INFORMATION MEMORANDUM

Transcription

1 INFORMATION MEMORANDUM Franchise Trust Series 2004-l Senior Short Term Asset-Backed Notes

2 INFORMATION MEMORANDUM This Information Memorandum is not, and under no circumstances is to be construed as, an offering of these Series Senior Short Term Notes (as hereinafter defined and referred to) for sale directly or indirectly in the United States of America or in the territories and possessions thereof or to any U.S. person, except in certain transactions exempt from the registration requirements of the Securities Act of U.S. persons should consult with their tax advisors prior to making any investments in the Notes. Payments of principal and interest on the Notes will not be increased to take into account any Canadian withholding tax payable in respect of interest on the Notes. This Information Memorandum does not in any way obligate Franchise Trust to accept an offer to purchase any of these Series Senior Short Term Notes. Franchise Franchise Trust Series Senior Short Term Asset-Backed Notes Franchise Trust (the Trust ) is a trust established by The Canada Trust Company (as it has assumed the role of issuer trustee of the Trust from CIBC Trust Corporation) in its capacity as trustee (the Issuer Trustee ; any reference to the Trust herein includes the Issuer Trustee acting in its fiduciary capacity) under the laws of the Province of Ontario, by declaration of trust made as of September 14, The Trust issues asset-backed notes and is a special purpose trust created to provide loans ( Loans ) to approved, high quality franchisees, including dealers and/or licensees (collectively, the Franchisees ) of approved franchisors ( Franchisors ) with a major market share in the grocery, general merchandising or specialty retail industries, the food services or food distribution industries and/or the oil and gas industry. Through the Trust, Franchisees benefit from accessing capital markets at advantageous rates. The Trust will fund the Loans through the issue of senior and subordinated short and medium term asset-backed notes in one or more series. Canadian Imperial Bank of Commerce ( CIBC ), in its capacity as the administrative agent of the Trust (the Administrative Agent ) will generally administer the activities of the Trust, including its funding, purchasing, enforcement and administration activities. There are several layers of protection for holders of the asset-backed notes (the Notes ) of the Trust that may apply to one or more series:

3 - 2 - the Administrative Agent will apply and enforce strict eligibility criteria with respect to the Loans, Franchisees and Franchisors; the Trust will have the benefit of first loss protection in an amount determined to be appropriate or necessary in light of the eligibility criteria and the credit and investment policies of the Trust in a form appropriate for the applicable Franchisor and its Franchisees; and the Trust will have the benefit of additional credit enhancement that may, in appropriate circumstances and forms, be provided by third parties selected by the Administrative Agent and agreed to by the Trust s credit rating agency. The protection being provided specifically with respect to the Series senior short term asset-backed notes offered hereunder (the Series Senior Short Term Notes ) includes the following: a standby letter of credit issued by a financial institution with a senior unsecured long term debt rating by Dominion Bond Rating Service Limited ( DBRS ) of not less than AA(low) or a senior unsecured short-term debt rating of not less than R-1 (mid) by DBRS and/or cash and/or debt securities rated not less than AA by DBRS, where such securities will be marked-to-market no less than monthly (collectively, the Credit Enhancement Funds ), such Credit Enhancement Funds to be in an amount determined to be appropriate or necessary in light of the eligibility criteria and credit and investment policies of the Trust; and an agreement with the Franchisor pursuant to which such Franchisor agrees that, if any of its Franchisees fails to meet its obligations under its Loan and the Loan becomes due and payable, then the Franchisor may remedy the problem; otherwise, subject to the applicable cure period, the Credit Enhancement Funds will be drawn by an amount equal to the amount of such Loan plus interest due; and an agreement with the Franchisor and each Franchisee seeking to obtain a Loan pursuant to which the Trust acquires a security interest in the inventory of such Franchisee. To address its liquidity needs in respect of the Series Senior Short Term Notes, the Trust has entered into a liquidity agreement (the Liquidity Agreement ) with CIBC whereby it may borrow, under certain conditions, for liquidity purposes. The credit facilities made available under the Liquidity Agreement may be syndicated from time to time to other financial institutions.

4 - 3 - CIBC World Markets Inc. (the Agent ) has agreed to manage the marketing and distribution of the Notes and supply the Trust with certain related advisory, investment, treasury management and administrative services. CIBC provides services to the Trust in its capacity as Administrative Agent, as lender under the Liquidity Agreement and in connection with the note issuance and payment services contemplated in the Trust Indenture, but does not guarantee the Series Senior Short Term Notes or any other obligations, including any other Notes, of the Trust and will not make good any losses in the portfolio of the Trust. Series Senior Short Term Asset-Backed Notes Rated by: DBRS: R-l (mid) CIBC WORLD MARKETS INC. October 15, 2004

5 - 4 - FRANCHISE TRUST FUNDING PROGRAM The Trust s funding program is designed to provide Franchisees of Franchisors with an efficient and cost effective means of financing their operations in a way that is attractive to investors. The corporate finance benefits include, to Franchisees, reduced financing costs through access to the capital markets and, to Franchisors, expansion of franchise operations and/or existing locations. Franchisors and their Franchisees operate in the grocery, general merchandising or specialty retail industries, the food services or food distribution industries, and/or the oil and gas industry and enjoy a lead market share and/or well-established store name/banner in their respective consumer market. For investors, the Trust s objectives and credit and investment criteria are designed to provide a rated and liquid investment supported by a broad diversification of Franchisees. The Trust Franchise Trust is a trust established by The Canada Trust Company (as it has assumed the role of issuer trustee of the Trust from CIBC Trust Corporation), as Issuer Trustee, under the laws of the Province of Ontario by a declaration of trust made as of September 14, The beneficiaries of the Trust, after the payment of all of its obligations, are one or more designated charitable organizations. The liability of the Issuer Trustee, except in cases of bad faith, wilful misconduct and the like, will be limited to the assets of the Trust and the beneficiaries of the Trust will have no liability for the obligations of the Trust. The Trust s activities are financed through the issuance of Notes. The Notes which may be issued are senior and subordinated short term notes having a term of less than one year, and senior and subordinated medium term notes having a term of one or more years. The Trust is capable of issuing Notes in an infinite number of series and each series may finance the making of Loans to one or more Franchisees with respect to one or more Franchisors. The Administrative Agent CIBC, a Canadian chartered bank, with its head office at Commerce Court West, Toronto, Canada, will act as the Administrative Agent for the Trust. The Administrative Agent has been appointed as the exclusive agent of the Trust to provide or cause to be provided the financial, administrative and management services required to permit the Trust to carry out its activities, including its funding, purchasing, enforcement and administration activities. The Administrative Agent provides the Trust with the benefit of its expertise in the structuring and management of transactions of a similar nature.

6 - 5 - CIBC provides services to the Trust in its capacity as Administrative Agent, as lender under the Liquidity Agreement and in connection with the note issuance and payment services contemplated in the Trust Indenture, but does not guarantee the Notes or any other obligations of the Trust and will not make good any losses in the portfolio of the Trust. The Agent The Agent has agreed to act on behalf of the Trust for the purpose of soliciting and receiving offers to purchase Notes issued from time to time, subject to compliance with the terms and conditions contained in an agency agreement dated as of September 14, 1995 (the Agency Agreement ). As agent for the placement of the Notes, the Agent will arrange for the marketing and distribution of the Notes and will supply the Trust with certain related advisory, investment, treasury management and administrative services. The Agent may delegate the performance of these services from time to time to other parties. The Trust Indenture The Notes will be issued pursuant to the terms of a trust indenture made as of September 14, 1995 (the Trust Indenture ) among the Trust, CIBC Mellon Trust Company (formerly The R-M Trust Company) as indenture trustee, and CIBC, as note issuance and payment agent. The Trust Indenture provides for certain covenants on the part of the Trust and restrictions on its activities and its incurring of indebtedness other than in respect of the Notes and borrowings under liquidity agreements and credit enhancement agreements. The Trust Indenture secures the assets of the Trust, including Loan receivables, in favour of the holders of the Notes and other specified creditors of the Trust and establishes an order of priority of payment of moneys by the Trust. The Trust Indenture also provides for meetings of holders of Notes for the purpose of modifying the rights of such holders. Resolutions passed at such meetings will be binding on all holders of Notes except that resolutions affecting the Notes of any particular series must have the consent of the holders of such Notes. Meetings of the holders of each series of Notes may also pass resolutions modifying their rights alone. Registrations The security interests constituted by the Trust Indenture have been registered in all jurisdictions considered material by the Administrative Agent.

7 - 6 - Interest Rate and Currency Protection To mitigate interest rate and/or currency risks, the Trust may use a combination of interest rate and/or currency swaps, options, caps and other hedging instruments. The Administrative Agent will manage these exposures with the goal of hedging the Trust s exposure to such risks. Minimum credit standards have been established for the hedging counterparties by both the Administrative Agent and the Trust s credit rating agency. The overall rating of the Notes reflects the high standard that all of the hedging counterparties must meet. Liquidity Arrangements The liquidity needs of the Trust are provided for in two ways. First, the credit protection provided in respect of the Notes reduces the risk of defaults and helps to ensure adequate cash flow to the Trust. Second, the Trust will enter into a liquidity agreement with respect to each series of Notes, whereby it may borrow, under certain conditions, for liquidity purposes. Limited Liability The obligations represented by the Notes are obligations solely of the Trust and are not insured or guaranteed by CIBC, any credit enhancer, liquidity provider or any other person or entity, except in accordance with the applicable agreements to which they are a party and any related amendments thereto. Except in cases where the Issuer Trustee has acted in bad faith, has engaged in wilful misconduct or other similar conduct or actions, the liability of the Issuer Trustee will be limited to the assets of the Trust. No other property of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to execution or other enforcement procedure with regard to any obligation of the Trust. PROTECTION OF NOTEHOLDERS There are several layers of protection for holders of Notes: the Administrative Agent will apply and enforce strict eligibility criteria with respect to the Loans, Franchisees and Franchisors; the Trust will have the benefit of first loss protection in an amount determined to be appropriate or necessary in light of the eligibility criteria and credit and investment policies of the Trust in a form appropriate for the applicable Franchiser and its Franchisees; and the Trust will have the benefit of additional credit enhancement that may, in appropriate circumstances and forms, be provided by third parties selected

8 - 7 - by the Administrative Agent and agreed to by the Trust s credit rating agency. Eligibility Criteria The making of Loans will be assessed by the Administrative Agent in accordance with the credit and investment policies of the Trust, which have the overriding objective of ensuring that all transactions are structured and activities executed with the objective of maintaining a high credit quality portfolio independent of third party support. Each Loan will be made in accordance with standard terms and conditions determined by the Administrative Agent and will be secured by a general security interest or other charge over all or part of the assets of the applicable Franchisee. The quality of the Trust s portfolio of Loans will also be enhanced by the diversification generated by multiple Franchisees, and the highly developed funding administration procedures of the Administrative Agent. First Loss Protection First loss protection will be arranged in respect of each transaction in forms and amounts considered by the Administrative Agent to be appropriate or necessary in light of the eligibility criteria and the credit and investment policies of the Trust. The first loss protection will consist of arrangements designed to protect the Trust from loss in respect of the particular funding transaction. Third Party Credit Enhancement In addition to the transaction-specific protection provided to the Trust, the Trust may, in appropriate circumstances, enter into credit enhancement arrangements in appropriate forms with third parties. Such third parties will be selected by the Administrative Agent based upon established financial criteria and agreed to by the Trust s credit rating agency, such that the participation by any such party will not result in a reduction in the Trust s credit rating at such time. THE SERIES SENIOR SHORT TERM NOTES The Notes of the series which are the subject hereof are senior and subordinated short-term notes designated as Series Short Term Notes, issued in order to finance the extension of Loans to Franchisees of a Franchisor and are secured under the Trust Indenture only by the related assets of the Trust. Currently, it is not contemplated that the Trust will issue any subordinated Series Short Term Notes. No Series Senior Short Term Notes will be issued if an event of default exists under the Trust Indenture, if there would be a negative net asset value in respect of Series Senior Short Term Notes and the assets held as collateral in

9 - 8 - respect thereof after giving effect to any such issuance of Series Senior Short Term Notes, or if the issuance of Series Senior Short Term Notes was not in compliance with the Liquidity Agreement. Description of the Series Senior Short Term Notes Principal Amount: Purpose: Issuer: Issuer Trustee: Indenture Trustee: Administrative Agent: Agent: Denominations: Maturities: Rates: Ratings: The maximum principal amount of the Series Senior Short Term Notes to be outstanding at any one time is unlimited. The net proceeds from the sale of the Series 2004-l Senior Short Term Notes will only be used to extend Loans to Franchisees. Franchise Trust The Canada Trust Company CIBC Mellon Trust Company Canadian Imperial Bank of Commerce CIBC World Markets Inc. Multiples of $1,000 in Canadian or United States currencies subject to a minimum which varies according to provincial security regulations. The Series Senior 2004-l Short Term Notes will mature on a banking day 364 days or less from the date of issuance. Available on request from the Agent. The Series 2004-l Short Term Notes have been rated R-l (mid) by Dominion Bond Rating Service Limited. Payment &Delivery: Principal of and interest on the Series Senior Short Term Notes will be payable in the currency of issue upon presentation at any branch in Canada of CIBC which has been appointed as note issuance and payment agent for the Series Senior Short Term Notes. Delivery of the Series Senior Short Term Notes will be made at any such branch named

10 - 9 - by the investor against payment at any of the main securities branches of CIBC in Halifax, Montreal, Toronto, Winnipeg, Regina, Calgary, Edmonton, Vancouver and New York. Additional Protection for Noteholders: Additional Protection for Noteholders in respect of this series will include: a) a standby letter of credit issued by a financial institution with a senior unsecured long term debt rating by DBRS Limited of not less than AA(low) or a senior unsecured short-term debt rating of not less than R-1(mid) by DBRS and/or cash and/or debt securities rated not less than AA by Dominion Bond Rating Service. Limited, where such securities will be marked-tomarket no less than monthly (collectively, the Credit Enhancement Funds ), such Credit Enhancement Funds to be in an amount determined to be appropriate or necessary in light of the eligibility criteria and credit and investment policies of the Trust; b) an agreement with the Franchisor pursuant to which such Franchisor agrees that, if any of its Franchisees fail to meet its obligations under its Loan and the Loan becomes due and payable, then such Franchisor may remedy the problem; otherwise, subject to the applicable cure period, the Credit Enhancement Funds will be drawn by an amount equal to the amount of such Loan plus interest due; and c) an agreement with the Franchisor and each Franchisee seeking to obtain a Loan pursuant to which the Trust acquires a security interest in the inventory of such Franchisee. Liquidity Agreement: The Trust may borrow funds under the Liquidity Agreement for the purpose of funding its immediately maturing obligations under the Series Short Term Notes and other

11 obligations of the Trust. The credit facilities made available thereunder may be syndicated from time to time to other financial institutions. Investment Eligibility: The Series Short Term Notes shall be eligible investments under those statutes set out in the attached opinion of counsel for the Trust, subject to the qualifications set out therein.

12 October 15, 2004 Franchise Trust c/o The Canada Trust Company 79 Wellington Street West, 8 th Floor, Toronto-Dominion Centre, P.O. Box 1 Toronto, Ontario M5K 1A2 Dear Sirs: Re: Franchise Trust -Issuance of Series Senior Short Term Asset-Backed Notes We have acted as special counsel to Franchise Trust (the Trust ), a trust established by declaration of trust made as of September 14, 1995 (the Declaration of Trust ) by The Canada Trust Company (as it has assumed the role of issuer trustee of the Trust from CIBC Trust Corporation), a trust company established under the laws of Canada (the Issuer Trustee ). As counsel, we have acted on behalf of the Trust in connection with the issuance and sale by the Trust in all provinces of Canada (the Offering Jurisdictions ) of Series Senior Short Term Notes (the Notes ) in accordance with the provisions of a trust indenture made as of September 14, 1995 (the Trust Indenture ) and the Series supplemental trust indenture made as of October 6, 2004 (the Related Supplement ) among the Trust, CIBC Mellon Trust Company (formerly, The R-M Trust Company) (the Indenture Trustee ) and Canadian Imperial Bank of Commerce (the NIP Agent ). Each Note will have the terms more particularly described in the information memorandum of the Trust dated October 6, 2004 (the Information Memorandum ), will have a term of 364 days or less from its date of issue and will be issued in a denomination or principal amount of not less than the minimum amount permitted in each of the Offering Jurisdictions as specified in Part C below. The Notes are negotiable, not convertible or exchangeable into or accompanied by a right to purchase another security and we are advised that they are not being sold to any purchaser in the Province of Québec pursuant to a written agreement. Terms defined in the Trust Indenture are used herein as so defined.

13 - 2 - We have participated in the preparation of and, with the exception of the Information Memorandum, have examined executed copies of the following documents: (a) (b) (c) (d) the Trust Indenture; the Related Supplement; the Declaration of Trust; and the Information Memorandum. For the purposes of the opinions expressed below we have examined originals or copies of the letters patent of and by-laws, resolutions and other corporate records of the Issuer Trustee, a Certificate as to Registration in respect of the Issuer Trustee issued by the Financial Services Commission of Ontario dated October 14, 2004 (the Ontario Certificate ), a Certificate of Confirmation in respect of the Issuer Trustee issued by the Office of the Superintendent of Financial Institutions (Ottawa) dated October 14, 2004 (the OSFI Certificate ) and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. For the purposes of the opinion expressed in paragraph A.1 below, we have relied exclusively and without independent investigation upon the Ontario Certificate and the OSFI Certificate and our opinion expressed herein is subject to and qualified by the limitations or qualifications contained in the Ontario Certificate and the OSFI Certificate. We have also assumed that the information contained therein continues to be accurate as of the date hereof. In all the foregoing examinations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with originals of all documents submitted to us as certified, conformed or photostatic copies or facsimiles thereof. For purposes of the opinions expressed below, we have assumed the due authorization, execution and delivery of the Trust Indenture and the Related Supplement by the Indenture Trustee and the NIP Agent and have assumed that each such party has all necessary corporate power and capacity to execute and deliver the Trust Indenture and the Related Supplement and that each of the Trust Indenture and the Related Supplement constitutes a legal, valid and binding obligation of each of the Indenture Trustee and the NIP Agent, enforceable against it in accordance with its terms. The opinions expressed below are subject to the following qualifications: (a) enforceability may be limited by applicable bankruptcy, insolvency and other laws affecting creditors rights generally;

14 - 3 - (b) (c) (d) (e) (f) (g) (h) the granting of equitable remedies, including specific performance and injunctive relief, is in the discretion of a court of competent jurisdiction; rights of indemnification may be limited under applicable law; the effectiveness of terms exculpating a party from a liability or duty otherwise owed by it to another may be limited by law; the awarding of costs of or incidental to proceedings authorized to be taken in court or before a judge are in the discretion of the court or judge and the court or judge has the full power to determine by whom and to what extent such costs shall be paid; any provision in the Trust Indenture and the Related Supplement which purports to sever therefrom any provision thereof which is, or becomes, illegal, invalid or unenforceable under applicable law without affecting the validity of the remainder thereof would be enforced only to the extent that the court determines that such prohibited or unenforceable provision could be severed without impairing the interpretation and application of the remainder thereof; the Currency Act (Canada) precludes a court in Canada from giving judgment in any currency other than Canadian currency; and no opinion is expressed herein regarding the creation, validity, enforceability or perfection of any security interest expressed to be created by or under any of the documents or as to whether or not the default interest payable under the Notes constitutes an unenforceable penalty. In giving the opinions set forth below in respect of the laws of Offering Jurisdictions other than the Provinces of Ontario, Québec, Alberta and British Columbia, we have arranged for and have relied upon opinions provided to us by counsel qualified to practice law therein. To the extent that any such opinions are based upon any assumption or are made subject to any limitation, qualification, or exception, our opinions expressed below are based upon each such assumption and are subject to each such limitation, qualification or exception. Unless otherwise expressly indicated, the opinions hereinafter expressed are limited to the laws of the Province of Ontario and the federal laws of Canada applicable therein as of the date hereof.

15 - 4 - Based upon and subject to the foregoing, we are of the opinion that: A. Issuer Trustee 1. The Issuer Trustee is a trust company subsisting under the Trust and Loan Companies Act (Canada). The Issuer Trustee has the power and capacity to accept the appointment as, and to act in the capacity of, trustee of the Trust under the Declaration of Trust. 2. All registrations, filing and notices necessary to permit the Issuer Trustee to carry on business as a trustee in the Province of Ontario have been completed. 3. The Trust is a trust created and existing under the laws of the Province of Ontario. No registration or qualification of the Trust under the laws of Ontario is necessary for the Trust to carry on business in the Province of Ontario. 4. The Issuer Trustee (both in its personal capacity and in its capacity as trustee of the Trust) has all necessary power and capacity under the Declaration of Trust to hold title to and to alienate the property of the Trust and to carry on the activities of the Trust in accordance therewith and to execute, deliver and perform its obligations as trustee of the Trust under the Trust Indenture, the Related Supplement and each of the Notes. 5. The execution and delivery by the Issuer Trustee of the Trust Indenture, the Related Supplement and each of the Notes and the performance by the Issuer Trustee of its obligations as trustee of the Trust thereunder, do not and will not contravene, breach or result in any default under: (a) (b) (c) (d) (e) the letters patent or by-laws of the Issuer Trustee; the Declaration of Trust; any laws or regulations to which the Trust or the Issuer Trustee is subject; the Administration Agreement or the Agency Agreement; or any order, judgment or decree of any court, arbitrator or similar tribunal, governmental authority or regulatory body which is binding on the Issuer Trustee, in its capacity as trustee of the Trust, or the Trust or its property and assets and of which lawyers of the Toronto office of this firm directly involved in the establishment of the Trust and the review of the Trust Indenture are aware.

16 The execution and delivery by the Issuer Trustee of the Trust Indenture, the Related Supplement and each of the Notes and the performance by the Issuer Trustee of its obligations as trustee of the Trust thereunder have been duly authorized by all necessary corporate action on the part of the Issuer Trustee and by all necessary action on the part of the Issuer Trustee in its capacity as trustee of the Trust. 7. No (i) authorization, consent or approval of, or recording, registration or filing with or notice or other action to, any governmental authority, regulatory body or other office of public record, in the Province of Ontario except such as have been completed prior hereto; or (ii) consent or approval of any person under the Declaration of Trust, the Administration Agreement or the Agency Agreement is required to be obtained or made in connection with the execution or delivery by the Issuer Trustee of the Trust Indenture, the Related Supplement or any of the Notes or the performance by the Issuer Trustee of its obligations as trustee of the Trust thereunder. 8. The Trust Indenture and the Related Supplement have each been duly executed and delivered by the Issuer Trustee and constitutes a legal, valid and binding obligation of the Issuer Trustee, as trustee of the Trust, enforceable against it in accordance with its terms. 9. The Notes, when issued in the form of the specimen copy of the Notes set out in the Related Supplement and duly executed by manual or facsimile signature of the Issuer Trustee, and duly certified by manual or facsimile signature of one of the NIP Agent s duly authorized signing officers and delivered for value, will be legal, valid and binding obligations of the Trust enforceable against the Trust in accordance with their terms, subject to the Trust Indenture and the Related Supplement. 10. The French language version of the Notes is in all material respects a complete and proper translation of the English language version thereof and such French language version is not susceptible of any materially different interpretation with respect to any material matter contained therein. B. Securities Laws The Trust may either directly or through agents (which agents, however, must be either registered dealers or exempt from the registration requirement in the case of sales of Notes in the Provinces of Newfoundland and Labrador, Ontario, Québec and Saskatchewan): (a) offer and sell the Notes in the Provinces of Alberta, Manitoba, Newfoundland and Labrador, Ontario and Prince Edward Island

17 - 6 - provided that if the purchaser is an individual resident in any of such Provinces the denomination or principal amount of each Note purchased by such individual is not less than $50,000 in Canadian funds or its equivalent in United States funds; (b) offer and sell the Notes in the Province of Saskatchewan, provided that: (i) at the time of distribution, the Notes have a rating at or above one of the following rating categories (each an Approved Credit Rating ) or a category that replaces one of the following ratings: Rating Agency Rating Dominion Bond Rating Service Limited R-1 (low) Fitch Ratings F1 Moody s Investors Service P-1 Standard & Poor s A-1 (low) issued by a credit rating organization shown above (each an Approved Credit Rating Organization ); and (ii) there has been no announcement by an Approved Credit Rating Organization that the rating of the Note to which the Approved Credit Rating was given may be down-graded to a rating category that would not be an Approved Credit Rating and no Approved Credit Rating Organization has rated the Notes in a rating category that is not an Approved Credit Rating; (c) (d) offer and sell the Notes to the public in the Province of Québec provided that Notes distributed to offerees or purchasers who are natural persons resident in the Province of Québec must be for a sum of at least $50,000 in Canadian funds or its equivalent in United States funds and the Information Memorandum and any other disclosure document delivered to offerees and purchasers are filed without delay with the Autorité des marchés financiers du Québec; offer and sell the Notes to purchasers to whom the laws of the Province of New Brunswick apply or to purchasers who are

18 - 7 - individuals to whom the laws of the Province of Nova Scotia apply, provided that: (i) at the time of distribution, the Notes have a rating at or above one of the following rating categories (each an "Approved Credit Rating") or a category that replaces one of the following ratings: Rating Agency Rating Dominion Bond Rating Service Limited R-1 (Low) Fitch Ratings F1 Moody s Investors Service P-1 Standard & Poor s A-1 (Low) issued by a credit rating organization shown above (each an "Approved Credit Rating Organization") for the Notes ; (ii) (iii) there has been no announcement by an Approved Credit Rating Organization that the rating of the Notes to which the Approved Credit Rating was given may be down-graded to a rating category that would not be an Approved Credit Rating and no Approved Credit Rating Organization has rated the Notes in a rating category that is not an Approved Credit Rating; and for purchasers to whom the laws of the Province of Nova Scotia apply, (a) the denomination or principal amount of each Note purchased by such individual is not less than $50,000 in Canadian funds or its equivalent in United States funds, and (b) the Information Memorandum is accompanied by a description of the right of action granted by the Securities Act (Nova Scotia) to purchasers in the Province of Nova Scotia who purchase Notes in reliance upon a misrepresentation contained in the Information Memorandum; and (e) offer and sell the Notes in the Province of British Columbia, provided that, if the purchaser is an individual at the time of the trade of the Notes:

19 - 8 - (i) (ii) the denomination or principal amount of each Note purchased by such individual is not less than $50,000 in Canadian funds or its equivalent in United States funds; each Note has a credit rating equal to or greater than: Rating Agency Rating Canadian Bond Rating Service Inc. A-1 (low) Dominion Bond Rating Service Limited R-1 (low) Moody s Investors Service, Inc. P-1 Standard & Poor s Corporation A-1 (iii) the person trading does not know or ought not reasonably to know that there has been an announcement by the rating agency that the rating may be down-graded to a level below the level indicated in subparagraph (ii) without making any filing under, or registering with, any governmental or public body or authority pursuant to the securities legislation in such Provinces, except as set out in paragraph (c) above. C. Eligibility for Investment 1. Subject to the general limitations and restrictions as set forth in the Acts and Regulations referred to below as to the amount of funds which may be invested in any one investment or type or class of investment and applicable general investment provisions and quantitative and other restrictions found in such legislation and based upon and subject to the foregoing, the Notes are, at the date hereof, investments: (a) in which the provisions of The Insurance Companies Act (Canada) and the Regulations thereunder would not, subject to compliance with the prudent standards for investment contained therein, preclude a company (within the meaning of such Act) or a foreign company (within the meaning of such Act) which has, in each case, obtained the requisite order from the Superintendent (as defined therein), from investing its assets in, other than assets of a segregated fund maintained pursuant to such Act, provided that the investment by

20 - 9 - each such company in the Notes is not inconsistent with the prudent investment and lending policies, standards and procedures required to be established and adhered to by each such company under such Act and further provided that, with respect to a foreign company, such investment is also in compliance with the provisions contained in the trust deed by which it created the requisite trust for the purpose of obtaining the abovementioned order from the Superintendent; (b) (c) (d) (e) in which pursuant to the provisions of the Trust and Loan Companies Act (Canada) and the Regulations thereunder would not, subject to compliance with prudent standards for investment and lending contained therein, preclude a company (within the meaning of such Act) which has obtained, or is deemed to have obtained, the requisite order from the Superintendent (as defined therein) from investing its funds, other than money or assets held in trust by such company which do not constitute guaranteed trust money or assets held in respect thereof and provided that the investment by such company in the Notes is not inconsistent with the prudent investment policies, standards and procedures required to be established and adhered to by such company under such Act; in which the provisions of Schedule III to the Pension Benefits Standards Regulations, 1985 made pursuant to the Pension Benefits Standards Act, 1985 (Canada) would not, subject to compliance with the prudent standards for investment contained therein, preclude a pension plan registered under that Act from investing its funds, provided that the investment in the Notes by the plan is not inconsistent with any statement of investment policies and procedures that has been established and filed by the administrator (as defined therein) of such plan; in which the provisions of the Cooperative Credit Associations Act (Canada) would not, subject to compliance with the prudent standards for investment and lending contained therein, preclude an association (within the meaning of such Act) which has obtained, or is deemed to have obtained, the requisite order from the Superintendent (as defined therein) from making, provided that the investment by such association in the Notes is not inconsistent with the prudent investment policies, standards and procedures required to be established and adhered to by such association under such Act; in which the provisions of the Bank Act (Canada) would not, subject to compliance with the prudent standards for investment and lending contained therein, preclude a bank to which such Act applies which

21 has obtained, or is deemed to have obtained, the requisite order from the Superintendent (as defined therein) from making, provided that the investment by such bank in the Notes is not inconsistent with the prudent investment policies, standards and procedures required to be established and adhered to by such bank under such Act; (f) (g) (h) (i) in which the provisions of the Financial Institutions Act (British Columbia) and the Regulations thereunder would not, subject to compliance with prudent standards as contemplated by such Act, preclude a financial institution (as defined in such Act) from making an investment on the date hereof, provided that (i) the investment by such financial institution in the Notes is consistent with the written investment and lending policy adopted by such financial institution in accordance with such Act; (ii) the Trust is not a related party (as defined in such Act) of such financial institution; and (iii) such investment would not result in such financial institution, or any of its subsidiaries, or any combination of such financial institution and its subsidiaries, acquiring, holding or controlling, whether directly or indirectly, more than a 10% interest in the Trust; in which the provisions of the Pension Benefits Standards Act (British Columbia) and the Regulation thereunder would not, subject to compliance with the prudent standards for investment contained therein, preclude the funds of a pension plan registered thereunder and which has filed a statement of investment policies and procedures, from being invested, provided that the Notes are within a category of investment specifically permitted or for which guidelines have been established in such plan s statement of investment policies and procedures; in which the provisions of the Loan and Trust Corporations Act (Alberta) and the Regulations thereunder would not, subject to compliance with the prudent standards for investment contained therein for a provincial corporation (as defined in that Act) including investment decisions and managing its total investments, and the policies and procedures established by that provincial corporation in that regard, preclude a loan corporation or a trust corporation incorporated or continued under such Act from investing the funds which it receives as deposits; in which the provisions of the Insurance Act (Alberta) and the Regulations thereunder would not, subject to compliance with the prudent investment standards contained therein for a provincial company (as defined in that Act) making investment decisions and

22 managing its total investments, and the policies and procedures established by the board of directors of such provincial company in that regard, preclude a provincial company from investing its funds in the Notes; (j) (k) (l) (m) in which the provisions of the Alberta Heritage Savings Trust Fund Act and the Regulations thereunder would not, subject to compliance with the investment and lending policies, standards and procedures that a reasonable and prudent person would apply in respect of a portfolio of investments to avoid undue risk of loss and obtain a reasonable return that will enable the endowment portfolio and the transition portfolio that comprise the Alberta Heritage Savings Trust Fund (the Fund ) to meet their respective prescribed objectives, preclude the Fund from investing the assets of the Fund; in which the provisions of the Trustee Act (Alberta) would not preclude a trustee (as defined in such Act) from investing trust funds, provided that such investment is made (i) with a view to obtaining a reasonable return while avoiding undue risk, having regard to the circumstances of the trust; and (ii) in compliance with the other considerations enumerated in that Act; in which the provisions of the Financial Administration Act (Alberta) and the Regulations thereunder would not, subject to compliance with the investment and lending policies, standards and procedures that a reasonable and prudent person would apply in respect of a portfolio of investments to avoid undue risk of loss and obtain a reasonable return, preclude the funds set out in such Act from investing in the Notes; in which the provisions of the Employment Pension Plans Act (Alberta) and the Employment Pension Plans Regulation (the "Regulation") made thereunder would not preclude the administrator (as defined in the Act) of a pension plan from investing the assets of that pension plan, provided that such investment is made in accordance with the requirements of (i) Schedule III to the Pension Benefits Standards Regulations, 1985 (made pursuant to the Pension Benefits Standards Act, 1985 (Canada); (ii) the investment policies and procedures in respect of the pension plan's portfolio of investments and loans established by the administrator of that pension plan pursuant to the Regulation; and (iii) the fiduciary obligations owed by the administrator as a result of the administrator acting in a fiduciary capacity in relation to members, former members and others entitled to benefits under the plan and in a manner that a reasonable and prudent person would apply to a

23 pension plan's portfolio of investments having regard to the pension plan's liabilities; (n) in which the provisions of The Pension Benefits Act, 1992 (Saskatchewan) and the Regulations thereto would not, subject to compliance with the prudent standards for investment contained therein, preclude a pension a plan registered under that Act from investing its funds, provided that the investment in Notes by the plan is not inconsistent with any statement of investment policies and procedures that has been established and filed by the administrator of such plan; (o) in which the provisions of The Trust and Loan Corporations Act, 1997 (Saskatchewan) and the Regulations thereunder would not, subject to compliance with the reasonable and prudent investment standards and the general investment provisions thereof preclude the funds of a corporation, as defined in such Act from being invested; (p) (q) (r) (s) in which The Insurance Act (Manitoba) would not preclude an insurer incorporated and licensed under the laws of the Province of Manitoba from investing its surplus funds and reserves pursuant to the prudent investment policies, standards and procedures applicable to a company which has obtained an order under Section 53 of the Insurance Companies Act (Canada); which will not be precluded as investments for trustees governed by The Trustee Act (Manitoba) subject to compliance with the prudent investment standards of that Act and the regulations thereunder and to any express provision of the law or the will or other instrument creating the trust or defining the duties and powers of the trustees; in which the provisions of The Pension Benefits Act (Manitoba) and the Regulation thereunder would not, subject to compliance with the prudent investment standards described therein, preclude the funds of a pension plan regulated thereunder from being invested provided that such funds are invested or loaned only in accordance with sections 6 to 7.2 and Schedule III of the Pension Benefits Standards Regulations, 1985 made pursuant to the Pension Benefits Standards Act, 1985 (Canada) and the investment in the Notes by the plan is not inconsistent with any statement of investment policies and procedures that has been established and filed by the administrator of such plan; in which the provisions of the Pension Benefits Act (Ontario) and the Regulations thereunder would not, subject to compliance with the

24 prudent standards for investment and the general investment provisions contained therein, preclude a pension plan registered under such Act in respect of which a statement of investment policies and goals has been filed, from investing its funds, provided that the Notes are within a category of investment specifically permitted and for which guidelines are established in such statement and the investment complies with such guidelines; (t) (u) (v) (w) (x) in which the provisions of the Loan and Trust Corporations Act (Ontario) and the Regulations thereunder would not, subject to compliance with the prudent investment standards described therein, preclude a trustee set out in such Act from investing in the Notes; in which the provisions of the Trustee Act (Ontario) and the Regulations thereunder would not, subject to compliance with the prudent investment standards described therein, preclude a trustee set out in such Act from investing in the Notes; which, pursuant to an act respecting insurance (Québec), would not be precluded as investments by an insurer, as defined under such Act (other than a mutual association, a guarantee fund corporation or a professional corporation, in each case as defined in such Act), subject to the prudent investment criteria contained in such Act and to the general investment provisions found therein; which, pursuant to an act respecting trust companies and savings companies (Québec), would not be precluded as investments by a trust or savings company in each case as defined under such Act (other than a trust company with respect to funds (except deposits) which it administers for other persons, unless otherwise provided in the instrument creating the administration), subject to compliance with the prudent investment standards contained in such Act, including the adoption and adherence to an investment policy approved by its board of directors; in which the provisions of the Supplemental Pension Plans Act (Québec) would not, subject to compliance with the prudent standards for investment contained therein, preclude the assets of a pension plan registered pursuant thereto in respect of which a written investment policy conforming to such Act has been adopted, from being invested; provided, however, that the Notes are within a category of investments specifically permitted in the investment policy for such plan applicable at the date of original issue of the Notes;

25 (y) (z) (aa) (bb) (cc) in which the provisions of the Trustees Act (New Brunswick) would not, subject to compliance with the prudent investment provisions thereof, preclude the funds of a trustee from being invested, provided however that the trustee is not otherwise authorized or directed by an express provision of the law or of the will or other instrument creating the trust or defining the trustee s powers and duties; in which the provisions of the Pension Benefits Act (New Brunswick) would not, subject to compliance with the prudent standards for investment contained therein, preclude the funds of a pension plan registered thereunder and which has established and filed a statement of investment policies and goals, from being invested, provided that the Notes are within a category of investment permissible under such plan's statement of investment policies and goals; in which the provisions of the Trustee Act (Nova Scotia) and the Regulations thereunder would not, subject to compliance with the prudent investment standards described therein, preclude a trustee under such Act from investing in the Notes, provided however that the investment is not forbidden by a trust instrument, if one exists; in which the provisions of the Pension Benefits Act (Nova Scotia) and the regulations thereunder would not, subject to compliance with the prudent investment standards contained therein, preclude the funds of a pension plan registered under such Act from being invested, provided that such plan has established and adopted a written statement of investment policies and procedures in respect of the plan s portfolio of investments and loans in accordance with the provisions of such Act and the investments by such plan in the Notes is permissible under, and complies with, such statement; in which the provisions of the Insurance Companies Act (Newfoundland and Labrador) and the Regulations thereunder would not, subject to compliance with the prudent investment standards set out in the Insurance Companies Act (Canada), preclude investment in the Notes; and (dd) in which the provisions of the Pension Benefits Act, 1997 (Newfoundland and Labrador) and the Regulations thereunder would not, subject to the quantitative restrictions set out in such Act, preclude the assets of a pension plan under such Act from investing in the Notes, provided however, that such plan has established and adopted a written statement of investment policies and procedures with respect to the plan s portfolio of investments and loans in accordance with the