Request for Comments - Issuers with a Substantial Connection to Alberta - Commission Approval to CNQ Rule Amendments - Canadian Trading and Quotation System Inc. (CNQ)

Canadian Securities Exchange (CSE) rule review and notices

January 28, 2005

On November 9, 2004, the Board of Directors of CNQ approved a rule amendment that would require CNQ Issuers that are not reporting issuers in Alberta to assess whether they have a substantial connection to the province and, if so, to make application to the Alberta Securities Commission to become a reporting issuer. The proposed amendments are attached to this notice as Appendix "A."

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:

Timothy Baikie, General Counsel & Corporate Secretary
Fax: 416.572.4160
E-mail: [email protected]

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
E-mail: [email protected]

Background

CNQ has applied to the Alberta Securities Commission (ASC) for exemption from recognition as a stock exchange. Staff of the ASC have indicated they will recommend that the exemption be granted on condition that the proposed amendments are adopted. The proposed rule would prevent issuers that have a substantial connection to Alberta (as defined below) from avoiding the jurisdiction of the ASC.

Proposal

The proposed amendments will require a company to become an Alberta reporting issuer if it has a substantial connection to Alberta, which it will have if

(a) registered and beneficial securityholders (which for this purpose includes both Non-Objecting Beneficial Owners as defined in National Instrument 54-101 or any successor instrument and any shareholders appearing on the Demographic Summary Report prepared by International Investors Communications Corporation) resident in Alberta who beneficially own more than 20% of the equity securities of the Issuer; or

(b) the majority of the board of directors or the President or the Chief Executive Officer are residents of Alberta and registered and beneficial securityholders resident in Alberta who beneficially own more than 10% of the equity securities of the Issuer.

Listed companies would be required to assess on an annual basis whether they have a substantial connection to Alberta.

If an issuer is subject to the new requirement, it must make a bona fide application to the ASC and become a reporting issuer within six months. Failure to do so may result in suspension or delisting.

As in Ontario, the ASC permits out-of-province reporting issuers in good standing to apply to become an Alberta reporting issuer without having to clear a prospectus. Please refer to ASC Policy 12-601, Applications to the ASC, Appendix 2 for further information.

Consultation

No formal consultations were undertaken with respect to the proposed rule.

Alternatives Considered

No alternatives were considered.

Rules of Other Jurisdictions

The TSX Venture Exchange has a rule requiring issuers to assess whether they have a substantial connection to Ontario and, if so, to apply to the Ontario Securities Commission to become a reporting issuer. The rule is the same as the proposed rule other than the jurisdiction that is the focus of the assessment.

APPENDIX "A"

BE IT RESOLVED that:

1. Section 3.2 of Policy 1 is amended by adding the following definitions:

"beneficial holders" means those security holders of an issuer that are included in either:

(a) a Demographic Summary Report available from the International Investors Communications Corporation; or

(b) a non-objecting beneficial owner list for the issuer under National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer;

"registered holders" means the registered security holders of an issuer that are beneficial owners of the equity securities of that issuer. For the purposes of this definition, where the beneficial owner controls or is an affiliate of the registered security holder, the registered security holder shall be deemed to be the beneficial owner;

"significant connection to Alberta" means, with respect to a CNQ Issuer or an issuer applying to become listed CNQ, that the issuer has:

(a) registered holders and beneficial holders resident in Alberta who beneficially own more than 20% of the total number of equity securities beneficially owned by the registered holders and beneficial holders of the issuer; or

(b) mind and management principally located in Alberta and has registered holders and beneficial holders resident in Alberta who beneficially own more than 10% of the total number of equity securities beneficially owned by the registered holders and beneficial holders of the issuer.

For the purposes of item (b), the residence of the majority of the directors in Alberta or the residence of the president or chief executive officer in Alberta may be considered determinative in assessing whether the mind and management of the issuer is principally located in Alberta.

2. Sections 3.2 to 3.6 of Policy 2 are enacted as follows:

3.2 All CNQ Issuers and applicants for listing that are not reporting issuers in Alberta must immediately assess whether they have a significant connection to Alberta.

3.3 Where it appears to CNQ that an issuer making an initial application for listing on CNQ has a significant connection to Alberta, CNQ will, as a condition of its acceptance or approval of the listing application, require the issuer to provide to CNQ evidence that it has made a bona fide application to the Alberta Securities Commission to become a reporting issuer in Alberta.

3.4 Where a CNQ Issuer that is not a reporting issuer in Alberta becomes aware that it has a significant connection to Alberta as a result of complying with section 3.2 above or otherwise, the CNQ Issuer must immediately notify CNQ and promptly make a bona fide application to the Alberta Securities Commission to be deemed to be a reporting issuer in Alberta. The CNQ Issuer must become a reporting issuer in Alberta within six months of becoming aware that it has a significant connection to Alberta.

3.5 All CNQ Issuers that are not reporting issuers in Alberta must assess, on an annual basis, in connection with the delivery of their annual financial statements to securityholders, whether they have a significant connection to Alberta. All CNQ Issuers that are not reporting issuers in Alberta must obtain and maintain for a period of three years after each annual review referenced in this section, evidence of residency of their registered holders and beneficial holders.

3.6 If requested, CNQ Issuers must provide to CNQ evidence of the residency of their non-objecting beneficial owners (as defined in National Policy 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer or its successor instruments).

3. Section 3.4 of Policy 4 is enacted as follows:

3.4 Where a CNQ Issuer has a significant connection to Alberta, CNQ may refuse to accept any director, officer or insider, or revoke, amend or impose conditions in connection with CNQ acceptance of any such application until such time as the CNQ Issuer has complied with a direction from CNQ or CNQ requirement to make application to the Alberta Securities Commission and to become a reporting issuer in Alberta.

PASSED this 9^th day of November, 2004, to be effective upon Ontario Securities Commission approval following public notice and comment.

"Ian Bandeen"	"Timothy Baikie"
Chairman	Secretary