to or by the issuer,

(f) any material obligations that must be complied with in order to keep any acquisition or disposition agreement in good standing,

(g) how the consideration was determined (e.g. limited to out of pocket costs, valuation opinion or Arm's Length negotiations), and

(h) any valuation opinion required by a policy of a securities regulatory authority or a stock exchange to support the value of the consideration paid in connection with a transaction not previously approved by the Superintendent or the Vancouver Stock Exchange, or that has been approved within the Preceding Year, including the name of the author, the date of the opinion, the assets to which the opinion relates and the value attributed to the assets.

- Out of pocket costs must be supported by either audited financial statements or an audited statement of costs.

- The granting or acquiring of any material licence agreement by the issuer or any predecessor is considered to be an acquisition or disposition for purposes of this section.

- In this section, "issuer" includes the issuer's subsidiaries and proposed subsidiaries.

5.4 Management - Provide the following information for each member of Management:

(a) state the individual's name, age, position and responsibilities with the issuer and relevant educational background,

(b) state whether the individual works full time for the issuer or what proportion of the individual's time will be devoted to the issuer,

(c) state whether the individual is an employee or independent contractor of the issuer,

(d) state the individual's principal occupations or employment during the five Preceding Years, disclosing with respect to each organization as of the time such occupation or employment was carried on:

(i) its name and principal business,

(ii) if applicable, that the organization was an affiliate of the issuer,

(iii) positions held by the individual,

(iv) whether it is still carrying on business, if known to the individual,

(e) describe the individual's experience in the issuer's industry, and

(f) state whether the individual has entered into a non-competition or non-disclosure agreement with the issuer.

- The description of the principal occupation of a member of Management must be specific. The terms "businessman" or "entrepreneur" are not sufficiently specific.

- The disclosure in (d)(iv) is only required where the individual was or is an officer or director of the organization.

- In this section, "issuer" includes the issuer's subsidiaries and proposed subsidiaries.

5.5 Organizational structure - Provide a chart setting out the number of full and part time employees currently in each department and the approximate number of full and part time employees or contractors in each department required to meet the issuer's stated business objectives.

5.6 Products - Describe

(a) the Products developed or to be developed as part of the issuer's stated business objectives,

(b) the history of development of the Products, including actual Development Costs to the Most Recent Month End,

(c) the stage of development of the Products, including whether they are at the design, prototype, market test or commercial production stage,

(d) if the Products are not at the commercial production stage or if part of the Funds Available will be used for research and development,

(i) the stage of development that Management anticipates will be reached using the Funds Available,

(ii) the major components of the proposed development program that will be funded using the Funds Available and provide a Breakdown of Costs,

(iii) whether the issuer is conducting its own research and development, is subcontracting out the research and development or is using a combination of those methods, and

(iv) where the Products will not be in commercial production at conclusion of the proposed development program, the additional steps required to get to commercial production and provide an estimate of the Development Costs and time periods, if known, and any uncertainties relating to the completion of the steps, the estimate of the costs or the time periods,

(e) where the development of documentation is considered to be necessary in the issuer's industry, the stage of development of documentation, including manuals, relating to the Products, and

(f) summarize the potential impact of any laws, such as industry or environmental regulations or controls on ownership or profit repatriation, or economic or political conditions that may materially affect the issuer's operations.

5.7 Proprietary protection - Where proprietary protection is normally obtained for products similar to the Products, describe

(a) the proprietary protection of the Products including the duration of all material patents, copyrights and trade marks,

(b) if no proprietary protection has been obtained, the steps Management intends to take to secure proprietary protection and, if known, the time periods for completing these steps, or explain why this proprietary protection has not or will not be obtained, and

(c) the steps taken by the issuer, its subsidiaries and proposed subsidiaries to protect their respective know how, trade secrets and other intellectual property, including physical possession of source codes and any use of confidentiality or non-competition agreements.

- Where the issuer, its subsidiaries and proposed subsidiaries are the licensees under any material licence agreement, provide the information required by this section, where known after reasonable investigation, with respect to the licensor.

5.8 Operations - If the issuer is currently marketing its Products or will be marketing its Products as part of its stated business objectives, provide the following information regarding the production and sales of its Products:

(a) describe the actual or proposed method of production of the Products or, if the Products are services, the method of providing the services,

(b) state whether the issuer is producing the Products itself, is subcontracting out production, is purchasing the Products or is using a combination of these methods,

(c) disclose the location of existing property, plant and equipment, indicating whether the property, plant or equipment is owned or leased by the issuer,

(d) state the payment terms, expiration dates and the terms of any renewal options of any material leases or mortgages, whether the leases or mortgages are in good standing and, if applicable, that the landlord or mortgagee is not at Arm's Length with the issuer,

(e) disclose any specialized skill or knowledge requirements necessary for the Products to be produced and describe the extent that this skill or knowledge is available to the issuer,

(f) disclose sources and availability of raw materials, component parts, or finished products including factors that may have a material impact on the issuer's operations such as:

(i) dependence on a limited number of suppliers for essential raw materials, component parts, or finished products,

(ii) potential shortages of raw materials, component parts or finished products, or

(iii) any unusual payment terms under any agreements or other arrangements with the issuer's principal suppliers, that may impact on the issuer's cash flow,

(g) where any principal supplier of raw materials, component parts or finished products is not at Arm's Length with the issuer, disclose its name, relationship with the issuer and the material terms of any existing contract or arrangement with the issuer,

(h) if applicable, disclose the extent to which the issuer's business is dependent upon a single or a limited number of customers,

(i) where any existing or proposed principal customer is not at Arm's Length with the issuer, disclose its name, relationship with the issuer, the material terms of any contract or arrangement with the issuer and the proportion of the issuer's total net sales made to that customer during the Preceding Year,

(j) describe any unusual payment terms under any agreements or other arrangements with the issuer's principal customers that may impact on the issuer's cash flow, and

(k) disclose any proposed material changes to plant, property and equipment, manpower or sources of supply required to enable the issuer to meet its stated business objectives and provide a Breakdown of Costs for the major components of the proposed material changes that will be funded using the Funds Available.

- In this section, "issuer" including the issuer's, its subsidiaries and proposed subsidiaries.

5.9 Market - Provide the following information regarding the market for the Products:

(a) describe the market segment and specific geographical area in which the issuer is selling or expects to sell its Products as contemplated by its stated business objectives or intends to sell its Products upon completion of its product development,

(b) describe material industry trends within the market segments and specific geographical areas referred to in paragraph (a) that may impact on the issuer's ability to meet the issuer's stated business objectives,

(c) describe the competition within the market segments and specific geographical areas referred to in paragraph (a) including, to the extent known after reasonable investigation by the issuer,

(i) names of the issuer's principal competitors,

(ii) a comparison of the principal aspects of competition (e.g. price, service, warranty or product performance) between the issuer and its principal competitors, and

(iii) potential sources of significant new competition,

(d) disclose the extent of market acceptance of the Products and the method used to determine whether market acceptance exists (e.g. market testing or surveys), including the names of the parties who performed the appropriate procedures and, if not at Arm's Length with the issuer, their relationship with the issuer,

(e) if applicable, state that obsolescence is a factor in the issuer's industry and describe how the issuer intends to maintain its competitive position,

(f) if applicable, describe the effect of any material market controls or regulations within the market segment and specific geographical area referred to in paragraph (a) that may affect the marketing of the Products (e.g. marketing boards or export quotas), and

(g) if applicable, describe the effect of any seasonal variation within the market segment and specific geographical area referred to in paragraph (a) that may affect the sales of the Products.

- In this section, "issuer" means the issuer, its subsidiaries and proposed subsidiaries.

- In discussing competition, consideration must be given to substitute or alternative products that may impact on the issuer's ability to meet its stated business objectives.

5.10 Marketing plans and strategies - If the issuer is currently marketing its Products or will be marketing its Products in order to achieve its stated business objectives, provide the following information regarding the issuer's marketing plans and strategies:

(a) describe how and by whom the Products are or will be marketed and, if not at Arm's Length with the issuer, their relationship with the issuer,

(b) disclose any marketing programs actual or proposed to meet the issuer's stated business objectives and the major components of the marketing programs (e.g. trade shows, magazines, television or radio advertising), and provide a Breakdown of Costs for major components of the marketing programs,

(c) disclose the issuer's pricing policy (e.g. at market, discount or premium) and, where known, the issuer's selling price and direct cost per unit, and

(d) where after sales service, maintenance or warranties are a significant competitive factor, describe the differences between the issuer's policies and those of its principal competitors.

- In this section, "issuer" means the issuer, its subsidiaries and proposed subsidiaries.

5.11 Administration - Provide a Breakdown of Costs of the administrative support that the issuer anticipates will be required in order for it to achieve its stated business objectives. State the time period during which these costs will be incurred.

- Administrative support includes professional fees, transfer agent fees, management fees, rent, travel, investor relations and other administrative costs, such as those costs required to maintain a reporting issuer in good standing, whether incurred by the issuer or its subsidiaries.

6. USE OF PROCEEDS

6.1 Funds Available - Provide a breakdown of Funds Available as follows:

(a) the net proceeds to be derived by the issuer from the sale of the securities offered under the prospectus,

(b) the estimated working capital available to the issuer, its subsidiaries and proposed subsidiaries as of the Most Recent Month End, and

(c) the amounts and sources of other funds that will be available to the issuer, its subsidiaries and proposed subsidiaries prior to or concurrently with the completion of the offering.

- The amount of working capital must be updated to the Most Recent Month End.

6.2 Principal purposes - Provide, in tabular form, a description of each of the principal purposes, with amounts, for which the Funds Available will be used. Where the closing of the distribution under the prospectus is subject to a minimum subscription, provide separate columns disclosing the use of proceeds for the minimum and maximum subscriptions.

State the following (with the bracketed information completed as appropriate):

(a) "The board of directors of the Issuer is of the opinion that the funds that will be available to the Issuer on the [successful completion of the offering] [minimum subscription being reached] will be sufficient to provide the Issuer with a reasonable opportunity of achieving its stated business objectives set out in "Business of the Issuer" on page _____."

(b) "The Issuer will spend the funds available to it on the completion of this offering to further the Issuer's stated business objectives set out in

"Business of the Issuer" on page _____. There may be circumstances where, for sound business reasons, a reallocation of funds may be necessary in order for the Issuer to achieve its stated business objectives."

- Statements as to principal purposes for which the Funds Available are to be used must correlate and be cross referenced to the estimated costs disclosed in Item 5.

- Funds Available not allocated to one of the principal purposes must be identified as "Working Capital To Fund Ongoing Operations" and must be sufficient to fund the issuer's operations during the offering period and, following completion of the offering, to maintain the issuer as a reporting issuer during the time frame contemplated by its stated business objectives.

6.3 Conflicts of interest - Where the issuer is a related party or connected party of the Agent, or where the securities to be offered are out of the holdings of selling security holder who is a related party or connected party of the Agent, provide a summary of the nature of the relationship between the Agent and the issuer, or the Agent and the selling security holder, as the case may be.

State the extent to which the proceeds of the distribution will be applied, directly or indirectly, for the benefit of the Agent or any related party of the Agent. Where the proceeds will not be applied for the benefit of the Agent or any related party of the Agent, so state. Provide a cross-reference to the information required by Item 19.

- For example, disclosure would be required in most cases where the issuer received a loan from the Agent and thus would be a connected party of the Agent. Reference should be made to section 167.4 of the Regulation for further requirements.

- For the purposes of this item, reference to an Agent includes a special selling group member, as defined in section 167.4 of the Regulation.

7. DIRECTORS, OFFICERS AND PROMOTERS

- In this Item, "issuer" includes the issuer's subsidiaries and proposed subsidiaries.

- In sections 7.3 through 7.6, the Superintendent may require this information to be disclosed for periods prior to the that indicated in the section depending upon the materiality of the events.

7.1 Name, address and occupation - List the names and the municipality of residence of all directors, officers and promoters of the issuer and, for each person, disclose

(a) the current positions and offices with the issuer,

(b) the principal occupations within the five Preceding Years and, where the principal occupation is that of an officer of a company other than the issuer, state the principal business in which the company was engaged,

(c) the number of securities of the issuer beneficially owned, directly or indirectly.

- The description of the principal occupation of a director, officer or promoter must be specific. The terms "businessman" or "entrepreneur" are not sufficiently specific.

- Where the director, officer or promoter is a member of Management, the information in paragraph (b), other than a current occupation, may be disclosed by a cross reference to the page on which the information required by section 5.4 is disclosed.

7.2 Ownership of securities - State the number and percentage of securities of each class of voting securities of the issuer beneficially owned, directly or indirectly, by all directors, officers and promoters of the issuer, its subsidiaries and proposed subsidiaries as a group, as of the completion of the offering.

7.3 Other reporting issuers - Where any director, officer or promoter of the issuer is, or within the five Preceding Years has been, a director, officer or promoter of any other reporting issuer, state the names of those issuers and the periods during which the individual has so acted.

7.4 Corporate cease trade orders or bankruptcies - Where any director, officer or promoter of the issuer is, or within the five Preceding Years has been, a director, officer or promoter of any other issuer that, while that person was acting in that capacity,

(a) was the subject of a cease trade or similar order or an order that denied the issuer access to any statutory exemptions for a period of more than 30 consecutive days, state the fact and describe the reasons and whether still in effect, or

(b) was declared bankrupt or made a voluntary assignment in bankruptcy, made a proposal under any legislation relating to bankruptcy or insolvency or been subject to or instituted any proceedings, arrangement, or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of that person, state the fact.

7.5 Penalties or sanctions - Where any director, officer or promoter of the issuer has, within the ten Preceding Years, been subject to any penalties or sanctions imposed by a court or securities regulatory authority relating to trading in securities, promotion or management of a publicly traded company, or theft or fraud, describe the penalties or sanctions imposed.

- Penalties or sanctions include charges that have been laid or notices of hearing that have been issued as of the date of the prospectus.

7.6 Individual bankruptcies - Where any director, officer or promoter of the issuer has, within the five Preceding Years, been declared bankrupt or made a voluntary assignment in bankruptcy, made a proposal under any legislation relating to bankruptcy or insolvency or been subject to or instituted any proceedings, arrangement, or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of that individual, state the fact and whether the individual has been discharged from bankruptcy or has satisfied the conditions of the proposal.

7.7 Conflicts of interest - Disclose particulars of any existing or potential conflicts of interest of any of the directors, officers or promoters of the issuer as a result of their outside business interests.

8. INDEBTEDNESS OF DIRECTORS, OFFICERS AND OTHER MANAGEMENT

State the name of each director, officer and member of Management and each of their respective associates or affiliates who is or has been indebted to the issuer at any time during the Preceding Year of the issuer and state, for each person,

(a) the largest amount of indebtedness outstanding at any time during the Preceding Year,

(b) the nature of the indebtedness and the purpose for which it was incurred,

(c) the amount presently outstanding,

(d) the rate of interest paid or charged,

(e) the terms of repayment,

(f) the nature of any security granted to the issuer, and

(g) if the person is an associate or affiliate of a director, officer or member of Management, the person's relationship to the director, officer or member of Management of the issuer.

- In this Item, "issuer" includes the issuer's subsidiaries and proposed subsidiaries.

9. PAYMENTS TO INSIDERS AND PROMOTERS

- In this Item, "issuer" includes the issuer's subsidiaries and proposed subsidiaries.

9.1 Executive Compensation - Provide the information required by Form 41 with the following changes:

(a) "executive officers" shall include executive officers as defined in Form 41 and all other insiders and promoters of the issuer, and their respective associates and affiliates,

(b) individual disclosure of the individual's name and compensation must be made for the five highest paid executive officers.

9.2 Related Party Transactions - Where, during the Preceding Year, the issuer has acquired assets or services from an insider, promoter or member of Management and their respective associates or affiliates, disclose the following for each acquisition:

(a) the name of the individual,

(b) the nature of the assets or services,

(c) the form and value of the consideration, and

(d) where the issuer has acquired assets,

(i) the cost of the assets to the seller, and

(ii) where the consideration referred to in paragraph (c) above exceeds the seller's out-of-pocket costs, a cross reference to the valuation opinion disclosed in section 5.3.

- Information with respect to executive compensation need not be disclosed in this section.

- For acquisitions where the consideration is not in excess of the greater of 10% of the aggregate compensation or consideration paid under sections 9.1 and 9.2 or $5000, the information required by this item may be aggregated together and classified as "miscellaneous".

- As an alternative to the disclosure required in paragraph (b) above, provide a cross reference to the page(s) of the prospectus where the required disclosure is made.

9.3 Proposed Compensation - Where known, provide the information required by Form 41 as modified by 9.1 with respect to the amounts that the issuer anticipates it will pay during the 12 month period following completion of the offering.

- The amounts referred to in this section include the forms of compensation referred to in sections 9.1 and 9.2 above.

10 SHARE CAPITAL AND INDEBTEDNESS

Provide, in the tabular form indicated or, where appropriate, in notes, particulars of

(a) the share capital of the issuer,

(b) the long term indebtedness of the issuer as determined on a consolidated basis, and

(c) the long term indebtedness of each subsidiary or proposed subsidiary of the issuer (other than long term indebtedness included under paragraph (b) or held by the issuer or a wholly-owned subsidiary), whose separate financial statements are contained in the prospectus.
TABLE

Column 1 Column 2 Column 3

Description of Amount outstanding Amount to be
security as of a specific outstanding if all

date within 30 days securities being
issued are sold

- Set out in the table or a note thereto the number of shares of each class authorized and issued. Set out in a note the number of shares reserved subject to rights, options and warrants.

- Long term indebtedness means indebtedness, including obligations under capital leases, for which a written understanding exists that repayment of the indebtedness may extend beyond one year.

- Set out in a note to the table a cross reference to any note in the financial statements that contains information concerning the extent of obligations or commitments arising by virtue of operating leases.

- Individual items of long term indebtedness, including obligations under capital leases, which are not in excess of 10% of total assets as shown in the most recent balance sheet contained in the prospectus may be aggregated together and set out as a single amount under an appropriate caption such as "Sundry Indebtedness".

- If applicable, state in general terms the respective priorities of the indebtedness set out in the table.

- Identify the holder(s) of any indebtedness, other than "Sundry Indebtedness", set out in the table.

- If applicable, indicate that the issuer has guaranteed a debt of any subsidiary or proposed subsidiary.

- Give particulars of the amount, interest rate, terms of repayment and security of any material amount of indebtedness proposed to be created or assumed by the issuer, other than indebtedness offered by the prospectus.

- Set out in a note a brief description of all rights of minority interest under preference shares issued by subsidiaries.

- The thirty-day period referred to in Column 2 is to be calculated within thirty days of the date of the preliminary prospectus. Where more than thirty days have elapsed from the date of the preliminary prospectus, the information shall be updated to a date which is within thirty days of the date of the prospectus.

- The information to be set out in Column 3 shall be based upon the information contained in Column 2 as adjusted for amounts to be issued or retired out of the proceeds of the offering.

11.. PRIOR SALE

Provide the information indicated in the table set out below with respect to prior sales of securities of the class offered by the prospectus.

TABLE

Column 1 Column 2 Column 3 Column 4

Number of Price per Total Nature of
shares share consideration consideration

- Where the consideration for any of the prior sales included in the table is other than cash, describe in a note to the table the method of determining the value of the consideration (e.g. out of

- pocket costs, valuation opinion, Arm's Length negotiation or, in the case of services, determination by directors based on estimated fair market value).

12. PRINCIPAL HOLDERS OF SECURITIES

12.1 Principal holders - Provide as of a specified date within thirty days prior to the date of the prospectus, the information indicated in the table set out below for each person who has, or is known by the issuer to have:

(a) direct or indirect beneficial ownership of,

(b) control or direction over, or

(c) a combination of direct or indirect beneficial ownership of and of control or direction over

securities that will constitute more than 10 per cent of any class of such securities after completion of the offering.

TABLE

Column 1 Column 2 Column 3 Column 4

Name and Number of Percentage of Percentage
municipality securities class prior to of class
of residence the offering after the offering

- Where a person that is not an individual is shown by the issuer as owning directly or indirectly more than 10 per cent of any class of such securities, identify the individual shareholders of the person as required by General Instruction 5. The name of such individuals should be disclosed in a footnote to the table.

- If there is a minimum subscription, disclose the percentage of the class held by the principal holders on both a minimum and maximum basis.

- If, to the knowledge of the issuer or the Agent, more than 10 per cent of any class of voting securities of the issuer are held or are to be held subject to any voting trust or other similar agreement/arrangement, state the designation of such securities, the number or amount held or to be held and the duration of the agreement. Give the names and addresses of the voting trustees and outline briefly their voting rights and other powers under the agreement.

12.2 Additional disclosure respecting control persons - Where a person identified in the table under section 12.1 is a control person of the issuer and is not a director, officer or promoter of the issuer, provide the disclosure required for sections 7.3 - 7.6 for the control person. If the control person is a corporation, the disclosure must be provided for the control persons of the corporation.

13. PERFORMANCE OR ESCROW SHARES

Where, as of the date of the prospectus, the issuer has performance or escrow shares outstanding, state

(a) the number of performance or escrow shares,

(b) the estimated percentage that the performance or escrow shares will represent of the total issued and outstanding voting securities of the issuer, as of the completion of the offering,

(c) the names of the beneficial owners of the performance or escrow shares and the number of performance or escrow shares owned by each,

(d) the name of the escrow agent,

(e) the date of the escrow agreement and the conditions governing the transfer, release and cancellation of the performance or escrow shares, and

(f) the rights or obligations of a person who ceases to be a principal, dies or becomes bankrupt to retain, transfer or surrender to the issuer for cancellation the performance or escrow shares.

14. OPTIONS AND OTHER RIGHTS TO PURCHASE SECURITIES

14.1 Material terms - Disclose, as at a specified date not more than ten days before the date of the prospectus, the following information respecting each option that is held or will be held upon completion of the offering by any person:

(a)the name of each person and the reasons that the option was granted,

(b) the nature of the option granted to each person (e.g. options, Agent's warrants or other warrants),

(c) the designation and number of the securities subject to the option,

(d) the purchase price of the securities subject to the option or the formula by which the purchase price will be determined,

(e) the expiration date of the option, and

(f) if there is a published market for the securities, the market value of the securities subject to the option as of the date of grant and the specified date.

- In this section, option means option, warrant or other right to purchase securities of the issuer.

14.2 Required language - State the following: "There are no assurances that the options and warrants described above will be exercised in whole or in part and therefore the funds from the options and warrants may not be available to the Issuer.

PLAN OF DISTRIBUTION

15.1 Terms of the distribution agreement - With respect to the agreement entered into between the issuer and the Agents, state:

(a) the names of the Agents,

(b) the date of the agreement,

(c) the nature of the Agents' obligation to take up and pay for any of the securities being offered,

(d) the conditions, if any, under which the Agent may "market out",

(e) the nature of the consideration to be paid to the Agent, and

(f) the number of days following the completion of the offering by which issuer will receive the net proceeds of the offering from the Agents or the date by which the Agents are to purchase the securities.

15.2 Minimum and maximum subscription - Where the prospectus discloses a plan of distribution not involving a firm underwriting or other subscription guarantee, it must also disclose the amount of the minimum and maximum subscriptions.

15.3 Secondary offering - If any of the securities are offered for the account of an existing security holder, state the portion of the expenses of distribution to be borne by the selling security holder.

15.4 Extraprovincial offerings - Disclose whether there are any agreements or arrangements to sell any portion of the offering outside of the Province. If so, disclose in what other jurisdictions the offering may be sold, the identity of the person who will be selling the securities in the other jurisdictions and the estimated portion of the offering, if any, to be sold outside of Canada.

16. DESCRIPTION OF SECURITIES OFFERED

16.1 Terms - Describe the securities being offered and summarize their material attributes and characteristics, including, if applicable:

(a) dividend rights;

(b) voting rights;

(c) liquidation or distribution rights;

(d) pre-emptive rights;

(e) conversion rights;

(f) if the securities are subscription warrants or rights, the period during which, and the price at which, the warrants or rights are exercisable;

(g) redemption, purchase for cancellation or surrender provisions;

(h) sinking or purchase fund provisions;

(i) provisions as to modification, amendment or variation of any such rights or provisions.

16.2. Modification of terms - If the rights of holders of such securities may be modified otherwise than pursuant to a mechanism provided for by governing legislation relating thereto, briefly describe the method by which those rights may be modified.

- Provide information regarding other securities of the issuer that rank ahead of or equally with the securities being offered in order to enable investors to understand the rights attaching to the securities being offered.

17. FISCAL AGENCY AGREEMENTS

If the issuer has entered into any agreement with any registered broker or dealer to provide corporate finance services for the issuer or its securities, either now or in the future, disclose the following information regarding these services:

(a) the date of the agreement,

(b) the name of the registered broker or dealer,

(c) the consideration, both monetary and non-monetary paid or to be paid by the issuer, and

(d) a summary of the nature of the services to be provided, including the period during which the services will be provided, activities to be carried out and, where market making services will be provided, whether the registered broker or dealer will commit its own funds to the purchase of securities of the issuer or whether the registered broker or dealer will act as agent for others to do so.

INVESTOR RELATIONS ARRANGEMENTS

If the issuer has entered into any written or oral agreement or understanding with any person to provide investor relations services for the issuer or its securities, either now or in the future, disclose the following information regarding these services:

(a)the date of the agreement and the anticipated date that the services will commence,

(b) the name, principal business and place of business of the person providing the services,

(c) a summary of the background of the person providing the services,

(d) whether the person has, or is known by the issuer to have:

(i) direct or indirect beneficial ownership of,

(ii) control or direction over, or

(iii) a combination of that direct or indirect beneficial ownership of and of control or direction over securities of the issuer,

(e) whether the person has any right to acquire securities of the issuer, either in full or partial compensation for services,

(f) the consideration both monetary and non-monetary paid or to be paid by the issuer, including whether any payments will be made in advance of services being provided,

(g) if the issuer does not have sufficient funds to pay for the services, how the issuer intends to pay for the services, and

(h) a summary of the nature of the services to be provided, including the period during which the services will be provided.

- Include any arrangements made by the issuer or any other person on behalf of the issuer or on the person's own initiative where the issuer knows, after reasonable enquiry, that such an arrangement exists.

- If there are no promotional or investor relations arrangements, so state.

19. RELATIONSHIP BETWEEN ISSUER OR SELLING SECURITY HOLDER AND AGENT

Where the issuer is a related party or connected party, as defined in the Regulation, of an Agent or where the securities to be offered are out of the holdings of a selling security holder who is a related party or connected party of the Agent, describe

(a) the nature of the relationship or connection between the issuer and the Agent or the selling security holder and the Agent, as the case may be, including

(i) the basis on which the issuer or selling security holder is a related party or connected party of the Agent,

(ii) the name of each relevant related party of the Agent,

(iii) the details of the ability of the Agent or any related party of the Agent to affect materially the operations of the issuer, and

(iv) whether the issuer is indebted to the Agent or any related party of the Agent and, if so, provide particulars of such indebtedness;

(b) the extent to which the proceeds of the issue will be applied, directly or indirectly, for the benefit of the Agent or any related party of the Agent. For example, where the issuer has received a loan from the Agent, the issuer would be a connected party of the Agent and would have to comply with section 167.4 of the Regulation.

- For the purpose of this item, reference to an Agent includes a special selling group member as defined in section 167.4(1) of the Regulation.

- In this section, "issuer" means the issuer, its subsidiaries and proposed subsidiaries.

20. LEGAL PROCEEDINGS

Describe any outstanding and, if known, contemplated legal proceedings that are material to the business and affairs of the issuer.

- Include the name of the court or agency, the date the proceedings were instituted, the principal parties to the proceedings, the nature of the proceedings, the amount claimed, if any, whether the proceedings are being contested, the present status of the proceedings and, if a legal opinion is referred to in the prospectus, the name of counsel providing that opinion.

21. AUDITO

State the name and address of the auditor of the issuer.

22. REGISTRAR AND TRANSFER AGENT

State the name of the issuer's registrar and transfer agent Where the issuer has branch registers for transfers of its securities, state the location (by municipalities) of the registers.

23. MATERIAL CONTRACTS

23.1 Particulars of material contracts - Disclose all material contracts to which the issuer is a party, including

(a) the date of each contract,


(b) the parties to each contract,

(c) the consideration paid or payable by or to the issuer, and

(d) the general nature of each contract.

- As an alternative to the disclosure required in this section, provide a cross reference to the page(s) of the prospectus where the required disclosure with respect to a particular contract is made.

23.2 Inspection of contracts - State a reasonable time and place at which a copy of any material contract may be inspected during distribution of the securities being offered under the prospectus.

24. OTHER MATERIAL FACTS

Give particulars of any other material facts relating to the securities proposed to be offered and not disclosed elsewhere in the prospectus.

25. RISK FACTOR

List the risks that could be considered to be material to an investor as follows:

(a) risks relating to the nature of the business of the issuer,

(b) risks relating to the nature of the offering, and

(c) any other risks.

- Risk factors may include but are not limited to such matters as cash flow and liquidity problems, inexperience of Management in start up operations, inexperience of Management in the particular industry in which the issuer operates, dependence of the issuer on an unproven Product, environmental regulations, economic or political conditions, absence of an existing market for the Product, absence of an operating history, absence of profitable operations in recent periods, an erratic financial history, significant competition, conflicts of interest with Management, reliance on the efforts of a single individual and the arbitrary establishment of offering price.

- In this Item, "issuer" means the issuer, its subsidiaries and proposed subsidiaries.

26. FINANCIAL STATEMENTS, REPORTS AND OTHER EXHIBITS

Include the financial statements, reports and other exhibits required by applicable local policy statements or by the Act and Regulation.

27. CERTIFICATE

Provide the certificates of the issuer, Agent and promoter as required by the Act and Regulation.

IT IS AN OFFENCE FOR A PERSON TO MAKE A STATEMENT IN A DOCUMENT REQUIRED TO BE FILED OR FURNISHED UNDER THE ACT OR THE REGULATION THAT, AT THE TIME AND IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH IT IS MADE, IS A MISREPRESENTATION.

APPENDIX A - DEFINED TERMS

"Agent" means the agent or underwriter, as applicable.

"Arm's Length" is defined in Local Policy Statement 3-07 in relation to an Arm's Length Transaction.

"Breakdown of Costs" means a schedule of costs associated with the specific classification, separately itemizing each component that represents 10% or more of the total costs, with all other costs being grouped together under the heading "miscellaneous costs".

"Development Costs" means costs incurred by the issuer, its subsidiaries and proposed subsidiaries relating to product research and development, material acquisitions of plant, equipment, technology, and marketing rights, and does not include general and administrative costs.

"Funds Available" means the aggregate of

(a) the net proceeds to be derived by the issuer from the sale of the securities offered under the prospectus,

(b) the estimated minimum working capital to the issuer, its subsidiaries and proposed subsidiaries as of the Most Recent Month End, and

(c) the amounts and sources of other funds that will be available to the issuer, its subsidiaries and proposed subsidiaries prior to or concurrently with the completion of the offering.

"Management" means all directors, officers, employees and contractors whose expertise is critical to the issuer, its subsidiaries and proposed subsidiaries in providing the issuer with a reasonable opportunity to achieve its stated business objectives.

"Most Recent Month End" means the latest month end prior to the date of the Prospectus or revised draft prospectus or, where the date of the Prospectus or revised draft prospectus is within ten days of the end of the latest month, the month end prior to the end of that month.

"Preceding Year" means the financial year, and any subsequent period up to the Most Recent Month End.

"Product" means the issuer's product, service or technology

(a) that has a net book value representing more than 10% of the issuer's total assets,

(b) that generates more than 10% of the issuer's gross revenues, or

(c) on which more than 10% of the proceeds of the offering will be spent, or

(d) that is or will be the focus of the issuer's stated business objectives.

Draft July 16, 1992