Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Dual application for exemptive relief in relation to proposed distributions of securities by issuer by way of a committed equity facility (also known as an "equity line of credit") -- An equity line of credit is a type of financing which permits a public company to require, at a time or times of its choosing, that a purchaser purchase newly issued securities of the company at a discount to the market price of the securities at the time of the draw down -- the purchaser will generally finance its purchase commitments and offset market risk through short sales, resales or other hedging transactions in the secondary market during the pricing period with a view to monetizing the spread between the discounted purchase price and the market price -- a draw down under an equity line may be considered to be an indirect at-the-market distribution of securities of the issuer to investors in the secondary market through the equity line purchaser acting as underwriter -- purchaser requires dealer registration relief -- issuer and purchaser require prospectus form and prospectus delivery relief -- issuer will file shelf prospectus which will qualify resales, short sales and other hedging transactions by purchaser over a specified period -- relief granted to the issuer and purchaser from certain registration and prospectus requirements, subject to terms and conditions, including restrictions on the number of securities that may be distributed under an equity line in any 12-month period, certain restrictions on the permitted activities of the purchaser, timely disclosure of each draw down, and certain notification and disclosure requirements.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, ss. 25(1), 25(2), 71(1), 71(2), 74(1), 147.

National Instrument 44-101 Short Form Prospectus, s. 8.1.

Form 44-101 Short Form Prospectus, item 20.

National Instrument 44-102 Shelf Distributions, ss. 5.5.2, 5.5.3, 11.1.

TRANSLATION

June 23, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the "Jurisdictions")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

LAB RESEARCH INC. ("LAB" or

the "Corporation"), DUTCHESS OPPORTUNITY

CAYMAN FUND, LTD. (the "Purchaser") AND

DUTCHESS CAPITAL MANAGEMENT II, LLC

(the "Manager" and, together with the

Corporation and the Purchaser, the "Filers")

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each, a "Decision Maker") has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (collectively, the "Legislation"):

(a) that the following prospectus disclosure requirements under the Legislation (the "Prospectus Disclosure Requirements") do not fully apply to the Corporation in connection with the Distribution (as defined below):

(i) the statement in the Prospectus Supplement (as defined below) respecting statutory rights of withdrawal and rescission in the form prescribed by item 20 of Form 44-101F1 of Regulation 44-101 respecting Short Form Prospectus Distributions ("Regulation 44-101"); and

(ii) the statements in the Base Shelf Prospectus (as defined below) required by subsections 5.5(2) and (3) of Regulation 44-102 respecting Shelf Distributions ("Regulation 44-102");

(b) that the prohibition from acting as a dealer unless the person is registered as such (the "Dealer Registration Requirement") does not apply to the Purchaser and the Manager in connection with the Distribution; and

(c) that the requirement that a dealer send a copy of the Prospectus (as defined below) to a subscriber or purchaser in the context of a distribution (the "Prospectus Delivery Requirement") does not apply to the Purchaser, the Manager or the dealer(s) through whom the Purchaser sells the Shares (as defined below) and that, as a result, rights of withdrawal or rights of rescission, price revision or damages for non-delivery of the Prospectus do not apply in connection with the Distribution,

(collectively, the "Exemptive Relief Sought").

Furthermore, the Decision Makers have received an application from the Filers for a decision that the application, its supporting materials, the subsequent correspondence and the decision be declared inaccessible and kept confidential until the earlier of:

(a) the date the Corporation publicly announces by way of a press release the execution of the Distribution Agreement (as defined below);

(b) the date the Corporation advises the principal regulator that there is no longer a need for the application, its supporting materials, the subsequent correspondence and the decision to remain inaccessible and confidential; and

(c) 90 days after the date of this decision (the "Confidentiality Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):

(a) the Autorité des marchés financiers is the principal regulator for this application;

(b) the Filers have provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System ("Regulation 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince-Edward-Island and Newfoundland and Labrador; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

The Corporation

1. LAB is incorporated under the Canada Business Corporations Act and its head office is located at 445 Armand-Frappier Blvd. in Laval, Québec.

2. LAB is a non-clinical contract research organization that provides contract research primarily to pharmaceutical and biotechnology industries.

3. LAB is a reporting issuer under the securities legislation of each of the provinces of Canada and is not in default of the securities legislation of any jurisdiction of Canada.

4. LAB's authorized share capital currently consists of an unlimited number of common shares (the "Shares"), without par value, and an unlimited number of preferred shares, without par value, issuable in series. As at May 31, 2010, 52,710,750 Shares and no preferred shares were issued and outstanding.

5. The Shares are listed for trading on the Toronto Stock Exchange (the "TSX"). Based on their closing price of $0.30 on May 31, 2010, the current market capitalization of LAB is approximately $16 million.

6. LAB is qualified to file a short form prospectus under section 2.2 of Regulation 44-101 and therefore is also qualified to file a base shelf prospectus under Regulation 44-102.

7. LAB intends to file with the securities regulator in each of the provinces of Canada a base shelf prospectus pertaining to various securities of the Corporation, including the Shares (such base shelf prospectus and any amendment thereto, the "Base Shelf Prospectus").

8. The statements required by subsections 5.5(2) and (3) of Regulation 44-102 contained in the Base Shelf Prospectus will be qualified by adding the following statement: ", except in cases where an exemption from such delivery requirements has been obtained.".

The Purchaser and the Manager

9. The Purchaser is an investment fund established as a Cayman Islands exempt limited partnership and its head office is located at Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

10. The Purchaser is managed by the Manager, a limited liability corporation incorporated under the laws of Delaware, having its head office at 50 Commonwealth Ave, Suite 2, Boston, Massachusetts, USA. The Manager is an affiliate of the Purchaser under applicable securities laws.

11. Neither the Purchaser nor the Manager is a reporting issuer or registered as a registered firm as defined in Regulation 31-103 respecting Registration Requirements and Exemptions in any jurisdiction of Canada. The Purchaser and the Manager are not in default of securities legislation in any jurisdiction of Canada.

The Distribution Agreement

12. LAB proposes to enter into an equity line facility agreement with the Purchaser (the "Distribution Agreement") pursuant to which the Purchaser will agree to subscribe for, and the Corporation will have the right but not the obligation to issue and sell, up to $10 million of Shares (the "Aggregate Commitment Amount") over a period of 24 months in a series of drawdowns.

13. Under the Distribution Agreement, the Corporation will have the sole ability to determine the timing and the amount of each drawdown, subject to certain conditions, including a maximum investment amount per drawdown and the Aggregate Commitment Amount.

14. The subscription price per Share and therefore the number of Shares to be issued to the Purchaser for each drawdown will be calculated based on a predetermined percentage discount from the lowest daily volume-weighted average price per Share on the TSX over a period of five consecutive trading days following a drawdown notice sent by the Corporation (the "Drawdown Pricing Period"). Specifically, the Shares will be issued at a subscription price equal to the lowest daily volume-weighted-average price per Share on the TSX during the Drawdown Pricing Period multiplied by 97 %. LAB may fix in such drawdown notice a minimum subscription price below which it will not issue any Shares. The Corporation and the Purchaser can mutually agree in writing to amend the minimum price set forth in a drawdown notice during the applicable Drawdown Pricing Period. Notwithstanding the foregoing, the subscription price per Share may not be lower than the volume-weighted average price per Share on the TSX over a period of five consecutive trading days immediately preceding the applicable drawdown notice, less the permitted discount under the private placement rules contained in the TSX Company Manual (the "Floor Price").

15. On the 7th trading day following the date of each drawdown notice (each, a "Settlement Date"), the amount of the drawdown will be paid by the Purchaser in consideration for the relevant number of newly issued Shares.

16. The Distribution Agreement will provide that, at the time of each drawdown notice and at each Settlement Date, the Corporation will make a representation to the Purchaser that the Base Shelf Prospectus, as supplemented (the "Prospectus"), contains full, true and plain disclosure of all material facts relating to the Corporation and the Shares. The Corporation would therefore be unable to issue, or decide to issue, Shares when it is in possession of undisclosed information that would constitute a material fact or a material change.

17. On or after each Settlement Date, the Purchaser may seek to sell all or a portion of the Shares subscribed under the drawdown.

18. During the term of the Distribution Agreement, the Purchaser and its affiliates, associates or insiders, as a group, will not own at any time, directly or indirectly, Shares representing more than 9.9 % of the issued and outstanding Shares.

19. The Purchaser and its affiliates, associates or insiders, will not hold a "net short position" in Shares during the term of the Distribution Agreement. However, the Purchaser may, after the receipt of a drawdown notice, seek to short-sell Shares to be subscribed for under the drawdown, or engage in hedging strategies, in order to reduce the economic risk associated with its commitment to subscribe for Shares, provided that:

(a) the Purchaser complies with applicable rules of the TSX and applicable securities regulation;

(b) the Purchaser and its affiliates, associates or insiders, will not during the period between a drawdown notice and the corresponding Settlement Date, directly or indirectly, sell Shares or grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertible into or exchangeable for Shares, in an amount exceeding the number of Shares to be subscribed by the Purchaser under the applicable drawdown; and

(c) notwithstanding the foregoing, the Purchaser and its affiliates, associates or insiders, will not, directly or indirectly, sell Shares or grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertible into or exchangeable for, any Shares, between the time of delivery of a drawdown notice and the filing of the press release announcing the drawdown.

20. No extraordinary commission or consideration will be paid by the Purchaser or the Manager to a person or company in respect of the disposition of Shares by the Purchaser to the purchasers who purchase the same on the TSX through dealer(s) engaged by the Purchaser (the "TSX Purchasers").

21. The Purchaser and the Manager will also agree, in effecting any disposition of Shares, not to engage in any sales, marketing or solicitation activities of the type undertaken by underwriters in the context of a public offering. More specifically, each of the Purchaser and the Manager will not (a) advertise or otherwise hold itself out as a dealer, (b) purchase or sell securities as principal from or to customers, (c) carry a dealer inventory in securities, (d) quote a market in securities, (e) extend, or arrange for the extension of, credit in connection with transactions of securities of the Corporation, (f) run a book of repurchase and reverse repurchase agreements, (g) use a carrying broker for securities transactions, (h) lend securities for customers, (i) guarantee contract performance or indemnify the Corporation for any loss or liability from the failure of the transaction to be successfully consummated, or (j) participate in a selling group.

22. The Purchaser and the Manager will not solicit offers to purchase Shares in any jurisdiction of Canada and will sell the Shares to TSX Purchasers through one or more dealer(s) unaffiliated with the Purchaser, the Manager and LAB.

The Prospectus Supplements

23. LAB intends to file with the securities regulator in each of the provinces of Canada a prospectus supplement to the Base Shelf Prospectus (each, a "Prospectus Supplement") within two business days after the Settlement Date for each drawdown under the Distribution Agreement.

24. The Prospectus Supplement will include (i) the number of Shares issued to the Purchaser, (ii) the price per Share paid by the Purchaser, (iii) the information required by Regulation 44-102, including the disclosure required by subsection 9.1(3) of Regulation 44-102, and (iv) the following statement:

Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment are not delivered to the purchaser, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. However, such rights and remedies will not be available to purchasers of common shares distributed under this prospectus because the prospectus will not be delivered to purchasers, as permitted under a decision document issued by the Autorité des marchés financiers on June 23, 2010.

The securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contain a misrepresentation, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. Such remedies remain unaffected by the non-delivery of the prospectus, as permitted under the decision document referred to above.

The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province for the particulars of these rights or consult with a legal adviser.

(the "Amended Statement of Rights")

25. The Base Shelf Prospectus, as supplemented by each Prospectus Supplement, will qualify (a) the distribution of Shares to the Purchaser on the Settlement Date, and (b) the disposition of Shares to TSX Purchasers during the period that commences on the date of issuance of a drawdown notice and ends on the earlier of (i) the date on which the disposition of such Shares has been completed or (ii) the 40th day following the relevant Settlement Date (collectively, the "Distribution").

26. The Prospectus Delivery Requirement is not workable in the context of the Distribution because the TSX Purchasers will not be readily identifiable as the dealer(s) acting on behalf of the Purchaser may combine the sell orders made under the Prospectus with other sell orders and the dealer(s) acting on behalf of the TSX Purchasers may combine a number of purchase orders.

27. The Prospectus Supplement will contain an underwriter's certificate in the form set out in section 2.2 of Appendix B to Regulation 44-102 signed by the Purchaser.

28. At least three business days prior to the filing of any Prospectus Supplement, the Corporation will provide for comment to the Decision Makers a draft of such Prospectus Supplement.

Press Releases / Continuous Disclosure

29. Following the execution of the Distribution Agreement, the Corporation will:

(a) promptly issue and file a press release on SEDAR disclosing certain terms of the Distribution Agreement, including the Aggregate Commitment Amount; and

(b) within ten days after said execution:

(i) file a copy of the Distribution Agreement on SEDAR; and

(ii) file a material change report on SEDAR disclosing at a minimum the information required in subparagraph (a) above.

30. The Corporation will promptly issue and file a press release on SEDAR upon the issuance of each drawdown notice, disclosing the aggregate amount of the drawdown, the maximum number of Shares to be issued, the minimum price per Share, if any, and the Floor Price.

31. The Corporation will promptly issue and file a press release on SEDAR upon amending the minimum price set forth in a drawdown notice disclosing the amended minimum price per Share and the maximum number of Shares to be issued.

32. The Corporation will :

(a) issue and file a press release on SEDAR on, or as soon as practicably possible after, the last day of the Drawdown Pricing Period, disclosing:

(i) the number of Shares issued to, and the price per Share paid by, the Purchaser;

(ii) that the Base Shelf Prospectus and the relevant Prospectus Supplement will be available on SEDAR and specifying how a copy of these documents can be obtained; and

(iii) the Amended Statement of Rights; and

(b) file a material change report on SEDAR within ten days of the Settlement Date, if the relevant Distribution constitutes a material change under applicable securities legislation, disclosing at a minimum the information required in subparagraph (a) above.

33. The Corporation will also disclose in its financial statements and MD&A filed on SEDAR, for each financial period, the number and price of Shares issued to the Purchaser pursuant to the Distribution Agreement.

Deliveries upon Request

34. The Corporation will deliver to the Decision Makers and to the TSX, upon request, a copy of each drawdown notice delivered by the Corporation to the Purchaser under the Distribution Agreement.

35. The Purchaser and the Manager will make available to the Decision Makers, upon request, full particulars of trading and hedging activities by the Purchaser or the Manager (and, if required, trading and hedging activities by their respective affiliates, associates or insiders) in relation to securities of the Corporation during the term of the Distribution Agreement.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemptive Relief Sought is granted, provided that:

(a) as it relates to the Prospectus Disclosure Requirements:

(i) the Corporation comply with the representations in paragraphs 8, 24, 25, 29, 30, 31, 32 and 34; and

(ii) the number of Shares distributed by the Corporation under the Distribution Agreement does not exceed:

(A) in any 12 month period, 10 % of the aggregate number of Shares outstanding calculated at the beginning of such period; and

(B) during the term of the Distribution Agreement, 25 % of the aggregate number of Shares outstanding calculated at the date of the Distribution Agreement;

(b) as it relates to the Prospectus Delivery Requirement and the Dealer Registration Requirement, the Purchaser and/or the Manager, as the case may be, comply with the representations in paragraphs 19, 20, 21, 22, 27 and 35; and

(c) this decision will terminate 24 months after the execution of the Distribution Agreement.

"Jean Daigle"
Director, Corporate Finance
 
"Mario Albert"
Superintendent, Client Services, Compensation and Distribution

Furthermore, the decision of the principal regulator is that the Confidentiality Sought is granted.

"Benoit Longtin"
Interim Corporate Secretary