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The federal budget presented on April 21, 2015 (the “Budget”) contains important measures enabling registered charitable organizations and private and public foundations (hereinafter collectively referred to as “Registered Organizations”) to invest their funds in units of a limited partnership. Prior to announcing these measures, the Income Tax Act (Canada) (“ITA”) prohibited such investments by Registered Organizations because, by investing in a limited partnership, they were considered to be operating the limited partnership’s business. The consequence of making such a prohibited investment was that the Registered Organization’s registration could be revoked and, thus, that they could lose their income tax exemption and their ability to issue receipts for donations. According to the measures announced in the Budget, the ITA will be amended to provide that Registered Organizations are not considered to be operating the business of a limited partnership because they have invested in the units of such an entity. These changes will apply to any investment made by a Registered Organization in a limited partnership on or after April 21, 2015. It is important to note that the proposed changes only apply when a Registered Organization becomes a member of a limited partnership if the following conditions are met: The enabling legislation governing the limited partnership provides that the liability of members of the partnership is limited; The member deals at arm’s length with the general partner; and The total fair market value of the interests held by the member and by any persons or partnerships with whom it is not dealing at arm’s length, does not exceed 20% of the fair market value of all the interests held by all of the members of the partnership. --> 1. The enabling legislation governing the limited partnership provides that the liability of members of the partnership is limited; 2. The member deals at arm’s length with the general partner; and 3. The total fair market value of the interests held by the member and by any persons or partnerships with whom it is not dealing at arm’s length, does not exceed 20% of the fair market value of all the interests held by all of the members of the partnership. These changes will give Registered Organizations greater flexibility in the range of investments they can make.

The Lavery GO inc. Program team is happy to inform you that the Autorité des marchés financiers(AMF) announced yesterday the implementation of an equity crowdfunding exemption which allows startups to raise up to $500,000 in capital per year. Under this exemption, startups whose head office is located in Quebec may offer their shares to public investors through an online participative financing portal that is either relying on the exemption from the dealer registration requirement or is operated by a registered dealer and by using the pre-established offering documents which are available on this portal. The highlights of this crowdfunding exemption are as follows: The issuer may raise up to $250,000 per offering, subject to a limit of two offerings per calendar year. Investors may invest up to $1,500 per offering; however, there is no limit as to the number of offerings to which an investor may participate. The shares acquired under this exemption cannot be resold except under another prospectus exemption or a prospectus. The crowdfunding exemption will also be implemented in British Columbia, Saskatchewan, Manitoba, New Brunswick and Nova Scotia. This new exemption is excellent news for startups as it will allow them to access a new source of capital to support their development. It also sets up the tone for the much expected Regulation 45-108 respecting Crowdfunding, which is still under discussion among the Canadian Securities Administrators. For more information respecting this equity crowdfunding exemption, please contact Étienne Brassard or Guillaume Synnott. Étienne Brassard: 514 877-2904 | [email protected] Guillaume Synnott: 514 877-2911 | [email protected]

The Canadian Securities Administrators (“CSA”) have announced that, on several fronts, they are implementing amendments to the disclosure requirements for venture issuers, including those listed on the TSX Venture Exchange. These amendments primarily address continuous disclosure and governance obligations, while also implementing changes to disclosure obligations for prospectuses and information circulars. These amendments include: The introduction of an option to use Quarterly Highlights to provide MD&A Restrictions on Audit Committee composition and exceptions thereto A staggered threshold for the disclosure of the perquisites of NEOs and directors The modification of the deadline for executive compensation disclosure Harmonization of significance levels for Business Acquisition Reports WHAT YOU NEED TO KNOW ENTRY INTO FORCE The primary amendments will be in effect as of June 30, 2015. Exception: Quarterly Highlights disclosure will apply in respect of financial years beginning July 1, 2015 onward. (See below). Exception: Audit composition requirements will apply in respect of financial years beginning January 1, 2016 onward. (See below). 1. OPTION TO USE QUARTERLY HIGHLIGHTS: APPLICABLE FOR FINANCIAL YEARS BEGINNING JULY 1, 2015 ONWARD National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) was amended so that all venture issuers will have the option of providing a quarterly highlights disclosure (“Quarterly Highlights”) in order to meet the requirement to provide interim MD&A, instead of complying with Form 51-102F1. Quarterly Highlights consist in a brief discussion of the company’s operations, liquidity and capital resources and also cover topics such as major operating milestones, known trends, risks or demands, and any significant changes since the last disclosure. Although simplified, a number of formalities must be followed in order to properly comply with the Interim MD&A obligations by providing Quarterly Highlights. 2. AUDIT COMMITTEE COMPOSITION: APPLICABLE FOR FINANCIAL YEARS BEGINNING JANUARY 1, 2016 ONWARD National Instrument 52-110 Audit Committees will require that venture issuers have an Audit Committee consisting of at least three members, the majority of whom cannot be executive officers, employees or control persons of the issuer or an affiliate (the “Composition Requirement”). This will not impose much change to issuers listed on the TSX Venture Exchange, as the TSX Venture Exchange Corporate Finance Manual already provides similar requirements for those issuers. However, the new regulation has provided two exceptions to the Composition Requirement : First, should an Audit Committee member become a control person of the issuer or an affiliate thereof for reasons outside the member’s reasonable control, the Composition Requirement will not apply for a specified period of time. Second, the CSA has provided that if a vacancy on the audit committee is caused by death, incapacity or resignation, the Subsection 3 will not apply for a specified period of time. 3. STAGGERED THRESHOLD FOR PERQUISITE DISCLOSURE The instrument also amends the requirements for perquisite disclosure with the introduction of Form 51-102F6V Statement of Executive Compensation -- Venture Issuers. The amendments will require the disclosure of perquisites of a certain value, calculated on staggered thresholds based on the named executive officer (“NEO”) or director’s annual salary: Perquisites above $15,000 will have to be disclosed if the NEO or director’s salary is $150,000 or less. Perquisites representing over 10% of a NEO or director’s salary between $150,000 and $500,000 will also have to be disclosed. Perquisites of over $50,000 will have to be disclosed for NEO or director salaries of over $500,000. 4. DEADLINE FOR FILING EXECUTIVE COMPENSATION DISCLOSURE The CSA has further amended NI 51-102 by including a deadline for filing executive compensation disclosure on Form 51-102F6V, which will have to be submitted no later than 180 days after the end of a venture issuer’s most recently completed financial year. 5. SIGNIFICANCE LEVEL FOR BUSINESS ACQUISITION REPORTS (BARS) Under current regulations, all issuers, including venture issuers, must file a Business Acquisition Report for all “significant” acquisitions. A significant acquisition is established as being one that exceeds 40% on the asset or investment test under Part 8 of NI 51-102. Under the amendment, this threshold will be raised to 100% for venture issuers. The current filing deadline of 75 days from the acquisition will continue to apply.

On January 15, the Toronto Stock Exchange (the “Exchange”) published proposed amendments to the Toronto Stock Exchange Company Manual (the “Manual”). More specifically, a completely new section will be added to the Manual (Part XI) for determining the minimum listing requirements to be met by non-corporate issuers, i.e. exchange traded products (ETPs), closed-end funds and structured products. ENTITIES COVERED BY THIS PROPOSAL In their current version, the rules proposed by the Exchange provide definitions for the non-corporate issuers covered by these rules. However, the Exchange has given itself some level of discretion to decide that issuers not covered by this definition may still be subject to the obligations of non-corporate issuers. The three groups of issuers covered by these new rules are as follows: Exchange traded products, i.e. redeemable equity securities (“Exchange Traded Funds” or “ETFs”) and redeemable debt securities (“Exchange Traded Notes” or “ETNs”) offered on a continuous basis under a prospectus which give an investor exposure to the performance of specific index, sectors, managed portfolios or commodities through a single type of securities Closed-end funds, i.e. investment funds, mutual funds, split share corporations, capital trusts or other similar entities that are managed in accordance with specific investment goals and strategies Structured products, i.e. securities generally issued by a financial institution (or similar entity) under a base shelf prospectus and pricing supplement where an investor’s return is contingent on, or highly sensitive to, changes in the value of underlying assets, index, interest rates or cash flows. Structured products include securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates --> 1) Exchange traded products, i.e. redeemable equity securities (“Exchange Traded Funds” or “ETFs”) and redeemable debt securities (“Exchange Traded Notes” or “ETNs”) offered on a continuous basis under a prospectus which give an investor exposure to the performance of specific index, sectors, managed portfolios or commodities through a single type of securities 2) Closed-end funds, i.e. investment funds, mutual funds, split share corporations, capital trusts or other similar entities that are managed in accordance with specific investment goals and strategies 3) Structured products, i.e. securities generally issued by a financial institution (or similar entity) under a base shelf prospectus and pricing supplement where an investor’s return is contingent on, or highly sensitive to, changes in the value of underlying assets, index, interest rates or cash flows. Structured products include securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates RATIONALE FOR THIS PROPOSAL The Manual sets out the requirements enforced by the Exchange to all issuers as part of its mission to ensure a transparent, fair and orderly market for listed securities. These requirements were designed to recognize the specific features of various classes of issuers. However, the current version of the Manual does not take into account the specific features of ETFs and closed-end funds, which have become much more common in the Canadian market over the past 10 years. Indeed, according to the data provided by the Exchange, while there were only three ETF providers offering 84 products listed on the Exchange at the end of 2008, by October 31, 2014, there were nine providers offering 335 ETFs. In addition, every year over the past five years, an average of 35 closed-end investment funds have been listed on the Exchange, representing a market value of more than $26B. In the course of the elaboration of these proposed rules, the Exchange reviewed the listing requirements used by various recognized stock markets, including the New York Stock Exchange, NASDAQ, London Stock Exchange and, closer to home, the brand new Aequitas NEO Exchange. According to the Exchange’s analysis, the products listed on NASDAQ and NYSE are the most comparable to those listed on the TSX. PROPOSED MINIMUM LISTING REQUIREMENTS In the proposed amendments, the Exchange intends to set the minimum market capitalization to be met by non-corporate issuers wishing to be listed on the TSX, as follows: Exchange traded products must have a minimum market capitalization of $1 million Closed-end funds must have a minimum market capitalization of $20 million Structured products must have a minimum market capitalization of $1 million --> 1) Exchange traded products must have a minimum market capitalization of $1 million 2) Closed-end funds must have a minimum market capitalization of $20 million 3) Structured products must have a minimum market capitalization of $1 million In addition to the minimum market capitalization requirement, closed-end funds must also have issued a minimum of one million (1,000,000) freely tradeable securities held by at least 300 board lot holders. The Exchange also provides for certain requirements for calculating net asset value, as well as for governance. The net asset value must be calculated daily for exchange traded products and weekly for closed-end funds and structured products. In all cases, the net asset value must be posted on the issuer’s website. With respect to governance, as the Exchange does for issuers of other classes, it will assess the integrity of the directors and officers of non-corporate issuers. Issuers or managers of exchange traded products, closed-end funds and structured products must have a CEO, CFO, secretary, as well as an independent review committee (for exchange traded products and closed-end funds) or two independent directors (for structured products). However, this obligation does not apply to exchange traded products and structured products issued by financial institutions. REQUIREMENTS FOR MAINTAINING A LISTING Securities of a closed-end fund may be suspended or delisted if the market value of the securities listed on the Exchange is less than $3 million ($3,000,000) for 30 consecutive trading days, the fund has less than 500,000 freely-tradeable securities, or the number of security holders is less than 150. As for the securities of exchange traded products and closed-end funds, they will be delisted if maintaining their listing affects market efficiency. To do so, the Exchange will, among other things, consider the degree of liquidity and market value of the securities. CONCLUSION The proposed amendments were subject to a period of comments extending from last January 15 to March 16. The coming into force of these rules also remains subject to approval by the Ontario Securities Commission. As usual, if you are considering applying for a listing of your products on the Exchange, it is always preferable to obtain a preliminary opinion on eligibility for listing by filing an application to this effect with the Exchange.

The Foreign Account Tax Compliance Act, or FATCA, has been an integral part of Canada’s tax system for over a year. Originally legislated under U.S. law, FATCA allowed the Internal Revenue Service (“IRS”) to obtain information from financial institutions about the financial accounts of U.S. citizens and residents. This U.S. regime was introduced into Canada through the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention (“IGA”) and then through the enactment of Part XVIII of the Income Tax Act. Under Canada’s FATCA regime, Canadian financial institutions, including several investment funds, are required to file their first report on their U.S. reportable accounts by May 1, 2015. STATUS Under the FATCA, only Canadian financial institutions can have obligations to register and report the U.S. reportable accounts they maintain. Investment funds are generally considered a Canadian financial institution. An investment fund, its general partner, fund manager and holding companies are usually required to report under the FATCA rules. A fund’s limited partners may also have their own FATCA obligations. Most Canadian investment funds have addressed the issue of their FATCA status and obtained a global intermediary identification number (or “GIIN”) from the IRS. However, there is still some uncertainty which can cause market players to put off analyzing their obligations or registering. There are several reasons for this, including the fact that the rules are relatively new, the lack of formal administrative positions regarding their application, qualification and exception issues, etc. For an investment fund, these issues require an in-depth analysis of all entities forming part of its structure in order to come to an adequate determination. It should be noted that an investment fund that determines that it does not qualify as a financial institution for the purpose of FATCA could be considered a passive non-financial foreign entity and be required to report such information at the request of a financial institution and disclose more information about its beneficiaries in order to determine their status. DUE DILIGENCE A reporting Canadian financial institution is required to determine whether the financial accounts it maintains for its clients contain U.S. indicia (residence and citizenship of account holder, place of birth, mailing address, telephone number, etc.). This verification includes a review of available information about the account by the financial institution and a mechanism for requesting information. Such a request may be in the form of an IRS Form W-8, an official IRS document, or an equivalent document prepared by the financial institution, to be filled out by the account holder. A financial institution is required to collect this information for existing accounts and any new account it opens for a client. The financial institution’s verification obligations may be more or less strict depending on the account, the date it was opened and its value. REPORTING Canadian financial institutions are required to file an electronic report on their U.S. reportable accounts with the Canada Revenue Agency (“CRA”). The first such report covers financial accounts held by financial institutions as of December 31, 2014 and must be filed by May 1, 2015. Financial institutions must also complete, by June 30, 2015, a review of their high-value financial accounts, i.e. those worth one million dollars ($1M) or more, held as of June 30, 2014. After that, financial institutions will be required to file annual reports. EVOLUTION The FATCA rules are the precursor of a broad, evolving trend toward the exchange of information about taxpayers’ assets among the tax authorities of different countries. The United Kingdom has set up a similar although less wide-sweeping regime than the U.S. China is also looking at the possibility of setting up its own regime but has not released any details so far. The Organisation for Economic Co-operation and Development (“OECD”) has also set up a common standard for the automatic exchange of information regarding financial accounts, which Canada has committed to implement by 2018. This standard is expected to be similar to FATCA but involve all countries that have signed agreements involving the automatic exchange of information. In future we will certainly see greater transparency and increased reporting requirements regarding information about financial accounts to be provided to the tax authorities. Since investment funds are directly affected by these rules, they should make sure they have the tools they need to meet these requirements.

CONTENT Overview of the Proposed Rules Respecting Equity Crowdfunding Trademarks in the English Language on Pubilc Signs and PostersOVERVIEW OF THE PROPOSED RULES RESPECTING EQUITY CROWDFUNDINGJosianne BeaudryIn 2013, the Autorité des marchés financiers (AMF) launched a consultation on equity crowdfunding, as we already discussed it in this publication last fall. Following this consultation, the AMF and the securities regulators of Saskatchewan, New Brunswick, Manitoba and Nova Scotia (the “Participating Jurisdictions”) published last March the Draft Regulation 45-108 respecting Crowdfunding (the “Draft Regulation”) and the Draft blanket order relating to the Start-up Crowdfunding Prospectus and Registration Exemption (the “Draft Exemption”). Some other Canadian jurisdictions published similar draft local notices.Currently, in Canada, crowdfunding respecting the issuance of securities is not allowed. The Canadian Securities Administrators are aware of the increasing development of Internet-based fundraising and the fundraising needs of start-ups and SMEs. Participant Jurisdictions define crowdfunding as a method of funding a project or venture through small amounts of money raised from a potentially large number of people over the Internet via an Internet portal.For the purpose of facilitating such fundraising, in the Draft Regulation and Draft Exemption, Participating Jurisdictions propose two offering schemes the first one, available to reporting issuers and non-reporting issuers and the second one, available to start-ups (which are necessarily non-reporting issuers). The rules governing crowdfunding by these two classes of issuers would be somewhat different. The rules applicable to start-ups will be less stringent than those applicable to reporting issuers and non-reporting issuers. The concept of start-up is not defined in the proposed rules.Furthermore, by adopting the Draft Regulation, Participating Jurisdictions wish to regulate the registration of funding portals. For instance, funding portals for offering to be conducted under the Draft Regulation would be required to register as exempt market dealers while funding portals for offering to be conducted under the Draft Exemption would not be subject to such requirements. By so distinguishing between the various types of issuers, Participating Jurisdictions are of the view that they facilitate fundraising at the various stages of the growth of enterprises.Many rules will apply to crowdfunding. The following table shows the most important of those:  A streamlined disclosure document must be provided that includes basic information about the offering, the issuer and the portal. This document must also contain certain financial information. In the case of a start-up, it will rather be a standardized document (a form) without any obligation to provide financial statements. It must be noted that under Quebec securities regulations, such a document must be prepared either in French or in French and English, both for a Quebec issuer and an issuer from another jurisdiction which intends to distribute its securities to Quebec subscribers.Reporting issuers who complete this type of financing will remain subject to the continuous disclosure obligations under securities legislation while non-reporting issuers will henceforth be required to provide, among other things, annual financial statements (audited or reviewed under the circumstances provided for in the Draft Regulation). Start-ups that will have distributed their securities under the Draft Exemption will have no ongoing disclosure obligation than that provided under their corporate governance statutes.Funding portals which serve as intermediaries for the crowdfunding of non-reporting issuers and reporting issuers will be required to register as exempt market dealer. The funding portals of start-ups under the Draft Exemption will have no registration obligation but will be required to send to the Participating Jurisdictions information such as personal information on each of its promoters, directors, officers and each person participating in the control of the portal. A portal cannot provide specific recommendations or advice to investors about securities being offered on its platform. Portals will be required to ensure that the maximum investment thresholds per investor are complied with.Issuers will not be allowed to pay compensation under any form whatsoever to a person other than the portal respecting the offering under the regime of this exemption. Such prohibition does not apply to the fees of lawyers and accountants who may help the issuer in drafting the offering documents.Prior to allowing an issuer to access their websites, registered portals will also be required to conduct background checks on the issuer’s, directors, officers and promoters through the requirement to file a personal information form such as that required by the Canadian Securities Administrators for prospectuses or the Canadian exchanges.This Draft Regulation will not apply to issuers of the real-estate sector who are not reporting issuers or to investment funds.In conclusion, the intention of the Participating Jurisdictions to facilitate fundraising by some start-ups and SMEs is genuine. However, public protection requires a framework for this “new” financing method. It remains to be seen whether the industry will view the proposed framework as providing an adequate balance between regulatory requirements and compliance costs. The consultation period ends on June 18, 2014.TRADEMARKS IN THE ENGLISH LANGUAGE ON PUBLIC SIGNS AND POSTERSDavid Eramianwith the collaboration of Sylvie Demers, articling studentOn April 9 last, the Superior Court of Québec issued its judgment1 on a motion for a declaratory judgment pertaining to trademarks in the English language on public signs and posters. The applicants, Magasin Best Buy Ltée2, Costco Wholesale Canada Ltd, Gap (Canada) Inc., Old Navy (Canada) Inc., Corporation Guess? Canada, la Compagnie Wal Mart du Canada, Toys “R” Us Canada Ltée and Curves International Inc. were seeking to have the Court answer the following question : [TRANSLATION] “are trademarks in the English language, without a registered French version, used on public signs and posters and in commercial advertising, required to be accompanied by a generic descriptive term in the French language to comply with the Charter of the French Language (“Charter”) and the Regulation respecting the language of commerce and business (“Regulation”)?” This motion for a declaratory judgment was made in the context of a recent change of policy of the Office de la langue française (“Office”) as to the interpretation of the Regulation, which was putting the applicants at risk of becoming the subject of penal proceedings and having their francization certificates withdrawn if they did not use their trademarks in the English language in conjunction with a generic descriptive term in the French language. The Attorney General of Québec was inviting the Court to answer the question in the affirmative.The Superior Court answered the question in the negative, ruling in favour of the applicants. Firstly, the Court noted the distinction between the legal concepts of a business name and a trademark. The Court concluded that it was with full knowledge that the government had introduced a specific exception to the French language signage requirement to allow trademarks in other languages than French on public signs and posters. The scheme of the Act could not then be invoked to run against an exception created by the legislator with full knowledge.Secondly, the Court noted that the Office had consistently applied section 25(4) of the Regulation since it came into force in 1993, allowing trademarks registered in languages other than French on public signs and posters without them being accompanied by generic terms. This interpretation was thus continuous and could be considered as an interpretative custom allowing the applicants to believe that their signage practices complied with the Charter. The interpretation proposed by the Attorney General would have resulted in depriving this derogation specifically provided for under section 25(4) of the Regulation of any practical application.The Superior Court concluded by stating that it is not for the courts to modify clear legislative and regulatory texts supported by an interpretative custom which has been consistently applied for 20 years. It is rather for the legislator, if it so wishes, to intervene and impose the solutions it deems adequate as to the language to be used by businesses on public signs and posters.________________________________1 2014 QCCS 1427, par. 9.2 This decision of the Superior Court was appealed, on May 8, 2014, by the Attorney General of Québec.

This Need to Know Express is part of a series of newsletters which each answers one or several questions in a practical and concrete way. These bulletins have been or will be published over the next few weeks. In addition, a consolidated version of all the Need to Know Express newsletters published on this topic will be available upon request.These various newsletters, as well as others published on the subject of governance, are or will be available on our website (Lavery.ca/publications – André Laurin). 3. WHAT PRECAUTIONS SHOULD A PROPOSED DIRECTOR TAKE PRIOR TO ACCEPTING TO ACT AS A CORPORATE DIRECTOR? A person who is invited or wishes to become a director should clearly make some prior verifications, including: his interest for the organization and its objectives; the requirements of the position as to time and efforts and his availability in that respect; the actual possibility to make a significant contribution, therefore resulting in added value for the legal person; the quality of incumbent directors, who will be his colleagues if he accepts to act as a director; the receptivity of management respecting sound governance and the help provided by management to directors to enable them to discharge their duties and play their full role; the quality of the existing corporate governance; the financial health of the legal person; the existence of actual or threatened significant proceedings against the legal person; the compliance by the organization with laws and contracts; the existence of adequate directors’ and officers’ liability insurance coverage; the availability of an indemnification undertaking by the legal person in favour of the director; the existence of recent director resignations and the reason thereof; the proportionality of compensation relative to the liability risks (mainly in the case of reporting issuers).Preliminary discussions with the chief executive officer, the chairman of the board and some current and former directors may be helpful in obtaining adequate confirmations in respect of many of these items. However, these discussions should be completed by reviewing documents such as the financial statements, court records, minutes...).A person who is an officer, director or employee of a corporation must also ensure that the new office as director is acceptable to the first corporation. The new office may in fact contravene a policy of the corporation, the contract between the individual and the corporation or the interest of the corporation.The risks to reputation related to accepting to act as director with some legal persons are not to be neglected either. We have recently seen that the reputation of high quality persons who had accepted on a pro bono basis to act as directors of not-for-profit organizations suffered as a result. The media, politicians and even auditors general sometimes draw quick, ill-founded conclusions as to the proper discharge of their duties by directors.4. WHAT ARE THE DUTIES OF A MEMBER OF A BOARD OF DIRECTORS?Incorporating statutes, particularly the Canada Business Corporations Act1 and the Business Corporations Act2 (Quebec), as well as the Civil Code of Québec3 all stipulate two general duties which directors are subject to, that is, the duty of care and the duty of loyalty. The Canada Business Corporations Act stipulates these duties as follows:“122. (1) [Duty of care of directors and officers] Every director and officer of a corporation in exercising their powers and discharging their duties shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”In addition to these general duties, a director is also subject to many statutory obligations or presumptions of liability or guilt under various statutes, particularly for unpaid salaries and remittance of deductions at source and GST/QST. It is important for directors to be aware of all the statutory obligations and presumptions and know how to recognize them, ensure that the legal person takes appropriate measures in this respect and that the board supervises such measures. _________________________________________1 Canada Business Corporations Act, R.S.C. 1985, c. C-44.2 Business Corporations Act, C.Q.L.R., c. S-31.1 art. 119.3 Civil Code of Québec, L.R.Q., c. C-1991, articles 321 and following.

This Need to Know Express is part of a series of newsletters which each answers one or several questions in a practical and concrete way. These bulletins have been or will be published over the next few weeks. In addition, a consolidated version of all the Need to Know Express newsletters published on this topic will be available upon request.These various newsletters, as well as others published on the subject of governance, are or will be available on our website (Lavery.ca/publications – André Laurin).1. IS A DIRECTOR REQUIRED TO BE A SHAREHOLDER OR MEMBER OF THE LEGAL PERSON?Subject to the following, the answer to this question is no.However, the governing statute, articles of incorporation, internal or administrative by-law or unanimous shareholder agreement may stipulate specific eligibility conditions.For example, as a non-exhaustive list of examples: the incorporating statute or the by-law of a not-for-profit organization (NFPO), professional corporation or some other legal persons may stipulate requirements as to membership, residence, citizenship, etc.; the articles of incorporation of a corporation or a unanimous shareholder agreement may confer on a shareholder the authority to appoint one or several directors or provide that a director must also be a shareholder.2. WHO IS ELIGIBLE TO BECOME A DIRECTOR?The eligibility conditions are mainly found either in the Civil Code of Québec1 for legal persons governed by it or in the incorporating statute of the legal person, as completed in both cases by the internal or administrative by-law duly adopted by the legal person or a unanimous shareholder agreement.Under all relevant statutes, a director must be a natural person. A legal person cannot be a member of the board of directors of another legal person.Article 327 of the Civil Code of Québec2 stipulates that “Minors, persons of full age under tutorship or curatorship, bankrupts and persons prohibited by the court from holding such office” are disqualified for office as directors. Exclusions which are similar in whole or in part are to be found in most incorporating statutes of legal persons.Most incorporating statutes do not require directors to be shareholders or, in the case of a NFPO, a member of the legal person.Moreover, some incorporating statutes prescribe eligibility conditions, such as citizenship or residence.Some statutes other than the incorporating statutes or some regulations or decisions of regulatory authorities establish prohibitions from acting as a director generally or, in other circumstances, from acting as a director of specific legal persons.In another publication entitled “May a director be removed by the board of directors during his term of office?”3 we discussed some additional eligibility conditions which may be prescribed by the internal or administrative by-law. Some legal person may, for example, wish to impose as an eligibility condition the absence of criminal record to avoid having to file an application with the court under article 329 of the Civil Code of Québec4 to obtain the removal of a director who has been found guilty of an offence pursuant to the Criminal Code.Failure to meet the conditions of eligibility and the loss of eligibility should, in our opinion, result in most cases and for most purposes, in the automatic disqualification of a natural person as a director.Any person who is invited to become a director of a legal person and the legal person itself must therefore verify that the applicable eligibility conditions are met. _________________________________________1 Civil Code of Québec, CQLR, c. C-1991.2 Civil Code of Québec, CQLR, c. C-1991.3 Lavery website - Publications - André Laurin - “The Corporate Director’s Q & A”, “20. May a director be removed by the board during his term of office?”.4 Civil Code of Québec, CQLR, c. C-1991.

On August 13, 2013, significant amendments to National Instrument 41-101 - General prospectus requirements, National Instrument 44-101 - Short form prospectus distributions, National Instrument 44-102 – Shelf distributions and National Instrument 44-103 – Post-receipt pricing (and their respective companion policies) regarding permissible “pre-marketing” and “marketing” activities came into force (collectively, the “New Amendments”). These amendments are, for the most part, identical to the proposed amendments published for comments by the Canadian Securities Administrators (the “CSA”) on November 25, 2011 (the “2011 proposed amendments”). The New Amendments (i) provide issuers and investment dealers with a new prospectus exemption allowing them to solicit expressions of interest by institutional investors in connection with an initial public offering (“IPO”), (ii) clarify the extent of what is allowed to be included in a bought deal letter and the potential amendments that can be brought thereto, (iii) implement new rules regarding the distribution of documents to potential investors by investment dealers and regarding the content of such documents, and (iv) regulate “road shows” (meetings held by top executives and investment dealers with current or potential investors to discuss a potential offering). The following provides a general guide to the New Amendments with a view to allowing issuers and investment dealers to gain a better understanding of what changes they will have to implement in their practices.SOME HIGHLIGHTS OF THE NEW AMENDMENTS: Issuers and investment dealers can test the market for an IPO with institutional investors (subject to a 15 day “cooling-off” period). In the case of a bought deal, issuers do not have to obtain a receipt for the short form prospectus within the four business day deadline provided that the prospectus is filed within that time period. In certain circumstances, dealers and issuers can upsize a bought deal by up to 100% of the original offering size. “Market out” clauses in bought deal letters are prohibited. Except for standard term sheets that contain only limited information, a template version of all materials distributed or shown to investors must be approved in advance by the issuer, filed on SEDAR and incorporated by reference in the prospectus (and translated into French if the prospectus is filed in Quebec). Dealers must keep records of the investors who attend road shows and of the information provided to them.I. CHANGES TO THE “PRE-MARKETING”1 RULESA. THE NEW TESTING THE WATERS EXEMPTIONWith the notable exception of “bought deal” offerings, the previous regulatory regime prohibited any form of marketing of public offerings until a receipt for a preliminary prospectus had been obtained. As a result, issuers and investment dealers were prevented from “testing the waters” by soliciting expressions of interest before proceeding with the offering. This forced issuers and investment dealers to incur significant costs (notably for due diligence) without any real certainty that the prevailing market conditions justified such an expenditure.In line with the approach recently adopted in the United States with the enactment of the Jumpstarts Our Business Startups Act (United States) (the “JOBS Act”), the New Amendments now allow an issuer to assess the market’s interest in its potential IPO prior to preparing and filing a preliminary long form prospectus.The exemption only authorizes issuers and investment dealers to contact accredited investors.2 Therefore, although they will have to wait until a receipt for the preliminary long form prospectus has been issued before contacting retail investors, investment dealers will be able to contact institutional investors to assess their potential interest in purchasing securities of the issuer.While this new prospectus exemption, referred to in the New Amendments as the “testing the waters” exemption (the “Testing the Waters Exemption”), adds much needed flexibility to today’s securities market, issuers and investment dealers must nevertheless comply with an array of rules and conditions in order to avail themselves of the exemption. More particularly:(i) the issuer must provide written authorization to the investment dealer to act on its behalf before the investment dealer makes any solicitation of expressions of interest;(ii) the issuer must maintain a written record identifying all investment dealers that it has authorized to act on its behalf;(iii) the issuer must approve in writing any materials distributed by investment dealers to accredited investors;(iv) written materials distributed to accredited investors must be marked as confidential;(v) investment dealers must maintain records identifying all accredited investors solicited; (vi) investment dealers must keep a copy of any written material distributed to any such accredited investors and of the approval of the issuer in respect of the distribution of such materials;(vii) investment dealers must obtain confirmation in writing (and keep a copy of any such confirmation) from the accredited investor that it will keep information concerning the proposed IPO confidential and that it will not use the information for any purpose other than assessing its interest in the offering until such time as the information has been generally disclosed in the preliminary long form prospectus or until the issuer confirms in writing that it will not be pursuing the potential IPO;3 and(viii) any confidential materials to be distributed to accredited investors must contain a legend indicating that it is not subject to liability for misrepresentation.An investment dealer who solicits expressions of interest from accredited investors pursuant to this Testing the Waters Exemption is subject to a “cooling-off” period whereby a preliminary long form prospectus in respect of the IPO cannot be filed until at least 15 days following the date of the most recent solicitation. This “cooling-off” period is imposed to prevent the exemption from simply being used to pre-sell the securities to be distributed as part of the IPO.The Testing the Waters Exemption can be relied upon only in connection with IPOs made by issuers that are not “public issuers” as defined in the New Amendments4 prior to completion of the IPO, or that are not controlled by a “public issuer” (except if the IPO by such subsidiary is not material to the parent). As this exemption is not only available to small-size issuers, as is the case in the United States under the JOBS Act, large issuers can avail themselves of the benefit of the exemption provided they meet all of the abovementioned criteria.B. THE CHANGES TO THE BOUGHT DEAL EXEMPTIONThe New Amendments have maintained the widely used “bought deal” exemption.5 They have however brought one small but important change to the existing requirements: the requirement that a receipt for the preliminary short form prospectus must be obtained within four business days from the date the bought deal letter has been entered into has now been replaced by the requirement that the preliminary short form prospectus must simply be filed within that same four business day period, thereby allowing the issuer to finalize and file the preliminary short form prospectus later during the day (therefore putting less pressure on all parties involved).The New Amendments also provide detailed rules with regards to which practices the CSA consider acceptable under this exemption. To this end, the New Amendments contain a definition of what constitutes a “bought deal agreement” and clarify what types of amendments can be made to it (in particular, under what conditions a bought deal may be “upsized”) and what types of unilateral rights of termination can be included.1. Upsizing Bought DealsIn the 2011 Proposed Amendments, the CSA expressed concerns as to the possibility for bought deals to be “upsized” in light of the possibility for an issuer to sign a bought deal letter for a very small amount of securities and then, based on the interest of the market, substantially increase the amount of securities (and potentially the price of such securities) to be distributed. The reason for such concerns is that the rationale of the “bought deal” exemption is that it should only apply in offerings where underwriters have made a firm commitment in favour of the issuer to purchase its securities (constituting the so-called “bought deal”). The CSA’s concerns created great uncertainty given the lack of rules clarifying which types of “upsizing” were allowed under the previous rules.Pursuant to the New Amendments, issuers and underwriters are now allowed to amend their original bought deal agreements and “upsize” their offerings if: a news release is immediately issued following the amendment of the bought deal letter; the offering is increased by not more than 100% of the size of the original deal (not taking into account the securities available upon exercise of the over-allotment option); the type of securities to be purchased and the price per security remain the same as under the original bought deal letter; and no previous amendment has been made to the original bought deal letter to increase the number of securities to be purchased.An “upsizing” cannot, however, take the form of an option in the bought deal letter. The only option that the bought deal letter may provide for is the over-allotment option, which remains capped at 15% of the initial offering size. The 100% “upsizing” described above must therefore be the result of a subsequent amendment to the bought deal letter.2. Other Types of Amendments to the Bought Deal LetterThe bought deal letter may also be amended to provide for the offering of a different type of securities or for a different sale price provided that certain conditions are met (notably that the aggregate dollar amount of the securities to be purchased by the underwriters remains the same6). However, a bought deal letter cannot be withdrawn or amended so as to provide for a lower price per securities or a smaller offering until at least the fourth business day following the day on which the bought deal letter was entered into.Amending a bought deal letter (for example, in the case of an “ upsizing”) does not extend the four business day time limit in which to file the preliminary short form prospectus. Notwithstanding the amendment, the preliminary short form prospectus must be filed within four business days after entering into the original bought deal letter.3. Unilateral Right to Terminate the Bought Deal Letter ( the “Out” Clauses)The New Amendments provide for more detailed rules regarding what terms can be included in a bought deal letter and also impose additional restrictions.The new definition of “bought deal agreement” contained in the applicable regulation now expressly prohibits “market out” clauses whereby one or several underwriters may draw on a contractual provision to terminate a commitment to purchase securities when the securities cannot be marketed profitably due to prevailing market conditions.With the exception of this specific prohibition, a bought deal letter may nevertheless provide that it may be unilaterally terminated upon the failure by a third party to perform certain specific actions or when a certain specific event occurs or fails to occur. The CSA warn however that such unilateral rights of termination must be in line with the policy rationale of the “bought deal” exemption. As mentioned earlier, the rationale of the “bought deal” exemption is to provide certainty of financing only in the circumstances where the underwriters have agreed to purchase the securities on a firm commitment basis.As a result, the CSA warn issuers and underwriters against the use of “regulatory out” provisions in bought deal letters which allow underwriters to terminate the bought deal letter if the receipt for the final prospectus has not been obtained within a specific time frame (normally a short one). The CSA state that issues may arise upon the receipt of the regulators’ comments on the prospectus and that the issuer and the underwriters should not expect that all comments will necessarily be resolved within a given timeframe.The CSA also express concerns regarding the use of “due diligence out” clauses,7 clarifying that they should not be used in a way so as to defeat the policy rationale of the “bought deal” exemption. The CSA suggest that underwriters who are not willing or able to conduct sufficient due diligence prior to entering into a bought deal letter should consider proposing a fully marketed offering to the issuer. To allow underwriters to conduct their due diligence, the CSA have clarified that entering into an engagement letter with an issuer solely for the purpose of conducting due diligence before a potential prospectus offering does not by itself indicate that the distribution discussions are of “sufficient specificity” (which would prevent investment dealers from soliciting expressions of interest from their clients), provided such engagement letter does not contain any other information which would indicate that it is reasonable to expect that the investment dealers will propose an underwriting of securities to the issuer.8 However, extreme care must be used before making any solicitation without the benefit of an exemption once such an engagement letter has been entered into, given that the wording of such an engagement letter or the content of the discussions between the issuer and the investment dealers may cause securities regulatory authorities to consider that “sufficient specificity” in the discussion between the issuer and the investment dealers has been reached.9While the CSA do not explicitly state in the New Amendments that the following unilateral rights of termination can be inserted in bought deal letters, the New Amendments seem to suggest that “disaster out” or “material adverse change out” clauses10 will remain acceptable in bought deal letters, except if drafted so broadly as to allow underwriters to terminate the bought deal letter too easily.Finally, the bought deal letter cannot provide that the bought deal is conditional on the syndication of the deal, except in so far as it provides that the bought deal is subject to confirmation the next business day by the lead underwriter that one or more additional underwriters have agreed to purchase certain of the securities offered. Where this is the case, the news release announcing the conclusion of the bought deal letter should not be issued, and the bought deal prospectus exemption allowing solicitation of an expression of interest will not apply, until such confirmation has been made.11It must be noted that the above requirements and conditions apply to the more extended form of underwriting agreements typically entered into upon filing of the preliminary short form prospectus and that replace the bought deal letter.II. CHANGES TO THE “MARKETING RULES” DURING THE WAITING PERIOD12Under the previous regulatory regime, issuers and investment dealers were allowed to use notices, circulars, advertisement, letters or other communications that identified the securities proposed to be issued, stated the price of such securities and stated the name and address of the person from whom purchases of securities could be made.13The New Amendments have now created two new categories of promotional documents which may be distributed to potential investors in the context of a prospectus offering, namely “ standard term sheets” and “marketing materials”. Specific rules apply to the use of each of these promotional documents.A. STANDARD TERM SHEETS1. Authorized Content of the Standard Term SheetsThe New Amendments define standard term sheets as three-line written communication documents which may be supplied to both retail and institutional investors once a preliminary prospectus is filed, or alternatively, once a bought deal is announced. Standard term sheets may include the following information: (i) the name of the issuer; (ii) the jurisdiction in which the issuer’s head office is located; (iii) the statute under which the issuer is incorporated or organized; (iv) a brief description of the business of the issuer; (v) a brief description of the securities offered; (vi) the total number of the securities offered; (vii) the price at which the securities are being sold; (viii) the investment dealers’ names; (ix) the amount of the underwriting commission or agency fee; (x) the exchange on which the securities are proposed to be listed; (xi) the proposed closing date; (xii) the proposed use of proceeds; (xiii) the maturity date of debt securities; (xiv) a brief description of interest payable; (xv) in the case of securities for which a credit supporter has provided a guarantee or alternative credit support, a brief description of the credit supporter and the guarantee or alternative credit support provided; (xvi) whether the securities are redeemable or retractable; (xvii) in the case of convertible or exchangeable securities, a brief description of the underlying securities; (xviii) the terms of the over-allotment option; (xix) whether the offering is a bought deal or an agency deal; (xx) in the case of preferred shares, a brief description of dividends payable; (xxi) in the case of restricted securities, a brief description of the restrictions; (xxii) whether the securities are eligible for investment in registered retirement savings plans or other such plans; and (xxiii) contact information for the investment dealers.These newly regulated standard term sheets will not differ greatly from those term sheets that investment dealers are currently using with respect to shelf distributions. However, this may not be the case with respect to those term sheets that are generally being used for certain types of debenture or rate reset preferred share offerings and which typically include various additional terms relating to the debentures or preferred shares being offered and the credit ratings of such securities, or those term sheets used for offerings made by certain types of issuers which sometimes include other financial information such as expected “yield” or certain comparables with other issuers. Investment dealers will, however, still be allowed to use these more detailed term sheets, to the extent that they comply with the provisions applicable to “marketing materials” explained below.2. Conditions Applicable to Standard Term SheetsAn investment dealer that provides a standard term sheet to a potential investor during the waiting period will have to ensure that the standard term sheet satisfies the following conditions: the standard term sheet must reproduce the legend prescribed by regulation (which refers investors to the fact that the preliminary prospectus is still subject to completion and to the fact that the standard term sheet does not provide full disclosure of all material facts relating to the securities being offered); the standard term sheet must only contain the limited information prescribed by regulation (as detailed above) and all such information must be disclosed in, or derived from, the preliminary prospectus or any amendment thereto; and a receipt for the preliminary prospectus must have been issued in the local jurisdiction prior to the use of the standard term sheet.In the case of a bought deal, underwriters may provide a standard term sheet to investors once the entering into of the bought deal letter is publicly announced by news release and prior to the preliminary short form prospectus being filed, provided that the following conditions are met: the standard term sheet must contain the cautionary language prescribed by regulation (which refers investors to the fact that the preliminary short form prospectus has not yet been filed and to the fact that the standard term sheet does not provide full disclosure of all material facts relating to the securities being offered); any information in the standard term sheet must be disclosed in or derived from the bought deal news release, the issuer’s continuous disclosure record appearing on SEDAR or the subsequent preliminary short form prospectus (but in the latter case, subject to selective disclosure concerns14); and the preliminary short form prospectus must be filed in the local jurisdiction.Standard term sheets need not be filed on SEDAR nor included or incorporated by reference in the applicable prospectus. They will therefore not be subject to statutory civil liability. However, they are nevertheless subject to the existing statutory prohibitions on misleading statements.15 The securities regulatory authority reviewing the prospectus may request copies of the standard term sheets distributed to investors. Any discrepancies between the standard term sheets and the prospectus may result in delays or an outright refusal by the regulatory authority to grant a receipt for the prospectus.B. GREEN SHEETSInvestment dealers will remain able to provide their registered representatives with summaries of the principal terms of an offering (the so-called “green sheets”). However, any green sheet that is distributed to the public will have to comply with the rules applicable to standard term sheets or marketing materials depending on the level of disclosure it contains (typically, green sheets will contain information beyond what a standard term sheet is allowed to contain and will therefore be treated as marketing materials). The securities regulatory authority reviewing the prospectus may request a copy of any green sheet provided to the investment dealers’ registered representatives and any discrepancies between the green sheet and the prospectus may result in delays or an outright refusal by the regulatory authority to grant a receipt for the prospectus.C. MARKETING MATERIALSThe New Amendments define “marketing materials” as a written communication regarding a distribution of securities under a prospectus which contains material facts relating to the issuer or the securities offered. This definition basically encompasses any document typically distributed to investors that contains more detailed information than standard term sheets.16 The New Amendments do not introduce any limits as to the type of information that may be included in these “marketing materials”, provided that such information is derived from the prospectus (except for comparables as more fully discussed below).An investment dealer will be entitled to provide a potential investor with any such marketing materials during the waiting period (or in the case of a bought deal, after public announcement of the entering into of a bought deal letter), provided that the following conditions are met: with the exception of comparables, all information about the issuer, the securities or the offering mentioned in the marketing materials must be disclosed in, or derived from, the preliminary prospectus (in the case of a bought deal, if the marketing materials are delivered prior to the issuance of a receipt for the preliminary short form prospectus, the information must be derived from the bought deal news release, the issuer’s continuous disclosure record appearing on SEDAR or the subsequent preliminary short form prospectus, but in the latter case, subject to selective disclosure concerns); a template version of the marketing materials must be approved in writing by the issuer and lead underwriter or agent prior to use;17 a template version of the marketing materials must be filed on SEDAR on the day that they are first provided to investors and will have to be incorporated by reference in the final prospectus (any disclosure related to comparables may be redacted from the version filed on SEDAR or incorporated by reference into the prospectus as more fully described below); marketing materials distributed must also contain the prescribed legend (similar to the legend for a standard term sheet); a receipt for the preliminary prospectus must have been issued in the local jurisdiction prior to the use of the marketing materials (or in the case of a bought deal, if the marketing materials are delivered prior to the issuance of a receipt for the preliminary short form prospectus, the preliminary short form prospectus must be filed in the local jurisdiction); and a copy of the preliminary prospectus must be delivered to potential investors with the marketing materials (in the case of a bought deal, if the marketing materials are delivered prior to the issuance of a receipt for the preliminary short form prospectus, a copy of the preliminary short form prospectus must be delivered to each investor who received the marketing materials and expressed an interest in acquiring the securities upon the receipt being issued).The fact that the information concerning the securities presented in the marketing materials must be disclosed in, or derived from, the preliminary prospectus, the bought deal news release or the issuer’s continuous disclosure record does not mean that such information has to be presented in the same format. The information may be summarized and graphs or charts based on any numerical data contained in such documents may be included in the marketing materials.TEMPLATE VERSIONSThe New Amendments allow for the approval and use of a “ template” form of the marketing materials (with blank spaces providing for information to be added). Such a template version may contain spaces for the date of the marketing material and the name and contact information of the underwriters or agents to be added. The template versions (not the actual versions distributed to investors) must be approved by the issuer and be filed on SEDAR and incorporated by reference in the final prospectus (but not in the preliminary prospectus, even if the marketing materials are distributed, in the case of a bought deal, prior to the receipt for the preliminary prospectus being obtained). As a result, only the template version will be subject to statutory civil liability. Prior to distributing the marketing materials to investors, investment dealers are allowed to complete the blank spaces of the template by adding the date of the marketing materials and the name and contact information of the underwriters or agents. They are also allowed to add a cover page to the template referring to the investment dealer or a particular group of investors and change the font, colour or size of the text (such version distributed to investors is referred to in the New Amendments as a “limited-use version” of the marketing materials). Some sections of the template version may also be omitted from the limited-use version provided to investors provided that the template is divided into separate sections for each distinct subject.If a final prospectus (or amendment thereto) subsequent to the delivery of the original marketing materials (or any amendment thereto) modifies a statement of a material fact made in the marketing materials, the issuer must file on SEDAR and make public, at the time that such prospectus (or amendment) is filed, a revised copy of the template version of such materials that is blacklined to outline the changes and must disclose in the prospectus (or the amendment) how the statement in the previous marketing materials has been modified. The marketing materials will not however, as a matter of law, be considered to amend a preliminary prospectus, a final prospectus or any amendment thereto regardless of when it is filed. Investment dealers that are part of a syndicate in which they do not act as lead or co-lead underwriters or agents should be aware that they will be liable for any misrepresentation contained in the template version of the marketing materials even if such materials were prepared, distributed and/or filed on SEDAR by the lead underwriter or agent prior to their joining the syndicate. Therefore, every investment dealer should request that the lead underwriter or agent and the issuer modify in the prospectus any statement made in earlier marketing materials that they have concerns with.The fact that the template version of the marketing materials is required to be incorporated by reference into the final prospectus also means that if the prospectus is filed in the Province of Quebec, such template version of the marketing materials will have to be translated into French and the French translation will have to be filed on SEDAR.COMPARABLESAs mentioned above, issuers will be allowed to redact “ comparables” – information comparing the issuer to other issuers – from the template version of the marketing materials filed on SEDAR and incorporated by reference in the final prospectus. The redacted template version must include a note stating that the comparables were removed from the redacted version of such materials.Given that they will not be incorporated by reference in the prospectus, comparables will not be subject to statutory civil liability, but will nevertheless be subject to statutory prohibitions on misleading or untrue statements. Furthermore, in order to mitigate potential investor protection concerns, the CSA require that issuers confidentially file on SEDAR a template version of the marketing materials that contains the comparables. Contrarily to the redacted version, the version containing the comparables will not be made public. The CSA also require that any version of the marketing materials containing the comparables that will be provided or distributed to investors include, at a place proximate to the comparables, risk disclosure and cautionary language explaining what the comparables are and why certain issuers were chosen as a comparison. In addition, such cautionary language must explain that any information regarding other issuers provided in the marketing materials was not independently verified and must state that if there is a misrepresentation, investors will not have a remedy under securities legislation.D. ROAD SHOWSThe New Amendments expressly allow investment dealers to conduct road shows with institutional and retail investors during the waiting period, or in the context of a bought deal, once the deal is publicly announced. The following conditions apply to such road shows: all materials distributed or shown to investors at any such road show (including, for example, a PowerPoint presentation) must comply with the limitations and restrictions applicable to standard term sheets or marketing materials outlined above even if the investors are not entitled to retain a hard copy of the materials;18 if retail investors are attending the road show (even if by phone, on the Internet or through other means),19 an investment dealer must begin the road show with an oral reading of a prescribed statement stating that the presentation does not provide full disclosure of all material facts and risks involved, which disclosure is provided in the applicable prospectus; the investment dealers conducting the road show must ask any investor attending the road show (even if by phone, on the Internet or through other means) to provide their name and contact information and the investment dealers must keep a record of any information provided by the investor;20 and the investment dealers conducting the road show must provide the investors attending the road show with a copy of the preliminary prospectus and any amendment (if the road show is conducted prior to the issuance of the receipt for the preliminary prospectus in reliance on the bought deal exemption, the investment dealers must provide the investors with a copy of the preliminary prospectus upon issuance of the receipt thereof).Investment dealers will not be required to verify the contact information obtained from investors or to ensure that they have received the prospectus. The investment dealers will be found to have met their obligation to ask for such information and to provide a copy of the prospectus so long as they establish and follow reasonable procedures to ask any investor attending any such road show to provide their name and contact information, and send a copy of the prospectus to each investor (without the necessity of obtaining confirmation of receipt).21Apart from the requirement to read a statement to retail investors, verbal communications provided in the road shows remain largely unregulated. Such oral information will not have to be included in the prospectus. The CSA warn however that verbal information should normally be derived from the relevant prospectus that has been filed on SEDAR and that issuers and investment dealers should avoid selective disclosure when responding to questions from investors, particularly if the road show occurs in the context of a bought deal and prior to the issuance of a receipt for the preliminary short form prospectus.Several restrictions also exist in regards to the presence of media at road shows. While the media may attend road shows, they should not be specifically invited by the issuer or investment dealers. Road shows should not be disguised press conferences with media and issuers or investment dealers should not market a prospectus offering in the media.III. CHANGES TO THE “MARKETING RULES” DURING THE POST FINAL RECEIPT PERIODA. GENERALLYExcept for contextual changes, the rules governing the use of standard term sheets, marketing materials and road shows during the waiting period will largely apply in the post final receipt period. As such, issuers and investment dealers must behave in the same manner during the post final receipt period as they would during the waiting period, including in the context of a shelf distribution (subject to the particularities more fully described below).B. SHELF DISTRIBUTIONSCertain particularities apply to shelf distributions. For example, the requirement that information contained in the standard term sheet or in the marketing materials be derived from the prospectus is problematic in the context of a shelf distribution (given that most of the information specifically related to the offering will have been omitted from the base shelf prospectus and that the relevant prospectus supplement would generally not yet be available at the time of distribution of such standard term sheet or marketing materials). Accordingly, standard term sheets and marketing materials may contain information that is not derived from the base shelf prospectus to the extent that such information will later be disclosed in, or derived from, the prospectus supplement that will be subsequently filed. The same requirements apply to base PREP prospectuses.Issuers and investment dealers should be aware of selective disclosure concerns regarding information 22 contained in standard term sheets or marketing materials that is derived from a prospectus supplement that has not yet been filed on SEDAR. The CSA clarify that any such information that could affect the market price of the issuer’s securities should be broadly disseminated in a news release before being circulated.The New Amendments still allow issuers to address selective disclosure concerns pertaining to the description of the securities to be offered by filing a preliminary form of prospectus supplement on SEDAR describing the securities to be offered (from which the pricing information and the composition of the syndicate will typically have been omitted) and by asking the principal regulator to make such preliminary prospectus supplement public. However, the right to use such preliminary prospectus supplement is subject in the case of equity securities offered under an unallocated base shelf prospectus to the requirement of a news release being issued once the issuer has formed a reasonable expectation that the distribution will proceed. While the CSA do not expressly discuss this issue, the use of a preliminary prospectus supplement may not be necessary to address selective disclosure concerns to the extent that the issuer and the investment dealers file a template version of the marketing materials describing the securities to be offered on SEDAR prior to their distribution to investors (even if the New Amendments only require that they be filed the same day that they are used). The filing on SEDAR of the template version of the marketing materials prior to their use may be sufficient to address any concerns regarding the complete disclosure of the terms of the securities to be offered._________________________________________ 1 Reminder: “Pre-marketing” refers to the marketing activities occurring prior to the filing of a preliminary prospectus. 2 Reminder: The “accredited investor” prospectus exemption does not apply to marketing activities with accredited investors done in furtherance of a distribution pursuant to an anticipated prospectus. Any such marketing activities conducted prior to the issuance of a receipt for the preliminary prospectus is therefore prohibited unless the issuer or the investment dealers can rely on the “bought deal” exemption or the Testing the Waters Exemption. 3 Such confirmation can be obtained through a simple return email from the accredited investor. 4 “Public issuer” is defined in the New Amendments as being: (i) any Canadian reporting issuer, (ii) any issuer that has a class of securities registered with the United States Securities and Exchange Commission pursuant to the United States Securities Act of 1933 (other than an entity registered or required to be registered as an investment company under the United States Investment Company Act of 1940), (iii) any issuer that has a class of securities that have traded on an over-the-counter market, and (iv) any issuer that has any of its securities listed, quoted or traded on a marketplace outside of Canada. 5 Reminder: The “bought deal” exemption, as it existed prior to the New Amendments, required (i) that an agreement to purchase securities (announced publicly by press prelease) setting out the terms of the distribution (typically called a bought deal letter) be concluded between the underwriters and the issuer, (ii) that a receipt for a preliminary short form prospectus be obtained within four business days from the date of such agreement, (iii) that such preliminary short form prospectus be sent to each person that has expressed an interest in acquiring the securities, and (iv) that no agreement of purchase and sale (other than with the underwriters) be entered into until a receipt for the final short form prospectus had been issued. 6 The bought deal letter cannot be amended to “upsize” the bought deal and change the type of securities and/or price per security as part of the same amendment. Both types of amendments can however be made during the four business day period, provided they each comply with all applicable conditions. 7 This refers to clauses which render the obligations of the underwriters in any way subject to completion of, and satisfaction with the results of, the underwriters’ due diligence investigation of the issuer. 8 Reminder: A distribution of securities commences at the time when an investment dealer has had discussions with an issuer (or selling securityholder) about the distribution and those discussions are of “sufficient specificity” that it is reasonable to expect that the investment dealer (alone or together with other dealers) will propose an underwriting of the securities to the issuer (or selling securityholder). Solicitation of expressions of interest by investment dealers once a distribution of securities has commenced is prohibited until the issuance of a receipt for the preliminary prospectus (except if done pursuant to a valid prospectus exemption such as the “bought deal” exemption). 9 Particularly given the new clarifications by the CSA to the effect that it is not required that an engagement letter or indicative terms for a proposed offering be provided to an issuer for such threshold to be reached. 10 “Disaster out” and “material adverse change out” clauses refer to provisions which permit an underwriter to terminate its commitment to purchase securities upon occurrence of an event or condition (or sometimes the enactment of a law or regulation) that “materially” or “seriously” affects the financial market in general, and/or the industry of the issuer and/or the business or operations of the issuer. 11 The lead underwriter will have the possibility to add or remove an underwriter in the syndicate or adjust the percentages of their respective positions in the syndicate even after the one business day confirmation has been given.  12 Reminder: “Marketing” activities refer to oral or written communications which occur after the filing of a preliminary prospectus but before a receipt for a final prospectus is granted to the issuer. This period is called the “waiting period”. 13 The New Amendments define such documents as being a “preliminary prospectus notice” and maintain the right to distribute such documents during the waiting period. Any document containing more information than the above stated information would be considered to be a standard term sheet or a marketing material. 14 Reminder: Securities legislation prohibits a reporting issuer and any person or company in a special relationship with a reporting issuer from informing, other than in the necessary course of business, anyone of a “material fact” or a “material change” (or any information that could affect the decision of a reasonable investor) before that material information has been generally disclosed to the public. 15 Reminder: Even if no civil remedy is made available in connection with misrepresentations contained in such documents, such a misrepresentation would breach securities legislation and would entitle the applicable securities regulatory authorities to issue a cease trade order, deny issuance of a receipt for a prospectus, or if the nature of the misrepresentation justifies it, make a recommendation for a prosecution under applicable securities legislation. 16 The CSA clarify in the relevant companion policy that the definition is not intended to include a cover letter or email from an investment dealer to an investor that encloses a copy of a prospectus, a standard term sheet or marketing materials. 17 Such approval may be given by email.18 Certain exceptions apply to road shows conducted in connection with certain U.S. cross-border offerings which are exempted from the requirement to file and incorporate by reference in the prospectus a template version of the marketing materials. 19 Reminder: When conducting a road show over the phone, the Internet or by other electronic means, investment dealers must be mindful of the applicability of registration requirements in light of the province or territory where the investor might be located. If one or more investment dealers allow potential investors in different provinces or territories of Canada to participate in a road show through such means, at least one of the investment dealers conducting the road show must be registered as an investment dealer in each province or territory where the participating investors are located. 20 Certain exceptions apply to road shows conducted in connection with certain U.S. cross-border IPOs where the investors attending the road show can provide their name and contact information on a voluntary basis. 21 Specific rules apply in the case of electronic delivery. See Policy Statement 11-201 respecting Electronic Delivery of Documents. 22 See note 14.

In September 2012, we reported that the Supreme Court of British Columbia had rendered a judgment1 confirming that a corporate policy imposing an advance nomination process for a shareholders’ meeting was reasonable and did not infringe the shareholders' rights relating to the election of the corporation's directors (“Advance Notice Policy”). We concluded at the time that Advance Notice Policies are a tool that can prevent nominations in cases where they might be enforced by ambush or by proxy contest. Nine months later, we notice that Advance Notice Policies have been adopted by numerous Canadian public corporations and that proxy advisory firms such as Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis & Co., LLC (“Glass Lewis”) have widely supported their implementation.Furthermore, since many Canadian public corporations are still seeking to put in place other responsible defences against proxy contests, we wish to advise in this bulletin that Canadian Oil Sands Limited and other Canadian public corporations recently adopted “Enhanced Quorum By-Laws”, in addition, to Advance Notice Policies, at their respective annual and special shareholders’ meetings. Enhanced Quorum By-Laws require a minimum of two shareholders holding at least a majority of the issued and outstanding common shares (an “Enhanced Quorum”) to be present or represented by proxy at any meeting at which a shareholder will be seeking to replace half or more of the board of directors, before the meeting can be held and business validly transacted.This is different from the more standard practice among issuers with respect to quorum at shareholders’ meetings, which is generally 10% of the shareholders, represented in person or by proxy. The Enhanced Quorum requirement is intended to ensure the enfranchisement of all the shareholders and that a material number of shares are represented at shareholders’ meetings, where such a fundamental change to the business and strategic direction of a corporation may occur. Enhanced Quorum By- Laws have recently been adopted by at least four Canadian public corporations.An Enhanced Quorum would provide a better framework to shareholders for exercising their fundamental right to make significant changes to the board of directors of a public corporation. In the absence of an Enhanced Quorum for the transaction of business at any meeting where the Enhanced Quorum is required, those present and entitled to vote will constitute a quorum for the purpose of (i) conducting all business other than for the election of directors, and (ii) the adjourning of such meeting. The meeting may be adjourned no more than twice for an aggregate of no more than 65 days. If an Enhanced Quorum is not present at the opening of the second adjourned meeting, if any, those shareholders present and entitled to vote at that adjourned meeting will constitute quorum for the transaction of business, including the election of directors, at the adjourned meeting.The concept of Enhanced Quorum was integrated by a few other Canadian corporations such as Open Text Corporation, Rutter Inc. and Enghouse Systems Limited into those companies’ respective majority voting policies. Majority voting policies generally provide that if the votes in favour of the election of a director nominee at a shareholders’ meeting represent less than a majority (50 %) of the shares voted and withheld, the nominee will submit his or her resignation promptly after the meeting, for the corporation’s consideration. The majority voting policies of the corporations referred to above would only apply in an uncontested election at which more than 65% of the outstanding common share have been voted by holders in person or by proxy.It is reasonable to believe that both ISS and Glass Lewis will generally support the adoption of Enhanced Quorum By-Laws. Like Advance Notice Policies, Enhanced Quorum By-Laws appear to be yet another answer to shareholder activism, which has been growing and trending in Canada. Similarly to Advance Notice Policies, Enhanced Quorum By-Laws will particularly benfit junior issuers._________________________________________ 1 Northern Minerals Investment Corp. v. Mundoro Capital Inc., 2012 BCSC 1090 [Mundoro Capital].

Are you ready? The harmonization of the QST and the GST may considerably impact your business or clients Sale of litigious rights : Beware of the redemption right Determining the purchase price of shares in a shareholder agreement: When “quiconque” (“any person”) excludes the person who signs Advance notice policies : A tool to consider with regard to shareholder nominations for electing directors

This publication was authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. The title of this newsletter gives a good summary of the explanatory notes that serve as an introduction to Bill 14, entitled An Act to amend the Charter of the French language, the Charter of human rights and freedoms and other legislative provisions (the “Bill”). The legislator is concerned that English is being used systematically in certain workplaces. The Bill was tabled on December 5, 2012 and the proposed amendments are designed to reaffirm the primacy of French as the official and common language of Quebec.