Policy 6 – Distributions – Amendment of Warrant Terms

Notice and Request for Comments

May 7, 2007

The Board of Directors of Canadian Trading and Quotation System Inc. (“CNQ”) has passed a resolution to amend CNQ Policy 6 upon Ontario Securities Commission approval following public notice and comment. The text of the proposed rules is attached as Appendix “A”. A proposed “Form 13 – Notice of Amendment of Warrant Terms” is attached as Appendix “B”.

The Board has determined that the proposed amendments are in the public interest and have authorized them to be published for public notice and comments. Comments should be made no later than 30 days from the date of publication of this notice and should be addressed to:

Canadian Trading and Quotation System Inc.
BCE Place, 161 Bay Street
Suite 3850, P.O. Box 207
Toronto, ON, M5J 2S1
Attention: Mark Faulkner, Director, Listings and Regulation
Fax: 416.572.4160
Email: Mark.Faulkner@cnq.ca

A copy should be provided to the Ontario Securities Commission at the following address:

Capital Markets Branch
Ontario Securities commission
Suite 1903, Box 55
20 Queen Street West
Toronto, ON
M5H 3S8

Attention: Cindy Petlock, Manager, Market Regulation
Fax: 416.595.8940
Email: cpetlock@osc.gov.on.ca

Proposed Change
CNQ is proposing changes to Policy 6 (the “Policy”) that will provide for the amendment of terms of previously issued warrants issued pursuant to a private placement or acquisition. They do not affect listed warrants or warrants issued as compensation, which cannot be amended.

Rationale
CNQ listed companies are primarily emerging issuers that rely on financing activity to fund operations. The ability to amend terms of warrants that would otherwise expire without being exercised provides a way for Issuers to raise additional funds from sources that have previously invested in the company. The increased flexibility will increase the attractiveness of primary offerings by CNQ listed companies. The proposed changes will make CNQ policy similar to the policies of other Canadian stock exchanges and will be readily understood and accepted by the financial community.

Description of Change
Policy 6, Section 7.4 currently states “Except in exceptional circumstances and with the prior consent of CNQ, CNQ Issuers must not change, modify or amend the characteristics of outstanding warrants or other convertible securities other than pursuant to standard anti-dilution terms. For greater certainty, the fact that a convertible security will expire out of the money is not an “exceptional circumstance”

The amended section 7 includes the addition of a maximum permitted term of 5 years, where there was previously no maximum, and specific criteria that must be met for extending terms or amending exercise prices of warrants. The section provides for the amendment of warrant terms if: the warrants are not listed for trading; the exercise price is higher than the current market price, no warrants have been exercised in the last six months; and at least 10 trading days remain before the expiry date.
The term of a warrant may not be extended beyond 5 years from the date of issuance, and the exercise price may be amended once, subject to a number of conditions. An Issuer may amend the exercise price if the warrants were priced above the market price at the time of issuance and amended is also at or above that price; and, the amended price is at or above the average closing price of the listed shares for the last 20 trading days (or average of the bid/ask on days with no trading.

An Issuer may amend the exercise price to a price below the market price at the time of issuance, provided that if for 10 consecutive trading days the closing price of the listed shares exceeds the amended price by the applicable private placement discount the terms of the warrants must also be amended to 30 days, commencing 7 days from the end of the 10 day period. In this case, consent must be obtained from all holders of the warrants.
A maximum of 10% of the total warrants to be repriced may be repriced for insiders. If insiders hold more than 10% of the total, then the allowable 10% will be allocated pro rata among those insiders.

Disclosure must be made by press release and filing of new Form 13 – Notice of Amendment of Warrant Terms.

Impact of the Proposed Change
The proposed changes would have a minor overall positive impact on the ability of listed companies to raise capita. Not all companies would take advantage of the changes, however, those that could potentially receive a great benefit from increased financing flexibility.

Consultation
CNQ has had several discussions with listed companies and their respective counsel regarding the proposed changes. While these were not systematic consultations it is clear that they believe that such changes would be beneficial to CNQ listed companies and would not cause undue dilution to shareholders.

Alternatives
CNQ considered maintaining the prohibition on amendments to privately-issued warrants. It was rejected as it could cause hardship to CNQ listed companies and be an incentive to list on an exchange that does permit amendments.

Another option was to impose no restrictions on the amendments that could be made. This was rejected as it could result in excessive dilution of existing shareholders. The proposal attempts to reach a balance by imposing a maximum term for warrants as a quid pro quo for allowing extensions.

Comparable Policies
Other Canadian stock exchanges have similar provisions for the amendment of warrant terms.

Questions
Questions regarding this notice may be directed to:
Mark Faulkner
Director, Listings & Regulation
Canadian Trading and Quotation System, Inc.
161 Bay Street, Suite 3850, P.O. Box 207
Toronto, Ontario M5J 2S1

Fax: 416-572-4160
e-mail: mark.faulkner@cnq.ca