NoticeMar 24, 2008

Notice 2008-001 - Capital Structure and Builder Shares

CNQ NOTICE 2008-001

Notice to Issuers
Capital Structure and Builder Shares

March 24, 2008

CNQ (“the Exchange”) is concerned about new listing applications made by issuers wherein a large proportion of the outstanding shares have been issued for nominal consideration. Such shares have often been issued to principals and third parties and CNQ believes there is a potential for negative impact on market integrity and investor confidence. To address this concern the Exchange has drafted this notice to provide guidance to issuers and their counsel with respect to capital structures that the Exchange will generally consider to be acceptable.

Amendments to Policy 2 – Qualification for Listing
The Exchange will begin immediately to apply these concepts to new listing applications and advise applicants accordingly. The concepts outlined in this notice will be formally introduced through amendments to Policy 2 at a later stage and will reflect experience administering the concepts.

Builder Shares
Builder Shares means any security issued or issue-able upon conversion to:

a)  any person for $0.02 or less per security;
b)  a Related Person to the Issuer for the purchase of an asset with no acceptable supporting valuation;
c)  a Related Person to settle a debt or obligation for less than the last issued price per security;
d)  a Related Person for the primary purpose of increasing that principal’s interest in the Issuer without a corresponding tangible benefit to the Issuer.

The Issuer cannot sell securities pursuant to an initial public offering for less than $0.10 per share or unit. For Issuers not yet generating revenue from business activity, the Exchange will not consider an application where Builder Shares have been issued for less than $0.005 in the previous 18 month period.

Capital Structure
The ratio of shares in the post offering or reverse takeover capital structure must not exceed one Builder Share for every three non-Builder Shares. Prior to listing, all securities issued to Related Persons of the Issuer are required to be escrowed with releases scheduled at periods specified in National Policy 46-201.

In addition, where convertible securities (such as stock options, common share purchase warrants, special warrants, convertible debentures or notes) are issued before listing and are exercisable or convertible into listed shares at a price that is less than the issuance price per security under a Prospectus offering or other financing or acquisition taken contemporaneously with the listing application then the underlying security will be subject to escrow with releases scheduled at periods specified under National Policy 46-201.

Where there is no concurrent financing, the minimum permitted price at which the securities can be exercisable or convertible and not be subject to escrow is $0.10. The Exchange will not permit the exercise, conversion or exchange price of any exercisable, convertible or exchangeable security to be fixed until the security has been granted to a particular person.

Substantial Float
The Exchange may consider exercising discretion if an issuer has a Substantial Float. A Substantial Float means the Issuer post offering or reverse-takeover meets or exceeds all of the following: a. $1,000,000 public float value; b. 1,000,000 free trading shares; c. 200 public shareholders with a minimum of one board lot each with no resale restrictions, and; d. 20% of the issued and outstanding shares are held by public shareholders.

The Exchange will generally consider an Issuer that meets the criteria to have a Substantial Float. Acceptance of the proposed structure is contingent upon an evaluation utilizing the criteria listed in “Qualitative Issues”.

Qualitative Issues
When deciding whether a capital structure is acceptable to the Exchange, the Listings Advisory Committee will consider the following; � Quality and experience of management and board � Percentage of time devoted by management to the Issuer � Capital contribution (cash paid in, reasonable value of assets and reasonable value of services performed, less any cash payments) by Related Persons � Ratio of capital contribution to ownership by Related Persons � Ratio of share price in pre-IPO financing rounds to the IPO price � Suitability of all issuances prior to listing taking into account management activity, significant developments, and elapsed time as well as arm’s-length party participation.

The Exchange, in its sole discretion, may impose an escrow different from that required by NP 46-201 or consider proposals such as an “earn-out” escrow on a case-by-case basis.

The concepts described in this Notice will apply to all new listing applications, effective immediately.

Questions regarding this notice may be directed to:

Mark Faulkner, Director, Listings & Regulation or
Robert Theriault, Manager Listings
Canadian Trading and Quotation System, Inc.
220 Bay Street, 9th Floor,
Toronto, Ontario M5J 2W4
Fax: 416-572-2000
[email protected]; [email protected]

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