TSX Venture Exchange’s Successful Market Model Kevan Cowan Senior Vice President TSX Venture Exchange Senior Vice President, Business Development Toronto

TSX Venture Exchange’s

Successful Market Model

Kevan Cowan

Senior Vice PresidentTSX Venture Exchange

Senior Vice President, Business DevelopmentToronto Stock Exchange

Presentation to COSRA SME ForumMay 15, 2006

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Table of Contents

• TSX Group – Overview

• TSX Venture – Market Overview

• TSX Venture – Listing

• TSX Venture – Corporate Governance Model

Note: This presentation is provided for information purposes only. Neither TSX Group Inc. nor any of its affiliated companies guarantees the completeness of the information contained in this presentation and we are not responsible for any errors or omissions in or your use of, or reliance on, the information.

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TSX Group

• Global Data Services

• Marketplace Operator

• Senior Listings Market

• ~1,500 listings

• Technology Services

• Venture Listings Market

• ~2,000 listings

• Avg market cap <$16MM

• Gas and electricity contract trading and clearing

• 3rd largest in North America

Note: As of December 31, 2005, excludes NEXSource: WFE, September 2005

45%

50%

18%

4

TSX Group ranked 5th in the world by equity capital raised

2004 Global Equity Capital Markets

Deal Value (US $bn) % Share

1 US 176.4 30.72 Japan 59.7 10.43 UK 37.4 6.54 France 32.7 5.75 Canada 31.1 5.46 Australia 25.9 4.57 Germany 25.3 4.48 Italy 21 3.79 China 18.3 3.2

10 Taiwan 15.4 2.7

Source: Dealogic

Issuer Nationality

5

TSX Group finances growth companies

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*Structured Products sector includes 22 ETFs at December 31, 2005.

Market Capitalization by Sectorat December 31, 2005

Comm. & Media7%

Mining10%

Diversified Industries

17%Oil and Gas

29%

Financial Services

24%

Real Estate2%

Structured Products*

3%Utilities & Pipelines

3%

Technology3%

Life Sciences1%

Forest Products

1%

Toronto Stock Exchange

100% = $1.83 Trillion

TSX Venture and NEX

Financial Services 1%

Media1%

Merchandising1%

Technology6%

Others 4%

Manufacturing4%

Biotechnology3%

Real Estate2%

Business Services1%

Mining53%

Oil & Gas24%

100% = $33.3 Billion

Canada’s diversified economy is reflected in the market cap of our listed issuer base

7

TSX Group listings have been robust in a North American context

107

152 150

2,293 2,2702,308

2003 2004 2005*

TSX TSX Venture

134

260 270

3,1643,2293,294

2003 2004 2005*

76 90 102

575 595557

2003 2004 2005*

121

189 196

7

1527

1,3401,421

1,537

2003 2004 2005

* August 2005 annualized

NYSE NASDAQ AMEX

74

1351592

7

6

1,991 1,9482,020

2003 2004 2005

New Listings Total Listings New Cdn Listings Total Listings

New Foreign Listings

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TSX Group’s issuer base is very strong in public SMEs

29%

37%

12%8% 10%

4%0% 0% 0% 0%

37%

18%

13% 12%

3%0%

17%

38%

27%

39% 40%

6%

94%

17%

2%

16%

9%

3% 2%

6%

<US$50Million

US$50-$250Million

US$250-$500 Million

US$500-$1Billion

US$1-$US5Billion

>US$5 Billion

TSX TSX Venture Nasdaq NYSE Amex

Size Distribution of Listed Companies by ExchangeTSX Issuers: 1537 US$ 1.6 TTSX Venture Issuers: 2020 US$28.7 BNasdaq Issuers: 3164 US$3.6 TNYSE Issuers: 2270 US$13.3 TAmex Issuers: 595 US$86.3 B

As at December 31, 2005

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2005 2005 2005

Listed Companies 201 2,020 1,537

Total Market Cap $623.2 M $33.34 B $1,830.7 B

Median Market Cap $0.7 M $4.8 M $143.9 M

Average Market Cap $3.1 M $16.5 M $1.2 B

Financings $101.1 M $6.06 B $46.16 B

Average Financing $0.7 M $2.6 M $58.1 M

Going Public Activity

-- 259* 223

Graduates 64 to TSX Venture

46 to TSX -

TSX Venture finances early stage companies

* Includes IPOs, CPCs, RTOs, QTs, TSX comedowns and Other

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2004 2005

261 companies

1,948 companies

47 Grads

1,421 companies

+458

Grads

201 companies

64 Grads

+33+1 (re-list)

+4 (TSX)

2,020 companies

46 Grads+2

1,537 companies

5 to CNQ, 49 delist, 2 acquired, 2 to TSX

+75

+3(from TSX)

31 delist, 2 amalgamated1 to CNQ

Source: TSX Group analysis

TSX Group supports capital formation and trading at various stages of development

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Table of Contents






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Evolving a National Venture Exchange

Pre-Nov.99

Idea - Bring Together 5 Junior Stock Markets

· VSE· ASE· WSE· CDN· ME

Nov.99 – Oct.01

Formation ofCDNX

Regional offices:Vancouver

Calgary (HO)WinnipegTorontoMontreal

Aug.01

Acquisition By TSX

Regional offices:Vancouver

Calgary (HO)WinnipegTorontoMontreal

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To provide a quality, liquid and efficient

venture capital market for publicly traded

venture companies and their investors.

TSX Venture's Mission

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When More Capital is Required

Start-UpCompany

Seed Money - Angel Investors -

- Government -

Private Equity - Venture Capitalists –

Public Venture Capital- TSX Venture Exchange -

Senior Markets

- TSX -- Other -

TSX Venture Exchange provides emerging companies with an alternative source of

capital through access to public funds

Financing Options

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Pink sheets

OTC BB

Nasdaq

North America Stock Markets Continuum

NYSE

• No listing standards

• Senior listing standards

• Disclosure rules

• Junior listing standards

Filling the gap

TSX

CNQ

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TSX Venture financing activity

2002 2003 2004 2005

Private Placements

Secondary Offerings

IPOs

$1.44 B

$2.38 B

$4.15 B

$6.06 B

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TSX Venture volume, value & trading

Source: TSX Venture Review

2004

2005

VOLUME: Total Volume Average Daily Volume

16.6 billion 65.9 million

21.1 Billion 84.0 Million

VALUE: Total Value Average Daily Value

$10.8 billion $43.0 million

$15.6 Billion $62.0 Million

TRANSACTIONS: Total Transactions Average Daily Trans.

2.8 million 11,174

3.4 Million 13,625

Average Price Per Share

$0.65

$0.74

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TSX Venture graduates represent a significant portion of new listings on TSX

45

26 25

4758

463

12

15

15

2000 2001 2002 2003 2004 2005

Merged/Acquired

TSXV Graduates

Since 2000:

• 247 companies have graduated to TSX

• 34% of these 247 graduates (85) started as CPCs

• 45 companies have been merged/acquired by TSX companies

Number of TSX Venture Graduates2000-2005

TSXV Graduates as % of TSX New Listings

40% 27% 23% 37% 28% 21%

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TSX Venture graduates have succeeded in the senior market

28 Companies that started on TSXV are now in S&P/TSX Comp Index

TSXV Companies that have been merged/acquired

Aastra Technologies LimitedAber Diamond CorporationAltaGas Income TrustBaytex Energy TrustBoardwalk REITCalloway REITCrescent Point Energy TrustCrystallex International CorporationDaylight Energy TrustEnsign Energy Services Inc.Esprit Energy TrustFairborne Energy TrustFirst Quantum Minerals Ltd.Glamis Gold Ltd.Great Canadian Gaming CorporationInterOil CorporationIntrawest CorporationNiko Resources Ltd.Pan American Silver Corp.Peyto Energy TrustPrecision Drilling TrustProgress Energy TrustQLT Inc.Rider ResourcesSavanna Energy Services Corp.Shore Gold Inc.Trilogy Energy TrustVermilion Energy Trust

Janna Systems - acquired by Siebel Systems

Diamond Fields Resources – acquired by Inco

ALI Technologies – acquired by McKesson

Arequipa Resources Ltd. – acquired by Barrick

Diamet – acquired by BHP

Jordan Petroleum – acquired by Cypress Energy

PetroKazakhstan – acquired by CNPC International

Ryan Energy Tech – acquired by Nabors Inds.

Triple G Systems Group – acquired by GE

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Table of Contents






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The TSX Venture Niche

Project /Project /IdeaIdea

R&D orR&D orPrototype Prototype

CommercialCommercialStageStage

StableStableProductionProduction

OperatingOperatingHistoryHistory

Private Equity Candidates

Pink Sheets/OTCbb

TSX Venture Candidates

TSX Candidates

NASDAQ Candidates

NYSE Candidates

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• Financing range: $500k to $20 million

• Multiple financing rounds = more ground-floor investing opportunity

• Acquisition currency

• Employee stock options

• Mentoring role

• Stepping stone to senior markets – streamlined graduation path to TSX

• Graduates leave with a track record

Why List on TSX Venture

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How to Go Public on TSX Venture

TSX

VENTURE

TSX

VENTURECapital Pool

Company (CPC)

Reverse Takeover

(RTO)

Qualifying Transaction

Initial Public Offering

(IPO)

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Going Public Activity

31 26 28 3050

101

45 29

8785

36

36 57

2924

59

8490

6670

11

510 4

2

26

129

2128

0

100

200

300

400

2001 2002 2003 2004 2005

IPO CPCRTO QTTSX Comedown Other

264

223237

208

259

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Management Qualifications and Escrow

Management:

Board must demonstrate satisfactory overall:

– business expertise

– public company experience

Escrow:

– Management Commitment: Length of required commitment longer for emerging companies because reliance is on management abilities rather than financial situation

– Value: The number of securities issued should correlate to the value of the asset or business being received

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Our mentorship program assists listed issuers in managing public company obligations

TSX VentureSUCCESS PROGRAM

Venture CompanySuccess Workshop

Essentials to SuccessSeminar

TSX Venture Speaks

Financial ReportingSeries

Rules & ToolsWorkshop

Expanded Mentorship Program to ~500 attendees in each of 2004 and 2005

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Minimum Listing Requirements Tier 1: Technology or Industrial

Category 1 Category 2 Category 3

Net Tangible Assets

(incl. IPO $)

$1 M $5 M N/A

Earnings Before Tax $100,000 N/A $200,000

Working Capital 18 mos 18 mos + $100K

18 mos

Publicly Held Shares 1 M 1 M 1 M

Public Market Capitalization

$1 M $1 M $1 M

Number of Shareholders 200 200 200

Percentage Held by Public 20% 20% 20%

* R&D MLR: Similar to Category 2 but $1,000,000 in prior R&D required and a $1,000,000 R&D program must be recommended.

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Minimum Listing Requirements Tier 2: Technology or Industrial

Category 1 Category 2

Net Tangible Assets (incl. IPO $) $500,000 $750,000

Earnings Before Tax $50,000 N/A

Prior Expenditures or Revenue N/A $250,000

Working Capital 12 mos 12 mos + $100K

Other N/A Sufficient testing to demonstrate

commercial viability

Minimum IPO Price $0.15 $0.15

Publicly Held Shares 500,000 500,000

Number of Shareholders 200 200

Percentage Held by Public 20% 20%

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On-going StandardsInitial Standards


TSX Venture Exchange

• Qualified management

- Public company experience

- Related business experience

- Suitability

• Adequate working capital

- 12-18 months

• Inverse relationship between net tangible assets and cash flow

• Timely and on-going disclosure

• Shareholder dilution limits

• Earnings/projected earnings required

• Cash flow/projected cash flow required

• Earnings not a requirement

• Cash flow not a requirement

Standards common to both exchanges

• $3 M in revenue

• $3 M in assets

• $3 M in market cap

• Adequate working capital

• Positive pre-tax cash flow

• Qualified management

- Changes in management must be approved/accepted

• Revenue requirements

• Continued public distribution

• Compliance with timely disclosure standards

And they must meet our on-going standards to maintain their listing

Issuers must meet our initial standards to list...

Both TSX and TSX Venture have quality standards for public issuers layered on regulatory baselines

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TSX Group’s exchanges work with securities commissions

Stock Exchanges

(public corporation)

Standards•Quality of directors and officers

•Original and continued listing criteria•Timely and ongoing disclosure

(including corporate governance)• Shareholder dilution limits

Quality Market•Contractual enforcement

(de-listing)

Listed Issuers

Securities Commission

(government agency)

Regulation•Prospectus disclosure

•Continuous disclosure (financial and material)

Investor Protection•Statutory enforcement

Reporting Issuers

Regulatory oversight

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Capital Pool Company® (CPC) Program

• Unique way to list, introduced in 1987

• 1,585 listed since inception

• 1,357 CPCs have completed qualifying transaction since 1987

• More than $652 million raised in seed and IPO financings since 1987

• 202 former CPCs now on senior exchange

• 33% of TSX Venture Exchange graduates to Toronto Stock Exchange in 2005 were CPC issuers

Compiled by TSX Group Inc. as at December 2005

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IPO Process

Qualifying TransactionListing CPC Process

CPC: Unique Listing Vehicle

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Why/When a CPC

• Alternative access to capital; Retain higher ownership

• Want to be public company (M&A currency, stock options, visibility)

• Greater flexibility, certainty and control in the process

• Going public risk reduced

• Management

• Long term strategy to grow as a public company

• Reasonable valuation = Viable share structure

• Investor support

• Appropriate advisors (lawyer, broker, investment banker)

Company Wants/ Needs

Critical Success Factors

• Company is at too early a stage for a broadly distributed regular IPO

• IPO market is not strong enough in general

• VC financing is not viable or management prefers not to use

• Market appears to reward growth business of target company’s sector

Market Conditions

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Seed Financing and Prospectus

Public Offe

ring

Trade as CPC

Announce QT

File Disclosure Statement

Trade as Venture

Company

CPC Acquires Business (QT)

Public Financing and CPC Trades

Prospectus Receipt

Close Transaction

Seed

Identify Q

ualifying Transactio

n

24 Months Maximum

CPC Process

Aftermarket and Growth

Execute Business

Plan; IR Program

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Table of Contents






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TSX Venture governance policy highlights

• Directors & officers (“D&Os”) must submit personal information forms:

– TSX Venture does background checks on proposed D&Os– TSX Venture can prohibit people, impose conditions on people or

require that people with appropriate experience be added

• Minimum 3 directors - 2 of whom must be independent, e.g., cannot be employees or senior officers

• D&Os must be knowledgeable of and comply with securities laws (including several corporate governance rules)

• D&Os must disclose personal interests they have in any current or proposed transaction

• Management compensation must be approved by independent directors

• Minimum 3 person audit committee - 2 of whom must be independent

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TSX Venture compliance

Oversight of listed issuers:

• Monitor disclosure to ensure issuers comply, downgrade issuers as required

• Review complaints

• Analyze issuers’ corporate and financial information and recommend compliance action as needed

• Interview and correspond with issuer management and advisors to facilitate compliance

• Co-ordinate with regulators

• Halt trading in shares when business activity warrants

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For more information, please contact:

Kevan CowanSenior Vice President, Business Development


Senior Vice President

TSX Venture Exchange

[email protected]

DisclaimerThis document is for information purposes only and is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange or Natural Gas Exchange. TSX Group Inc. and its affiliates do not endorse or recommend any securities discussed. Please seek professional advice to evaluate specific securities. While the information herein is collected and compiled with care, neither TSX Group Inc. nor any of its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. You agree not to rely on the information contained herein for any trading, business or financial purpose. This information is provided with the express condition, to which by making use thereof you expressly consent, that no liability shall be incurred by TSX Group Inc. and/or any of its affiliates as a result of any errors or inaccuracies herein or any use or reliance upon this information.

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TSX Venture Exchange’s Successful Market Model Kevan Cowan Senior Vice President TSX Venture Exchange Senior Vice President, Business Development Toronto