1.1 The observer may attend all meetings (including telephone or videoconference meetings) of the Committee as a non-voting observer. The observer may participate fully in the deliberations on any matter under consideration by the Committee, but under no circumstances may the observer (i) be considered a member of the Committee; (ii) have the right to propose or offer motions or resolutions to the commission; or (iii) have the right to vote in respect of motions or resolutions proposed or offered to the Council. Upon request, the Corporation will allow the Observer to attend Board meetings by telephone or electronically. The presence of the observer shall not be taken into account or required for the purpose of establishing a quorum. The Company shall provide the Observer with copies of all communications, minutes, consents and other documents that it makes available to the members of the Board of Directors (collectively, the Board Documents) at the same time and in the same manner as such information is transmitted to the members of the Board. The standard rule in financing is that common shares vote for the election of directors. When preferred shares receive voting rights, the common share conversion ratio is used to determine the number of votes held by preferred shareholders. As we have seen in the «Voting Rights» section, investors generally negotiate the right to elect and elect directors. Specifically, however, they may require the possibility of electing a certain number of seats to the board of directors. The number of board members of the board of directors generally corresponds to the funding stage. In start-up companies, there can be only one director representing the common shareholders and one director representing the class of preferred shares issued. The parties often negotiate the election of a third director, who must be agreed upon or elected by the co-owners and preferred owners. Follow-up funding will usually result in an expansion of the board of directors and a change of current directors.

This can be a point of contention between early-stage and late-stage investors. The Company will wish to consider the reasons for the Investor`s request as well as the possible negative effects of the presence of an additional person (albeit in a non-voting capacity) during the Discussions and Deliberations of the Board. And in practice, the lead investor will want to approve any other investor who is entitled to an observer from the board of directors. Nevertheless, it is common for a company to grant certain large investors compliance rights to the board of directors, subject to certain corporate protection provisions. The agreement should specify how and in what form meetings are to be announced to the observer. In many cases, the agreement provides that the observer is entitled to the same notification as that provided for regular or extraordinary meetings of the Board of Directors or the Committee, as the case may be in accordance with the Statutes of the Society. Nor is there a statutory or customary right to ensure that investors have the right to attend meetings of the board of directors, to have an observer attend meetings of the board or to receive information provided to board members. On the contrary, these types of rights and obligations between the enterprise, the investor and the observer are based solely on contractual arrangements negotiated (or not negotiated) by the parties. Accordingly, there should be reflection and analysis around the creation and negotiation of these rights and obligations.

In all cases, it should be the responsibility of society to determine which information and documents the observer should be protected from and from which meetings (or parts of meetings) the observer should be excluded. The board of directors or a committee acting in good faith should make the decision on behalf of the corporation. Although the Company is responsible for these findings, the observer may still wish to deny the right to receive information or to attend a meeting (or part of it), even if it is not specifically invited to do so. For example, in a situation where the investor is considering an offer to acquire the company or all or part of its assets, or is considering a recapitalization or similar offer, the investor may want to be relieved by confidential information. For example, this will help eliminate complications that can arise when the investor is given constructive knowledge of important information about the company. An observer of the supervisory board should not be considered a trustee of the company whose board of directors he observes solely by virtue of his role as an observer. The imposition of fiduciary duties on observers on board would be largely incompatible with the corporate law basis of fiduciary duties. The company`s fiduciary duties derive from the concepts of trust – a party that manages an asset for the benefit of another party is bound by standards of diligence and fairness in managing assets for the beneficiary.

Under company law, the affairs of the company are managed by or under the direction of the board of directors, and the directors have fiduciary duties to the shareholders as the remaining beneficiaries of the company in the performance of their duties. . . .

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