IIAC CORPORATE FINANCE DUE DILIGENCE GUIDELINES

IIAC CORPORATE FINANCE DUE DILIGENCE GUIDELINES February 2006

February 2006 IDA DUE DILIGENCE GUIDELINES The purpose of these Guidelines is to provide guidance to Member firms regarding the planning and performance of due diligence investigations in connection with securities offerings. The following principles and related comments are intended to reflect relevant jurisprudence, as well as the experience of the professionals involved in this project. Determining the appropriate scope of a due diligence investigation for any particular securities offering requires the exercise of professional judgement in the context of that transaction. This guidance is not intended as a prescriptive code for what is appropriate in any particular transaction. Members are encouraged to consult with their internal resources and external counsel in planning and executing the due diligence investigation in connection with each securities offering. PRINCIPLES OF DUE DILIGENCE Principle 1. Purpose of Due Diligence When an underwriter signs the certificate page in a prospectus, it is exposed to liability to purchasers if the prospectus contains a misrepresentation. An underwriter will not be liable if it conducts such reasonable investigation as to provide it with reasonable grounds for believing that there had been no misrepresentation in the prospectus. This "reasonable investigation" is commonly referred to as "due diligence". Due diligence is also a useful practice to limit reputational risk. 1.1 A prospectus is required to make full, true and plain disclosure of all material facts relating to the securities being distributed and must not contain a misrepresentation. A misrepresentation means (a) an untrue statement of a material fact or (b) an omission to state a material fact that is required to be stated or (c) an omission to state a material fact that is necessary to make a statement not misleading in the light of the circumstances in which it was made. 1.2 Although these Principles focus on due diligence in connection with a prospectus offering, many of the Principles and may apply in connection with due diligence investigations undertaken in connection with a private placement. An offering memorandum for a private placement is required not to contain a misrepresentation (defined in Comment 1.1). Even when no offering memorandum is used, member firms should consider what due diligence should be undertaken in the circumstances to reduce legal and reputational risk. 1.3 Due diligence procedures include not only procedures designed to ascertain and verify information but procedures to ensure that appropriate information is contained in the offering document.

- 2 - Principle 2. Reasonable Investigation What constitutes a reasonable investigation will depend on the circumstances. reasonableness of an underwriter's due diligence investigation will be judged in hindsight. The 2.1 What constitutes a "reasonable investigation" depends entirely upon the circumstances. For example, underwriters generally will conduct the most extensive due diligence in connection with an initial public offering by an issuer with which the underwriter has limited or no prior business dealings. Less extensive due diligence procedures may be reasonable for seasoned, significant and widely followed issuers, in particular those with whom the underwriter is familiar as a result of involvement in previous transactions (as lender, principal investor, financial advisor or financier). For example, in circumstances where an issuer frequently issues debt securities rated by a recognized credit rating agency under a shelf prospectus program due diligence may evolve into an ongoing process. Underwriters who have built up a knowledge of the issuer through their involvement in past transactions should focus their transaction-specific due diligence investigation on recent events and results. 2.2 Underwriters should be alert to signs that an especially thorough investigation may be warranted. Examples of such signs include (but are not limited to) the following: (a) (b) (c) (d) (e) (f) (g) (h) (i) where the issuer is undertaking an initial public offering or where previous offerings have been done solely by private placement or other than by way of a prospectus; if the underwriter has not previously performed due diligence for the issuer; if significant time has passed since the last time a due diligence investigation was undertaken; where the CEO, CFO, other senior executives or a significant number of directors have changed since the last public offering; in the case of debt offerings, where the debt has a below investment grade rating; if there has been a recent downgrade in the issuer's credit ratings; where there has been a significant change in the business of the issuer in the recent past (perhaps 24 months), such as one or more acquisitions; where the auditors have recently been changed; where different legal counsel are acting for the issuer than those who have acted in prior offerings;

- 3 - (j) (k) Principle 3. where there has been controversy concerning the nature of the issuer's business, negative publicity surrounding the issuer, reputational issues as to any executives or directors or public concerns relating to the conduct of the issuer's business (such as environmental matters); or where the issuer's disclosure contradicts that of its competitors or its financial statements disclose metrics that are markedly different than industry peers. Business Due Diligence A due diligence investigation can be divided into legal due diligence, which is normally undertaken on behalf of the underwriters by their legal counsel (see Principle 4), and business (including financial and accounting) due diligence, which is normally undertaken by the underwriters themselves. The nature and extent of the investigation should be considered at the outset of a transaction in accordance with Principle 2. 3.1 Business due diligence will vary significantly depending upon (i) the underwriter's knowledge of, and experience with, the issuer at the outset of the transaction, (ii) the nature of the securities being offered, and (iii) the availability of reliable independent third party information, such as rating agency reports and auditor opinions. Where underwriters have limited knowledge of, or experience with, an issuer, business due diligence may include visits to the issuer's headquarters and other operations sites and a review of business plans, budgets and projections, discussions with management, financial and accounting personnel (including the issuer's independent auditors if, and to the extent, they are willing to participate), a review of the issuer's publicly available documents (such as financial statements, MD&A, annual reports and annual information forms), a review of operational data and a review of material contracts (or a summary of the terms prepared by underwriter's counsel). 3.2 Early in the process, the lead underwriter should consider providing the issuer with a list (prepared with input from underwriters' counsel) of the types of documents that the underwriters would like to review with a request for the issuer to deliver such documents to the lead underwriter or its counsel. The documents so furnished should be reviewed and a list of the documents reviewed should be maintained by the lead underwriter or underwriters' counsel. If no documents are furnished pursuant to a particular request, the issuer should be asked to confirm that no such documents exist. 3.3 External information should also be obtained and reviewed, if available. This could include industry surveys, trade journals, rating agency reports, research analyst reports, stock trading history and internet searches. 3.4 Compare the issuer's public disclosure with that of comparable businesses, if any, to identify any anomalies that may warrant further investigation. 3.5 Where possible (having regard to applicable regulatory requirements and internal information walls), underwriters should take advantage of knowledge within their

- 4 - affiliates such as research analysts or credit analysts that may be useful in planning and executing the business due diligence investigation. 3.6 Where the issuer has recently made one or more significant acquisitions, consider making inquiries of appropriate individuals knowledgeable about each acquired business. 3.7 Consider interviewing customers, suppliers and counterparties to material contracts, subject to Comment 8.3. 3.8 Although typically underwriters' counsel negotiates and settles the long-form comfort letter with the issuer's auditors, the lead underwriter should speak with underwriters' counsel early in the process to understand what investigations are being performed by the issuer's auditors and the extent to which underwriters may rely upon those investigations. 3.9 If the issuer is not already familiar to the underwriters, the underwriters should conduct a reasonable investigation of the directors, officers, major shareholders and promoters of the issuer. In particular, they should consider undertaking background checks on the key members of management and the board of directors and, where appropriate, the principal shareholders and promoters if they are not already directors or officers of listed public companies. 3.10 Business due diligence should not be delegated to counsel. Principle 4. Role of Underwriters' Counsel The legal due diligence investigation may be performed on behalf of the underwriters by their counsel. Such counsel should be independent of the issuer (and, if applicable, selling securityholders). Counsel should review the issuer's material contracts, corporate records and other relevant documents and perform such public searches as are appropriate in the circumstances. 4.1 Early in the process, the lead underwriter should discuss with counsel the scope of counsel's due diligence investigation. 4.2 Underwriters' counsel are responsible to all underwriters and not just to the lead underwriter. Counsel should report to the syndicate (or report to the lead underwriter who would report to the syndicate) on the results of their legal due diligence and, where appropriate, do so in writing. If counsel reports to the lead underwriter(s) only, the lead underwriter(s) must report to the full syndicate (see Comment 9.2). 4.3 In equity offerings, counsel should investigate whether existing shareholders are subject to any legal impediments which might affect their ability to sell or hold their shares during the course of the distribution and the agreed period thereafter. These impediments could include: shares being available only after conversion or exchange of another security or the exercise of an option or right, matrimonial or trust considerations, outstanding monetization transactions and lending transactions secured by the shares.

- 5-4.4 The choice of underwriters' counsel should be made by the underwriters. Where the issuer suggests the appointment of a particular lawyer or law firm, perhaps because of their familiarity with the business and affairs of the issuer, the underwriters should evaluate any concerns regarding independence and the likelihood of a more thorough investigation being done by another lawyer or firm. Where the issuer plans to file a shelf prospectus for a medium term note program with a view to issuing securities quickly, underwriters should strongly consider engaging counsel for the MTN program. 4.5 An underwriter will not be able to avoid liability to purchasers for a misrepresentation in the prospectus if that misrepresentation should have been discovered by counsel as part of the legal due diligence assigned to it (although counsel may be liable to the underwriter for negligence). Therefore, it is important that underwriters choose competent and experienced legal counsel and that underwriters review and are satisfied with the quality of the legal due diligence undertaken on their behalf by counsel. 4.6 Underwriters should require counsel to keep them apprised of any difficulties they experience in obtaining any information requested by counsel to complete their due diligence or in obtaining appropriate legal opinions from the issuer's counsel. Principle 5. Expertized Portions The due diligence defence is established with respect to "expertized" portions of the prospectus (see Comment 5.1) if the underwriter "had no reasonable grounds to believe, and did not believe, that there had been a misrepresentation or that [the relevant] part of the prospectus did not fairly represent the report, opinion or statement of the expert or was not a fair copy of or extract from the report, opinion or statement". 5.1 Examples of expertized portions are audited financial statements, financial forecasts on which an auditor has reported, a summary of a tax opinion, an engineer's report on oil and gas or mining reserves, or an actuarial report on the valuation of insurance policy liabilities. 5.2 Underwriters should ensure that any experts are qualified to give the applicable report or opinion, that they have consented in writing to their report or opinion being used and they are satisfied with the way the report or opinion is reproduced, summarized or extracted in the prospectus. 5.3 Underwriters or their counsel should compare any summary or extract of a report or opinion to the original to ensure that it is a fair summary or extract. 5.4 If the scope of an expertized report is limited, it is important to ensure that the limitation on the scope is disclosed in the prospectus, e.g. a mining consulting company that does a "resource modelling" report based on assay results provided by management and not an audit of the assay results.

- 6 - Principle 6. Performed by Time of Filing Preliminary Prospectus The due diligence investigation should be substantially completed before filing the preliminary prospectus in order to enable the underwriters to responsibly sign the underwriters' certificate, subject to their continuing obligations (see Principle 7). Although minor items may be finalized after filing the preliminary prospectus, significant investigations should not remain uncompleted at that time. 6.1 In offerings other than bought deals, the issuer should be obligated in the engagement letter (if there is one) or otherwise to provide full access to the underwriters and their counsel to conduct their due diligence prior to filing the preliminary prospectus and to continue such due diligence until the filing of the final prospectus. At that time, an underwriting or agency agreement will be entered into which will deal with these issues until the completion of the distribution (see Principle 7). 6.2 In connection with bought deals, the bought deal letter should similarly obligate the issuer to permit the underwriters to satisfy their due diligence obligations prior to the filing of the preliminary prospectus. At that time, an underwriting agreement will be entered into which will deal with these issues until the completion of the distribution (see Principle 7). 6.3 Dealer agreements for MTN programs should also obligate the issuer to permit the underwriters to satisfy their due diligence obligations. 6.4 In the case of a secondary offering, the underwriters should ensure that the issuer has agreed to provide access for due diligence purposes and to make representations as to the current completeness and accuracy of the public record. In the case of a bought deal, this can be accomplished by having the issuer, as well as the selling securityholder, sign the bought deal letter and the underwriting agreement. 6.5 Although it is unlikely that a "long-form" comfort letter from the issuer's auditors would be available by the time of filing the preliminary prospectus, underwriters should endeavour to settle the contents to the extent possible prior to filing the preliminary prospectus so that any matters in respect of which the underwriters would like comfort which the auditors will not provide can be identified and consideration can be given as to whether alternative sources of comfort are available. Principle 7. Duration of Obligation The due diligence obligation entails a continuous process until the later of the closing of the offering and the last sale of the securities by the underwriters. 7.1 Note that if an underwriter has not fully sold its allotment by the closing date, the underwriter's due diligence obligation may continue until it has sold all of its allotted

- 7 - securities. In those circumstances, the underwriter should consult its counsel if in doubt about whether the distribution is complete and, therefore, whether the due diligence obligation has terminated. 7.2 The underwriting or agency agreement should deal with the obligation of the issuer to provide full access for the underwriters and their counsel to conduct their due diligence until the later of closing and the last sale of the securities by the underwriters. 7.3 The underwriting or agency agreement should provide for the delivery of "long-form" comfort letters from the issuer's auditors immediately prior to filing the final prospectus with an update, or "bringdown" letter as of closing. The comfort letter and bringdown letter should have a cut-off date not earlier than two business days prior to the date of the letter. 7.4 The underwriting or agency agreement should obligate the issuer until the distribution is complete to advise the underwriters of the occurrence of any material change, any change in a material fact or any new material fact. 7.5 The underwriting or agency agreement should require the issuer, until the distribution is complete, to discuss with the lead underwriter(s) any fact or change in circumstances, which is of such a nature that there is doubt as to whether it is a material change, a change of a material fact or a new material fact. Principle 8. Role of Third Parties The quality and reliability of due diligence is enhanced by consulting independent sources. Where practical, material information should be confirmed with third parties, rather than by the issuer's management. 8.1 For prospectus offerings, the issuer's auditors and legal counsel should be invited to participate in the due diligence "Q&A sessions" held before filing the preliminary and final prospectuses. The issuer's professional advisers should be asked to confirm information within the scope of their practice (e.g. auditor's long-form comfort letter, counsel's description of any legal proceedings). 8.2 Credit ratings should be confirmed with the appropriate rating agencies. 8.3 Where third parties are not otherwise involved in the offering process (e.g. customers, suppliers) care must be given to ensure that enquiries are being made without violating the prohibition under securities laws against "tipping".

- 8 - Principle 9. Reliance on Lead Underwriter The lead underwriter typically takes the lead role in performing and overseeing the due diligence investigation. However, the liability provisions of Canadian securities laws do not distinguish between lead underwriters and other members of an underwriting syndicate. Syndicate members need not duplicate the investigation made by the lead underwriter but should satisfy themselves that the lead underwriter made the kind of investigation that the syndicate member would have made if it had been the lead underwriter. Moreover, in inviting underwriters to join a syndicate, the lead underwriter does not assume any liability to the other syndicate members for the adequacy of its due diligence investigation. Syndicate members should discuss with the lead underwriter the scope and findings of the lead underwriter's due diligence investigations in deciding whether to participate in the syndicate. 9.1 The demand of an issuer to execute an offering within a short time frame does not modify what constitutes a reasonable due diligence investigation. 9.2 At the time that the lead underwriter invites other investment dealers to form the syndicate, it should advise them of any agreement or understanding that it may have to limit the due diligence investigation or any other foreseen limitations or restrictions on due diligence. 9.3 Syndicate members should consider making use of any internal sources of analysis and information about the issuer that may not be available to the lead underwriter such as its own research or credit analysis information. 9.4 It is incumbent upon the lead underwriter to make information available to the full syndicate to ensure that they can address (or request the lead underwriter to address) any perceived deficiencies in the due diligence investigation. It is equally incumbent upon syndicate members to discuss with the lead underwriter the due diligence conducted by it. 9.5 Syndicate members should be given the opportunity to ask questions at the formal due diligence sessions and to speak with underwriters' counsel prior to the due diligence sessions. 9.6 Once the syndicate is established, any letters, opinions or memoranda relating to the underwriters' due diligence investigation should be addressed and furnished to all members of the syndicate. 9.7 If the draft preliminary prospectus for a reporting issuer contains previously undisclosed material information concerning the issuer, the lead underwriter should bring such information to the attention of the syndicate members. All underwriters will be expected to respect the confidentiality of such information until it has been disclosed publicly by the issuer, whether by filing the preliminary prospectus or otherwise.

- 9-9.8 Where the lead underwriter and an issuer have discussed whether specified undisclosed information may be material for the purposes of the prospectus and the issuer is asserting that the information is not material, the lead underwriter, in the ordinary course, would solicit the view of underwriters' counsel and unless the lead underwriter and underwriters' counsel are both of the view that the information is not material, the lead underwriter would solicit the views of one or more other syndicate members. 9.9 The lead underwriter on a bought deal should ensure that the form of press release to be issued (typically attached as a schedule to the bought deal letter) includes all of the information that the syndicate will want to provide to potential investors prior to the filing of the preliminary prospectus, such as all of the pertinent information about an acquisition being financed by the bought deal. Principle 10. Formal Due Diligence Sessions Although due diligence is a process with an emphasis on substance rather than form, formal due diligence sessions should be held in order to confirm the completeness and accuracy of the information contained in the prospectus. 10.1 For non-shelf offerings, a formal due diligence session should be held prior to the filing of the preliminary prospectus (see Principle 6). For offerings that are covered by a shelf prospectus, this session should be held prior to the filing of the prospectus supplement. In the case of MTN shelf offerings, where practical, this session should be held prior to pricing of the offering. 10.2 Bring down due diligence sessions should be held as part of the filing of the final prospectus for non-shelf offerings and prior to closing and, if appropriate, prior to the end of the distribution (see Principle 7). 10.3 Questions that are to be asked should be provided to the issuer's management, counsel and auditors sufficiently prior to the holding of the session in order to allow the persons being asked the questions to undertake such enquiries to be able to answer the questions as thoroughly and accurately as possible. 10.4 The underwriters and issuer should determine which individuals are in the best position to have the necessary information and confirm that they are available to answer the questions. 10.5 Underwriters should consider whether certain non-management directors of the issuer should be involved, such as the chair of the audit committee.