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October 25, 2005
Leaving Purgatory:Realizing Shareholder Value
Through the CPC Program
NAO Summit
October 2, 2005
October 25, 2005
Panel Agenda
1. Overview of CPC Program
Kevan Cowan, TSX Venture Exchange
2. Panel Discussion
Cameron McDonald, Canaccord Capital Corporation
Andy Wilson, YTW Growth Capital
Michael Thomson, Naples Capital Corp.
Ungad Chadda, TSX Venture Exchange
October 25, 2005
Overview of Capital Pool Company® (CPC) Program
Kevan Cowan
Senior Vice President
TSX Venture Exchange
October 25, 2005
Disclaimer
This 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 referenced in this
document. 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.
October 25, 2005
Objectives
1. Demonstrate why you should become a CPC Founder
2. Outline why you should consider vending your portfolio company into a CPC
October 25, 2005
Presentation Outline
1. Market Overview
2. How the CPC Program Works
3. Why Become a CPC Founder
4. Why Use a CPC to Take Your Company Public
5. CPC Success Stories
October 25, 2005
TSX Group of Companies
October 25, 2005
Financing Options
October 25, 2005
Canadian Markets at a Glance
YTD August 2005 YTD August 2005 YTD August 2005
Listed Companies 222 1,980 1,506
Total Market Cap $608.2 M $28.65 B $1,787.0 B
Median Market Cap $0.6M $ 4.5M $141.1 M
Average Market Cap $2.7 M $14.4 M $1.2 B
Financings $67.2 M $3.45 B $32.9 B
Average Financing $0.7 M $2.4 M $65.7 M
Going Public Activity 55* 145* 151
Graduates 44 to TSX Venture 24 to TSX -
• Includes IPOs, CPCs, RTOs, QTs, TSX comedowns and Other
October 25, 2005
Graduate Performance(1 Year prior to Graduation)
Does not include NEX. Data Compiled by TSX Group as of August 31, 2005
302%
223%251%
60%
6%
127%107%
135%
195%
28% 18%
61%
2000 2001 2002 2003 2004 YTDAugust2005
Avg. Market Cap Grow th Avg. Share Price Grow th
302%
223%251%
60%
6%
127%107%
135%
195%
28% 18%
61%
2000 2001 2002 2003 2004 YTDAugust2005
Avg. Market Cap Grow th Avg. Share Price Grow th
# of Grads: 45 26 25 2447 58
October 25, 2005
Total Financings
Compiled by TSX Group Inc., as of August 31, 2005 (TSX financing includes supplementary financing)
TSX Venture Toronto Stock Exchange
2004 YTD Aug 2005
2004 YTD Aug 2005
Total Financings $4.1 B $3.45 B $47.8 B $32.9 B
Average Deal Size $1.9 M $2.4 M $56.1 M $65.7 M
Median Deal Size $0.6 M $1.0 M $14.3 M $25.2 M
October 25, 2005
Presentation Outline
1. Market Overview
2. How the CPC Program Works
3. Why Become a CPC Founder
4. Why Use a CPC to Take Your Company Public
5. CPC Success Stories
October 25, 2005
Program Growth to Date
• Unique way to list, introduced in 1987
• 1,542 listed since inception
• 1,322 CPCs have completed qualifying transaction since 1987
• More than $626 million raised in seed and IPO financings since 1987
• 195 former CPCs now on senior exchanges
• 40% of TSX Venture Exchange graduates to Toronto Stock Exchange of YTD June 2005 were CPC issuers
Compiled by TSX Group Inc. as of June 2005
October 25, 2005
Stage 1 – seed financing of the company
Stage 2 – a small prospectus offering to create a
corporate vehicle with public distribution
Stage 3– the Qualifying Transaction (“QT”) - an operating company
is identified, disclosed and acquired
3 Stage Process
October 25, 2005
IPO Process
Qualifying TransactionListing CPC Process
Unique Listing Vehicle
October 25, 2005
Seed Financing and Prospectus
Public Offe
ring
Trade as CPC
Announce QT
File Disclosure Statement
Trade as Venture
Company
CPC Acquires Business
Public Financing and CPC Trades
Prospectus Receipt
Close Transaction
Seed
President’s List
Private Company Private Placement (Institution, Accredited Investor)
Identify Q
ualifying Transactio
n
CP
C P
LA
YE
RS
CP
C P
RO
CE
SS
24 Months Maximum
CPC Founders
Dealer (CF) Dealer (CF)
Advisors
Retail Brokers
CPC Process & Stakeholders
October 25, 2005
Presentation Outline
1. Market Overview
2. How the CPC Program Works
3. Why Become a CPC Founder
4. Why Use a CPC to Take Your Company Public
5. CPC Success Stories
October 25, 2005
3-5 Founders create CPC:
– $100,000 to $500,000 in seed funding
IPO of the CPC is completed:
– President’s List
– Broker’s List
Founders Set Up CPC
October 25, 2005
Shares Price Total
Founder (seed) 1,000,000 $0.10 $100,000
Public (prospectus) 5,000,000 $0.20 $1,000,000
CPC – trading public company
6,000,000 $1,100,000
CPC Share Structure Post-IPO
October 25, 2005
Existing Portfolio Company:
Significant Growth Opportunity
Strong Management
Capital Needs: $1 M to $5 M
Close to Commercialization
Stock Options and Acquisition Currency
Portfolio Company = CPC Candidate
October 25, 2005
Ownership of Private Company
Shares Price Ownership
Angel Investor 5,000,000 $0.20 40%
Management Shareholders 7,500,000 BST 60%
Total for Private Company 12,500,000
October 25, 2005
CPCSeed (Founder) =
1.0 M shares @ $0.10IPO =
5.0 M shares @ $0.20
New TSX Venture Company
Qualifying Transaction
New Financing = $2.25 M
Private CompanyAngel = 40%
Management = 60%Value = $6.25 M
Anatomy of a QT
October 25, 2005
Angel$1.1 M
6.0 M Shares26%
New TSX Venture Company
Resulting Share Structure
Public$1.0 M
5.0 M Shares21%
Private Company
ShareholdersBST
7.5 M Shares33%
New Financing$2.25 M
4.5 M Shares20%
Market Value of Company:23.0 M Shares @ $0.50 = $11.5 M
October 25, 2005
Shares Price Invested Market @ $0.50
Ownership
Founder (Angel) 1,000,000 $0.10 $100,000 $0.5 M
5,000,000 $0.20 $1.0 M $2.5 M 26%
Public 5,000,000 $0.20 $1.0 M $2.5 M 21%
Private Company Shareholders
7,500,000 BST $3.75 M 33%
New Financing 4,500,000 $0.50 $2.25 M $2.25 M 20%
Totals 23,000,000 $0.50 $11.5 M 100%
Resulting Share Structure
October 25, 2005
Graduate Performance(1 Year prior to Graduation)
Does not include NEX. Data Compiled by TSX Group as of August 31, 2005
302%
223%251%
60%
6%
127%107%
135%
195%
28% 18%
61%
2000 2001 2002 2003 2004 YTDAugust2005
Avg. Market Cap Grow th Avg. Share Price Grow th
302%
223%251%
60%
6%
127%107%
135%
195%
28% 18%
61%
2000 2001 2002 2003 2004 YTDAugust2005
Avg. Market Cap Grow th Avg. Share Price Grow th
# of Grads: 45 26 25 2447 58
October 25, 2005
Scenario 1: Angel Seeds $100,000
Scenario 2: Angel Seeds $500,000
Founder (Angel) Shares 6,000,000 10,000,000
CPC QT Price $0.50 $0.50
Graduates One Year Later – Using average one year price growth for 2004 graduates (61%)
$0.81 $0.81
Value of Angel’s Shares $4.86 M $8.1 M
Initial Investment $1.1 M $1.5 M
Return on Investment 342%
Not Annualized
440%
Not Annualized
Founders’ Reward Upon Graduation
October 25, 2005
Leverage private equity with public dollars
High risk / high reward (graduate performance)
Control structuring, timing and financing
Consolidation tool
Incentive for management and employees
Early investment with full benefits realized on graduation to TSX, including reduced escrow time
Spread risk (further syndication)
Why Become a CPC Founder
October 25, 2005
Presentation Outline
1. Market Overview
2. How the CPC Program Works
3. Why Become a CPC Founder
4. Why Use a CPC to Take Your Company Public
5. CPC Success Stories
October 25, 2005
When and Why to Consider a CPC
Junior Company Wants/Needs
+
Market Conditions
+
Critical Success Factors
Successful CPC
October 25, 2005
Junior Company Wants/Needs
Alternative Access to Capital
Want to be Public Company
Greater Flexibility in the Process
Greater Certainty and Maintain Greater Control
– going public risk reduced
Simple/Clean Way to Go Public
October 25, 2005
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 Conditions
October 25, 2005
Critical Success Factors
Management
Long Term Strategy to Grow as a Public Company
Reasonable Valuation = Viable Share Structure
Investor Support
Advisors (lawyer, broker, investment banker)
October 25, 2005
Presentation Outline
1. Market Overview
2. How the CPC Program Works
3. Why Become a CPC Founder
4. Why Use a CPC to Take Your Company Public
5. CPC Success Stories
October 25, 2005
RailPower Technologies Corp.(TSX:P)
• Based in Vancouver, provides hybrid yard locomotive technology solutions for rail operators
• Went public on TSX Venture in 2001 as a CPC
• Raised $20.2 million on TSX Venture
• Graduated to TSX March 2004
• Market cap of $245 million (as of October 17, 2005)
October 25, 2005
0
1
2
3
4
5
6
7
July-2001 January-2002 July-2002 December-2002 April-2003 September-2003 January-2004 July-2004 December-2004
Pri
ce (
C$)
0
20
40
60
80
100
120
140
160
180
200
Market C
apitalizatio
n (C
$ Millio
ns)
Market Cap Price
RailPower Technologies Corp. (TSX:P)
*CPC listing: Envirotrain Capital Corp. (EC)
**Amalgamated with RailPower Technologies Inc. and changed name to RailPower Technologies Corp.
PP = Private Placement PO = Public Offering
Nov 2000
CPC IPO $0.5 M*
July 2001
Completed QT**
Listing on OTCbb
Dec 2001
PP $1.0 M
Jan 2002
PP $0.5 M
March 2002
2 PPs $2.5 M
July 2003
PP $3.2 M
Nov 3003
PP $12.5 M
June 2004
PO $20.0 M
Dec 2004
PO $41.6 MMarch 2004
Graduated to TSX
October 25, 2005
Resverlogix Corp. (TSX:RVX)
• Calgary-based biotech company focused on research in cardiovascular disease, cancer and fibrotic diseases
• Raised $10 Million on TSX Venture in 2004
• Graduated to Toronto Stock Exchange January 2005
• Share price has grown 25% since Graduation
(January 17 to October 17, 2005)
October 25, 2005
Resverlogix Corp. (TSX:RVX)
$0
$10
$20
$30
$40
$50
$60
$70
$80
April 2003 August 2003 December 2003 April 2004 August 2004 December 2004 January 2005
Ma
rke
t C
ap
ita
liza
tio
n (
$ M
illio
n)
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Pri
ce
Market Cap Price
October 2001
CPC Listing: Aspley
Management Group Inc.
April 2003
QT: Resverlogix Corp.
December 2003
PP $200 K
SFO $2.0 M
April 2004
PP $1.8 M
October 2004
PP $400 KDecember 2004
PP $7.9 M
January 2005
PP $3.1 M
January 2005
Graduated to TSX
PP = Private PlacementSFO = Short Form Offering
October 25, 2005
Halifax-based real estate company focused on multi-family residential properties. Currently own and manage 71 properties with 7,832 apartment and manufactured home units
Went public on TSX Venture as a CPC in 2000
Raised $6.5 million while on TSX Venture
Graduated to TSX in 2003
Has since completed 3 private placements on TSX for a total raise of $121 million ($57 million just raised in May 2005)
Killam Properties Inc. (KMP)
October 25, 2005
Killam Properties Inc. (KMP)
$0
$50
$100
$150
$200
$250
Dec 2000 Jun 2001 Dec 2001 Jun 2002 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Dec 2004 Mar 2005 May 2005
Mar
ket C
apita
lizat
ion
($ M
illio
n)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Pri
ce
Market Cap Price
Dec 2000
CPC IPO $0.4 M
March 2002
Qualifying Transaction
July 2002
PP $0.4 M
Nov 2002
PP $5.8 M
April 2003
Graduated to TSX
Nov 2003
PP $22.0 M June 2004
PP $42.0 M
May 2005
PP $57.5 M
October 25, 2005
Panel Discussion
Cameron McDonald, Canaccord Capital
Andy Wilson, YTW Growth Capital
Michael Thomson, Naples Capital Corp.
Ungad Chadda, TSX Venture Exchange
October 25, 2005
Kevan Cowan, TSX Venture Exchange
416-365-2207 [email protected]
Cameron McDonald, Canaccord Capital Corporation
514-284-1467 [email protected]
Andy Wilson, YTW Growth Capital
416-350-5002 [email protected]
Michael Thomson, Naples Capital Corp.
613-271-2106 [email protected]
Ungad Chadda, TSX Venture Exchange
416-365-2206 [email protected]
Speaker Contact Information
October 25, 2005
Appendix
Recent Policy Amendments
October 25, 2005
CPC Program Recent Amendments to Policy 2.4 - Capital Pool Companies
Use of Proceeds Excluded Agents’ commission from the 30% limit on Use of Proceeds
Pro Group Participation in Seed and IPO stage financing Allowed Pro Group Participation in both stages of financing provided the following; Compliance with client priority rules of the IDA, Pre-IPO rounds will be subject to 3 year escrow, IPO participation is limited to the 2% subscription restriction.
Seed Capital Limit Removed the limit of $500,000 but restricted the discounted seed capital to $500,000.
Cancellation of Non-Arm’s Length Discount Seed Shares Generally allowed retention of 50% of discount seed shares
October 25, 2005
CPC Program Recent Amendments to Policy 2.4 - Capital Pool Companies
Timeline for Completion of a QT Increased the time frame for a CPC to complete its QT from 18 to 24 months
Foreign non-resource Qualifying Transaction Allowed CPCs who are reporting issuers in Ontario to undertake a foreign non resource QT. Ontario Issuer must file a prospectus with the OSC in connection with the Transaction
Jurisdictions of Incorporation Allows CPCs to be incorporated in non-Canadian jurisdictions other than those listed on the Financial Action Task Force on Money Laundering’s list of deficient countries/territories.
October 25, 2005
CPC Program Recent Amendments to Policy 2.4 - Capital Pool Companies
Extension of Option Expiration Period Increased the option expiration period from 90 days to 1 yr for Directors and Officers who hold options and do not continue with the Issuer after the QT.
Revised Definition of Non-Arm’s Length QT Incorporated the concept of common Control Persons, which makes it clear that the threshold for control is material affect on control or a holding of at least 20% of the outstanding securities of the relevant entities, rather than a 50% threshold.
Revised Representation of Management’s Abilities. Amended Form 3A with a representation that management believes that the CPC has sufficient human and financial resources to identify, investigate and acquire a Significant Asset.