---

















ANNUAL INFORMATION FORM

FOR THE YEAR-ENDED SEPTEMBER 30, 2014













DECEMBER 22, 2014



MERUS LABS INTERNATIONAL INC.100 Wellington St.
West, Suite 2110 Toronto, Ontario, Canada M5K 1H1

---

- 2 -

TABLE OF CONTENTS

|INTRODUCTORY NOTES                                                                           | 1 
|-------------------------------------------------------------------------------------------- | --
|THE COMPANY                                                                                  | 1 
|DATE
      OF INFORMATION                                                                    | 1 
|CURRENCY                                                                                     | 1 
|CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS                                         | 1 
|CORPORATE STRUCTURE                                                                          | 4 
|CORPORATE ORGANIZATION                                                                       | 4 
|DEVELOPMENT OF THE BUSINESS                                                                  | 5 
|CONVERSION OFCONVERTIBLEDEBENTURES                                                           | 7 
|FACTIVE®
      ARBITRATIONPROCEEDING                                                         | 8 
|SINTROM® ACQUISITION AND 2014 CREDIT FACILITY                                                | 8 
|BUSINESS OF MERUS LABS                                                                       | 9 
|OUR
      PRODUCTS                                                                           | 9 
|OUR BUSINESS MODEL                                                                           | 9 
|OUR
      OPERATIONS                                                                         | 12
|OUR PRODUCTS                                                                                 | 12
|UROLOGY / WOMEN'S HEALTH                                                                     | 12
|TRANSITION PERIOD
      UNDER ENABLEX ACQUISITION AGREEMENT                                  | 12
|VANCOCIN®                                                                                    | 14
|GOVERNMENT
      REGULATION                                                                  | 18
|RISK FACTORS                                                                                 | 20
|DIVIDENDS                                                                                    | 29
|CAPITAL STRUCTURE                                                                            | 29
|AUTHORIZED CAPITAL                                                                           | 29
|COMMON SHARES                                                                                | 29
|PREFERRED SHARES                                                                             | 29
|MARKET FOR
      SECURITIES                                                                  | 32
|PRIOR SALES                                                                                  | 33
|ESCROWED
      SECURITIES                                                                    | 34
|DIRECTORS AND OFFICERS                                                                       | 35
|PRINCIPAL OCCUPATIONS AND OTHER INFORMATION ABOUT OUR
      DIRECTORS AND EXECUTIVE OFFICERS | 36
|CEASE TRADE ORDERS,
      BANKRUPTCIES, PENALTIES OR SANCTIONS                               | 38
|CONFLICTS OF INTEREST                                                                        | 39
|LEGAL PROCEEDINGS AND REGULATORY
      ACTIONS                                               | 40
|FACTIVE®
      ARBITRATIONPROCEEDING                                                         | 40
|TRANSFER AGENT AND REGISTRAR                                                                 | 40
|MATERIAL
      CONTRACTS                                                                     | 40
|INTERESTS OF EXPERTS                                                                         | 41
|ADDITIONAL
      INFORMATION                                                                 | 41
|AUDIT COMMITTEE AND
      AUDIT FEES                                                         | 41

---

INTRODUCTORY NOTES

The Company

References
to the Company, Merus and we are to Merus Labs
International Inc. and its direct and indirectly owned subsidiaries.

Date of Information

The
date of the information presented in this AIF is September 30, 2014, unless
otherwise indicated.

Currency

All
amounts in this AIF are in Canadian dollars unless otherwise indicated. We
indicate United States dollars as US$.

Cautionary Note Regarding Forward Looking Statements

This Annual Information Form (the AIF)
contains certain statements or disclosures that may constitute forward-looking
information or statements (collectively, forward-looking information) under
applicable securities laws. All statements and disclosures, other than those of
historical fact, which address activities, events, outcomes, results or
developments that management of the Company, anticipates or expects may or will
occur in the future (in whole or in part) should be considered forward-looking
information. In some cases, forward-looking information can be identified by
terms such as forecast, future, may, will, expect, anticipate,
believe, could, potential, enable, plan, continue, contemplate,
pro forma or other comparable terminology. Forward-looking information
presented in such statements or disclosures may, among other things include:

- our expectations regarding sales from our existing products, including our
  sales forecasts;
- our ability to acquire new products;
- our expectations regarding it ability to raise capital, including our
  ability to secure the financing necessary to enable us to acquire new
  products;
- our expectations regarding sales from products that we acquire or license;
- our expectations regarding the pricing of our products;
- our forecasts regarding our operating expenditures, including general and
  administrative expenses,
- our expectations regarding the development of our target markets;
- our expectations regarding government regulations of our products and any
  new products that we acquire;
- our expectations regarding currency exchange rates;
- our expectations regarding income taxes;

---

- our plans, objectives and targets for future revenue growth and operating
  performance;
- our plans and objectives regarding new products that it may acquire; and
- our forecast business results and anticipated financial performance.

The forward-looking information in statements or
disclosures in this AIF is based (in whole or in part) upon factors which may
cause actual results, performance or achievements of the Company to differ
materially from those contemplated (whether expressly or by implication) in the
forward-looking information. Those factors are based on information currently
available to the Company, including information obtained from third-party
industry analysts and other third party sources. Actual results or outcomes may
differ materially from those predicted by such statements or disclosures. While
the Company does not know what impact any of those differences may have, their
business, results of operations, financial condition and credit stability may be
materially adversely affected. Factors that could cause actual results or
outcomes to differ materially from the results expressed or implied by
forward-looking information include, among other things:

- the acceptance of our products by regulatory and reimbursement agencies in
  various territories including Canada and Europe and inclusion on drug benefit
  formularies, hospital formularies and acceptance by pharmacies, physicians and
  patients in the marketplace;
- our ability to successfully market and sell our products;
- our ability to increase sales of our existing products;
- our ability to acquire new products and, upon acquisition, to successfully
  market and sell new products that are acquired;
- our ability to achieve the financing necessary to complete the acquisitions
  to new products;
- unanticipated cash requirements to support current operations, to expand
  our business or for capital expenditures;
- our ability to successfully challenge the Apotex notice of allegation with
  respect to the Companys Enablex product;
- core patent protection for Merus initial portfolio has expired or will
  expire in the future, which could result in significant competition from
  generic products resulting in a significant reduction in sales;
- delays or setbacks with respect to governmental approvals, or manufacturing
  or commercial activities;
- our ability to service existing debt;
- the timing and unpredictability of regulatory actions;
- the patient health, legal, and commercial risks associated with patient
  adverse events or side effects resulting from the use of our products;
- the ability to source, develop and commercialize new products effectively;

2

---

- unanticipated cash requirements to support current operations, to expand
  our business or for capital expenditures;
- the inability to adequately protect our key intellectual property rights;
- the loss of key management or scientific personnel;
- the activities of our competitors and specifically the commercialization of
  innovative or generic products that compete in the same category as our
  products;
- regulatory, legal or other setbacks with respect to our operations or
  business;
- market conditions in the capital markets and the biopharmaceutical industry
  that make raising capital or consummating acquisitions difficult, expensive or
  both;
- enactment of new government laws, regulations, court decisions, regulatory
  interpretations or other initiatives that are adverse to the Company or our
  interests;
- the risk that the Company is not able to arrange sufficient, cost-effective
  financing to repay maturing debt and to fund expenditures, future operational
  activities and acquisitions, and other obligations; and
- the risks associated with legislative and regulatory developments that may
  affect costs, revenues, the speed and degree of competition entering the
  market, global capital markets activity and general economic conditions in
  geographic areas where the Company operates.

Investors
should review the full discussions as to material risks and uncertainties, and
factors and assumptions used to develop forward-looking statements, including
the Risk Factors identified in this AIF below.

Various
assumptions or factors are typically applied in drawing conclusions or making
the forecasts or projections set out in forward-looking information. Those
assumptions and factors are based on information currently available to the
Company, including information obtained from third-party industry analysts and
other third party sources. In some instances, material assumptions and factors
are presented or discussed elsewhere in this AIF in connection with the
statements or disclosure containing the forward-looking information. You are
cautioned that the following list of material factors and assumptions is not
exhaustive. The factors and assumptions include, but are not limited to:

- no unforeseen changes in the legislative and operating framework for the
  business of the Company;
- no unforeseen changes in the prices for our products in markets where
  prices are regulated;
- a stable competitive environment; and
- no significant event occurring outside the ordinary course of business such
  as a natural disaster or other calamity.

We
are not obligated to update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise, except as required by
applicable laws. Because of the risks, uncertainties and assumptions contained
herein, security holders should not place undue reliance on forward-looking
statements or disclosures. The foregoing statements expressly qualify any
forward-looking information contained herein.

3

---

We
caution you that the above list of risk factors is not exhaustive. Other factors
which could cause actual results, performance or achievements of the Company to
differ materially from those contemplated (whether expressly or by implication)
in the forward-looking statements or other forward-looking information are
disclosed in our publicly filed disclosure documents.

CORPORATE STRUCTURE

Corporate Organization

Merus Labs International Inc. (We, Merus or the
Company) is a company existing under the British Columbia Business
Corporations Act (the BCBCA).

Organization

The
Company was formed on December 19, 2011 through the amalgamation of Envoy
Capital Group Inc. (Envoy) with Merus Labs International Inc. (Old
Merus). On October 1, 2012, we completed a further amalgamation with our
wholly owned subsidiary, Merus Labs Inc. and continued under the name Merus Labs
International Inc.

Old
Merus was incorporated under the laws of the Province of British Columbia on
November 2, 2009 as a numbered company, 0865346 B.C. Ltd. On January 22, 2010,
Old Merus changed its name to Merus Labs International Inc. in connection with a
plan of arrangement with Range Gold Corp.

Envoy
was incorporated under the laws of the Province of British Columbia, Canada in
December 1973 and was continued under the laws of the Province of Ontario,
Canada in December 1997. Envoy was engaged in the business of a merchant banking
organization focused on providing financial services as well as equity and debt
capital to small and mid-cap companies from 2006 through to 2011. Envoy was
continued to the Province of British Columbia in connection with the
amalgamation with Old Merus.

***Subsidiaries***

We
carry out our business through the following material subsidiaries, each of
which is directly or indirectly 100% owned:

Name of Subsidiary
    **Jurisdiction
      of** Incorporation
    Percentage Interest
      OwnedMerus Labs Luxco S.a.r.L.
    Luxembourg
    100%Merus Labs Netherlands B.V.
    Netherlands
    100%ECG Holdings Inc.
    Delaware
    100%


4

---

Stock Exchange Listings

Our
Common Shares are publicly traded on the Toronto Stock Exchange (TSX)
under the symbol MSL and on NASDAQ under the symbol MSLI.

Principal Office

Our head office is located at 100 Wellington St. West, Suite 2110, Toronto,
Canada M5K 1H1. We may be reached by telephone at (416) 593-3725 or facsimile at
(416) 593-4434.

Web Site

Our website is www.meruslabs.com. Information contained on our website does not
constitute a part of this AIF.

DEVELOPMENT OF THE BUSINESS

The
development of our pharmaceutical business, including material events during the
past three years, is summarized below.

Vancocin® Acquisition

On
May 13, 2011, Merus Labs Inc. (Merus Labs), at that time a subsidiary
of Old Merus, acquired all right, title and interest in and to the
pharmaceutical product Vancocin® (vancomycin hydrochloride) capsules
(Vancocin®), including the right to manufacture, market and sell
Vancocin® in Canada, from Iroko International LP, a subsidiary of Iroko
Pharmaceuticals, LLC (Iroko). Merus Labs acquired Vancocin® for total
consideration of approximately US$20 million.

Vancocin® capsules are indicated for the treatment of:

- Enterocolitiscaused by Staphylococcus aureus (including
  methicillin-resistant strains); and
- Antibiotic-associated pseudomembranous colitiscaused by Clostridium
  difficile.

FACTIVE® Acquisition

On
March 7, 2012, we completed the acquisition of the North American product rights
for FACTIVE® (Gemifloxacin Mesylate) tablets from Cornerstone Therapeutics Inc.
(Cornerstone) for total consideration of $4.0 million paid in full on
closing. FACTIVE® is a FDA-approved quinolone with 5-day oral dosing indicated
for the treatment of both acute bacterial exacerbation of chronic bronchitis and
mild to moderate community-acquired pneumonia. Factive has not been
commercialized in Canada. Pursuant to the acquisition, we acquired the license
to the FACTIVE® trademark and patent, inventory on hand, and certain related
intellectual property and other information and materials required to continue
marketing the brand in the North American market. We subsequently entered into a
sales and promotion agreement for FACTIVE® with Vansen Pharma Inc. to market the
product in the United States.

May 2012 Private Placement

On
May 29, 2012, we completed a short form prospectus financing of 5,556,000 Common
Shares at a price of $1.80 per Common Share for gross proceeds of $10,000,800.

Emselex®/Enablex® Acquisition

5

---

On
July 11, 2012, we acquired the Canadian and European rights (excluding France,
Spain and Italy) to manufacture, market, and sell the branded prescription
medicine product Emselex®/Enablex® (darifenacin) extended release tablets. The
acquisition was completed pursuant to an asset purchase agreement dated July 11,
2012 between Merus Labs Luxco SARL, one of our wholly owned subsidiaries, and
Novartis Pharma AG (the Novartis Acquisition Agreement). Under the
Novartis Acquisition Agreement, we acquired a fully paid-up license for the
Emselex®/Enablex® (darifenacin) for the territories of Canada and Europe
(exclusive of France, Spain and Italy) for a purchase price of US$63 million. We
have paid the purchase price in full by way of a $35 million up-front cash
payment and a $20 million vendor take back note issued in favour of Novartis
which matured on July 11, 2013 (the Novartis VTB Note). Pursuant to the
acquisition, we acquired the license to the Emselex®/Enablex® trademark and
patent, certain related intellectual property, and other information and
materials required to continue marketing the brand in the territories
acquired.

We
funded the Emselex®/Enablex® acquisition with cash on hand and a debt facility
provided to us by PDL BioPharma, Inc. (PDL BioPharma). The amount of
the credit facility provided by PDL BioPharma was up to US$55 million, of which
US$35 million of this amount was drawn down upon the completion of the
Emselex®/Enablex® acquisition with a further US$20 million guaranteed through a
letter of credit facility. We paid the balance of the purchase price for the
Emselex®/Enablex® acquisition from cash on hand, of which, US$4 million had been
paid as a deposit at June 30, 2012. The PDL BioPharma loan bore interest at
13.5% per annum, with monthly interest payments and periodic principal
repayments until maturity on March 31, 2015. We used the unpaid balance of the
credit facility to repay the $20 million Novartis VTB Note at maturity in July
2013. The full amount owing under the PDL BioPharma credit facility was repaid
using the proceeds of the loan advanced under the 2013 Credit Agreement, as
described below.

June 2013 Private Placement

On
June 7, 2013, we completed a private placement of 7,678,034 shares at a price of
$0.60 per share for gross proceeds of $4,606,820. Proceeds were used for debt
repayment and general corporate purposes.

FACTIVE® Disposition

On
August 26, 2013, we sold the North American rights to FACTIVE® to Okana Ventures
Inc. [OTC BB: OKNV] for gross proceeds of approximately US$3.4 million. Pursuant
to the definitive agreements, we divested the license to the FACTIVE® trademark
and patent, inventory on hand, various contingent liabilities, and certain
related intellectual property and other information and materials required to
market the brand in the North American market. The gross proceeds from the
divestiture are comprised of a cash payment of US$2.2 million paid on closing, a
non-contingent deferred cash payment of US$800,000 to be paid in quarterly
instalments over the next 15 months, and 3 million shares of OKNV. We determined
to sell our rights due to the inherent challenges associated with the product
and the need for additional investment.

2013 Debt Facility and Convertible Debenture Financing

On
September 24, 2013, we entered into a senior secured debt facility with a
syndicate of lenders (the 2013 Credit Agreement). We used the proceeds
of the loan advanced under the 2013 Credit Agreement, in combination with
proceeds from the convertible debentures described below, to repay our credit
facility with PDL BioPharma. The loan under the 2013 Credit Agreement was a $30
million term loan to mature on September 30, 2016 bearing interest at prime plus
3.0%, with monthly payments of principal and interest. The principal payments
were $700,000 per month for the first 24 months, increasing to $1,100,000 per
month for the final 12 months. The facility also provides for up to $2 million
on a revolving line of credit, based on eligible accounts receivable. The loan
under the 2013 Credit Agreement was repaid in September 2014 using the
proceeds of the loan under the 2014 Credit Agreement, as described below.

6

---

In
connection with this refinancing, the Company issued convertible debentures with
a principal value of $10,000,000 to two investment funds. The debentures have a
term of five years, maturing September 20, 2018, with interest at 8.0%, payable
quarterly. The principal amount of the debentures are convertible at the option
of the holder into common shares at a fixed rate of $1.50 per common share, with
an option for the Company to force conversion if its common shares trade at, or
above, $2.30 per share for 20 consecutive days. The debt facility is secured by
all assets of the Company and contains customary affirmative and negative
covenants including compliance with laws and restrictions on additional debt, as
well as traditional financial covenants.

March 2014 Prospectus Offering

On March 25, 2014, we completed the issuance of 13,529,750 Common Shares at a
price of $1.70 per Common Share for gross proceeds of $23,000,575. The Common
Shares were offered and sold pursuant to a prospectus supplement to our base
shelf prospectus.

June 2014 Prospectus Offering

On June 19, 2014, we completed the issuance of 18,400,000 Common Shares at a
price of $1.70 per Common Share for gross proceeds of $31,280,000. The Common
Shares were offered and sold pursuant to a prospectus supplement to our base
shelf prospectus.

Preferred Shares

On
July 11, 2014, we completed the private placement issuance of $10 million of
Series A convertible preferred shares (Series A Preferred Shares) to a
large Canadian institutional investor. In aggregate, we issued 10,000 Series A
Preferred Shares at a price of $1,000 per share for total gross proceeds of $10
million. The $10 million Series A Preferred Shares will pay a dividend of 8% per
annum, subject to adjustment if the Company does not redeem after October 31,
2019. At any time at the option of the holder, the Series A Preferred Shares may
be converted into the Company's common shares at a conversion price of $2.20 per
share, provided that accrued but unpaid dividends may be paid at cash or by the
issuance of additional shares at the option of the holder. Any additional shares
issued on account of accrued but unpaid dividends will be issued at a conversion
price that is equal to the greater of (i) $2.20 per share, and (ii) the market
value of the Companys common shares at the time of the conversion. The Series A
Preferred Shares are redeemable at the option of the Company at any time after
October 31, 2019. The Series A Preferred Shares are also redeemable by the
Company at any time in the event of a change of control subject to payment of a
change of control premium. The Series A Preferred Shares were originally
redeemable by the holder if the Company did not complete a product acquisition
transaction by December 31, 2014, however this redemption right is no longer in
effect as a result of our completion of the Sintrom® acquisition, as described
below.

Conversion of Convertible Debentures

On
July 17, 2014, we exercised our right to convert the $10 million unsecured
convertible debentures issued to a large Canadian institutional investor in
September 2013 into common shares of the Company. We exercised our right based
on the closing price of the Companys common shares having equaled or exceeded
$2.30 per share for the 20 consecutive trading days ended July 14, 2014. The
principal value of the debentures were convertible at a fixed price of $1.50 per
share, with accrued interest convertible at the weighted average price for the 5
days prior to conversion. In aggregate, we issued 6,677,918 common shares to
convert the outstanding $10 million principal amount plus accrued but unpaid
interest.

7

---

Financing Acquisition Transaction

On
July 4, 2014, the Company entered into a definitive acquisition agreement with
Dacha Strategic Metals Inc. ("Dacha") (TSXV:DSM) pursuant to which Dacha agreed
to complete the balance of a previously announced investment of aggregate
investment (inclusive of Dachas initial investment of $5 million during the
June 2014 prospectus offering) at least $11 million in Merus. As contemplated by
the letter agreement between Dacha and Merus entered into on June 10, 2014, the
acquisition agreement provided that Merus would acquire from Dacha, in exchange
for common shares of Merus ("Dacha Merus Shares"), a new subsidiary to be
incorporated by Dacha ("Newco") and to which Dacha will contribute a
minimum of $6 million cash by way of equity subscriptions. The number of Dacha
Merus Shares that Dacha was to receive in exchange for Newco was agreed to equal
Newco's cash on hand at closing divided by $1.70. Merus also agreed to pay to
Dacha a transaction fee upon closing of the transaction, payable in the common
shares of Merus based on a price of $1.70 per share, equal to 3.5% of the
aggregate value of the Merus Shares exchanged for Newco.

Dacha
purchased $5 million of Merus Shares at a price of $1.70 per share as part of
the Merus bought deal financing completed on June 19, 2014.

The
Company completed the financing acquisition transaction with Dacha on August 14,
2014. The Company issued 4,246,544 common shares to Dacha in exchange for all of
the issued and outstanding shares of Newco for the completion of the
transaction. Newco held $6,975,001 in cash and had no other assets or
liabilities upon completion of the Acquisition.

Factive® Arbitration Proceeding

In
the fourth quarter of fiscal 2014, the Company received notice of a request for
arbitration from the original owner of the Companys former Factive® product.
The request for arbitration is based on the original license agreement entered
into by the original owner and Cornerstone Therapeutics, Inc. (now Chiesi USA,
Inc.). The request for arbitration names the Company as a respondent together
with Cornerstone and Vansen Pharma, Inc. The request for arbitration includes
the allegation that Cornerstone did not have the legal right to transfer the
Factive® product to the Company. The original owner is seeking an award for
damages relating to an alleged breach of contract, as well of disgorgement of
revenues and other benefits derived by the Company from sales of Factive®. The
Company denies any liability to the original owner.

Sintrom® Acquisition and 2014 Credit Facility

On
September 8, 2014, Merus Luxco acquired from Novartis AG, in certain European
countries including the key countries of Spain, Italy, Greece, Romania and
Bulgaria, the rights to manufacture, market, and sell the branded prescription
medicine product Sintrom® (acenocoumarol). Acenocoumarol is an anticoagulant
indicated for the treatment and prevention of thromboembolic diseases. Sintrom®
has been available in Europe for over 50 years.

The
Company paid Novartis US$111 million for the Acquisition, which was completed
pursuant to an asset purchase agreement executed among the Company, the Merus
Subsidiary and Novartis. Pursuant to the Acquisition, Merus inlicensed the
Sintrom® trademark, certain related intellectual property, and acquired other
information and materials required to continue commercializing the brand in the
Territories. The Merus Subsidiary did not acquire an assignment of any Novartis
sales contracts or assume any outstanding Novartis liabilities in connection
with the acquisition.

Under
the Asset Purchase Agreement, the Company and the Merus Subsidiary entered into
a license agreement with Novartis under which the Merus Subsidiary acquired an
exclusive, perpetual, royalty-free, fully paid-up license to market, sell and
commercialize Sintrom® in the Territories. The license rights include the rights
to use the trademark Sintrom® in the Territories.

8

---

In
addition, the Company and the Merus Subsidiary entered into a supply agreement
with Novartis under which Novartis has agreed to manufacture, distribute, and
sell Sintrom® during the first phase of the transition period for the economic
benefit of the Merus Subsidiary. During the second stage of the transition
period, while Merus transfers the product manufacturing to a contract
manufacturer, Merus will distribute and sell Sintrom® and Novartis will continue
to supply the product. The arrangements under the supply agreement are
comparable to the arrangements between the Merus Subsidiary and Novartis for the
Companys Enablex® product acquired from Novartis in 2012.

The
Company funded the Sintrom® Acquisition with cash on hand and new funding of
approximately $58 million from an $80 million bank facility under a credit
agreement entered into by the Company with a syndicate of commercial lenders
(the 2014 Credit Agreement). The 2014 Credit Agreement was entered into
concurrent with and in order to fund the Sintrom® Acquisition. The loan under
the 2014 Credit Agreement is non-revolving term loan that matures in 5 years.
The Company is required to make equal quarterly payments of principal amortized
over the 5 year term. Interest is payable monthly based on the bank prime rate
plus agreed upon margins. The loan under 2014 Credit Agreement is secured by a
first priority pledge of all assets of the Company and its key subsidiaries,
including the pledge by the Company of shares of its key subsidiaries. The
balance of the advance under the 2014 Credit Agreement of approximately $22
million was applied to repay the Companys previously outstanding loan under the
2013 Credit Agreement, which has now been repaid in full.

BUSINESS OF MERUS LABS

Our Products

We currently own, market and distribute the following pharmaceutical products:

Name of Product
    Indication
    Territories
    Patent ProtectionSintrom®
    Treatment and prevention of
      thromboembolic diseases
    Certain European countries including the
      key countries of Spain, Italy, Greece, Romania and Bulgaria
    NoneEmselex®/Enablex®
    
    Canada and Europe (excluding France,
      Spain and Italy)
    Core patents expire in 2016, Supplemental
      Protection Certificate provides barrier through October 2019Vancocin®
    
    Worldwide
    None


Our products are described in detail below.

Our Business Model

We
are a specialty pharmaceutical company with the business objective of acquiring
prescription medicines in the following categories:

9

---

- on patent but at maturity stage of product life cycle;
- branded generics;
- under promoted products;
- niche market pharmaceuticals; and
- products with annual sales below critical threshold for large
  pharmaceutical companies.

Once
a product is acquired, the Company implements a focused sales and marketing plan
to promote the product with the goal of increasing sales and market share. Our
corporate growth strategy is driven by a product acquisition plan which employs
an opportunistic approach to source product acquisition candidates. This
approach allows us to source pharmaceutical products across broad therapeutic
classes which provides access to acquisition targets not available to other
players and creates a diversified strategy. Although we have a broad therapeutic
focus, we may determine to pursue opportunities if the application of a
dedicated small scale sales force can deliver incremental product sales growth.
Our current geographic focus is Europe], Canada and the United States.
Our corporate strategy is to acquire a diversified product portfolio and to
manage this product portfolio using a low cost operating model with a light
infrastructure footprint. Consistent with this strategy, w have partnered with
third party contract manufacturing and regulatory service providers to leverage
their expertise but still maintain maximum flexibility.

Superior Business Model for Acquisition of Diversified
Legacy Products

We
believe that we have a well-defined strategy in seeking to acquire legacy
products primarily for the purpose of generating a stream of stable revenues and
cash flow. We believe that this strategy will provide us with the flexibility to
consider a broad range of acquisition targets from a variety of therapeutic
areas. Therefore, the potential number of product acquisition candidates may be
much larger for us than for our competitors. Management believes that our
approach to product acquisition and our return objectives provide us with a
competitive advantage in acquiring products as we can often purchase diversified
bundles of products from a single vendor. In contrast, our competitors, such as
niche pharmaceutical companies, are more likely to focus on individual product
acquisition within the same therapeutic area. As a result, certain vendors may
view us as a preferred purchasing candidate.

Predictable Cost Structure

We
plan to establish a predictable cost structure by relying on a small employee
base and outsourcing more of the operational functions associated with its
business, including warehousing, distribution, customer service, invoicing,
collections, regulatory affairs, medical and drug information, human resources
and informational technology. Wherever possible, we will attempt to achieve cost
controls by entering into contractual supply and/or service agreements that
dictate fixed or percentage fixed costs with annual adjustments for inflation.
In the case of manufacturing supply agreements, our cost of goods will typically
be based on a fixed, per unit cost with annual inflationary adjustments. Our
management believes the predictability, flexibility and efficiency gained by
contracting with established, experienced service organizations will assist us
in improving our margins and achieving profitability.

Partnership with Leading Service Providers

Related to the above, we enter into outsourcing
relationships with leading providers of pharmaceutical contract services for
many of the operational functions associated with our business and intend to
pursue this strategy in the future.

10

---

Intellectual Property

We
will rely on a combination of economic barriers, regulatory and patent and
trademark rights to protect our investment in the products that we acquire. We
believe that trademark protection is an important part of establishing product
and brand recognition and that these rights are an important component of our
ability to be able to effectively market and sell the products that we acquire.
We will rely on patent protection for products that we acquire in order to
provide protection from generic pharmaceutical products during the remaining
life of patents that apply to the products that we acquire. A patent is the
grant of a property right which allows its holder to exclude others from, among
other things, selling the subject invention in, or importing such invention
into, the jurisdiction that granted the patent. In the U.S., Canada and the
European Union, patents expire 20 years from the date of application.

Our Competitors

Our
competitors in the pharmaceutical market range from large multinational
pharmaceutical development corporations to small, single product companies that
may limit their activities to a particular therapeutic area or region or
territory. Competition also comes from generic companies, which develop and
commercialize formulations that are identical to marketed brands.

With
respect to our acquisition strategy, we expect to compete principally with other
pharmaceutical companies who seek to acquire mature pharmaceutical products as
part of their growth strategy. These companies, however, typically focus on
under-promoted products in specific therapeutic niches that offer growth
potential through synergistic sales and marketing efforts. To our knowledge,
few, if any, companies are currently seeking to acquire legacy products solely
for the purpose of generating a stream of consistent cash flow. In addition,
since we are not focused on specific therapeutic classes, we will have the
ability to purchase diversified products and product bundles.

We
face increased competition from manufacturers of generic pharmaceutical products
when patents covering certain of our currently marketed products expire or are
successfully challenged. Generic versions are generally significantly less
expensive than branded versions, and, where available, may be required in
preference to the branded version under third-party reimbursement programs, or
substituted by pharmacies. If competitors introduce new products, delivery
systems or processes with therapeutic or cost advantages, our products can be
subject to progressive price reductions or decreased volume of sales, or both.
Most products that we acquire must compete with other products already on the
market or products that are later developed by competitors. Manufacturers of
generic pharmaceuticals typically invest far less in research and development
than research-based pharmaceutical companies and therefore can price their
products significantly lower than branded products. Accordingly, when a branded
product loses its market exclusivity, it normally faces intense price
competition from generic forms of the product. Our Vancocin product faces
generic competition in Canada, as discussed below.

11

---

Our Operations

Our Products

We
currently have products in the area of urology/women's health, anticoagulants
and anti-infectives.

Urology / Women's Health

Over Active Bladder

Overactive
bladder occurs when a large muscle in the bladder known as the detrusor
contracts more often than normal. This causes a person to feel a sudden and
sometimes overwhelming urge to urinate even when the bladder isnt full.
Urgency, incontinence, and urinary frequency can also be caused by urinary-tract
infections, kidney stones, prostate infection or enlargement, or medicine taken
to treat other conditions such as high blood pressure. Though not
life-threatening, overactive bladder is inconvenient, can be embarrassing, and
can markedly reduce quality of life.

Emselex®/Enablex®

In 2003, Novartis Pharma AG (Novartis) acquired the
Emselex®/Enablex® (darifenacin) product from Pfizer Inc. and the product was
approved for sale in Europe and the United States in 2004. As the global sales
of Emselex®/Enablex® were below the critical sales threshold for Novartis, the
company decided to reduce its marketing and sales efforts in the majority of
territories where the product was marketed. In 2010, Novartis divested the
product rights for the United States to Warner Chilcott Plc. The core patents
protecting the Emselex®/Enablex® (darifenacin) product expire in August 2016.

Acquisition of Emselex®/Enablex® (darifenacin) Product
Rights

In July 2012, we acquired from Novartis the Canadian and
European rights (excluding France, Spain and Italy) to manufacture, market, and
sell the branded prescription medicine product Emselex®/Enablex® (darifenacin)
extended release tablets. Darifenacin is a muscarinic antagonist indicated for
the treatment of overactive bladder with symptoms of urge urinary incontinence,
urgency and frequency. The products specific mechanism of action is the
blocking of the M3 muscarinic receptor, which is primarily responsible for
bladder muscle contractions. As overactive bladder is a chronic condition,
Emselex®/Enablex® is prescribed as a medication to be taken once daily and the
extended release tablet format is produced in 7.5mg and 15mg dosage
strengths.

Transition Period under Enablex Acquisition Agreement

The acquisition of the license rights to Enablex were completed
pursuant to the Novartis Acquisition Agreement. As part of this agreement, we
entered into a transition services and supply agreement with Novartis to
facilitate the seamless and efficient transfer of the product to us. The
agreement required that Novartis continue to manufacture, distribute, and
promote the Enablex product in the licensed territories until we had obtained
the necessary marketing authorizations to allow us to take over these functions
as principal. During this transition period, Novartis provided us with a monthly
reconciliation of revenues, cost of goods, and marketing and selling expenses
for which we then billed Novartis for the net amount receivable. We relied on
the financial information provided by Novartis to estimate the amounts due under
this agreement. Based on the terms of this arrangement and the guidance per IAS
18 regarding agency relationships, for the period of this arrangement the
Company recorded revenues relating to Enablex on a net basis in the statement of
operations, net of cost of goods and marketing and selling expenses. During
April and May 2013, substantially all marketing authorizations for Enablex were
transferred to us and we began selling directly to third parties and took over
all other responsibilities for purchase and sale of the product. As a result, we determined we
were acting as the principal in the sales of Enablex as opposed to an agent. As
such, revenues for sales of Enablex made by the Company acting as principal were
accounted for on a gross basis, as opposed for on a net-basis.

12

---

Promotion and Distribution Agreements

As we have acquired the product rights in a number of European
countries in which the product is not being actively marketed, we have partnered
with local marketing and sales organizations with the goal of incrementally
increasing sales in those regions.

In January 2013, we entered into promotion and distribution
agreements with selected partners in certain European countries for the
Emselex®/Enablex® product. The partner companies and corresponding territories
are as follows; POA Pharma Scandinavia AB (Nordic countries defined collectively
as Denmark, Norway, Sweden, Finland, and Iceland), Proximum d.o.o (Croatia), and
SPCare Lda (Portugal). Under the terms of the agreements, the partner companies
have been granted exclusive rights to distribute, market, and sell
Emselex®/Enablex® in their respective territories. The general structure of the
arrangements are such that the partners contribute the local marketing and sales
resources in exchange for a portion of the incremental net sales generated above
the current annual baseline net sales. The territories covered by these
distribution and promotion agreements did not have any substantial marketing and
sales resources devoted to the product in recent years.

In February 2013, we entered into promotion and distribution
agreements with partners in Canada and Slovenia for the Company's
Emselex®/Enablex® product. The partner companies and corresponding territories
are as follows; NorrizonRx Sales and Marketing Group Inc. (Canada) and Proksimum
Pharma d.o.o. (Slovenia). Under the terms of the agreements, the partner
companies have been granted exclusive rights to market and sell
Emselex®/Enablex® in their respective territories.

On April 16, 2013, a wholly owned subsidiary of Merus received
approval from Health Canada with regards to the marketing authorization (NOC)
transfer of Emselex®/Enablex® from Novartis. Following this approval, we have
re-launched the Emselex®/Enablex® product in Canada and we are devoting
significant sales and marketing resources to the Canadian market.

On August 20, 2013, our wholly owned subsidiaries, Merus Labs
B.V and Merus Labs Luxco S.à R.L., entered into promotion and distribution
agreements with selected partners in certain European countries. The partner
companies and corresponding territories are as follows: Merz Pharma (Schweiz) AG
(Switzerland), Arriani Pharmaceuticals SA (Greece), Vivax Pharmaceuticals s.r.o
(Slovakia) and Eurocept B.V (Belgium). Under the terms of the agreements, our
partner companies have been granted exclusive rights to distribute, market, and
sell Emselex®/Enablex® in their respective territories. The general structure of
the arrangements are such that the partners contribute the local marketing and
sales resources in exchange for a portion of the incremental net sales generated
above the current annual baseline net sales. Other than Switzerland for which
Merz had a previous Emselex®/Enablex® marketing and sales arrangement with
Novartis, the territories covered by these distribution and promotion agreements
did not have any substantial marketing and sales resources devoted to the
product in recent years.

In September 2013, we, through our wholly owned subsidiary,
Merus Labs Luxco S.à R.L., entered into a contract sales agreement with Ashfield
In2Focus Limited to provide certain sales and promotion services for
Emselex®/Enablex® in the United Kingdom.

We have entered into these promotion and distribution
agreements with partner companies in order to access our partners knowledge and
expertise in their local markets. Our strategy is for Emselex®/Enablex® to
become a major growth driver for the Company and we believe these collaborations will enable Merus to broaden its reach in
countries which were previously underserved in terms of marketing and sales
efforts.

13

---

Contract Manufacturing

We have entered into an agreement with a European contract
manufacturing group to manufacture Emselex®/Enablex® for sale and distribution
in Europe and Canada. The operational phase of the manufacturing tech transfer
began in May 2013. During the operational transition period Novartis will
continue to manage the manufacturing of Emselex®/Enablex®. Once this operational
transition period is concluded, we will manage the manufacturing under the
contract manufacturing agreement.

Customers

We have established a number of marketing and promotional
agreements in various countries throughout Europe. The counterparties to these
agreement effectively become our sole customers in that region. As such, we have
a limited number of customers, each with contractual arrangement and sales
incentives. In Canada, Enablex is sold through similar channels as our other
Canadian products, whereby a large majority of the sales are to large national
wholesalers.

Pricing

During the last year, the Company was informed by the German
Federal Joint Committee (G-BA), responsible for directives on drug reimbursement
policy, that in Germany there is a plan to introduce a single reimbursement
class for all anticholinergic-based OAB products in the market. This new
classification would effectively set a maximum reimbursable price for public
payors. The Committee has invited Merus to provide a rationale for Enablex
(Darifenacin) being excluded from the class, which the Company has done. The
process of assessing arguments for exclusion from the class, the determination
of a reimbursement price for the class, and that price becoming effective could
take up to a year or more. If Darifenacin is not excluded from the class and is
subject to a maximum reimbursement price, there may be a material adverse effect
on sales.

Competitive Conditions

There are several other drugs in the over-active bladder market
which compete directly with Enablex. Each drug has a certain risk profile and
incompatibilities. We believe Enablex is a superior product which compares
favourably in certain key areas. The core patents protecting our Enablex®
products expire expire in August 2016, which could result in significant
competition from generic products. We hold a Supplemental Protection Certificate
which provides additional protection through October 2019 and plan to employ a
host of strategies in order to stay competitive in changing market conditions.

Anticoagulants

Anticoagulants prevent stroke and systemic embolism in patients
with Atrial Fibrillation. Atrial Fibrillation (AF) is the most common cardiac
arrhythmia (heart rhythm disorder) and is associated with palpitations, chest
pain, or congestive heart failure. Embolism refers to where a clot exists and
breaks off and flows into the blood stream later clogging an artitery.
Antigoagulants treat and prevent deep vein thrombosis (DVT) and pulmonary
embolism (PE) and also prevent venous thromboembolic events (VTE) in patients
who have undergone hip or knee replacement surgery.

- Atrial Fibrillation: AF affects 12% of the population and likely to
  increase in the next 50 years. Prevalence of AF increases with age, from 0.5%
  at age 40-50, to 515% at age 80. Over 6 million Europeans suffer arrhythmia
  with prevalence estimated to double in the next 50 years

14

---

- VTE: Approximately 1.1 million venous thromboembolic events occur each
  year across the EU encompassing: DVT events - 61% of total and PE events - 39%
  of total

When patients have AF the hearts two upper chambers (atria)
begin to quiver instead of beating effectively. As a result, blood isnt pumped
completely out of the atria and begins to pool and clot. The clot later leaves
the heart via blood flow to the brain where it can lodge in a brain artery
causing a stroke. It is estimated that 15% of strokes occur with patients with
AF.

Global Industry Analysts Inc., one of the worlds largest
market research publishers, projected that the global anticoagulants market will
surpass $11.2Bn in the coming year, driven by an aging global population, rising
incidence of cardiovascular diseases, cancers, and acute hip and knee
complications, as well as emergence of innovative therapeutics targeting new and
previously targeted clotting factors.

Anticoagulants are a rapidly evolving market for both legacy
and emerging treatment regimes. Dominated by just two therapy classes  vitamin
K antagonist and heparin injectables; the anticoagulants industry has come a
long way since the 1990s, when advancements in thrombotic disease detection and
increased physician awareness were major drivers for market growth. Market
growth is currently led by the arrival of novel therapeutics as well as
favorable demographic tailwinds. The United States and Europe dominate the
global anticoagulants market, which is expected to grow dramatically as advanced
therapeutics present brighter prospects for coagulation as well as patient
management. While novel drugs are likely to impact the market sometime in near
future, factors that already influence market prospects include increasing use
of low molecular weight heparins, patient population (Baby Boomers reaching age
of retirement), and additional indications for existing drugs. Future impact of
anticoagulants is expected to mainly result from enormous patient potential.
Among these, an aging population at growing risk of venous and arterial problems
and patients on long-term anticoagulation would be the major influencers.
Currently, the global anticoagulants market is led by vitamin K antagonist
(VKA), unfractionated heparin and low molecular weight heparins (heparins). The
injectable anticoagulants market has maintained a steady pace over the years
with more number of patients receiving anticoagulation with one or more of the
injectable therapies. From 2008 to Sept 2013 total European VKA sales have grown
from $188MM to $225MM with Warfarin and Acenocoumarol as the only molecules
representing annual growth in each respective year.

Sintrom®

In September 2014, the Company acquired from Novartis, in
certain European countries, the rights to manufacture, market, and sell the
branded prescription medicine product Sintrom® (acenocoumarol). Acenocoumarol is
an anticoagulant indicated for the treatment and prevention of thromboembolic
diseases. Sintrom® has been available in Europe for over 50 years.

Sintrom, is an anti-coagulant drug prescribed by physicians for
the treatment and the prevention of clotting disorders like thromboembolism
diseases, which obstruct the normal flow of blood in the blood vessels and can
create serious health problems in the process. Sintrom may also be referred to
as a blood thinner. Sintrom does not have the capacity to dissolve clots that
have already formed in the blood vessels but rather is used as a preventative
treatment. It functions as a vitamin K antagonist and the active ingredient is
Acenocoumarol. Sintrom is sold as an oral tablet in 1mg and 2mg doses.
Typically, adults are advised to take between 1 and 10 milligrams of the
medication every day, depending on their blood test results.

15

---

Competitive Conditions

Sintroms key competition in the Vitamin K antagonist (VKA)
segment of the anticoagulant business is Warfarin and Marcoumar. Warfarin holds
the largest market share and is sold in several different countries under
different brand names. Warfarin is the chemical name for Coumadin and is
manufactured as a generic by several different manufactures including Barr,
Sandoz, Merck, Taro, and others. Warfarin is a direct competitor of Sintrom, but
not a generic substitute because although similar, it is not the same molecule.
The major difference between the above noted products is biological half-life (T
1⁄2 or biological half-life is the time required for a organism to eliminate
one-half of a substance which has been introduced into it). The key benefit of
Sintrom is because it has a shorter biological half-life, doctors are able to
adjust dosages in the short term and can more readily apply an antidote. Both
Warfarin and Marcoumar have a longer life and thus provide more constant long
term plasma levels.

New Oral Anti-Coagulants (NOACs) such as Pradaxa (Boehringer
Ingelheim), Xarelto (Bayer) and Eliquis (Apixaban) have obtained EMA approval in
2011/2012 with patent expiry in 2020/2023. These products are the next
generation of anti-coagulants and have many benefits over legacy
anti-coagulants such as VKAs and as a result many international guidelines
recommend NOAC as the preferred option. However, VKAs in some countries are
still the preferred option due to local guidelines, broad physician experience,
and low price (NOAC's can be up to 50 times more expensive). NOACs are superior
to VKAs in terms of safety, efficacy and therapeutic window and for this reason
have received much attention since their introduction. However, these drugs
exhibit one key issue  in emergency bleeds or surgery, physicians are unable to
medically administer an antidote unlike VKAs. Furthermore, given NOACs do not
require the same level of monitoring, VKAs provide physicians with greater
oversight over patient progress prompting emergency avoidance. Lastly, doctors
have been using VKAs for decades and as a result are comfortable with dosing,
monitoring procedures and reversals vs NOACs.

Customers

Sintrom will be sold predominantly through distributors with
whom Merus already has established relationships. Sintrom will be sold by the
distributors to wholesalers and pharmacy networks.

Contract Manufacturing

Sintrom will continue to be manufactured by Novartis and its
contract organizations for a period of time in order to allow Merus to
transition the product manufacturing to a contract manufacturer and obtain the
related approvals. The transition to a third party manufacturer is expected to
provide additional cost savings. Given the legacy nature of the drug and the
relatively straight forward production process, sourcing a contract manufacturer
is not expected to be an issue. The Company may leverage the relationships
established for third-party manufacturing and related consulting for Enablex
when it was acquired from Novartis.

Vancocin®

Old Merus acquired Vancocin® (vancomycin hydrochloride) from
Iroko in May 2011. The core patents protecting our Vancocin products expired on
July 13, 2010.

Vancomycin was first isolated by Eli Lilly. The original
indication for vancomycin was for the treatment of penicillin-resistant
staphylococcus aureus. One advantage that was quickly apparent is that
staphylococci did not develop significant resistance despite serial passage in
culture media containing vancomycin. The rapid development of penicillin
resistance by staphylococci led to the compounds being fast-tracked for approval
by the US Food and Drug Administration (FDA). Eli Lilly first marketed vancomycin hydrochloride under the trade name Vancocin.
Vancocin is a powerful antibiotic used to treat a life-threatening disease
resulting from the infection of Clostridium Difficile (C. Difficile).

16

---

C. Difficile is on the increase with higher mortality and
severity. Due to the nature of the disease, intravenous (systemic) solutions are
regarded as ineffective. To be effective against C. Difficile, drugs must act
locally on the flora of the gastro intestinal track. Intravenous solutions by
definition do not act locally.

Clinical Practice Guidelines (Clinical Practice Guidelines for
Clostridium difficile Infection in Adults: 2010 Update by the Society for
Healthcare Epidemiology of America (SHEA) and the Infectious Diseases Society of
America (IDSA)) state that oral vancomycin should be used as first line therapy
in severe cases of C. Difficile. The guidelines state that vancomycin is the
drug of choice for an initial episode of severe C. Difficile. The dosage is 125
mg orally four times per day for 1014 days. Vancomycin administered orally (and
per rectum, if ileus is present) is the regimen of choice for the treatment of
severe, complicated C. Difficile.

Vancocin® Customers

We generally sell between 80% and 90% of our products directly
to three major wholesalers in Canada and United States: AmerisourceBergen,
McKesson Corporation and Matrix, which does business as Shoppers Drug Mart. Our
management believes that it is common practice in Canada and the United States
for pharmacies to have multiple wholesale sources. Other direct buyers include
additional smaller wholesalers and distributors, in addition to certain pharmacy
chains and food stores that warehouse the products internally. Additional key
customer groups include the following:

- Physicians and allied health professionals including nurses, physician
  assistants and pharmacists: While physicians and allied health
  professionals are not themselves direct buyers of our products, they are the
  key decision-makers in terms of recommending or prescribing our products to
  patients. These healthcare providers make prescribing decisions based on
  personal experience, influence of peers, medical/educational meetings/events,
  medical journals, and information obtained through various
  pharmaceutical-sponsored educational and promotional programs and sales
  representatives.
- Patients and their families/caregivers: In the United States,
  patients have to bear a greater share of the cost of healthcare. Therefore,
  the industry has increasingly turned to promotional and educational
  initiatives that directly target patients and their families. We will
  generally not engage in activities that directly target patients, except for
  the provision of various product and disease- specific patient education
  materials that may be passed along to patients by physicians.
- Third-party payors such as managed care organizations and group
  purchasing organizations: Third party payors, like certain insurance
  companies and employers, make purchasing and reimbursement decisions based on
  a number of health outcomes and economic variables. We will not attempt to
  influence the historical level of reimbursement for its products.
- State and federal government health agencies: Certain federal
  government agencies like the Department of Veteran Affairs, the Department of
  Defence, prison systems and Indian Health Services may purchase pharmaceutical
  products directly from us or provide third-party reimbursement to those that
  do purchase our products. In addition, Medicaid programs at the individual
  state level may also reimburse patients in the purchase of our products. The
  historical utilization/reimbursement activity of our products for these
  government agencies has been low and we anticipate this to continue. However,
the 2006 adoption of Part D prescription drug coverage for patients aged 65 and over may expand the potential market for certain legacy products.

17

---

Changes in the Competitive Landscape

In
December 2011, Health Canada granted a notice of compliance (NOC) to
Pharmaceutical Partners of Canada Inc. (PPC), which grants PPC the
authority to market their generic version of Vancocin capsules in the Canadian
market. In July 2012, PPC confirmed its intentions to market a generic
Vancomycin capsule product and in November 2012 gained reimbursement listing
status in a number of provinces. The entry of this generic product may have a
material adverse effect on the sales of our branded Vancocin capsules.

Also,
the future of Vancocin may be affected by new therapies such as Fidaxomicin, a
macrocyclic antibiotic, which may replace the use of Vancocin. Fidaxomicin was
found to be non-inferior to vancomycin against C. Difficile in a phase III
non-inferiority study reported in the February 3, 2011 issue of the New England
Journal of Medicine. However, we expect Fidaxomicin to be sold in Canada at a
much higher price than that of Oral Vancocin® based on the existing Fidaxomicin
pricing in the U.S. market.

In
November 3, 2011, Optimer Pharmaceuticals, Inc. (Optimer) announced that
Health Canada awarded Optimer priority review for its product: DIFICID®.
DIFICID® is another method for the treatment of Clostridium difficile infection.
Optimer asserts that DIFICID® has a slightly lower recurrence rate than
Vancocin®. The recent Infectious Diseases Society of America guidelines (the
IDSA Guidelines) indicate that a tapered and pulsed regimen with Vancocin® is
effective in reducing recurrence. The IDSA Guidelines also recommend that
Vancocin® be used as a first-line therapy in the treatment of Clostridium
difficile. If Optimer is able to demonstrate that DIFICID® is preferable to
Vancocin®, the business of Merus could be adversely affected.

Government Regulation

Government
authorities in the U.S., at the federal, state and local level, in Canada and in
other countries extensively regulate, among other things, the research,
development, testing, approval, manufacturing, labeling, post-approval
monitoring and reporting, packaging, promotion, storage, advertising,
distribution, marketing and export and import of pharmaceutical products and
medical devices. The process of obtaining regulatory approvals and the
subsequent compliance with applicable federal, state, local and foreign statutes
and regulations require the expenditure of substantial time and financial
resources. FDA approval must be obtained in the U.S., approval of Health Canada
must be obtained in Canada, EMA approval must be obtained for countries that are
part of the European Union and approval must be obtained from comparable
agencies in other countries prior to marketing or manufacturing new
pharmaceutical products or medical devices for use by humans. Regulation by
other federal agencies, such as the Drug Enforcement Administration (DEA), and
state and local authorities in the United States, and by comparable agencies in
certain foreign countries, is also required. The FTC, the FDA and state and
local authorities regulate the advertising of medical devices, prescription
drugs, over-the-counter drugs and cosmetics. The Federal Food, Drug and Cosmetic
Act, as amended (FDCA) and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
testing, manufacture, safety, effectiveness, labeling, storage, record keeping,
approval, sale, distribution, advertising and promotion of our products. The FDA
requires a Boxed Warning (sometimes referred to as a Black Box Warning) for
products that have shown a significant risk of severe or life-threatening
adverse events and similar warnings are also required to be displayed on the
product in certain other jurisdictions.

Manufacturers
of drug products and medical devices are required to comply with manufacturing
regulations, including current good manufacturing regulations enforced by the
FDA and Health Canada and similar regulations enforced by regulatory agencies outside
the U.S. and Canada. In addition, we are subject to price control restrictions
on our pharmaceutical products in many countries in which we operate.

18

---

We
are also subject to extensive U.S. federal and state health care marketing and
fraud and abuse regulations, such as the federal False Claims Act, Federal and
Provincial marketing regulation in Canada and similar regulations in foreign
countries in which we may conduct our business. The federal False Claims Act
imposes civil and criminal liability on individuals or entities who submit (or
cause the submission of) false or fraudulent claims for payment to the
government. If our operations are found to be in violation of any of these laws,
regulations, rules or policies or any other law or governmental regulation, or
if interpretations of the foregoing change, we may be subject to civil and
criminal penalties, damages, fines, exclusion from the Medicare and Medicaid
programs and the curtailment or restructuring of our operations.

19

---

RISK FACTORS

Our
business, financial condition and results of operations could be materially
adversely affected by any of the following risks. In addition, risk and
uncertainties not currently known to us or that we currently deem to be
immaterial may also materially and adversely affect its business.

Our strategy to grow our business through acquisitions is
subject to significant risks.

A
key component of our strategy to grow our business is to complete additional
pharmaceutical product acquisitions to expand our product range and increase our
revenues. Accordingly, we will be dependent upon our ability to enter into
acquisition and license agreements with pharmaceutical companies that have
products that we believe are consistent with our business strategy. Risks in
acquiring new pharmaceutical products include: (a) our ability to locate new
products that are attractive and complement our business, and (b) our ability to
acquire these products at attractive acquisition prices. We also face
competition from other pharmaceutical companies in acquiring rights to products,
which makes it more difficult to find attractive products on acceptable terms.
Accordingly we may not be able to acquire rights to additional products on
acceptable terms, if at all. Further, we may not be able to obtain future
financing for new product acquisitions on acceptable terms, if at all. Our
inability to complete acquisitions of additional branded products could limit
the overall growth of our business. Furthermore, even if we are able to obtain
rights to pharmaceutical products, we may not generate sales sufficient to
create a profit or otherwise avoid a loss. For example, the marketing strategy,
distribution channels and levels of competition with respect to acquired
products may be different than those of our current products and our ability to
compete favourably in those product categories may be limited.

We may not be able to secure additional financing which
may impair our ability to complete future acquisitions.

There
can be no assurance that we will be able to raise the additional funding that we
will need to carry out our business objectives and to complete product
acquisitions. The development of our business depends upon prevailing capital
market conditions, our business performance and our ability to obtain financing
through debt financing, equity financing or other means. There is no assurance
that we will be successful in obtaining the financing we require as and when
needed or at all in order to complete future acquisitions. If additional
financing is raised by the issuance of shares from treasury, control of our
company may change and shareholders may suffer additional dilution.

If we are not able to acquire the license rights to new
products, we may not be able to execute our business strategy and generate
revenues as planned.

We
depend on acquisition of rights to products from other companies as the primary
source for new products. Risks in acquiring new products include: (a) the
ability to locate new products that are attractive and complement our business,
and (b) the price to acquire or obtain the license for these products may be too
costly to justify the acquisition. We also face competition from other
pharmaceutical companies in acquiring rights to products, which makes it more
difficult to find attractive products on acceptable terms.

The pharmaceutical industry is highly competitive and is
subject to rapid and significant technological change, which could render our
technologies and products obsolete or uncompetitive.

Our
products will face competition from new pharmaceutical and biotech products that
treat some of the same diseases and conditions as our products. Many of our
competitors have greater financial resources and selling and marketing
capabilities. We will face further competition from drug development companies
that focus their efforts on developing and marketing products that are similar
in nature to our products, but that in some instances offer improvements over
our products, such as less frequent dosing, more pleasant taste, new dosage formats and other novel
approaches to improve existing products. Our competitors may succeed in
developing technologies and products that are more effective or less expensive
to use than any that we may license or acquire. These developments could render
our products obsolete or uncompetitive, which would have a material adverse
effect on our business, financial condition and operating results.

20

---

Core patent protection for our initial portfolio has
expired or will expire in the future, which could result in significant
competition from generic products resulting in a significant reduction in sales.

The
core patents protecting our Vancocin® products expired on July 13, 2010 and the
core patents protecting our ENABLEX products expire in August 2016, which could
result in significant competition from generic products and could result in a
significant reduction in sales. In such situations, in order to continue to
obtain commercial benefits from our products, we will rely on product
manufacturing trade secrets, know-how and related non-patent intellectual
property. The effect of this patent expiration depends, among other things, upon
the nature of the market and the position of our products in the market from
time to time, the growth of the market, the complexities and economics of
manufacture of a competitive product and regulatory approval requirements of
generic drug laws. In the event that competition develops from generic products,
this competition could have a material adverse effect on our business, financial
condition and operating results. The entrance into the market of a generic
pharmaceutical product may erode the branded products market share which may
have a material adverse effect on our business, financial condition and results
of operations. In December 2011, Health Canada granted a notice of compliance
(NOC) to Pharmaceutical Partners of Canada Inc. (PPC), which grants PPC the
authority to market their generic version of Vancocin capsules in the Canadian
market. In July 2012, PPC confirmed its intentions to market a generic
Vancomycin capsule product and in November 2012 gained reimbursement listing
status in a number of provinces. The entry of this generic product has had a
material adverse effect on the sales of Merus branded Vancocin capsules and
other existing and future market entrants may also have a material adverse
effect on sales.

We may not be able to protect and maintain our
intellectual property and licensing arrangements which could impact our ability
to compete effectively in our targeted markets.

Our
success will depend in part on our ability to protect and maintain intellectual
property rights and licensing arrangements for our products. No assurance can be
given that the licenses or rights used by our company will not be challenged,
invalidated, infringed or circumvented, or that the rights granted thereunder
will provide competitive advantages to our company. Any loss of intellectual
property protection is likely to adversely affect our operating results. Our
commercial success will also depend in part on us not infringing patents or
proprietary rights of others and not breaching the licenses granted to us. There
can be no assurance that we will be able to obtain a license to any third party
technology that it may be required to conduct our business or that such
technology can be licensed at a reasonable cost. There is no certainty that we
will not be challenged by our partners for non-compliance with our existing or
future licensing arrangements. Consequently, there may be a risk that licensing
arrangements are withdrawn with no compensation or penalties to us.

The prices at which we are able to sell our
pharmaceutical products may be adversely impact by government mandated
reductions in pricing resulting from changes in drug reimbursement pricing
policies

During the last year, the Company was informed by the German
Federal Joint Committee (G-BA), responsible for directives on drug reimbursement
policy, that in Germany there is a plan to introduce a single reimbursement
class for all anticholinergic-based OAB products in the market. This new
classification would effectively set a maximum reimbursable price for public
payors. If the Company is not able to establish a rationale for Enablex
(Darifenacin) to be excluded from the class, the price at which the Company can sell Enablex in the German market could
be significantly decreased and the Company may experience a material adverse
effect on sales. Changes in other European countries regarding reimbursement
policies for the Companys products may also have an adverse impact on sales and
revenues in these counties.

21

---

There is no assurance that we will be able to defend the
Apotex Notice of Allegation

We
have received notification from Apotex that it has filed with Health Canada an
ANDS seeking market approval for a generic version of Enablex® for the Canadian
marketplace. In connection with this filing, we have received Notices of
Allegation from Apotex against the Enablex® patents listed on the Canadian
patent register which expire in August of 2016 and beyond. The NOAs were issued
under the Canada Patented Medicines (Notice of Compliance) Regulations. Under
the Regulations, we are entitled to apply to Federal Court for an order
preventing Health Canada from granting market authorization to Apotex in respect
of the ANDS until after the expiration of the applicable patents. However, there
is no assurance that we will be successful in obtaining such an order of the
Federal Court preventing Health Canada from granting market authorization to
Apotex prior to the expiry of Merus patents listed on the patent register. If
we are not successful, then we may experience a reduction in our anticipated
revenues from Enablex resulting from a combination of decreased pricing
resulting from the presence of a generic competitor, and decreased sales volumes
resulting from market competition from the generic competitor.

We may be subject to product liability claims, which can
be expensive, difficult to defend and may result in large judgments or
settlements.

The
administration of drugs to humans, whether in clinical trials or after marketing
clearance is obtained, can result in product liability claims. Product liability
claims can be expensive, difficult to defend and may result in large judgments
or settlements against our company. In addition, third party collaborators and
licensees may not protect us from product liability claims.

We
will maintain product liability insurance in connection with the marketing of
our products. Merus may not be able to obtain or maintain adequate protection
against potential liabilities arising from product sales. If Merus is unable to
obtain sufficient levels of insurance at acceptable cost or otherwise protect
against potential product liability claims Merus will be exposed to product
liability claims. A successful product liability claim in excess of its
insurance coverage could harm its financial condition, results of operations and
prevent or interfere with its product commercialization efforts. In addition,
any successful claim may prevent Merus from obtaining adequate product liability
insurance in the future on commercially desirable terms. Even if a claim is not
successful, defending such a claim may be time-consuming and expensive and would
result in Merus needing to divert resources which could otherwise be used in
developing its business.

Unexpected products safety or efficacy concerns may arise
and result in unanticipated costs associated with product liability defence
claims and potential reduction in revenues.

Unexpected
safety or efficacy concerns can arise with respect to marketed products, whether
or not scientifically justified, leading to product recalls, withdrawals or
declining sales, as well as product liability, consumer fraud and/or other
claims. This could have a material adverse effect on our business, financial
results and operating results.

Uncertainty can arise regarding the applicability of our
proprietary information which could result in unanticipated competition.

We
will rely on trade secrets, know-how and other proprietary information as well
as requiring employees, suppliers and other third-party service providers to
sign confidentiality agreements. However, these confidentiality agreements may be breached, and we may
not have adequate remedies for such breaches. Others may independently develop
substantially equivalent proprietary information without infringing upon any
proprietary technology. Third parties may otherwise gain access to our
proprietary information and adopt it in a competitive manner. If a third party
obtains our proprietary information and adopts it in a competitive manner, it
may have a material effect on our business, financial condition and operating
results.

22

---

We have significant liabilities which require us to
generate significant cash flows from operations in order to make mandated
payments of principal and interest

We
have incurred significant liabilities in connection with the acquisition of our
current product line. Our ability to repay these liabilities will be contingent
upon our success in achieving sufficient revenues from these products to be able
to make payments of principal and interest against this debt when due and
payable. There is no assurance that we will be able to secure future additional
financing to repay our current debt facility or our outstanding convertible
debentures should cash flows from operations be insufficient to repay these
liabilities. Our inability to repay outstanding debt when due would have a
material adverse impact on our business.

We may not be able to secure additional financing which
may impair our ability to complete future acquisitions or refinance current
liabilities.

There
can be no assurance that we will be able to raise the additional funding that we
need to carry out our business objectives. The development of our business
depends upon prevailing capital market conditions, our business performance and
our ability to obtain financing through joint ventures, debt financing, equity
financing or other means. There is no assurance that we will be successful in
obtaining required financing as and when needed or at all. If additional
financing is raised by the issuance of shares from treasury, control of our
company may change and shareholders may suffer additional dilution.

We may not be able to implement our business strategy
which may impair our ability to generate future revenues.

The
growth and expansion of our business is heavily dependent upon the successful
implementation of our business strategy. There can be no assurance that we will
be successful in the implementation of our business strategy.

We may not be able to continue to meet certain covenants
under its existing credit facilities and our inability to meet these covenants
could result in acceleration of our long term liabilities.

Our credit facilities require us to maintain specified collateral coverage
ratios and satisfy financial covenants. There can be no assurance that we will
be able to continue to meet certain covenants under its existing credit
facilities. A failure to meet such covenants could result in our lenders seeking
to enforce their security under such credit facilities. This may negatively
affect our financial condition, business and operating results. Our credit
facility also contains restrictive covenants that, among other things, limit our
ability and the ability of our subsidiaries to:

- incur additional indebtedness;
- repurchase certain indebtedness;
- pay dividends, redeem stock or make other distributions;
- make investments;
- create certain liens;
- transfer or sell assets;
- merge, consolidate or sell all or substantially all of our assets;

23

---

- create restrictions on the ability of our restricted subsidiaries to make
  payments to us; and
- enter into certain transactions with our affiliates.

The restrictions in our credit facilities governing our other indebtedness may
prevent it from taking actions that we believe would be in the best interest of
our business and may make it difficult for us to execute our business strategy
successfully or effectively compete with companies that are not similarly
restricted. We may also incur future debt obligations that might subject us to
additional restrictive covenants that could affect our financial and operational
flexibility. We may be unable to refinance our indebtedness, at maturity or
otherwise, on terms acceptable to us, or at all.

Our ability to comply with the covenants and restrictions contained in our
credit facilities may be affected by economic, financial and industry conditions
beyond our control including credit or capital market disruptions. The breach of
any of these covenants or restrictions could result in a default that would
permit the lenders to declare all amounts outstanding to be due and payable,
together with accrued and unpaid interest. If we are unable to repay the
indebtedness, the lenders could proceed against the collateral securing the
indebtedness. This could have serious consequences to our financial position and
results of operations and could cause us to become bankrupt or insolvent.

We rely on third parties to undertake promotion and
distribution of our products in certain markets and their inability to
successfully market our products may impact on our ability to generate revenues
in these markets.

We have entered into promotion and distribution agreements with selected
partners in certain European countries for our Enablex product. We will rely on
these partners to undertake marketing and sales efforts in countries for which
promotion and distribution rights have beene granted. There is no assurance that
our partners will effectively be able to achieve significant sales of products
in their respective territories and their inability to do so may impact
adversely on our revenues and our results of operations.

We rely on third parties to manufacture our products and
the inability of these third parties to manufacture our products in accordance
with our requirements may impact on our ability to generate revenues.

We
do not have the internal capability to manufacture pharmaceutical products and
rely on third parties to manufacture our products. We cannot be certain that
manufacturing sources will continue to be available or that we will be able to
continue to outsource the manufacturing of our products on reasonable or
acceptable terms. In addition, outsourcing manufacturing exposes us to a number
of risks which are outside our control, including: our suppliers may fail to
comply with government mandated current good manufacturing practices which
include quality control and quality assurance requirements, and the
corresponding maintenance of records and documentation and manufacture of
products according to the specifications contained in the applicable regulatory
file resulting in mandated production halts or limitations; or our suppliers may
experience manufacturing quality, control or yield issues which would require
the supplier to halt or limit production of our products.

If
we encounter delays or difficulties with contract manufacturers, packagers or
distributors, sales of our products could be delayed. If we change the source or
location of supply or modify the manufacturing process, regulatory authorities
will require us to demonstrate that the product produced by the new source or
from the modified process is equivalent to the product used in any clinical
trials that were conducted. If we are unable to demonstrate this equivalence, we
will be unable to manufacture products from the new source or location of
supply, or use the modified process. We may incur substantial expenses in order
to ensure equivalence. This may negatively affect its business, financial
condition and operating results.

24

---

If our supply of finished products is interrupted, our
ability to maintain inventory levels could suffer and future revenues could be
delayed.

Supply
interruptions may occur and our inventory of finished products may not always be
adequate to satisfy demand. Numerous factors could cause interruptions in the
supply of our finished products, including failure to have a third party supply
chain validated in a timely manner, shortages in raw material and packaging
components required by our manufacturers, changes in our sources for
manufacturing or packaging, our failure to timely locate and obtain replacement
manufacturers as needed and conditions affecting the cost and availability of
raw materials. There can be no assurances that our other products will not be
interrupted in the future. This may have an adverse effect on our business,
financial results and operations.

We will rely on third parties to perform distribution,
logistics, regulatory and sales services for our products and their inability to
perform these services in accordance with our requirements could cause our
business to suffer.

We
will rely on third parties to provide distribution, logistics, regulatory and
sales services including warehousing of finished product, accounts receivable
management, billing, collection and record keeping. If the third parties cease
to be able to provide us with these services, or do not provide these services
in a timely or professional manner we may not be able to successfully manage the
product revenues or integrate new products into its business, which may result
in decreases in sales. Additionally, any delay or interruption in the process or
in payment could result in a delay delivering product to our customers, which
could have a material effect on our business, financial condition and operating
results.

The publication of negative results of studies or
clinical trials may adversely impact market demand for our products.

From
time-to-time, studies or clinical trials on various aspects of pharmaceutical
products are conducted by academics or others, including government agencies.
The results of these studies or trials, when published, may have a dramatic
effect on the market for the pharmaceutical product that is the subject of the
study. The publication of negative results of studies or clinical trials related
to our products or the therapeutic areas in which our products compete could
adversely affect our sales, the prescription trends for our products and the
reputation of our products. In the event of the publication of negative results
of studies or clinical trials related to our products or the therapeutic areas
in which Merus products compete, Merus business, financial condition, and
operating results could be materially adversely affected.

We must successfully integrate any products that we
acquired or will acquire in the future in order that we can generate anticipated
revenues from these products.

We
will pursue additional products that could complement or expand our business.
However, there can be no assurance that we will be able to identify appropriate
acquisition candidates in the future. If an acquisition candidate is identified,
there can be no assurance that we will be able to successfully negotiate the
terms of any such acquisition, finance such acquisition or integrate such
acquired product or business into its existing products and business.
Furthermore, the negotiation of potential acquisitions and integration of
acquired product lines could divert managements time and resources, and require
significant resources to consummate. If we consummate one or more significant
acquisitions through the issuance of Common Shares, our shareholders could
suffer significant dilution of their ownership interests.

25

---

Our inability to attract and retain key managerial
personnel may adversely impact our ability to carry out our business operations
and strategies as planned.

We
are highly dependent on qualified managerial personnel. Our anticipated growth
will require additional expertise and the addition of new qualified personnel.
There is intense competition for qualified personnel in the pharmaceutical
field. Therefore, we may not be able to attract and retain the qualified
personnel necessary for the development of our business. The loss of the
services of existing personnel, as well as the failure to recruit additional key
managerial personnel in a timely manner, would harm its business development
programs, and our ability to manage day-to-day operations, attract collaboration
partners, attract and retain other employees and generate revenues. We may not
maintain key person life insurance on any of its employees.

Increases in sales may attract generic competition which
could impact on the prices that we are able to charge for our products.

If
sales of any of our products that no longer enjoy market exclusivity or are not
sufficiently protected by associated intellectual property were to increase
substantially, competitors may be more likely to develop generic formulations
that compete directly with our products. Increased generic competition would
have a material adverse effect on our business and financial results.

Our business is subject to limitations imposed by
government regulation which may increase our costs of regulatory compliance as
well as impact adversely on our ability to market and sell our products.

In
both domestic and foreign markets, the formulation, manufacturing, packaging,
labelling, handling, distribution, importation, exportation, licensing, sale and
storage of our products are affected by extensive laws, governmental
regulations, administrative determinations, court decisions and similar
constraints which are beyond our control. Such laws, regulations and other
constraints may exist at all levels of government. There can be no assurance
that we will be in compliance with all of these laws, regulations and other
constraints. Failure to comply with these laws, regulations and other
constraints or new laws, regulations or constraints could lead to the imposition
of significant penalties or claims and could negatively impact our business. In
addition, the adoption of new laws, regulations or other constraints or changes
in the interpretations of such requirements may result in significant compliance
costs or lead us to discontinue product sales and may have an adverse effect on
the marketing of our products, resulting in significant loss of sales.

In
the United States, the FDA perceives any written or verbal statement used to
promote or sell a product that associates an unapproved nutrient with a disease
(whether written by us, the content of a testimonial endorsement or contained
within a scientific publication) to be evidence of intent to sell an unapproved
new drug. If any such evidence is found with respect to our products, the FDA
may take adverse action against us, ranging from a warning letter necessitating
cessation of use of the statement to injunctions against product sale, seizures
of products promoted with the statements, and civil and criminal prosecution of
our executives. Such actions could have a detrimental effect on sales.

Our policies regarding returns, allowances and
chargebacks may reduce revenues in future fiscal periods.

We
cannot ensure that our estimated reserves are adequate or that actual product
returns, allowances and chargebacks will not exceed the estimates, which could
have a material adverse effect on our results of operations, financial
condition, and cash flows

26

---

We may be subject to the risks of foreign exchange rate
fluctuation which could result in foreign exchange losses.

We
may be exposed to fluctuations of the Canadian dollar against certain other
currencies because we publishes our financial statements in Canadian dollars,
while a portion of our assets, liabilities, revenues and costs are or will be
denominated in other currencies, such as the euro and the U.S. dollar. Exchange
rates for currencies of the countries in which we operate may fluctuate in
relation to the Canadian dollar, and such fluctuations, especially as between
the Canadian dollar, U.S. dollar and the euro, may have a material adverse
effect on its earnings or assets when translating foreign currency into Canadian
dollars. In order to mitigate the risk, we have used, in the past, forward
contracts and other derivative instruments to reduce our exposure to foreign
currency risk and may or may not do so in the future. Dependent on the nature,
amount and timing of foreign currency receipts and payments, we may from
time-to-time enter into foreign currency contracts. Accordingly, we may
experience economic loss and a negative impact on earnings solely as a result of
foreign exchange rate fluctuations, which include foreign currency devaluations
against the Canadian dollar. We do not typically carry currency convertibility
risk insurance.

Market rate fluctuations could adversely affect our
results of operations.

We
may be subject to market risk through the risk of loss of value in our
portfolios resulting from changes in interest rates, foreign exchange rates,
credit spreads, and equity prices. we are required to mark to market our
held-for-trading investments at the end of each reporting period. This process
could result in significant write-downs of our investments over one or more
reporting periods, particularly during periods of overall market instability,
which could have a significant unfavourable effect on our financial position.

We may be unsuccessful in evaluating material risks
involved in completed and future investments which could impact our ability to
realize the expected benefits from future investments and acquisitions.

We
will regularly review investment opportunities and as part of the review,
conduct business, legal and financial due diligence with the goal of identifying
and evaluating material risks involved in any particular transaction. Despite
our efforts, we may be unsuccessful in ascertaining or evaluating all such
risks. As a result, we may not realize the intended advantages of any given
investment and may not identify all of the risks relating to the investment. If
we fail to realize the expected benefits from one or more investments, or do not
identify all of the risks associated with a particular investment, our business,
results of operations and financial condition could be adversely affected.

Merus may be subject to certain regulations that could
restrict Merus activities and abilities to generate revenues as planned.

From
time-to-time, governments, government agencies and industry self- regulatory
bodies in Canada, the United States, the European Union and other countries in
which we will operate have adopted statutes, regulations and rulings that
directly or indirectly affect the activities of our company and our future
clients. These regulations could adversely impact on our ability to execute our
business strategy and generate revenues as planned.

Our inability to maintain effective internal controls
over financial reporting could increase the risk of an error in our financial
statements.

Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with IFRS. Internal control over financial reporting cannot provide absolute
assurance of achieving financial reporting objectives due to its inherent
limitations. Internal control over financial reporting is a process that
involves human diligence and compliance and is therefore subject to error,
collusion, or improper override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis,
and although it is possible to incorporate into the financial reporting process
safeguards to reduce this risk, they cannot be guaranteed to entirely eliminate
it. If we fail to maintain effective internal control over financial reporting,
then there is an increased risk of an error in our financial statements that
could result in us being required to restate previously issued financial
statements at a later date.

27

---

There are unexercised share purchase warrants and stock
options outstanding. If these are exercised, the investors interest in our
Common Shares will be diluted.

As
of December 22, 2014, there were 81,245,724 Common Shares issued. If all of the
share options that were issued and outstanding as of that date were to be
exercised, including options that are not yet exercisable, Merus would be
required to issue up to an additional 3,456,667 Common Shares, or approximately
4% of Merus issued and outstanding Common Shares as of December 22, 2014. In
addition, our Series A preferred shares are also convertible into Common Shares.
These issuances would decrease the proportionate ownership and voting power of
all other stockholders. This dilution could cause the price of our Common Shares
to decline and it could result in the creation of new control persons. In
addition, our stockholders could suffer dilution in the net book value per
share.

A decline in the price of the Common Shares could affect
our ability to raise further working capital and adversely impact our ability to
continue operations.

A
prolonged decline in the price of the Common Shares could result in a reduction
in the liquidity of our Common Shares and a reduction in our ability to raise
capital. Because a significant portion of our operations have been and will be
financed through the sale of equity securities, a decline in the price of our
Common Shares could be especially detrimental to our liquidity and our
operations. Such reductions may force us to reallocate funds from other planned
uses and may have a significant negative effect on our business plan and
operations, including its ability to acquire new products and continue its
current operations. If our stock price declines, we can offer no assurance that
we will be able to raise additional capital on acceptable terms or generate
funds from operations sufficient to meet our obligations. If we are unable to
raise sufficient capital in the future, we may not have the resources to
continue our normal operations.

Because we can issue additional Common Shares, holders of
our Common Shares may incur immediate dilution and may experience further
dilution.

We
are authorized to issue an unlimited number of Common Shares, of which
81,245,724shares were issued and outstanding as of December 22, 2014 and
an unlimited number of Preferred Shares, of which 10,000 Series A Preferred
Shares were issued and outstanding as of December 22, 2014. Our board of
directors has the authority to cause us to issue additional Common Shares
without the consent of any of our stockholders. Consequently, the stockholders
may experience more dilution in their ownership of the Common Shares in the
future.

Because it is unlikely that we will pay dividends in the
foreseeable future, stockholders may only benefit from owning Common Shares if
the value of the Common Shares appreciates.

We
have never paid dividends on our Common Shares and we do not intend to do so in
the foreseeable future. We intend to retain any future earnings to finance our
growth. Accordingly, any potential investor who anticipates the need for current
dividends from his or her investment should not purchase Common Shares.

28

---

DIVIDENDS

We
have not paid any dividends on our Common Shares since our incorporation and
currently have no plans to do so in the foreseeable future. We will pay
dividends on our preferred shares as per the terms of the these preferred shares
as set out below. As the preferred shares were issued in the fourth quarter of
fiscal 2014, the first quarterly dividends on these shares were paid subsequent
to year end.

CAPITAL STRUCTURE

Authorized Capital

Our
authorized share capital consists of an unlimited number of Common Shares
without par value and an unlimited number of preferred shares without par value.
As of December 22, 2014, there were 81,245,724 Common Shares issued and
outstanding as fully paid and non-assessable and no preferred shares issued and
outstanding.

Common Shares

Subject
to the rights of the holders of the preferred shares of the Company, holders of
the Common Shares are entitled to dividends if, as and when declared by the
directors. Holders of the Common Shares are entitled to one vote per Common
Share at meetings of shareholders except at meetings at which only holders of a
specified class of shares are entitled to vote. Upon liquidation, dissolution or
winding-up of the Company, subject to the rights of holders of preferred shares,
holders of the Common Shares are to share ratably in the remaining assets of the
Company as are distributable to holders of Common Shares. The Common Shares are
not subject to call or assessment rights, redemption rights, rights regarding
purchase for cancellation or surrender, or any pre-emptive or conversion rights.

Preferred Shares

Our
articles provide that, subject to the BCBCA, our directors may alter the
articles of the Company and authorize the alternation of the Notice of Articles
of the Company in order to establish series of preferred shares and to designate
the rights and restrictions attached to each series of preferred shares. The
rights and restrictions attached to a series of preferred shares may include,
without limitation, provisions regarding (i) the payment of dividends, (ii) the
consideration to be paid for the shares, (iii) conversion or exchange rights,
(iv) rights of redemption or repurchase, (v) restrictions on payment of
dividends or the repayment of capital in respect of other shares of the Company,
and (vi) voting rights and restrictions. The holders of preferred shares shall
be entitled on the liquidation or dissolution of the Company to repayment of
capital, together with accrued but unpaid dividends, in priority to the holders
of the common shares of the Company.

Further
to preferred share subscription agreements described above under Our
Business  Recent Developments  Series A Preferred Shares, we have created
and designated a series of preferred shares that are referred to as the Series
A Preferred Shares and have issued and sold an aggregate of 10,000 Series A
Preferred Shares to the subscribers at a price of $1,000 per Series A Preferred
Share. The 10,000 Series A Preferred Shares were issued on July 11, 2014. The
full rights and restrictions of the Series A Preferred Shares, as agreed upon in
the preferred share subscription agreements, are set forth in our material
change report dated June 10, 2014, as filed on SEDAR at www.sedar.com.
Key material rights and restrictions of the Series A Preferred Shares are
summarized below, and this summary is qualified by the full rights and
restrictions set forth in the material change report:

29

---

|Liquidation Preference Amount | CDN$1,000 per Series A Share                                           
|----------------------------- | -----------------------------------------------------------------------
|                              |                                                                        
|Redemption                    | The Series A Preferred Shares will only be redeemable as
      follows:

| |  | by us in the event of a Change of Control, as described
      below under Change of Control Redemption, and                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                     
| |  | by us at our option at any time after October 31, 2019
      (the Optional Redemption Date), as described below under
      Optional Redemption.

|                         | In the event that we do not exercise our option to redeem
      the Series A Preferred Shares within 90 days of the Optional Redemption
      Date, the Applicable Dividend Rate for determination of the dividends
      payable on the Series A Preferred Shares will increase as provided below
      under Applicable Dividend Rate.
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                         |                                                                                                                                                                                                                                                                                                                                           
|                         | The Series A Preferred Shares may remain outstanding
      indefinitely should the Series A Preferred Shares not be redeemed or
      converted .                                                                                                                                                                                         
|                         |                                                                                                                                                                                                                                                                                                                                           
|Applicable Dividend Rate | The Applicable Dividend Rate for determination of the
      dividends payable on the Series A Preferred Shares will be as follows:                                                                                                                                                                                                        

| |  | 8% per annum from the date of issuance to the Optional
      Redemption Date,                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                               
| |  | LIBOR plus 10% per annum during the one year period
      following the Optional Redemption Date should we elect not to redeem the
      Series A Preferred Shares within 90 days of the Optional Redemption Date,                                            
| |   |                                                                                                                                                                                                                                                               
| |  | LIBOR plus 12% per annum during the period following the
      one year anniversary of the Optional Redemption Date should we elect not
      to redeem the Series A Preferred Shares during the one year period
      following the Optional Redemption Date.

|Dividends           | Holders of the Series A Preferred Shares will be entitled
      to receive, when and as declared by the Board of Directors of Merus, out
      of funds legally available for the payment of dividends, cumulative cash
      dividends at the Applicable Dividend Rate multiplied by the $1,000.00 per
      share Liquidation Preference, initially equivalent to $80.00 per annum per
      Series A Preferred Share.                                                                                       
|------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Conversion          | Each outstanding Series A Preferred Share shall be
      convertible at any time at the option of the holder into that number of
      whole the Common Shares of Merus as is equal to the Liquidation Preference
      amount of $1,000.00 per share, plus accrued and unpaid dividends, divided
      by an initial conversion price of $2.20 per share. Each Common Share
      issuable upon conversion of a Series A Preferred Share is referred to as a
      Conversion Share.                        
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Optional Redemption | On and after the Optional Redemption Date, Merus may, at
      its option, upon not less than 15 nor more than 30 days' written notice,
      redeem the Series A Preferred Shares, in whole or in part, at any time or
      from time to time, for cash at a redemption price equal to the Liquidation
      Preference of $1,000.00 per share, plus all accrued and unpaid dividends
      thereon (whether or not earned or declared) to, but excluding, the date
  fixed for redemption, without interest.

30

---

|Change of Control Redemption | At any time during which the Series A Preferred Shares
      are outstanding, in the event of a Change of Control, as defined,
      of Merus by a person, entity or group Merus (or the entity acquiring
      Merus) may, at its option, upon not less than 15 nor more than 30 days
      written notice, redeem the Series A Preferred Shares, in whole but not in
      part, within 120 days after the date on which the Change of Control has
      occurred, for cash at a redemption price equal to (i) the Liquidation
      Preference of $1,000.00 per share multiplied by 105%, plus (ii) all
      accrued and unpaid dividends thereon (whether or not earned or declared)
      to, but excluding, the redemption date, without interest (a Change of
      Control Redemption).
|---------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Liquidation Preference       | Upon any voluntary or involuntary liquidation,
      dissolution or winding up of the affairs of Merus, then, before any
      distribution or payment shall be made to the holders of any Common Shares
      or any other class or series of junior shares in the distribution of
      assets upon any liquidation, dissolution or winding up of Merus, the
      holders of Series A Preferred Shares shall be entitled to receive out of
      the assets of Merus legally available for distribution to shareholders,
      liquidating distributions in the amount of the Liquidation Preference, or
      $1,000.00 per share, plus an amount equal to all dividends (whether or not
      earned or declared) accrued and unpaid thereon to, but excluding, the date
      of payment.      
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Ranking                      | Merus shall not issue any other class or series of
      preferred shares that rank senior to the Series A Preferred Shares, with
      respect to the payment of dividends and amounts distributed upon
      liquidation, dissolution or winding up.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Voting Rights                | The Series A Preferred Shares will not have any voting
  rights, except as prescribed by the BCBCA and as provided below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                             | So long as any shares of Series A Preferred Shares remain
      outstanding, we will not, without the affirmative vote of the holders of
      at least two-thirds of the Series A Preferred Shares outstanding at the
      time, given in person or by proxy, either in writing or at a meeting,
      authorize or create any class or series of preferred shares of the Company
      or issue any of such shares that will rank as parity shares, as defined
      above.                                                                                                                                                                                                                                                                                                                     
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Adjustments                  | The number of Common Shares issuable upon conversion of
      the Series A Preferred Shares and the conversion price will be subject to
      customary pro rata adjustments to any reflect any consolidation, stock
      split or other common share reorganization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Limits on Conversion         | A holder of Series A Preferred Shares shall not have the
      right to convert any Series A Preferred Shares to the extent that, after
      giving effect to such conversion, the holder (together with the holders
      affiliates and Persons acting jointly or in concert with such Persons
      (together, the Joint Actors)) would beneficially own in excess of
      19.9% of the number of Common Shares outstanding immediately after giving
      effect to such conversion on a diluted basis, assuming the conversion of all securities of the
      Joint Actors which are convertible into Common Shares within sixty (60)
      days from the proposed date of conversion.                                                                                                     

31

---

|Listing | The Series A Preferred Shares
      have not been listed on any stock exchange.
|------- | -------------------------------------------------------------------------------

MARKET FOR SECURITIES

Our Common Shares are traded on the TSX under the
symbol MSL and on the NASDAQ under the symbol MSLI.

The
following table sets forth the high and low closing prices and the aggregate
volume of trading of our Common Shares on the TSX for each month during the
fiscal year ended September 30, 2014:

|Period    |  | High ($) |  | Low ($) |  | Volume    
|--------- |  | -------- |  | ------- |  | ----------
|2013      |  |          |  |         |  |           
|October   |  | 1.60     |  | 1.34    |  | 7,660,663 
|November  |  | 1.55     |  | 1.25    |  | 5,493,425 
|December  |  | 1.50     |  | 1.21    |  | 3,927,813 
|2014      |  |          |  |         |  |           
|January   |  | 1.51     |  | 1.33    |  | 2,730,314 
|February  |  | 1.83     |  | 1.39    |  | 6,470,383 
|March     |  | 1.93     |  | 1.61    |  | 7,208,518 
|April     |  | 1.82     |  | 1.51    |  | 6,040,496 
|May       |  | 1.72     |  | 1.58    |  | 2,385,774 
|June      |  | 2.50     |  | 1.62    |  | 16,782,818
|July      |  | 2.65     |  | 2.15    |  | 9,840,005 
|August    |  | 2.59     |  | 2.04    |  | 12,647,065
|September |  | 2.32     |  | 1.60    |  | 20,451,487

The
following table sets forth the high and low closing prices and the aggregate
volume of trading of the Common Shares on the NASDAQ for each month during the
fiscal year ended September 30, 2014:

|Period   |  | High (US$) |  | Low (US$) |  | Volume 
|-------- |  | ---------- |  | --------- |  | -------
|2013     |  |            |  |           |  |        
|October  |  | 1.57       |  | 1.29      |  | 540,758
|November |  | 1.48       |  | 1.17      |  | 300,196
|December |  | 1.43       |  | 1.15      |  | 567,974
|2014     |  |            |  |           |  |        
|January  |  | 1.40       |  | 1.24      |  | 302,885
|February |  | 1.65       |  | 1.22      |  | 739,061
|March    |  | 1.75       |  | 1.44      |  | 244,851

32

---

|Period    |  | High (US$) |  | Low (US$) |  | Volume   
|--------- |  | ---------- |  | --------- |  | ---------
|April     |  | 1.64       |  | 1.38      |  | 191,282  
|May       |  | 1.61       |  | 1.45      |  | 66,909   
|June      |  | 2.59       |  | 1.48      |  | 1,533,774
|July      |  | 2.43       |  | 2.02      |  | 594,041  
|August    |  | 2.37       |  | 1.88      |  | 450,310  
|September |  | 2.13       |  | 1.38      |  | 591,825  

Prior Sales

During the year ended September 30, 2014, we have issued the
following securities:

|                                                 | Price per          |  |           
|------------------------------------------------ | ------------------ |  | ----------
|                                                 | Security/Exercise  |  | Number of 
|Date                                             | Price per Security |  | Securities
|Common Shares                                    |                    |  |           
|Issued pursuant to Public
      Offerings        |                    |  |           
|March 25, 2014                                   | $1.70              |  | 11,765,000
|March 31, 2014                                   | $1.70              |  | 1,764,750 
|June 19, 2014                                    | $1.70              |  | 18,400,000
|                                                 |                    |  |           
|Issued pursuant to
      Conversion of Debenture |                    |  |           
|July 14, 2014                                    | $1.50              |  | 6,677,918 
|                                                 |                    |  |           
|Issued pursuant to Dacha Newco
      Acquisition |                    |  |           
|August 14, 2014                                  | $1.70              |  | 4,246,544 
|                                                 |                    |  |           
|Options                                          |                    |  |           
|January 2, 2014                                  | $1.49              |  | 75,000    
|March 4, 2014                                    | $1.80              |  | 1,025,000 
|April 24, 2014                                   | $1.70              |  | 75,000    
|May 26, 2014                                     | $1.69              |  | 150,000   
|September 26, 2014                               | $1.63              |  | 200,000   
|                                                 |                    |  |           
|Series A Preferred Shares                        |                    |  |           
|July 11, 2014                                    | $1,000             |  | 10,000    

33

---

ESCROWED SECURITIES

As
at September 30, 2014, the following securities were held in escrow pursuant to
an escrow agreement entered into between the Company and the former chief
executive officer of the Company:

Designation of Class
    **Number of Securities
      held in** Escrow
    Percentage of ClassCommon Shares
    33,333
    Less than 0.1%


These shares have subsequently been cancelled pursuant to the terms of the
escrow agreement.

34

---

DIRECTORS AND OFFICERS

The
following table is as at the date of the AIF and sets out the name,
province/state of residence, positions and/or offices held with the Company, and
principal occupations of each person who is a director and/or an executive
officer of the Company, as well as the period during which each person, if
applicable, has been a director of the Company.

The
term of office of each director of the Company ends immediately before the
election of directions at the annual meeting of shareholders each year.

Name, Office held, Province/ State and
      Country of Residence
    Principal Occupation
      During Previous Five Years
    Director Since
    Shares Beneficially Owned
      or Controlled(1)Barry Fishman President, Chief Executive Officer
      and Director Ontario, Canada
    Interim CEO of the Company since September 23, 2014.
      Formerly Chief Executive Officer of Teva Pharmaceuticals Canada.
    September 23, 2014(2)
    50,000 (3)David D. Guebert(4)(5)(6)Director
      Calgary, Alberta
    Chartered accountant and certified public accountant;
      Chief Financial Officer of Marret Resource Corp. from August 2008 to
      present; Chief Financial Officer of Times Three Wireless Inc. from May
      2004 to present; Chief Financial Officer of Sereno Capital Corporation
      from March 2011 to December 2013.
    February 11, 2011(2)
    209,167(7)Robert S. Pollock(5)(6)Director
      Toronto, Ontario
    Director and Chief Executive Officer of Primary Capital
      Inc. from July 2008 to present; Chief Executive Officer and Director of
      Primary Corp. from August 2008 to June 2012.
    February 11, 2011(2)
    3,760,000(8)Michael Cloutier(4)(5)Director
      Oakville, Ontario
    President and General Manager of Intermune Inc. from 2013
      to present; CEO of Canadian Diabetes Association from 2010 to 2013; CEO of
      Critical Outcomes Technology Inc. from 2008 to 2010.
    July 8, 2013
    Nil(9)Timothy G. Sorensen(4)(5)(6)Director
      Toronto, Ontario
    President of Primary Capital Inc. from November 2010 to
      present; Managing Director of Institutional Sales of Macquarie Capital
      Markets Canada Ltd. (formerly Orion Securities Inc.) from January 2008 to
      September 2010.
    February 11, 2011(2)
    913,500(10)Theresa Firestone(5)Director Toronto,
      Ontario
    Senior Vice President of Shoppers Drug Mart, May 2014 to
      present. Regional President, Emerging Markets Asia, Pfizer Inc. 2010 to
      2014, General Manager, Established Products, Pfizer Canada, 2009 to 2010.
    May 26, 2014
    Nil11)


35

---

Notes:

|(1)  | This information has been obtained from public insider
      filings and from the directors themselves. No individual director, either
      alone or together with such directors associates or affiliates, owns or
      controls 10% of more of the voting securities of the Company.                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | Appointed a director of Envoy on February 10, 2011. On
      December 19, 2011, Old Merus amalgamated with Envoy continuing under the
      name Merus Labs International Inc. On October 1, 2012, the Company
      amalgamated with its wholly-owned subsidiary, Merus Labs Inc. and
      continued under the name Merus Labs International Inc.
|(3)  | Does not include 275,000 stock options exercisable into
      Common Shares.                                                                                                                                                                                                                                                                           
|(4)  | Member of the Audit Committee.                                                                                                                                                                                                                                                                                                                         
|(5)  | Independent director.                                                                                                                                                                                                                                                                                                                                  
|(6)  | Member of the Compensation Committee.                                                                                                                                                                                                                                                                                                                  
|(7)  | Includes 62,500 Common Shares controlled or directed by
      Deborah Guebert and 146,667 Common Shares held directly but does not
      include 300,000 stock options exercisable into Common Shares.                                                                                                                                                 
|(8)  | Includes 470,000 Common Shares controlled or directed by
      Michelle Pollock and 3,290,000 Common Shares held directly but does not
      include 300,000 stock options and 375,000 warrants exercisable into Common
      Shares.                                                                                                                  
|(9)  | Does not include 225,000 stock options exercisable into
      Common Shares.                                                                                                                                                                                                                                                                           
|(10) | Includes 100,000 Common Shares controlled or directed by
      Anne Sorensen and 813,500 Common Shares held directly but does not include
      300,000 stock options and 25,750 warrants exercisable into Common
      Shares.                                                                                                                        
|(11) | Does not include 150,000 stock options exercisable into
      Common Shares.                                                                                                                                                                                                                                                                           

As
of the date of this AIF, the directors and executive officers of the Company, as
a group, beneficially own, directly or indirectly, or exercise control or
direction over 5,052,667 Common Shares, being 6.2% of the issued Common Shares
on a non-diluted basis. The statement as to the number of Common Shares
beneficially owned, directly or indirectly, or over which control or direction
is exercised by the directors and executive officers of the Company, as a group,
is based upon information furnished by the directors and executive officers.

Principal Occupations and Other Information about Our
Directors and Executive Officers

The
principal occupations of each of the Companys directors and executive officers
within the past five years are disclosed in the biographies set forth below.

Barry Fishman  Interim CEO and Director

Mr.
Fishman was the President & CEO of Teva Canada Limited (the Canadian
subsidiary of Teva Pharmaceutical Industries Ltd.), a leading generic and
specialty pharmaceutical company in Canada with over 1,500 employees and three
production facilities. Teva Pharmaceutical Industries Ltd. is a global
Pharmaceutical company specializing in the development, production and marketing
of generic and proprietary specialty medicines as well as active pharmaceutical
ingredients. Barry spent seventeen years with Eli Lilly Canada where he held a
variety of leadership positions in finance, human resources, operations,
business development and marketing. Mr. Fishman graduated from McGill University
in Montreal with a concentration in finance and accounting, and received his CPA
designation at Deloitte in Costa Mesa, California. Barry is past Chair of the
Canadian Generic Pharmaceutical Association and a member of the Executive
Committee.

Robert S. Pollock  Director

Mr.
Pollock is a Director and Chief Executive Officer of Primary Capital Inc., an
exempt market dealer. Mr. Pollock was President of Primary Corp. (TSX: PYC), a
natural resources lending company from August 2008 to June 2012. He was formerly
Vice President-Investment Banking at Dundee Securities Corporation and has 15
years of experience in the Canadian capital markets with specific experience in
merchant banking, institutional sales and investment banking. Mr. Pollock holds
an MBA from St. Marys University (1993) and a BA from Queens University
(1991).

36

---

Mr.
Pollocks principal occupations during the five preceding years are as follows:
since July 2008 he has been Director and Chief Executive Officer of Primary
Capital Inc.; from August 2008 to June 2012, he was a Director and Chief
Executive Officer of Primary Corp.; from February 10, 2011 to January 12, 2012,
he was the interim Chief Executive Officer of Envoy and our company.

David D. Guebert  Director

Mr.
Guebert is a chartered accountant and certified public accountant with over 30
years of experience in finance and accounting, 20 of which were served as chief
financial officer of public and private companies in the resource and technology
sectors. He is currently the Chief Financial Officer of Marret Resource Corp., a
company focused on natural resource lending. He is also is the Chief Financial
Officer of Times Three Wireless Inc., a wireless location technology company.
Mr. Guebert holds a B.Comm. from the University of Saskatchewan (1979).

Mr.
Gueberts principal occupations during the five preceding years are as follows:
Since 2008 he has been Chief Financial Officer of Marret Resource Corp. and
since 2004 has been Chief Financial Officer of Times Three Wireless Inc. From
2010 to 2013 he was a director of Advitech Inc., a biotech company.

Timothy G. Sorensen  Director

Mr.
Sorensen is a Director and the President of Primary Capital Inc., an exempt
market dealer. He joined Primary Capital from Macquarie Capital Markets Canada
where he served as Divisional Director Head of Institutional Sales. Mr. Sorensen
has over 14 years of capital markets experience in institutional sales and
equity analysis. He has a CFA designation and holds an MBA (1996) and B.Comm
(1995) both from the University of Windsor.

Mr. Sorensens principal occupation during the
five preceding years is as follows: he has been President of Primary Capital
Inc. since November 2010; from January 2008 until September 2010, he was the
Divisional Director Head of Institutional Sales of Macquarie Capital Markets
Canada; and he was an institutional sales person from 2004 to 2008 with Orion
Financial Inc., which became Macquarie Group in 2007.

Michael Cloutier  Director

Mr.
Michael Cloutier was appointed Director of Merus Labs International Inc. on July
8, 2013. He is currently the President and General Manager of InterMune Inc., a
biotechnology company focused on the research, development and commercialization
of innovative therapies in pulmonology and orphan fibrotic diseases. Prior to
his appointment at Merus, Mr. Cloutier was the CEO of the Canadian Diabetes
Association from 2010 to 2013 and was the CEO of Critical Outcomes Technology
Inc., an early stage biotech company based in London, Ontario with proprietary
technology uniquely positioned to accelerate and advance pre-clinical research
and drug development activities, from 2008 to 2010. From 2003 to 2008, Mr.
Cloutier held several roles with AstraZeneca including the CEO of the Canadian
operations and VP, HR, Global Marketing at the corporate headquarters in London,
England. Other leadership roles include President of Pharmacia Canada from 2000
to 2003 and President of Searle Canada from 1998 to 2000.

Theresa Firestone  Director

Ms. Firestone was appointed to Director of Merus Labs International on May 27th,
2014. She is currently Senior Vice President, Healthcare Businesses with
Shoppers Drug Mart, responsible for providing overall leadership to their
healthcare divisions including MediSystem Pharmacy, Specialty Health Network and
Shoppers Home Healthcare. Prior to joining Shoppers, Ms. Firestone was Regional
President, Emerging Markets Asia with Pfizer Inc, a position
she held for three years located in Shanghai and Hong Kong. Ms. Firestone has
extensive experience and a strong track record of success in pharmaceuticals and
healthcare management with over 15 years of progressively senior roles at Pfizer
and over 12 years with government and not-for-profit organizations. During her
tenure with the Ontario Ministry of Health she was responsible for the overall
operations of the provinces 10 psychiatric hospitals and later was the Director
of Drug Programs Branch where she was responsible for restructuring the largest
managed drug program in Canada and establishing the Trillium Drug Program. After
her years in public service, she joined the Canadian Wholesale Drug Association
as President and CEO. In 1999, Ms. Firestone joined Pfizer Canada as Vice
President Government and Public Affairs. She held several roles with Pfizer
including Country Manager of Pfizer Austria and General Manager of the
Established Products Business in Canada.

37

---

Andrew Patient  Chief Financial Officer

Mr.
Patient has been Chief Financial Officer of the Company since the amalgamation
of Envoy Capital and Old Merus in 2011. Since 2008, Mr. Patient served as CFO of
Envoy Capital, a communications focused merchant bank, and since 2010 as its
President and CEO. Prior to joining Envoy, Mr. Patient spent six years at BDO
Dunwoody LLP in Canada and five years in financial roles assisting early stage
technology companies in San Diego, CA. Mr. Patient has 12 years experience
serving as CFO of TSX and NASDAQ listed companies overseeing investments, equity
and debt financings, acquisitions, divestitures, tender offers, corporate
reorganizations and plans of arrangement. Mr. Patient holds a bachelor of
accounting degree from Brock University and is a Canadian Chartered Professional
Accountant.

Dr. Ulrich Schoeberl  Managing Director, European
Operations

Dr.
Ulrich Schoeberl is the Managing Director of Merus Labs Luxco SARL, which is the
Company's wholly owned European subsidiary established to manage future European
product acquisitions, as well as, the Merus product acquisition from Novartis
Pharma AG of Emselex®/Enablex®. Since 1997, Dr. Schoeberl has worked for
Boehringer Ingelheim, a multinational European based pharmaceutical company, in
various management and corporate development positions both in Europe and in
North America. His most recent position was that of Managing Director of
Boehringer Ingelheim Switzerland and he previously headed Strategic Planning and
M&A at the world headquarters of Boehringer Ingelheim in Germany. Prior to
joining Boehringer Ingelheim, he was a management consultant at McKinsey &
Co. within their health care practice. Dr. Schoeberl obtained his Ph.D. in
Chemistry at the University of Regensburg and worked as a post-doctoral fellow
at the University of Colorado in Boulder.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

Cease Trade Order

No
director or executive officer of Merus is, as at the date of this AIF, or has
been, within the last ten years before the date of this AIF, a director, chief
executive officer, or chief financial officer of any company (including Merus)
that was:

| | (a) | subject to an order that was issued while the director or
      executive officer was acting in the capacity as director, chief executive
      officer or chief financial officer; or                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                           
| | (b) | subject to an order that was issued after the director or
      executive officer ceased to be a director, chief executive officer or
chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.

38

---

For
the purpose of the above paragraph, order means (a) a cease trade order, (b)
an order similar to a cease trade order, or (c) an order that denied the
relevant company access to any exemption under securities legislation, that was
in effect for a period of more than 30 days.

Bankruptcy

No
director or executive officer of Merus, or a shareholder holding a sufficient
number of securities of Merus to affect materially the control of Merus is, as
at the date of this AIF, or has been, within ten years before the date of this
AIF, a director or executive officer of any company (including Merus) that:

| | (a) | while that person was acting in that capacity, or within
      a year of ceasing to act in that capacity, became bankrupt, made a
      proposal under any legislation relating to bankruptcy or insolvency, or
      was subject to or instituted any proceedings, arrangement or compromise
      with creditors, or had a receiver, receiver manager or trustee appointed
      to hold its assets; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                          
| | (b) | became bankrupt, made a proposal under any legislation
      relating to bankruptcy or insolvency, or become subject to or instituted
      any proceedings, arrangement or compromise with creditors, or had a
      receiver, receiver manager, or trustee appointed to hold the assets of the
      director, executive officer or shareholder.                                                       

Sanctions

No director or executive officer of Merus, or a shareholder holding a sufficient
number of securities of Merus to affect materially the control of Merus has been
subject to:

| | (a) | any penalties or sanctions imposed by a court relating to
      securities legislation or by a securities regulatory authority or has
      entered into a settlement agreement with a securities regulatory
      authority; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                 
| | (b) | any other penalties or sanctions imposed by a court or
      regulatory body that would likely be considered important to a reasonable
      investor in making an investment decision.                                         

Conflicts of Interest

Several
directors of Merus also serve as directors of one or more other public companies
involved in the pharmaceutical industry. It may occur from time to time that as
a consequence of a directors activity in the pharmaceutical industry and
serving on such other boards that a director may become aware of acquisition
opportunities which are of interest to more than one of the companies on whose
boards that person serves. Accordingly, situations may arise in the ordinary
course that involve a director in an actual or potential conflict of interest as
well as issues in connection with the general obligation of a director to make
corporate opportunities available to the company on which the director serves.
In all such events, any director who might have a disclosable financial interest
in a contract or transaction by virtue of office, employment or security
holdings or other such interest in another company or in a property interest
under consideration by the Merus Board, would be obliged to abstain from voting
as a Merus director in respect of any transaction involving that other
company(s) or in respect of any property in which an interest is held by him.
The directors will use their best business judgment to help avoid situations
where conflicts or corporate opportunity issues might arise and they must at all
times fulfill their duties to act honestly and in the best interests of Merus.
See Risk Factors  Conflicts of Interest.

39

---

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

Notice of Allegation from Apotex

We
have received notification from Apotex Inc. (Apotex) that it has filed
with Health Canada an Abbreviated New Drug Submission (ANDS) seeking
market approval for a generic version of Enablex® (darifenacin hydrobromide
tablets) for the Canadian marketplace. In connection with this filing, we
received Notices of Allegation (NOAs) from Apotex against our Enablex®
patents listed on the Canadian patent register which expire in August of 2016
and beyond. The NOAs were issued under the Canada Patented Medicines (Notice of
Compliance) Regulations (the Regulations).

Enablex®
is currently protected in Canada by three issued patents listed on the Canadian
patent register. Merus intends to vigorously defend the Enablex® intellectual
property rights and pursue all available legal and regulatory pathways in
defense of the product. Under the Regulations, Merus is entitled to apply to
Federal Court for an order preventing Health Canada from granting market
authorization to Apotex in respect of the ANDS until after the expiration of the
applicable patents. If the Federal Court were to decide in favour of Merus in
such an action, Health Canada would be prohibited from granting market
authorization to Apotex until Merus patents listed on the patent register
expire.

Factive® Arbitration Proceeding

In
the fourth quarter of fiscal 2014, the Company received notice of a request for
arbitration from the original owner of the Companys former Factive® product.
The request for arbitration is based on the original license agreement entered
into by the original owner and Cornerstone Therapeutics, Inc. (now Chiesi USA,
Inc.). The request for arbitration names the Company as a respondent together
with Cornerstone and Vansen Pharma, Inc. The request for arbitration includes
the allegation that Cornerstone did not have the legal right to transfer the
Factive® product to the Company. The original owner is seeking an award for
damages relating to an alleged breach of contract, as well of disgorgement of
revenues and other benefits derived by the Company from sales of Factive®. The
Company denies any liability to the original owner.

TRANSFER AGENT AND REGISTRAR

The
transfer agent and registrar for the Common Shares in Canada is Computershare
Investor Services Inc. at its principal office in Vancouver, British
Columbia.

MATERIAL CONTRACTS

The
material contracts entered into by the Company within the financial year ended
September 30, 2014 or before such time that is still in effect, other than in
the ordinary course of business, are the following:

| | (a) | Enablex Asset Purchase Agreement;
| | --- | ---------------------------------
| |     |                                  
| | (b) | Enablex License Agreement;       
| |     |                                  
| | (c) | Enablex Supply Agreement;        
| |     |                                  
| | (d) | Sintrom Asset Purchase Agreement;
| |     |                                  
| | (e) | Sintrom License Agreement;       

40

---

| | (f) | Sintrom Supply Agreement;
| | --- | -------------------------
| |     |                          
| | (g) | 2014 Credit Agreement.   

INTERESTS OF EXPERTS

The
Companys prior auditors, Deloitte LLP, were independent as of December 30, 2013
within the meaning of the Rules of Professional Conduct of the Institute of
Chartered Professional Accountants of Ontario.

The
Companys current auditors, MNP LLP, are independent within the meaning of the
Rules of Professional Conduct of the Institute of Chartered Accountants of
British Columbia.

[To
the Companys knowledge, each of the aforementioned firms or persons held less
than 1% of the outstanding securities of the Company or of any associate or
affiliate of the Company when they prepared the reports referred to above or
following the preparation of such reports. None of the aforementioned firms or
persons received any direct or indirect interest in any securities of the
Company or of any associate or affiliate of the Company in connection with the
preparation of such reports.]

ADDITIONAL INFORMATION

Additional
information relating to the Company may be found on SEDAR at www.sedar.com.
Additional information, including directors and officers remuneration and
indebtedness, principal holders of the Companys securities, and securities
authorized for issuance under equity compensation plans is contained in the
management information circular for Merus annual general meeting of
shareholdersheld on March 27, 2014, which is available on SEDAR at
www.sedar.com.

Additional
financial information is also provided in Meruss audited consolidated financial
statements and Managements Discussion and Analysis for the year ended September
30, 2014, which may be found on SEDAR at www.sedar.com.

AUDIT COMMITTEE AND AUDIT FEES

Audit Committee Charter

The
Audit Committee is ultimately responsible for the policies and practices
relating to integrity of financial and regulatory reporting, as well as internal
controls to achieve the objectives of safeguarding of corporate assets;
reliability of information; and compliance with policies and laws.

The
Audit Committees charter sets out its mandate and responsibilities, and is
attached to this AIF as Schedule A.

Composition of Audit Committee

David
Guebert (Chair), Tim Sorensen and Michael Cloutier are the members of our Audit
Committee. All three members of our Audit Committee are independent and
financially literate within the meaning of National Instrument 52-110 Audit
Committees.

Relevant Education and Experience

41

---

For
a description of the education and experience of each audit committee member
that is relevant to the performance of his responsibilities as an audit
committee member, see Directors and Officers  Principal Occupations and Other
Information about Meruss Directors and Executive Officers. Such education and
experience provides each member with:

- an understanding of the accounting principles used by the Company to
  prepare its financial statements;
- the ability to assess the general application of such accounting principles
  in connection with the accounting for estimates, accruals and reserves;
- experience preparing, auditing, analyzing or evaluating financial
  statements that present a breadth and level of complexity of accounting issues
  that are generally comparable to the breadth and complexity of issues that can
  reasonably be expected to be raised by the Companys financial statements, and
- an understanding of internal controls and procedures for financial
  reporting.

Pre-Approval Policies and Procedures

The
Audit Committees charter sets out responsibilities regarding the provision of
non-audit services by the Companys external auditor. This policy encourages
consideration of whether the provision of services other than audit services is
compatible with maintaining the auditors independence and requires Audit
Committee pre-approval of permitted audit and audit-related services.

***External Auditor Service Fees***

For
the financial year ended September 30, 2013, the Company paid its external
auditor, Deloitte LLP, total fees of CDN$399,000, as detailed below. For the
financial year ended September 30, 2014, the Company paid its external auditor,
MNP LLP, total fees of CDN$228,000, as detailed below:

|                         |  |   | Year Ended September 30 | 
|------------------------ |  | - | ----------------------- | 
|Nature of
      Services |  |   | 2013(1)                 | 
|Audit Fees(2)            |  |   | 270,000                 | 
|Audit-Related Fees(3)    |  |   | 18,000                  | 
|Tax Fees(4)              |  |   | 69,000                  | 
|All Other Fees(5)        |  |   | 40,000                  | 
|Total                    |  | $ | 399,000                 | 

| | (1) | All amounts in Canadian dollars.                                                                                                                                                                                                                                                                                                                                                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                 
| | (2) | Audit fees represent the aggregate fees billed for each
      of the last two fiscal years for professional services rendered by the
      principal accountant for the audit of the Companys annual financial
      statements or services that are normally provided by the accountant in
      connection with statutory and regulatory filings or engagements for those
      fiscal years.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                 
| | (3) | Audit related fees represent the aggregate fees billed in
      each of the last two fiscal years for assurance and related services by
      the principal accountant that are reasonably related to
  the performance of the audit or review of the Companys
      financial statements and are not reported under Audit Fees
above.                                                       

42

---

| | (4) | Tax fees represent the aggregate fees billed in each of
      the last two fiscal years for professional services rendered by the
      principal accountant for tax compliance, tax advice, and tax planning.
      These professional services included tax compliance services and tax
      advice.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                        
| | (5) | Other fees in 2013 and 2014 related to review of
      prospectus filing and consulting fees related to internal controls over
      financial reporting.                                                                                                                                              

43

---

SCHEDULE A

AUDIT COMMITTEE CHARTEROFMERUS LABS
INTERNATIONAL, INC.(the Corporation)

**1.**         
**PURPOSE**

The primary function of the Audit Committee is to assist the
Board ofDirectors in fulfilling its oversight responsibilities.
Consistent with thisfunction, the Audit Committee should serve as an
independent and objective party to monitor the Corporations financial reporting
process and internal control system in light of applicable legal and regulatory
requirements, review and appraise the audit efforts of the Corporations
independent auditor, and provide an open avenue of communication among the
independent auditor, financial and senior management and the Board of Directors.

**2.**         
**COMPOSITION**

The Audit Committee shall be comprised of three or more
directors as determined by the Board, each of whom shall satisfy the
independence requirements applicable to members of audit committees under the
rules of the NASDAQ, National Instrument 52-110  Audit Committees (NI
52-110), the rules of the U.S. Securities and Exchange Commission and any other
applicable laws and regulations. All members of the Committee shall satisfy the
financial literacy requirements or definitions applicable to members of audit
committees under NI 52-110, the rules of the NASDAQ and any other applicable
laws and regulations. Committee members may enhance their familiarity with
finance and accounting by participating in educational programs conducted by the
Corporation or an outside consultant. Each member of the Committee shall be
appointed by the Board and shall continue to be a member thereof until the
expiration of his or her term of office as a Director. The Chair of the
Committee shall be designated by the Board of Directors.

**3.**         
**MEETINGS**

The Committee shall meet at least four times per year or more
frequently as circumstances dictate. The meetings are scheduled to permit timely
review of the quarterly and annual financial statements, reports and related
press releases. As part of its responsibility to foster open communication, the
Committee should meet at least annually with management and the independent
auditor in separate executive sessions to discuss any matters that the Committee
or these groups believe should be discussed privately with the Committee. A
majority of the members appearing at a duly convened meeting shall constitute a
quorum and the Committee shall maintain minutes or other records of its meetings
and activities.

**4.**         
**AUDIT COMMITTEE AUTHORITY AND RESOURCES**

The Audit Committee has the authority, without further approval
of the Board of Directors: (a) to engage independent counsel and other advisors
as it determines necessary to carry out its duties; (b) to set and pay the
compensation for any such advisors employed by the Committee; and (c) to
communicate directly with external auditors and internal auditors and any other
personnel of the Corporation and to have unrestricted access to any documents of
the Corporation relevant to the performance of the Committees duties.

44

---

**5.**         
**RESPONSIBILITIES AND DUTIES**

The Audit Committee will fulfill its responsibilities and
duties by carrying out the following activities:

Documents/Reports Review

|1. | Review and update this Charter periodically and at least
      annually, as conditions dictate.
|-- | -----------------------------------------------------------------------------------------------
|   |                                                                                                
|2. | Review the Corporations:                                                                      
|   |                                                                                                
|   | a.                                                                                             
|   |                                                                                                
|   | b.                                                                                             

all prior to filing with any governmental body or disclosure to
the public, including any audit, review, attestation, certification, report or
opinion rendered by the independent auditor.

3.          
The review referred to in Section 5.2 above would include, as appropriate, a
discussion of the quality of the accounting principles as applied and
significant judgments affecting the Corporations financial statements,
significant adjustments, management judgments and accounting estimates,
significant new accounting policies and disagreements with management.

Independent Auditor

4.          
Recommend to the Board of Directors the nomination of the independent auditor
and approve the fees and other compensation to be paid to the independent
auditor. The Audit Committee shall have exclusive responsibility for the
foregoing and the independent auditor shall report directly to the Audit
Committee.

5.          
Ensure the independent auditor submits a formal written statement delineating
all relationships between the independent auditor and the Corporation and
pre-approve, in accordance with the requirements of NI 52-110 and any other
applicable laws and regulations, all non-audit services to be provided to the
Corporation or any subsidiary by the independent auditor.

6.          
On an annual basis, engage in a dialogue with the independent auditor with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor.

7.          
Recommend that the Board of Directors take appropriate action in response to the
independent auditors report to satisfy itself of the independence of the
independent auditor.

8.          
Review and oversee all aspects of the performance of the independent auditor and
approve any proposed discharge of the independent auditor when circumstances
warrant.

9.          
Meet periodically with the independent auditor to discuss any matters that the
Audit Committee believes should be discussed privately and without management
present. Such matters would normally include internal controls and the fullness
and accuracy of the Corporations financial statements.

45

---

10.         Review and
approve the Corporations hiring policy regarding partners, employees and former
partners and employees of the present and former independent auditor. At this
time, the Corporations policy shall be to not hire any partner or employee of
its auditor, or any person who was within the last two years a partner or
employee of its auditor, unless the Committee decides otherwise.

Financial Reporting Process

11.         In
consultation with the independent auditor, periodically review and assess the
integrity and adequacy of the Corporations financial reporting processes, both
internal and external. In particular, the Committee must be satisfied that
adequate procedures are in place for the review of the Corporations public
disclosure of financial information extracted or derived from the Corporations
financial statements (other than the disclosure referred to in Section 5.2(i)
and (ii) above, which the Committee will directly review) and must periodically
assess the adequacy of those procedures.

12.         Consider
the independent auditors judgments about the quality and appropriateness of the
Corporations accounting principles as applied in its financial reporting.

13.         Consider
and approve, if appropriate, major changes to the Corporations auditing and
accounting principles and practices as suggested by the independent auditor or
management.

14.         After
review of the audited financial statements and discussions with management and
the independent auditor, consider whether the financial statements are fairly
presented in conformity with Canadian and U.S. Generally Accepted Accounting
Principles, as applicable.

15.         Establish
procedures for the receipt, retention and treatment of complaints received by
the Corporation regarding accounting, internal accounting controls or auditing
matters and the confidential, anonymous submission by employees of the
Corporation or any of its subsidiaries of concerns regarding questionable
accounting or auditing matters.

Process Improvement

16.         Establish
regular and separate systems of reporting to the Audit Committee by each of
management and the independent auditor regarding any significant judgments made
in managements preparation of the financial statements and the view of each as
to appropriateness of such judgments.

17.         Following
completion of the annual audit, review separately with each of management and
the independent auditor any significant difficulties encountered during the
course of the audit, including any restrictions on the scope of work or access
to required information.

18.         Review any
significant disagreements between management and the independent auditor in
connection with the preparation of the financial statements.

19.         Provide
that the independent auditor discuss with the Audit Committee the independent
auditors judgments about the quality, not just the acceptability, of the
Corporations accounting principles as applied in its financial reporting; the
discussion should include such issues as the clarity of the Corporations
financial disclosures and degree of aggressiveness or conservatism of the
Corporations accounting principles and underlying estimates and other
significant decisions made by management in preparing the financial disclosures
and reviewed by the independent auditor.

20.         Review with
the independent auditor and management the extent to which changes or
improvements in financial or accounting practices, as approved by the Audit
Committee, have been implemented. This review should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the Audit Committee.

46

---

Related Party Transactions

21.         The
Committee shall review and approve, if appropriate, any transaction between the
Corporation or any of its subsidiaries and a related party and any transaction
involving the Corporation or a subsidiary and another party in which the
parties relationship could enable the negotiation of terms on other than an
independent, arms length basis.

**6.**         
**REMUNERATION OF AUDIT COMMITTEE MEMBERS**

No member of the Audit Committee may accept, directly or
indirectly, any consulting, advisory or other compensatory fee from the
Corporation or its subsidiaries, and is not eligible to serve as a member of the
Committee if he or she accepted, directly or indirectly, any such fee in the
three-year period prior to his or her proposed Committee appointment, except in
each case in respect of remuneration for acting in his or her capacity as a
member of the Board of Directors or any board committee or as a part-time chair
or vice-chair of the Board of Directors or any board committee. For the purposes
of the foregoing, indirectly includes the receipt of such fees by an immediate
family member.

47

---