indigo books & music inc. notice of annual and special ... · appointment of proxies if you do...

Indigo Books & Music Inc.Notice of Annual and Special Meeting

of Shareholders

NOTICE IS HEREBY GIVEN that the annual and special meeting of the shareholders of Indigo Books & MusicInc. (the “Corporation”) will be held at Torys LLP, 79 Wellington Street West, 33rd floor, Toronto, Ontario, on the 25th

day of June, 2013, commencing at 10:00 a.m. (Toronto time), for the following purposes:

1. to receive the financial statements of the Corporation for the fiscal year ended March 30, 2013, together withthe report of the auditor on the financial statements;

2. to elect directors for the ensuing year;

3. to appoint an auditor for the ensuing year and to authorize the directors to fix the remuneration to be paid tothe auditor;

4. to consider, and if thought advisable, to pass with or without variation, an ordinary resolution amending theCorporation’s employee stock option plan (the “Stock Option Plan”) (i) to specify when shareholder approvalof amendments is required, and (ii) to increase the number of common shares of the Corporation (“Shares”)reserved for issuance to an amount equal to 15% of the issued and outstanding Shares, less 500,000 Shares;

5. to consider, and if thought advisable, to pass with or without variation, an ordinary resolution approving theCorporation’s voluntary stock option buyback program;

6. to consider, and if thought advisable, to pass with or without variation, an ordinary resolution approving allunallocated options under the Stock Option Plan;

7. to consider, and if thought advisable, to pass with or without variation, an ordinary resolution amending theCorporation’s deferred share unit plan (“DSU Plan”) to increase the number of Shares available for issuancepursuant to the redemption of deferred share units (“DSUs”) by 150,000 Shares to 500,000 Shares;

8. to consider, and if thought advisable, to pass with or without variation, an ordinary resolution approving allunallocated DSUs under the DSU Plan;

9. to transact such other business as may properly come before the meeting or any adjournment of the meeting.

DATED at Toronto this 24th day of May, 2013.

By Order of the Board of Directors

Kay BrekkenChief Financial Officer

If you are not able to be present at the meeting, please exercise your right to vote either by (a) signing andreturning the form of proxy to Indigo Books & Music Inc., c/o CIBC Mellon Trust Company, at P.O. Box 721,Agincourt, Ontario, M1S 0A1, or by facsimile: (416) 368-2502 or by toll free facsimile: 1 (866) 781-3111 or by emailto [email protected], so as to arrive not later than 10:00 am (Toronto time) on June 21, 2013 or, if the meeting isadjourned, 48 hours (excluding Saturdays and holidays) before any adjourned meeting, or (b) by completing therequest for voting instructions in accordance with the directions provided.

Indigo Books & Music Inc.Management Information Circular

Dated May 24, 2013

SOLICITATION OF PROXIES AND VOTING INSTRUCTIONS

The information contained in this management information circular is furnished in connection with the solicitationof proxies from registered owners of common shares of Indigo Books & Music Inc. (the “Company”, “Corporation”,“Indigo,” “we,” “our” and “us,” as the context requires) (the “Shares”) (and of voting instructions in the case ofnonregistered owners of Shares) to be used at the annual and special meeting of shareholders of the Corporation to beheld on the 25th day of June, 2013, at 10:00 a.m. (Toronto time) at Torys LLP, 79 Wellington Street West, 33rd floor,Toronto, Ontario, Canada and at all adjournments of the meeting, for the purposes set forth in the accompanying noticeof meeting. It is expected that the solicitation will be made primarily by mail, but proxies and voting instructions mayalso be solicited personally by our employees. The solicitation of proxies and voting instructions by this circular isbeing made by or on behalf of our management. The total cost of the solicitation of proxies and voting instructionswill be borne by us. The information contained in this circular is given as at May 24, 2013, except where otherwisenoted.

REGISTERED OWNERS

If you are a registered owner of Shares, you may vote in person at the meeting or you may appoint another personto represent you as proxyholder and vote your Shares at the meeting. If you wish to attend the meeting, do not completeor return the enclosed form of proxy because you will vote in person at the meeting. Please register with the transferagent, CIBC Mellon Trust Company, when you arrive at the meeting. Canadian Stock Transfer Company Inc. acts asthe Administrative Agent for CIBC Mellon Trust Company.

Appointment of Proxies

If you do not wish to attend the meeting, you should complete and return the enclosed form of proxy. Theindividuals named in the form of proxy are representatives of our management and are directors and officers of theCorporation. You have the right to appoint someone else to represent you at the meeting. If you wish to appointsomeone else to represent you at the meeting, insert that other person’s name in the blank space in the form of proxy.The person you appoint to represent you at the meeting need not be a shareholder of the Corporation.

To be valid, proxies must be deposited with Indigo Books & Music Inc. either by using the enclosed returnenvelope or by mailing the proxy to Indigo Books & Music Inc., c/o CIBC Mellon Trust Company, at P.O. Box 721,Agincourt, Ontario, M1S 0A1, or by facsimile: (416) 368-2502 or by toll free facsimile: 1 (866) 781-3111 or by emailto [email protected], not later than 10:00 am (Toronto Time) on June 22, 2013, or, if the meeting is adjourned,48 hours, (excluding Saturdays and holidays) before any adjourned meeting.

Revocation

If you have submitted a proxy and later wish to revoke it you can do so by:

(a) completing and signing a form of proxy bearing a later date and depositing it with Indigo Books & MusicInc., c/o CIBC Mellon Trust Company as described above;

(b) depositing a document that is signed by you (or by someone you have properly authorized to act on yourbehalf): (i) at our registered office at 468 King Street West, Suite 500, Toronto, Ontario, Canada, M5V 1L8at any time up to the last business day preceding the day of the meeting, or any adjournment of the meeting,at which the proxy is to be used; or (ii) with the chair of the meeting before the meeting starts on the day ofthe meeting or any adjournment of the meeting;

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I N D I G O B O O K S & M U S I C I N C .

(c) electronically transmitting your revocation in a manner permitted by law, provided that the revocation isreceived: (i) at our registered office at 468 King Street West, Suite 500, Toronto, Ontario, Canada, M5V 1L8at any time up to and including the last business day preceding the day of the meeting, or any adjournment ofthe meeting, at which the proxy is to be used; or (ii) by the chair of the meeting before the meeting starts onthe day of the meeting or any adjournment of the meeting; or

(d) following any other procedure that is permitted by law.

Voting of Proxies

In connection with any ballot that may be called for, the management representatives designated in the enclosedform of proxy will vote or withhold from voting your Shares in accordance with the instructions you have indicated onthe proxy and, if you specify a choice with respect to any matter to be acted upon, the Shares will be voted accordingly.In the absence of any direction, your Shares will be voted by the management representatives (i) FOR theelection of each director, (ii) FOR the appointment of the auditor, (iii) FOR the amendments to theCorporation’s employee stock option plan (the “Stock Option Plan”), (iv) FOR the voluntary stock optionbuyback program (the “Option Buyback Program”), (v) FOR the unallocated stock options under the StockOption Plan, (vi) FOR the amendments to the Corporation’s deferred share unit plan (the “DSU Plan”), and(vii) FOR the unallocated deferred share units (“DSUs”) under the DSU Plan, all as more particularly describedlater in this circular.

The management representatives designated in the enclosed form of proxy have discretionary authority withrespect to amendments to or variations of matters identified in the notice of meeting and with respect to other mattersthat may properly come before the meeting. At the date of this circular, our management knows of no suchamendments, variations or other matters.

NON-REGISTERED OWNERS

If your Shares are registered in the name of a depository (such as CDS Clearing and Depository Services Inc. or“CDS”) or an intermediary (such as a bank, trust company, securities dealer or broker, or trustee or administrator of aself-administered RRSP, RRIF, RESP or similar plan), you are a non-registered owner.

Only registered owners of Shares, or the persons they appoint as their proxies, are permitted to attend and vote atthe meeting. If you are a non-registered owner, you are entitled to direct how the Shares beneficially owned by you areto be voted or you may appoint yourself as proxyholder for the Shares you beneficially own, which will entitle you toattend and vote at the meeting.

In accordance with Canadian securities law, we have distributed copies of the notice of meeting, this managementinformation circular and the 2013 annual report (collectively, the “meeting materials”) to the intermediaries for onwarddistribution to non-registered owners who have not waived their right to receive them. Typically, intermediaries willuse a service company (such as Broadridge Investor Communications Solutions) to forward the meeting materials tonon-registered owners.

The Corporation does not intend to pay for intermediaries to forward the Meeting Materials to objecting beneficialowners under National Instrument 54-101 — Communication with Beneficial Owners of Securities of a ReportingIssuer. The objecting beneficial owner will not receive the materials unless the objecting beneficial owner’sintermediary assumes the cost of delivery.

If you are a non-registered owner and have not waived your right to receive meeting materials, you will receive avoting instruction form with your meeting materials. The purpose of the voting instruction form is to permit you todirect the voting of the Shares you beneficially own. You should follow the procedures set out on the form and contactyour intermediary promptly if you need assistance. If you do not wish to attend the meeting (or have another person

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M A N A G E M E N T I N F O R M A T I O N C I R C U L A R

attend and vote on your behalf), you should complete, sign and return the enclosed voting instruction form inaccordance with the directions provided. If you change your mind and wish to change or revoke your votinginstructions, you should contact your intermediary.

If you wish to attend the meeting and vote in person (or have another person attend and vote on your behalf), youmust insert your name or the name of the person whom you would like to attend the meeting for you in the spaceprovided on the enclosed voting instruction form, sign and return the voting instruction form in accordance with thedirections provided on the form. Do not otherwise complete the form as your vote will be taken at the meeting. You (orthe other person) must register with the transfer agent, CIBC Mellon Trust Company, when you arrive at the meeting.

You should follow the instructions on the document that you have received and contact your intermediary promptlyif you need assistance.

VOTING SHARES

On May 24, 2013, we had 25,297,389 Shares outstanding. Each holder of Shares of record at the close of businesson May 24, 2013, the record date established for notice of the meeting, will be entitled to vote on all matters proposedto come before the meeting on the basis of one vote for each Share held.

PRINCIPAL HOLDERS OF VOTING SECURITIES

To the knowledge of our directors and officers, the only persons or companies who beneficially own or control ordirect, directly or indirectly, securities of the Corporation carrying more than 10% of the voting rights attached to anyclass of outstanding voting securities are indicated below:

Name Number and Class of Securities Percentage of Class

Trilogy Retail Enterprises L.P.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,287,932 common shares 20.90%

Trilogy Investments L.P.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,740,235 common shares 30.60%

Franklin Templeton Investments Corp.(2) . . . . . . . . . . . . . . . . . . . . . . . . 2,586,092 common shares 10.22%

(1) Trilogy Retail Enterprises L.P. and Trilogy Investments L.P. are controlled by Mr. Gerald Schwartz. Mr. Schwartz and Ms. Heather Reisman,assuming the exercise of all options owned or controlled by them, own or control 15,316,865 Shares or 60.55% of the class, on a fully dilutedbasis.

(2) Based on publicly available filings.

ELECTION OF DIRECTORS

The number of directors to be elected at the meeting is nine. The management representatives designated in theenclosed form of proxy intend to vote FOR the election of each of the proposed nominees whose names are set outbelow. All of the nominees are now directors and have been directors since the dates indicated below. Managementdoes not contemplate that any of the proposed nominees will be unable to serve as a director but, if that should occurfor any reason before the meeting, the management representatives designated in the enclosed form of proxy reservethe right to vote for another nominee at their discretion. Each director elected will hold office until the next annualmeeting or until his or her successor is elected or appointed.

The Corporation has not adopted a majority voting policy with respect to uncontested elections of directors. Amajority voting policy generally requires a director who receives more votes withheld than votes for the director totender his or her resignation. Since the Corporation has a controlling shareholder, a majority voting policy would nothave a meaningful effect on an election of the Corporation’s directors because the controlling shareholder can effectthe election of directors with its votes alone. The current process for electing directors complies with corporate andsecurities laws and stock exchange rules, however, as part of it ongoing commitment to corporate governance, theBoard of Directors will continue to consider whether to adopt a majority voting policy in the future.

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We have an Audit Committee, a Human Resources and Compensation Committee, and a Corporate GovernanceCommittee. The members of these committees are indicated below.

Name and Province/State andCountry of Residence

Major Positions withthe Corporation andSignificant Affiliates Principal Occupation

DirectorSince

Ownership, Control orDirection Over VotingSecurities and DSUs(8)

HEATHER REISMAN . . . . . . . . . . .Ontario, Canada

Chair & ChiefExecutive Officerand Director

Chair & Chief ExecutiveOfficer of the Corporation

2001 98,391 common shares

FRANK CLEGG(1),(3),(4) . . . . . . . . . .Ontario, Canada

Director Chairman, Navantis Inc.(custom computer softwareapplication developer)

2005 38,572 DSUs

JONATHAN DEITCHER(2) . . . . . . . .Quebec, Canada

Director Investment Advisor, RBCDominion Securities Inc.(wealth managementcompany)

2001 44,714 DSUs

MITCHELL GOLDHAR . . . . . . . . . .Ontario, Canada

Director President and Chief ExecutiveOfficer, SmartCentres(commercial real estatedevelopment company)

2006 17,127 DSUs

JAMES HALL(1),(2),(3),(5) . . . . . . . . .Ontario, Canada

Director President & CEO, James HallAdvisors Inc. (corporateadvisory firm)

2001 76,813 DSUs

MICHAEL KIRBY(1),(2),(3) . . . . . . . .Ontario, Canada

Lead Director Corporate Director;Chair, Partners for MentalHealth (non-profitorganization created to focusnational attention on mentalhealth issues)

2001 93,869 DSUs

ANNE MARIE O’DONOVAN(3) . . .Ontario, Canada

Director Executive Vice President andChief Administration Officer,Global Banking and Markets,Scotiabank(global corporate andinvestment banking company)

2009 13,956 DSUs

JOEL SILVER(6) . . . . . . . . . . . . . . .Ontario, Canada

Director Managing Partner, TrilogyGrowth (investment firmspecializing in media,technology and retailopportunities)

2011 3,100 common shares

GERALD SCHWARTZ . . . . . . . . . .Ontario, Canada

Director Chairman, Chief ExecutiveOfficer & President, OnexCorporation (diversifiedcompany)

2001 15,218,474 common shares(7)

(1) Member of the Human Resources and Compensation Committee.

(2) Member of the Corporate Governance Committee.

(3) Member of the Audit Committee.

(4) Mr. Clegg functions as the Technology Advisor on the Indigo Board of Directors and receives additional Directors’ compensation in respect ofthis role as shown in the Directors’ Compensation Fee Schedule table on page 32 of this information circular. As Technology Advisor,Mr. Clegg brings an extensive information technology background to the Board of Directors at a point in time when the oversight ofIT governance has become an important responsibility for boards and audit committees.

(5) Mr. Hall was a director of Journal Register Company (a newspaper and multi-media news company) from August 2003 through March 2009. OnFebruary 21, 2009, while Mr. Hall was Chairman and Chief Executive Officer, the company filed a voluntary petition for relief under the U.S.Bankruptcy Code. The company emerged from bankruptcy on August 7, 2009.

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(6) Mr. Silver has been with Trilogy Growth since April 2011. From December 2003 through April 2011, Mr. Silver held the following positions atIndigo Books & Music Inc.: October 2009 through April 2011 – President; April 2007 through October 2009 – Chief Merchant; June 2005through April 2007 – Executive Vice President, Print & Entertainment; December 2003 through June 2005 – Vice President, Print Procurement.

(7) Mr. Schwartz is the principal of Trilogy Retail Enterprises Inc., the general partner of Trilogy Retail Enterprises L.P. (“Trilogy”). Trilogy ownsdirectly or indirectly 13,028,167 common shares (which includes the common shares owned by Trilogy Investments L.P.), representingapproximately 51.50% of the outstanding Shares. Ms. Reisman, who owns directly or indirectly, 98,391 common shares, is Mr. Schwartz’spouse.

(8) The terms of the deferred share units (“DSUs”) are further discussed under the heading “Compensation of Directors” beginning on page 31 ofthis circular.

Summary of Board and Committee Meetings Held in Fiscal 2013

Type of Meeting Number of Meetings

Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

HR and Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Corporate Governance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Total Number of Meetings Held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Summary of Attendance of Directors at Board and Committee Meetings in Fiscal 2013

DirectorBoard Meetings

AttendedCommittee Meetings

Attended

Frank Clegg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 11 of 11

Jonathan Deitcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 1 of 1

Mitchell Goldhar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 of 6 n/a

James Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 12 of 12

Michael Kirby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 12 of 12

Anne Marie O’Donovan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 5 of 5

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 n/a

Joel Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 n/a

Gerald Schwartz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 of 6 n/a

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APPOINTMENT OF AUDITOR

The management representatives designated in the enclosed form of proxy intend to vote FOR the reappointmentof Ernst & Young LLP as our auditor, to hold office until the next annual meeting of shareholders. Ernst & Young LLPhas served as our auditor or our predecessors’ auditor since 1994.

VARIOUS APPROVALS REGARDING THE STOCK OPTION PLAN

Summary of the Stock Option Plan

The Stock Option Plan is intended to benefit the Corporation as it aligns the optionees’ interests with those of ourshareholders. It enables the Corporation to attract and retain personnel of the highest calibre on a cost-effective basisby offering an opportunity for them to participate with shareholders in any increase in value of our Shares resultingfrom their efforts and thereby contribute to our success.

We may grant options to purchase Shares to our officers, full and part-time employees and certain consultants.Directors are not eligible for grants of options. Subject to the overall limit on the number of Shares reserved forissuance under the Stock Option Plan, the maximum number of Shares reserved for issuance pursuant to the exercise ofoptions by any one participant is 5% of the then issued and outstanding Shares. The maximum number of Shares thatmay be issued to any insider and that insider’s associates within any 12-month period may not exceed 5% of the thenissued and outstanding Shares. The aggregate number of Shares issued to insiders of the Corporation within any12-month period, or issuable to insiders of the Corporation at any time, under the Stock Option Plan and any othersecurity based compensation arrangement of the Corporation, may not exceed 10% of the total number of issued andoutstanding Shares of the Corporation at such time. All Shares issued pursuant to the exercise of stock options grantedunder the Stock Option Plan at any time and from time to time and Shares reserved for issuance pursuant to stockoptions which are cancelled or terminated without having been exercised shall be again available for issuance pursuantto stock options granted under the Stock Option Plan.

Certain administrative amendments to the Stock Option Plan may be made by the Board of Directors of theCorporation without shareholder approval, subject to regulatory requirements and provided that the number of Sharesreserved for issuance cannot be increased without shareholder approval. Assuming the changes to the Stock OptionPlan described below are approved, amendments to the Stock Option Plan that may be made without shareholderapproval will include, without limiting the generality of the foregoing: (i) amendments for the purpose of curing anyambiguity, error or omission in the Stock Option Plan or to correct or supplement any provision of the Stock OptionPlan that is inconsistent with any other provision of the Stock Option Plan; (ii) amendments necessary to comply withthe provisions of applicable law (including, without limitation, the rules, regulations and policies of the Toronto StockExchange (“TSX”)); (iii) amendments necessary for awards to qualify for favorable treatment under Canadian tax laws;(iv) amendments to the vesting provisions of the Stock Option Plan or any option; (v) amendments to the earlytermination provisions of the Stock Option Plan or any option, whether or not such option is held by an insider,provided such amendment does not entail an extension beyond the original expiry date for any option held by aninsider; (vi) amendments to extend the term of an option beyond its original expiry date, other than for any option heldby an insider; (vii) the addition or modification of a cashless exercise feature, payable in cash or shares, which providesfor a full deduction of the number of underlying Shares from the Stock Option Plan reserve; and (viii) amendmentsnecessary to suspend or terminate the Stock Option Plan.

Assuming the changes to the Stock Option Plan described below are approved, then shareholder approval will berequired for the following types of amendments: (i) amendments to increase the number of Shares issuable under theStock Option Plan, including an increase to a fixed maximum number of Shares or an increase in the fixed maximumpercentage; (ii) any amendment which reduces the exercise price or purchase price of an option held by an insider;(iii) any amendment to remove or exceed the insider participation limits; (iv) any amendment extending the term of anoption held by an insider beyond its original expiry date except as provided for in the Stock Option Plan; (v) anyamendment to cancel an option for a cash payment equal to the fair market value of such option; and (vi) anyamendments required to be approved by shareholders under applicable law (including, without limitation, the rules,regulations and policies of the TSX).

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The exercise price of an option (as determined by our Board of Directors) may not be lower than the closing priceof the Shares on the TSX on the trading day immediately preceding the date of the grant. The term of an option maynot exceed 10 years from the date of the grant. The Board of Directors determines the time at which options vest whenmaking a grant. Upon the recommendation of the Human Resources and Compensation Committee, the Board ofDirectors approved a change to the stock option vesting schedule on February 8, 2012, such that options grantedthereafter will vest at a rate of 33.3% per year commencing on the anniversary of the date of the grant. Prior toFebruary 8, 2012, options generally vested at a rate of 20% per year, commencing on the anniversary of the date of thegrant. Changes to the stock option vesting schedule were made to align the time required for options to vest with thetime horizon required to realize the results of the Corporation’s strategic plan and to allow for the ongoing renewal ofthe Stock Option Plan.

In the event of the resignation or termination of employment of an optionee, options expire upon the earlier ofthirty days following such resignation or termination or the original expiry date. In the event of the optionee’stermination due to long-term disability, options expire upon the earlier of three months following such termination orthe original expiry date. In the event of the optionee’s death, options expire upon the earlier of one year following thedate of death or the original expiry date.

Options are non-assignable and non-transferable. The Board of Directors may provide for all issued andoutstanding options to vest and become exercisable immediately upon a change of control of the Corporation.

AMENDMENTS TO STOCK OPTION PLAN REQUIRING SHAREHOLDER APPROVAL

The Stock Option Plan’s amendment provision outlines the types of amendments that require shareholderapproval. Currently, the Stock Option Plan requires shareholder approval of certain amendments that are not subject toshareholder approval under the rules and policies of the TSX. In order to provide the Board of Directors with additionalflexibility in administering and amending the Plan, the Corporation believes that changing the amendment provisionsof the Stock Option Plan to be aligned with rules and policies of the TSX is in the best interests of the shareholders ofthe Corporation.

The substantive changes to amendments that can be made without shareholder approval will allow the Corporationto amend the early termination provisions and extend the term of any option held by a non-insider beyond its originalexpiry date.

The substantive changes to amendments requiring shareholder approval are: (i) only an increase in the number ofShares issuable under the Stock Option Plan which will require Shareholder approval (currently any change in thenumber of Shares issuable under the Stock Option Plan is subject to shareholder approval); (ii) approval of a reductionof the exercise price of an option will be limited to options held by insiders; (iii) only an amendment to remove orexceed the insider participation limits requires approval; (iv) deletion of the requirement of shareholder approval forthe addition of a deferred or restricted share unit; and (v) addition of the cancellation of options for a cash paymentequal to the fair market value of such options.

A summary of the Stock Option Plan’s amendment provisions (assuming the changes are approved by a majorityof votes cast by shareholders), is set forth above in the section entitled “Summary of the Stock Option Plan”.

The maximum number of Shares reserved for issuance under the Stock Option Plan is currently equal to 10% ofthe issued and outstanding Shares of the Corporation, less 350,000 Shares (the number of Shares reserved for issuancepursuant to the Corporation’s DSU Plan). The Corporation believes that an amendment to the Stock Option Plan toincrease the number of Shares reserved for issuance under the plan to an amount equal to 15% of the issued andoutstanding Shares of the Corporation, less 500,000 Shares is in the best interests of the Corporation and itsshareholders as it will allow the Corporation to continue to attract and retain personnel of the highest calibre on a cost-effective basis through the grant of stock options.

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At the meeting, shareholders will be asked to consider, and if thought advisable, pass a resolution amending theStock Option Plan as described above.

Recommendation

The Board of Directors has concluded that the proposed amendments to the Stock Option Plan are in the bestinterests of the Corporation and its shareholders. Accordingly, the Board of Directors unanimously recommends thatshareholders entitled to vote on the amendments to the Stock Option Plan vote in favour of such amendments.

The form of the resolution to be put to shareholders is as follows:

“BE IT RESOLVED THAT, AS AN ORDINARY RESOLUTION, WITH OR WITHOUT AMENDMENT:

1. the amendments (i) to the provisions governing amendments to the Stock Option Plan specifying whenshareholder approval of amendments is required and (ii) to increase the number of Shares reserved forissuance to an amount equal to 15% of the issued and outstanding Shares, less 500,000 Shares be adopted;and

2. any director or officer of the Corporation or any other person designated by any one of them be, and each ofthem is, hereby authorized to take such action and to execute and deliver such documents, whether on behalfof or in the name of the Corporation or otherwise, as such person may, in his or her discretion, consider to benecessary or desirable to carry out the intent and purpose of this resolution and the matters/transactionscontemplated herein.”

In order to be effective, the amendments to the Stock Option Plan must be approved by a majority of the votescast at the meeting.

Management recommends voting in favour of the amendments to the Stock Option Plan. The personsnamed in the enclosed form of proxy intend to vote at the meeting FOR the amendments to the Stock OptionPlan, unless otherwise directed by you.

APPROVAL OF THE OPTION BUYBACK PROGRAM

As summarized above, the Corporation maintains the Stock Option Plan for the benefit of its officers, full andpart-time employees and certain consultants. Underwater stock options granted to employees in prior years, underdifferent market conditions for the Corporation, no longer provide the incentive and retentive purpose for which theywere granted. These underwater options which were granted for terms of 10 years, a practice that the Corporation nolonger follows, has resulted in nearly half of the available options under the Stock Option Plan having no reasonableprospect of being exercised. The Corporation believes that the Option Buyback Program is in the best interests of theCorporation and the shareholders as it will allow the Corporation to return underperforming stock options to the pool toallow for the ongoing operation of the Stock Option Plan.

At the meeting, disinterested shareholders will be asked to consider, and if thought advisable, pass a resolutionapproving the Option Buyback Program.

The Option Buyback Program is intended to benefit the Corporation and its shareholders as it allows theCorporation to offer the holders of underwater stock options an opportunity to cancel such options, which have termsremaining of up to 6 years, in exchange for a cash payment, so that the underperforming options may be returned to theoverall pool of available options for the Stock Option Plan.

913,000 options are currently outstanding with an exercise price of $13.00 per Share or greater, held by 53 StockOption Plan participants. Of these options, 493,000 (54.0%) are held by insiders of the Corporation. Neither HeatherReisman, the CEO of the Corporation, nor Gerald Schwartz, who together with Ms. Reisman indirectly control the

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majority of the outstanding Shares of the Corporation, hold any options and did not participate in the Option BuybackProgram. Directors of the Corporation are not eligible to participate in the Stock Option Plan, and therefore nodirectors hold any options.

Participation in the Option Buyback Program was completely voluntary. Stock Option Plan participants holdingstock options with an exercise price of $13.00 or greater were eligible to participate and had a minimum of two weeksto consider whether to participate in the Option Buyback Program and irrevocably surrender their options forcancellation, subject to shareholder approval of the Option Buyback Program. Provided shareholder approval isobtained, participants in the Option Buyback Program will receive a cash payment in respect of each cancelled option.The cash consideration per cancelled option will range from $0.69 to $1.50, as determined by an independent thirdparty valuator from an actuarial firm applying a binomial valuation model. 908,000 of the 913,000 eligible optionswere surrendered and will be cancelled under the Option Buyback Program. The aggregate cash cost of the OptionBuyback Program is $1,017,365. The total cash cost of payments to eight insiders is $552,940, and to non-insiders is$464,425, with no individual receiving a payment of more than $109,600.

The Corporation may grant new options to certain participants under the Stock Option Plan within three months ofreceiving shareholder approval for the Option Buyback Program. There will be no correlation between participation inthe Option Buyback Program and the new stock option grants. There were no promises made to participants in theOption Buyback Program regarding a new grant of options. The cash payment is the sole consideration for thoseparticipating in the Option Buyback Program.

Recommendation

The Board of Directors has concluded that the Option Buyback Program is in the best interests of the Corporationand its shareholders. Accordingly, the Board of Directors unanimously recommends that shareholders entitled to voteon the approval of the Option Buyback Program vote in favour of such approval.



1. the Option Buyback Program of the Corporation as disclosed in this Management Information Circular beand is hereby approved; and


In order to be effective, the Option Buyback Program must be approved by a majority of the votes cast at themeeting. Votes on the resolution regarding the Option Buyback Program shall be on a disinterested basis. Insidersentitled to a payment under the Option Buyback Program shall be excluded from the vote.

Management recommends voting in favour of the Option Buyback Program. The persons named in theenclosed form of proxy intend to vote at the meeting FOR the approval of the Option Buyback Program, unlessotherwise directed by you.

APPROVAL OF UNALLOCATED OPTIONS UNDER THE CORPORATION’S STOCK OPTION PLAN

The Stock Option Plan is subject to such future approvals of the shareholders and applicable stock exchanges asmay be required by the terms of the Stock Option Plan or applicable stock exchanges from time to time. The TSXrequires that the approval of all unallocated options under the Stock Option Plan be sought by the Corporation everythree years from a majority of the votes cast by shareholders. Unallocated options were approved by the shareholders

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of the Corporation at the Corporation’s annual and special meeting on July 6, 2010. As the three-year term prescribedby the TSX expires on July 6, 2013, the Corporation’s shareholders will be asked to consider, and if thought advisable,to approve by an ordinary resolution (the “Options Resolution”) all of the unallocated common shares issuablepursuant to the Corporation’s Stock Option Plan.

As of the date of the circular and assuming that the amendment to increase the number of Shares reserved forissuance is approved by shareholders, (i) the overall limit on the number of Shares reserved for issuance under theStock Option Plan is 3,294,608 Shares or 15% of the issued and outstanding shares less 500,000 Shares reserved forissuance under the Corporation’s DSU Plan; (ii) options to purchase 1,620,500 Shares were outstanding, representingapproximately 6.41% of the issued and outstanding Shares of the Corporation and approximately 49.19% of the Sharesreserved for issuance under the Stock Option Plan; and (iii) a further 1,674,108 Shares were available for further optiongrants, representing approximately 6.62% of the issued and outstanding Shares of the Corporation, resulting in theStock Option Plan currently having 1,674,108 unallocated options. Assuming that the Option Buyback Programdescribed above is approved, as of the date of the approval: (i) options to purchase 712,500 Shares will be outstanding,representing approximately 2.82% of the issued and outstanding Shares of the Corporation and approximately 21.63%of the Shares reserved for issuance under the Stock Option Plan; and (ii) a further 2,582,108 Shares will be availablefor further option grants, representing approximately 10.21% of the issued and outstanding Shares of the Corporation,resulting in the Stock Option Plan having 2,582,108 unallocated options.

The approval by the shareholders of the unallocated Shares issuable pursuant to the Stock Option Plan will beeffective for three years from the date of the meeting. If approval is obtained at the meeting, the Corporation will notbe required to seek further approval of the grant of unallocated options under the Stock Option Plan until theCorporation’s 2016 annual shareholders’ meeting (provided that such meeting is held on or prior to June 25, 2016). Ifapproval is not obtained at the meeting, options which have not been allocated as of the date of the meeting and optionswhich are outstanding as of the date of the meeting and are subsequently cancelled, terminated or exercised will not beavailable for a new grant of options. Previously allocated options will continue to be unaffected by the approval ordisapproval of the resolution.

Recommendation

The Board of Directors has concluded that the approval of unallocated options under the Stock Option Plan is inthe best interests of the Corporation and its shareholders. Accordingly, the Board of Directors unanimouslyrecommends that shareholders entitled to vote on the Options Resolution, vote in favour of such Options Resolution.



1. all unallocated stock options under the Stock Option Plan of the Corporation, as amended from time to time,are hereby approved and authorized, which approval shall be effective until June 25, 2016; and


In order to be effective, the Options Resolution must be approved by a majority of the votes cast at the meeting.

Management recommends voting in favour of approving the unallocated options. Unless specified in a formof proxy that the Shares of the Corporation represented by the proxy shall be voted otherwise, the personsdesignated by management of the Corporation in the enclosed form of proxy intend to vote FOR the resolutionapproving the unallocated options.

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VARIOUS APPROVALS REGARDING THE DEFERRED SHARE UNIT PLAN

Summary of the DSU Plan

The Corporation’s DSU Plan is intended to provide directors who are not officers or employees of the Corporationor of Trilogy (“Outside Directors”) with DSUs as compensation for their services. Under the DSU Plan, OutsideDirectors receive 100% of their directors’ compensation in the form of DSUs. Each Outside Director is entitled to thenumber of DSUs equal to the amount of cash compensation the director would otherwise receive divided by the closingprice of a Share on the TSX as at the date of the grant. Each DSU vests immediately and entitles the director to receive,after termination of service on the Board of Directors, one Share from treasury. DSUs can only be redeemed aftertermination of service on the Board of Directors, and DSUs must be redeemed no later than December 31 of the yearfollowing the year in which the termination of service occurred. In the event of death, the director’s legalrepresentatives are entitled to redeem the DSUs. DSUs are not paid cash dividends. Instead, when a dividend is paid onShares, each director will be allocated additional DSUs equal to the cash dividend they would otherwise be entitled toreceive divided by the closing price of a Share on the TSX as at the dividend payment date. Management believes thatthe DSU Plan further aligns the interests of the Outside Directors with those of shareholders.

As of the date of the circular, assuming that the amendment to the DSU Plan described below is approved, DSUsto acquire 285,052 Shares were outstanding, representing approximately 1.13% of the issued and outstanding Shares ofthe Corporation and approximately 57.01% of the Shares available for issuance under the DSU Plan. As of the date ofthe circular, assuming that the amendment to the DSU Plan described below is approved, 214,948 Shares are availablefor further grants of DSUs, representing approximately 0.85% of the issued and outstanding Shares of the Corporation.Assuming that the amendment to the DSU Plan is approved, the overall limit of 500,000 Shares represents 1.98% ofthe issued and outstanding Shares of the Corporation. Subject to the overall limit on the number of Shares reserved forissuance under the DSU Plan and the Stock Option Plan, the maximum number of Shares reserved that may be issuedunder the DSU Plan and any other security based compensation arrangement of the Corporation to any one participantis 5% of the then issued and outstanding Shares. The maximum number of Shares that may be issued to any insider andthat insider’s associates within any 12-month period may not exceed 5% of the then issued and outstanding Shares. Theaggregate number of Shares issued to insiders of the Corporation within any 12-month period, or issuable to insiders ofthe Corporation at any time, under the DSU Plan and any other security based compensation arrangement of theCorporation, may not exceed 10% of the total number of issued and outstanding Shares of the Corporation at such time.

DSUs are non-assignable and non-transferrable.

The DSU Plan is administered by the Board of Directors with the assistance of the Corporate GovernanceCommittee. Certain administrative amendments to the DSU Plan may be made by the Board of Directors withoutshareholder approval, subject to regulatory requirements and provided that the number of Shares reserved for issuancecannot be increased without shareholder approval. Such amendments to the DSU Plan that may be made withoutshareholder approval include, without limiting the generality of the foregoing: (i) amendments for the purpose ofcuring any ambiguity, error or omission in the DSU Plan or to correct or supplement any provision of the DSU Planthat is inconsistent with any other provision of the DSU Plan; (ii) amendments necessary to comply with the provisionsof applicable law (including, without limitation, the rules, regulations and policies of the TSX); (iii) amendmentsnecessary for awards to qualify for favorable treatment under Canadian tax laws; (iv) any amendments to the vestingprovisions of the DSU Plan or any unit under such plan; (v) amendments to the termination provisions of the DSU Planor unit under such plan, whether or not such unit under the DSU Plan is held by an insider, provided such amendmentdoes not entail an extension beyond the original expiry date; and (vi) amendments necessary to suspend or terminatethe DSU Plan.

Shareholder approval is required for the following types of amendments: (i) amendments to the number of Sharesissuable under the DSU Plan, including an increase to a fixed maximum number of Shares or an increase in the fixedmaximum percentage; (ii) any amendment to the DSU Plan that increases the length of the period after a blackoutperiod under the DSU Plan during which units may be exercised; (iii) any amendment expanding the categories ofeligible participants under the DSU Plan which would have the potential of broadening or increasing insider

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participation; (iv) any amendment extending the term of a unit held by an insider beyond its original expiry date exceptas provided under the DSU Plan; (v) the addition of a restricted share unit or any other provision which results in aparticipant receiving Shares while no cash consideration is received by the Corporation; and (vi) any amendmentsrequired to be approved by shareholders under applicable law (including, without limitation, the rules, regulations andpolicies of the TSX).

AMENDMENT TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE DSUPLAN

The current DSU Plan has 350,000 Shares reserved for issuance and allows for Shares issued pursuant to theredemption of DSUs to again be available for issuance under the DSU Plan. The Corporation believes that anamendment to the DSU Plan to increase the number of Shares available for issuance pursuant to the redemption ofDSUs by 150,000 Shares is in the best interests of the Corporation and its shareholders as it will allow the DSU Plan toprovide for ongoing compensation to the Corporation’s Outside Directors.

At the meeting, the shareholders will be asked to consider, and if thought advisable, pass a resolution amendingthe DSU Plan to increase the number of Shares available for issuance under such plan by 150,000 Shares to 500,000Shares.

Recommendation

The Board of Directors has concluded that the proposed amendment to the DSU Plan is in the best interests of theCorporation and its shareholders. Accordingly, the Board of Directors unanimously recommends that shareholdersentitled to vote on the amendment to the DSU Plan vote in favour of such amendment.



1. the DSU Plan be amended to increase the number of Shares available for issuance pursuant to the redemptionof DSUs by 150,000 Shares to 500,000 Shares; and


In order to be effective, the amendment to the DSU Plan must be approved by a majority of the votes cast at themeeting.

Management recommends voting in favour of the amendment to the DSU Plan. The persons named in theenclosed form of proxy intend to vote at the meeting FOR the amendment to the DSU Plan, unless otherwisedirected by you.

APPROVAL OF UNALLOCATED DEFERRED SHARE UNITS UNDER THE CORPORATION’S DEFERREDSHARE UNIT PLAN

On July 6, 2010, the shareholders approved amendments to the DSU Plan such that the Shares issued pursuant tothe redemption of DSUs granted under the DSU Plan and any common shares reserved for issuance pursuant to DSUswhich are cancelled or terminated without having been redeemed shall be again available for issuance pursuant to theDSU Plan.

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The DSU Plan is subject to such future approvals of the shareholders and applicable stock exchanges as may berequired by the terms of the DSU Plan or applicable stock exchanges from time to time. The TSX requires that theapproval of all unallocated DSUs under the DSU Plan be sought by the Corporation every three years from a majorityof the votes cast by shareholders. Unallocated DSUs were approved by the shareholders of the Corporation at theCorporation’s annual and special meeting on July 6, 2010. As the three-year term prescribed by the TSX expires onJuly 6, 2013, the Corporation’s shareholders will be asked to consider, and if thought advisable, to approve by anordinary resolution (the “DSU Resolution”) all of the unallocated common shares issuable pursuant to theCorporation’s DSU Plan.

The approval by the shareholders of the unallocated common shares issuable pursuant to the DSU Plan will beeffective for three years from the date of the meeting. If approval is obtained at the meeting, the Corporation will notbe required to seek further approval of the grant of unallocated DSUs under the DSU Plan until the Corporation’s 2016annual shareholders’ meeting (provided that such meeting is held on or prior to June 25, 2016). If approval is notobtained at the meeting, DSUs which have not been allocated as of the date of the meeting and DSUs which areoutstanding as of the date of the meeting and are subsequently cancelled, terminated or redeemed will not be availablefor a new grant of DSUs. Previously allocated DSUs will continue to be unaffected by the approval or disapproval ofthe resolution.

Recommendation

The Board of Directors has concluded that the approval of unallocated DSUs under the DSU Plan is in the bestinterests of the Corporation and its shareholders. Accordingly, the Board of Directors unanimously recommends thatshareholders entitled to vote on the DSU Resolution, vote in favour of such DSU Resolution.



1. all unallocated DSUs under the DSU Plan of the Corporation, as amended from time to time, are herebyapproved and authorized, which approval shall be effective until June 25, 2016; and


In order to be effective, the DSU Resolution must be approved by a majority of the votes cast at the meeting.

Management recommends voting in favour of approving the unallocated DSUs. Unless specified in a formof proxy that the Shares of the Corporation represented by the proxy shall be voted otherwise, the personsdesignated by management of the Corporation in the enclosed form of proxy intend to vote FOR the resolutionapproving the unallocated DSUs.

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COMPENSATION DISCUSSION & ANALYSIS

We believe that great companies are built over time through the efforts of talented, committed people. We willtake the time to build this Company consistent with our beliefs and guiding principles, with the objective of creating agreat and lasting enterprise with the potential for sustained success.

Underlying Principles of Executive Compensation

Indigo’s executive compensation program is based on the philosophy that a strong leadership team, whoseinterests are aligned with the Company’s strategic goals, will lead to success for the Company and the enhancement ofshareholder value.

To build and retain a high-performing leadership team, we need to be competitive; providing strong base salariesalong with both short-, mid- and long-term incentives that are tied to objective performance goals. The intent is toreward Executives1 for demonstrated leadership and the achievement of strategic goals. By having these components ofcompensation in place, Executives will focus on attaining corporate performance goals, and continually strive to createsuccess for the Company and value for shareholders.

Risk Management and Executive Compensation

The Human Resources and Compensation Committee works with management to plan and design an evolvingexecutive compensation program that both supports the Company’s compensation philosophy and also limits theamount of risk to the Company associated with the incentive aspects of executive compensation. The Committeeannually reviews all compensation programs and practices presented by management to consider any risk implications.

The Company has a risk management system which involves management, the Board and its Committees. The fullBoard of Directors reviews strategic targets each year as a part of the review and approval of the Company’s strategicplan. The potential for excessive risk taking by Executives is considered when setting and approving strategicobjectives.

The Company believes that diverse compensation opportunities and performance metrics are the best way tocontrol any risks associated with compensation practices. The Company has historically used a combination of short-,mid-, and long-term awards to manage this risk.

Performance targets are set for the Company’s short-, mid-, and long-term awards. Reviews of performance andoutside factors affecting performance are completed quarterly and annually. Based on the outcome of these reviews,the Board will use its discretion to make any adjustments to short-term awards based on the quality of results achievedand performance in light of all relevant factors.

With the involvement of the Human Resources and Compensation Committee, working with management, theCompany did not identify any risks arising from the Company’s compensation policies and practices that arereasonably likely to have a material adverse effect on the Company.

1 Executive(s), and Executive Management, mean, for the purposes of this compensation discussion & analysis: the Chair & CEO, Chief FinancialOfficer, Chief Information Officer & Executive Vice President Digital, Group Executive Vice President Consumer Experience & Print,Executive Vice President & Group General Merchandise Manager, Chief Marketing Officer, Executive Vice President Supply Chain, ExecutiveVice President Online & Mobile, Senior Vice President Human Resources & Organizational Development, and General Counsel and CorporateSecretary.

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Named Executive Officers

The following table lists the Named Executive Officers (the “NEOs”) for Indigo during the fiscal year:

NEO Title

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chair & Chief Executive Officer

Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer

Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group Executive Vice President, Consumer Experience & Print

Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Vice President, Supply Chain

Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Information Officer & Executive Vice President Digital

Components of Executive Compensation

Indigo’s executive compensation philosophy is supported by the following five elements of our executivecompensation program:

1. Base Salary2. Annual Bonus Incentive Program3. Super Bonus Plan4. Stock Options5. Perquisites and Other Benefits

Each component of the executive compensation program is defined and discussed below.

1. Base Salary

A competitive base salary serves to attract and retain strong leadership.

The base salary for Executives is determined through the evaluation of the responsibilities of the position, areview of market compensation levels for the role, the Executive’s relevant experience, the Executive’s past andcurrent performance, and the Executive’s contribution to overall corporate performance.

2. Annual Bonus Incentive Program

The Annual Bonus Incentive is a short-term incentive designed to tie compensation to both corporate goals andindividual performance within a fiscal year.

Executives are eligible to earn up to 40% of their base salary through the Annual Bonus Incentive Program. Halfof the payout is based on the achievement of corporate performance goals and the other half of the payout is based onindividual and departmental performance.

Corporate performance is measured against EBITDA targets. EBITDA is a non-GAAP financial measure definedas earnings before interest, taxes, depreciation, amortization, non-controlling interest and non-recurring items.EBITDA does not have a standardized meaning under International Financial Reporting Standards and may not becomparable to similar measures used by other issuers. The Company has chosen the achievement of EBITDA targetsfor bonus payout decisions as EBITDA is a measure of the Company’s operating profitability. EBITDA is the keyindicator used by the Company to measure performance against internal targets and prior period results. This measureis commonly used by financial analysts and investors to compare Indigo to other retailers. EBITDA provides investorswith an effective tool for comparing year-over-year changes and for identifying trends in core profit as it eliminatesnon-operating expenses and non-cash charges which can make such comparisons difficult.

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Payout of the Annual Bonus Incentive is subject to the achievement of no less than 95% of the overall corporateEBITDA target set in accordance with the Company’s annual budget and pre-approved by the Board of Directors at thebeginning of each fiscal year. If 95% of the budgeted EBITDA target is not achieved, there is no payout under eitherthe corporate or the individual performance elements of the Annual Bonus Incentive.

Payout of the corporate performance portion of the Annual Bonus Incentive is based on the percentage of theBoard pre-approved EBITDA target that is achieved within a fiscal year. The following table outlines how payment ofthe corporate performance portion of the Annual Bonus Incentive is directly linked to achievement of performancetargets.

Performance Target Bonus Payout

Less than 95% of Budgeted EBITDA . . . . . . . . No payout of either Corporate or Individual portions of AnnualBonus Incentive

95% of Budgeted EBITDA . . . . . . . . . . . . . . . . 70% of Corporate Performance Portion Paid

100% of Budgeted EBITDA . . . . . . . . . . . . . . . 100% of Corporate Performance Portion Paid






A bonus payout of 200% of the corporate performance portion of the Annual Bonus Incentive is the maximumamount payable for this portion of the Annual Bonus Incentive.

In fiscal 2013, the Company achieved 100% of its pre-approved EBITDA target of $30 million. The table belowoutlines the payouts of the corporate performance portion of the Annual Bonus Incentive to the NEOs for fiscal 2013.

NEO

% of CorporatePerformance Portion ofAnnual Bonus PayoutEarned in Fiscal 2013

Annual Bonus Payout forFiscal 2013 — Corporate

Performance Portion

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n/a n/a

Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $63,000

Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $95,000

Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $70,000

Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $68,247

If 95% or more of the budgeted EBITDA target is achieved, the payout of the individual performance portion ofthe Annual Bonus Incentive will be paid out based on the performance rating achieved by each individual for theapplicable fiscal year.

Individual performance is measured against individual and department goals set out in departmental BalancedScorecards. Please see the “The Balanced Scorecard” section below for a full description of the Balanced Scorecard.

Recommendations on the payout of the individual performance portion of the Annual Bonus Incentive forExecutives are made by the Chief Executive Officer and approved by the Human Resources and CompensationCommittee. An overall performance rating for each Executive is determined based on the achievement of goals fromthe departmental Scorecards. These decisions are reviewed and approved by the Human Resources and CompensationCommittee and then approved by the full Board of Directors.

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The percentage paid out under the individual performance portion of the Annual Bonus Incentive is based on theperformance rating achieved by the Executive. The following table outlines the performance ratings and thecorresponding percent of the individual performance portion of the Annual Bonus Incentive payable.

Overall Performance Rating Individual Bonus Multiplier

Above Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 – 120%

On Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 – 100%

Below Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 – 75%

The maximum payout for the individual performance portion of the Annual Bonus Incentive is 120%.

The table below outlines the payouts of the individual performance portion of the Annual Bonus Incentive to theNEOs for fiscal 2013.

NEO

% of IndividualPerformance Portion ofAnnual Bonus PayoutEarned in Fiscal 2013

Annual Bonus Payout forFiscal 2013 IndividualPerformance Portion

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n/a n/a

Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $63,000

Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $95,000

Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $70,000

Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $68,247

The Balanced Scorecard

The Balanced Scorecard system is designed to give individual Executives an accurate understanding of theCompany’s goals and business unit strategies. The Scorecard translates Indigo’s mission and strategy into performancemeasures used to evaluate performance against goals in four key areas: 1. the customer’s perspective; 2. theemployee’s perspective; 3. internal processes; and 4. Indigo’s shareholders.

As a part of the Company’s annual strategic planning process, the Company updates its Balanced Scorecard,setting the goals for its upcoming fiscal year.

There is a departmental Balanced Scorecard for each Executive’s business unit. The goals within the departmentalScorecards are tied to the Company’s strategic goals but are specific to each department’s area of responsibility. Thegoals in these departmental Scorecards are intended to help achieve the Company’s strategic targets.

Management chooses to link the payout of the individual performance portion of the Annual Bonus Incentive tothe achievement of the goals in the departmental Scorecards as this drives Executives to achieve the goals in their areaof responsibility. As the goals of the departmental Scorecards are tied to the Company’s strategic goals, achievement ofdepartmental goals is expected to work to ensure the achievement of overall corporate goals.

3. Mid- to Long-term Incentive Plan (the “Super Bonus Plan”)

In fiscal 2013 the Company implemented a new mid- to long-term incentive program (the “Super Bonus Plan”),designed to motivate designated senior-level employees of the Company to achieve corporate success and to retainhigh-performing employees at the senior management level. The plan provides meaningful additional bonus paymentsto participants if the Company exceeds the budgeted EBITDA target for the fiscal year.

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Actual EBITDA Value of Each Super Bonus Plan Unit

Below $30.2 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0

$31 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,250

$32 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500

$33 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,750

$34 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000

$35 million . . . . . . . . . . . . . . . . . . . . To be determined based on CEO discussion with Human Resources andCompensation Committee and the Board of Directors

The bonus pool for the Super Bonus Plan is funded by the amount by which actual EBITDA exceeds the boardapproved EBITDA target each fiscal year, to a maximum pool of $4 million. The bonus pool is divided into 800 units,with each unit having a maximum value of $5,000. The actual value of each unit is dependent upon the amount bywhich actual EBITDA exceeds the budgeted EBITDA target for the fiscal year. If actual EBITDA does not exceed thebudgeted EBITDA target by at least $0.2 million there will be no payout under the Super Bonus Plan.

The pay-out schedule for payments made under the Super Bonus Plan is dependent on the dollar value of eachindividual payment and range from payments made in the first quarter of the fiscal year following the year in which thebonus is earned, to payments made over three fiscal years. The Human Resources and Compensation Committeeapproves the final payout schedule once actual payments under the plan are determined.

Participants in the Super Bonus Plan and the number of units allocated to each participant in the plan isdetermined by management.

No payouts were earned under the Super Bonus Plan in the fiscal year ended March 30, 2013 as the Company didnot reach the EBITDA target set for payment under this Plan.

4. Stock Options

Indigo provides a long-term incentive to its senior level employees, including NEOs, through the Indigo StockOption Plan.

Options granted through the Stock Option Plan permit plan participants to acquire Shares at an exercise priceequal to the closing market price of such Shares on the date immediately preceding the date on which the option wasgranted. These stock option grants vest over either a three or a five year period. The term of a stock option may notexceed 10 years.

The Stock Option Plan is designed to recognize the efforts of senior level employees in developing andimplementing the Company’s strategic initiatives and to provide these plan participants with an enhanced opportunityto share in the future success of Indigo. The Stock Option Plan serves to motivate and encourage senior management todeliver performance that increases the value of the Company and growth of our share price over the long term.

Granting of Stock Options

Stock option grants are typically considered as an incentive at the time of hiring of new senior level candidates,for individuals in senior level positions receiving promotions, and for retention purposes.

In the past, the Company has made periodic group grants to senior level employees. Decisions regarding stockoption grants to the Executives are made based on recommendations of the CEO and her review of their performanceand contribution. The CEO’s recommendations are then reviewed by the Human Resources and CompensationCommittee and if accepted are then recommended to the Board of Directors for approval. Grant decisions for vicepresident and director level employees are based on the recommendations of the Executive team and a review of each

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employee’s performance and contribution. These vice president and director level grants are then reviewed by theHuman Resources and Compensation Committee and recommended to the Board of Directors for approval. Thenumber of options available for issuance under the Stock Option Plan and the number of stock options previouslygranted to the individual are also considered when any option grant is made.

During the fiscal year ended March 30, 2013, there was one group stock option grant which included a grant ofstock options to the Named Executive Officers. On August 8, 2012, a grant of stock options to Executives and seniorlevel employees was approved by the Board. Due to the Company’s self-imposed blackout period, the effective date forthese stock option grants was set at August 13, 2013.

Of the total August 13, 2012 stock option grant, 34.0% of the options granted were awarded to Named ExecutiveOfficers. The stock options received by each NEO are outlined in the table below:

NEO Number of Options Granted

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0

Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000

Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

There were no other stock option grants made to the Named Executive Officers during the fiscal year endedMarch 30, 2013.

The grant of stock options are based on three major criteria: the ability of the individual to have a significantimpact on longer term results; the importance of the person to the mid- and long-term performance of the Company;and the potential of the individual to continue to progress within the Company.

5. Perquisites and Other Benefits

Perquisites

The Company introduced a perquisite program for vice presidents and Executives in fiscal 2006. Through thisplan, Indigo offers its vice presidents and Executives a perquisite account which allows participants the flexibility totop up their benefits in a way that is meaningful to them.

The perquisite program allows compensation for the following benefits: health and dental care upgrades;automobile leasing or car care; child care; elder care; club membership (airline, country club, health & fitness, etc.);estate planning; financial or tax counselling; home computers or office equipment for personal or business use; incometax preparation; legal counselling; newspaper/magazine subscriptions; parking; personal trainer; private health care;retirement counselling; school fees; and travel upgrades.

Each Executive receives a perquisite account in the amount of $5,000 each fiscal year. If an Executive joins theCompany part way through a fiscal year, the amount of their perquisite account is prorated for the period of timeremaining in that fiscal year.

Other Benefits

RRSP Matching Program

The Company’s RRSP Matching Program is open to all eligible employees, including Executives. The RRSPMatching Program matches employees’ contributions up to a maximum of 3% of base salary per fiscal year for eligibleemployees who participate in the program.

19


The amounts paid to participating Named Executive Officers in fiscal 2013 are noted in the following table.

NEO

Amount received byNEO in fiscal 2013 pursuant to the

Company’s RRSP Matching Program

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0

Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,124

Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,134

Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,500

Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,125

Health Benefits

Executives are eligible to receive the same health benefits which are available to other employees. The Executivesreceive their health benefits at no cost; all other eligible employees pay a monthly premium of $25/month for singlecoverage or $50/month for family coverage. In addition, benefits provided to our Executives include a higher level oflife insurance and 100% coverage for health and dental claims compared with 80% coverage for health and dentalclaims for all other eligible employees.

Car Allowance

Each Executive receives a monthly taxable car allowance of $1,100.

Summary

We believe that the components (Base Salary, Annual Bonus Incentive, Super Bonus Plan, Stock Option Plan, andPerquisites and Other Benefits) of the executive compensation program support our performance compensationphilosophy and allow Indigo to build and sustain an outstanding team focused on corporate performance and improvingshareholder value.

Performance Dependent Compensation

Indigo’s executive compensation is a mix of fixed and variable/at-risk components. The fixed elements providecompensation to Executives based on the responsibilities of their roles and their individual knowledge and experience.The variable/at-risk elements ensure that Executives balance short-term gains with the long-term interests of theCompany.

In fiscal 2013 the fixed compensation portion of the NEO’s compensation was made up of Base Salary,Perquisites, and Other Benefits (Health Benefits, Car Allowance, and RRSP Matching Program).

In fiscal 2013 the variable/at-risk portion of the NEO’s compensation was made up of the Annual Bonus IncentiveProgram, the Super Bonus Plan, and the Stock Option Plan. The fiscal 2013 variable/at-risk compensation for currentlyactive NEOs ranged between 29% and 43% of total compensation.

While the CEO is eligible to participate in the Annual Bonus Incentive Program, she declined her annual bonusfor fiscal 2013.

The charts below illustrate the percent of variable compensation for each NEO for fiscal 2013.

20


Fiscal 2013 Performance Dependent Compensation for NEOs

* Ms. Reismandeclined toreceive theannual bonus towhich she wasen�tled

Heather Reisman, Chief Executive Officer

Variable Compensation Salary, Perquisites & Other Benefits

Total Variable Compensa�on = 29%

Kay Brekken, Chief Financial Officer Joyce Gray, Group Executive Vice PresidentConsumer Experience & Print

Base Salary69%

AnnualBonus 29%*

Other 2%

StockOp�ons 5%

StockOp�ons 4%

Base Salary55%

Other 4%Variable Compensation Salary, Perquisites & Other Benefits




Base Salary53%Annual

Bonus 21%Annual

Bonus 22%

FY13 SuperBonus 17%

FY13 SuperBonus 15%

Other 4%

Sumit Oberai, Chief Information Officer &Executive Vice President Digital

Other 11%

StockOp�ons 4%

StockOp�ons 4%

Base Salary50%Annual

Bonus20%

AnnualBonus22%

Base Salary53%





Michael Mortson, Executive Vice President Supply Chain

FY13 SuperBonus 14%

FY13 SuperBonus 16%

Other 4%

21


Benchmarking and the Role of Compensation Consultants

Periodically, the market value of each Executive position is reviewed by an independent consulting firm. The firmis retained by management to provide a benchmarking study, but the Human Resources and Compensation Committeehas unfettered access to the consulting firm. The results of the study are shared fully with the Human Resources andCompensation Committee. The most recent review was conducted by Hay Group Limited in 2010. This studyevaluated Indigo’s executive compensation through a review and comparison of the executive compensation disclosedin the most recent Management Information Circulars from eight comparator companies. Management, with the fullawareness and support of the Human Resources and Compensation Committee has retained Towers-Watson to conducta comprehensive benchmarking study in fiscal 2014.

The target level for executive compensation (Base Salary and Annual Bonus Incentive) is aimed to be at or abovethe median position in the market of Canadian companies of comparable size and nature. No compensation consultantswere retained in fiscal 2012 or fiscal 2013 and therefore there are no fees to disclose for the last two fiscal years.

In the 2010 benchmarking review, comparisons were made between Indigo’s executive compensationarrangements and those of the comparator group of companies in the following areas:

Compensation Description Indigo Comparator Group

Salary . . . . . . . . . . . . . . . . . . . . . . . . Salary Salary

Total Cash . . . . . . . . . . . . . . . . . . . . . Salary + Actual Bonus Salary + Actual Bonus

Total Direct . . . . . . . . . . . . . . . . . . . . Total Cash + Stretch Bonus + 2010 StockOption Grants

Total Cash + Grant Value of Mid-and Long-Term Incentives

To ensure that the Company’s executive compensation program is competitive, Indigo has identified criteria toestablish a suitable external comparator group against which to benchmark its compensation practices. The practice ofbenchmarking our compensation program against the appropriate comparator group ensures that we provide acompelling compensation package to attract and retain top performers from the competitive marketplace.

While there is no uniform industry group to which Indigo can be easily compared, the Company has chosenCanadian specialty retailers and Canadian retail companies to make up its comparator group. The Company believesthat, as a specialty retailer in Canada, it is important for our comparator group to include Canadian specialty retailers.The comparator group chosen is set forth in the table below and shall hereinafter be referred to as the ComparatorGroup.

The criteria for companies to be included in Indigo’s Comparator Group of companies are as follows:

Specialty retailers and service providers;

Canadian retailers;

Consumer focused companies; and

Companies (from all industry sectors) with revenues between $500 million and $1.5 billion.

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The table below highlights companies included in the Comparator Group.

CompanySpecialtyRetailer

CanadianRetailer

ConsumerFocused

Revenues of$500 million –

$1.5 billion

BMTC Group ✓ ✓ ✓ ✓

Brick Group Income Fund ✓ ✓ ✓ ✓

The Forzani Group Ltd. ✓ ✓ ✓ ✓

Leon’s Furniture ✓ ✓ ✓ ✓

Sears Canada ✓ ✓

Jean Coutu Group ✓ ✓ ✓

Reitmans Canada Ltd. ✓ ✓ ✓ ✓

RONA Inc. ✓ ✓ ✓

Executives’ Role in Compensation Decisions

The Chief Executive Officer works with the Chief Financial Officer and the Senior Vice President, HumanResources & Organizational Development to prepare recommendations for executive compensation to the HumanResources and Compensation Committee.

The Senior Vice President, Human Resources & Organizational Development works with Mr. Hall, the Chair ofthe Human Resources and Compensation Committee, to plan the schedule of committee meetings for the year and toprepare the agenda and presentations for each meeting.

Composition of the Human Resources and Compensation Committee

Mr. Kirby, Mr. Hall and Mr. Clegg served as the three members of the Human Resources and CompensationCommittee of our Board of Directors for the fiscal year ended March 30, 2013. None of the members of the HumanResources and Compensation Committee is an officer, employee or former officer or employee of the Company or anyof its affiliates or is eligible to participate in the Company’s executive compensation programs. None of the members isan active chief executive officer with a publicly-traded entity.

Expertise of the Human Resources and Compensation Committee

Each of the three committee members has experience serving on compensation committees of other publiccompanies. In addition, as President for a major corporation, Mr. Clegg was responsible for designing andimplementing key compensation policies for all executives. Mr. Kirby has served as the chair of several publiccompany human resources committees and has extensive experience in human resource related matters from his role asa Deputy Minister in both the Canadian federal government and the government of Nova Scotia. Mr. Hall, the Chair ofthe Human Resources and Compensation Committee, gained human resources and compensation expertise in his rolesas CEO of a U.S.-based public company and as Chief Investment Officer of a Canadian private equity investment fund.

Role of the Human Resources and Compensation Committee

The Human Resources and Compensation Committee reviews and makes recommendations to the Board ofDirectors in all matters pertaining to the appointment, compensation and benefits of all of the Company’s Executives.The Human Resources and Compensation Committee held six meetings in fiscal 2013.

Each year the Human Resources and Compensation Committee receives a review of executive compensationwhich includes a recommendation of increases to base salaries. When considering proposed increases to base salaries,

23


the Committee considers the CEO’s recommendations, the Company’s performance over the previous year, economicconditions and compensation paid for similar positions at comparable companies. The Human Resources andCompensation Committee makes recommendations to the Board of Directors regarding the CEO’s compensation.

Compensation of the Chief Executive Officer

The compensation of the CEO is based upon the same criteria as that used in determining the compensationpayable to our other Executives. The base salary of the CEO is determined by an assessment by the Human Resourcesand Compensation Committee of the CEO’s performance, a consideration of competitive compensation levels incompanies similar to us, a review of the Company’s performance as a whole, and the role the CEO played in suchcorporate performance.

As noted above, the market value of all Executive positions, including that of the CEO, is assessed periodically byan independent consulting firm which reports to the Human Resources and Compensation Committee. The totalcompensation is reviewed against the Comparator Group of companies of comparable size and nature to Indigo, whichis set out above under the heading “Benchmarking and the Role of Compensation Consultants”.

While the total compensation for other Executive positions is intended to be positioned close to market median,the Human Resources and Compensation Committee recognized that the salary for the CEO position was well belowthe median. However, the CEO chose to accept such compensation during the expansionary phase of the business andher base salary remained at the same level from 2001 to 2007. Effective April 1, 2007, the CEO became eligible toparticipate in the Annual Bonus Incentive Program as well as the Stock Option Plan. The CEO’s base salary wasincreased to $500,000 on April 1, 2007. On October 1, 2010, the CEO elected to reduce her base salary to $300,000 inrecognition of the changing nature of the business and the significant period of transition facing the Company. TheHuman Resources and Compensation Committee approved an increase in the CEO’s base salary to return to its fiscal2011 level of $500,000, effective June 1, 2012, in recognition of the increased responsibilities of the CEO during theCompany’s strategic transformation.

The Human Resources and Compensation Committee recommends to the Board the annual bonus amount earnedby the CEO, pursuant to the Annual Bonus Incentive Program, based on her performance during the fiscal year. TheCEO has discretion to accept or forgo the recommended bonus. For the fiscal year ended March 31, 2012, the CEOreceived an annual bonus incentive of $500,000, but did not receive a grant of stock options. In the fiscal years endedApril 3, 2010, April 2, 2011, and March 30, 2013, the CEO chose not to receive an annual bonus incentive payment ora grant of stock options.

24


PERFORMANCE GRAPH

The following graph compares the total cumulative shareholder return for $100 invested in Indigo Shares onMarch 29, 2008 with the cumulative total return of the S&P/TSX Composite Total Return Index for the fiscal yearsended, March 28, 2009, April 3, 2010, April 2, 2011, March 31, 2012, and March 30, 2013.(1)

(1) Total return assumes reinvestment of dividends for the S&P/TSX Composite Total Return Index and Indigo Shares.

S&P/TSX Composite Total Return Index

Indigo Books & Music Inc.

March 29,2008

March 28,2009

April 3,2010

April 2,2011

March 31,2012

March 30,2013

$60

$80

$100

$120

$160

$140

March 29,2008

March 28,2009

April 3,2010

April 2,2011

March 31,2012

March 30,2013

Indigo Common Shares . . . . . . . . . . . . . . . . . . . . . . . $100.00 $91.65 $155.13 $114.05 $ 82.20 $108.08

S&P/TSX Composite Total Return Index . . . . . . . . . $100.00 $68.96 $ 97.89 $116.88 $105.30 $111.73

As referenced above, the Company uses EBITDA as a measure of corporate performance. The Annual BonusIncentive Program, and the Super Bonus Program, where applicable, are based on the achievement of EBITDA targetsand consequently, total executive compensation potential is tied to EBITDA rather than share price.

The following graph illustrates how the Company’s year-over-year changes in total NEO cash compensationcompares with changes in shareholders’ annual return on investment (fiscal year to fiscal year) over the past five fiscalyears. There has been a strong correlation between the Company’s total NEO cash compensation and shareholderreturn on investment in three of the past five years. The year ended March 31, 2012, departs from the earlier correlationlargely due to the low level of the CEO’s salary in fiscal 2011, the award of the Special Achievement Bonus in fiscal2012 and the compensation of the President in fiscal 2012. The year ended March 30, 2013 shows an increase inshareholder return and a decrease in year-over-year NEO compensation. The decrease in fiscal 2013 NEOcompensation compared to fiscal 2012 compensation is due to the one-time Special Achievement Bonus paid in fiscal2012.

25


As stock option compensation is dependent on future share performance, this portion of compensation is notincluded in the historical comparison of total compensation to historical shareholder returns.

Indigo Executive Compensation

Shareholder Return on Investment

March 29,2008

March 28,2009

April 3,2010

April 2,2011

March 31,2012

March 30,2013

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Prohibition on Hedging

The Company’s insider trading policy prohibits executives and directors from purchasing financial instrumentsthat are designed to hedge or offset a decrease in the market value of equity securities of the Company, whether suchsecurities are granted as compensation or otherwise.

26


SUMMARY COMPENSATION TABLE

The following table summarizes all of the compensation received by our Named Executives for the three mostrecently completed fiscal years ended March 30, 2013, March 31, 2012, and April 2, 2011.

Non-Equity IncentivePlan

Compensation

Name andPrincipal Position Year

Salary($)

Option-based

Awards(1)

($)

AnnualIncentivePlans(2)

($)

Long-Term

IncentivePlans(3)

($)

All OtherCompensation(4)

($)

TotalCompensation

($)

HEATHER REISMAN(5) . . . . . . . . . . . . . . . . 2013 $466,667 nil nil n/a $13,200 $479,867

Chair & Chief Executive Officer 2012 $300,000 nil $500,000 n/a $13,200 $813,200

2011 $400,000 nil n/a n/a $13,200 $413,200

KAY BREKKEN(6) . . . . . . . . . . . . . . . . . . . . 2013 $312,500 $ 28,400 $126,000 nil $26,324 $493,224

Chief Financial Officer 2012 $300,000 $222,308 $200,000 n/a $25,591 $747,899

2011 $199,410 $ 13,120 $ 30,600 n/a $16,822 $260,013

JOYCE GRAY(7) . . . . . . . . . . . . . . . . . . . . . . 2013 $471,346 $ 35,500 $190,000 nil $32,334 $729,180

Executive Group Vice President 2012 $406,058 nil $244,000 n/a $30,382 $680,439

Customer Experience & Print 2011 $406,846 nil nil n/a $30,405 $437,252

MICHAEL MORTSON(8) . . . . . . . . . . . . . . . . 2013 $350,000 $ 28,400 $140,000 nil $78,700 $597,100

Executive Vice President 2012 $ 87,500 $124,000 $ 35,000 n/a $ 5,425 $251,924

Supply Chain 2011 n/a n/a n/a n/a n/a n/a

SUMIT OBERAI(9) . . . . . . . . . . . . . . . . . . . . 2013 $340,545 $ 28,400 $136,493 nil $28,325 $533,763

Chief Information Officer & 2012 $275,000 nil $225,000 n/a $26,450 $526,450

Executive Vice President Digital 2011 $265,833 $131,200 nil n/a $26,175 $423,208

(1) The grant date fair value of stock options is calculated using the Black-Scholes valuation method. The Company has chosen the Black-Scholesmethod as it is an appropriate and commonly used method for valuing stock options.

(2) For fiscal 2011 and fiscal 2013, the bonus amount under Annual Incentive Plans discloses the amounts earned by an individual during a fiscalyear under the Annual Bonus Incentive Program. For fiscal 2012 the bonus amount under Annual Incentive Plans discloses the amounts earnedby an individual during the fiscal year under the Annual Bonus Incentive Program and the fiscal 2012 Special Achievement Bonus Program.Amounts earned under the Annual Bonus Incentive Program, where applicable, are paid out in the first quarter of the fiscal year following thefiscal year in which they were earned. Amounts earned under the fiscal 2012 Special Achievement Bonus Program are paid out 33.3% in thefirst quarter of the fiscal year following the fiscal year in which they were earned and 33.3% in each of the two subsequent fiscal years, as longas the individual is still employed with the Company during such years.

(3) The bonus amount under Long Term Incentive Plans discloses the amounts earned by an individual during a fiscal year under the Super BonusPlan. Amounts earned under the Super Bonus Plan, where applicable, are paid out 50% in the first quarter of the fiscal year following the fiscalyear in which they were earned and 25% in each of the two subsequent fiscal years, as long as the individual is still employed with the Companyduring such years. The Super Bonus Plan was adopted in fiscal 2013.

(4) The amounts shown under All Other Compensation include the Named Executive Officer’s taxable car allowance, other perquisites, amountsreflecting the value received during the year pursuant to the RRSP matching program where applicable, signing bonus amounts whereapplicable, any amounts paid as moving allowances where applicable, and any other special bonuses where applicable.

(5) Ms. Reisman is the Chair and Chief Executive Officer. On October 1, 2010, Ms. Reisman elected to reduce her annual base salary from$500,000 to $300,000. Effective June 1, 2012 Ms. Reisman’s salary was increased to $500,000 upon the recommendation of the HumanResources and Compensation Committee and approval of the full Board.

Ms. Reisman chose not to accept a bonus payment in fiscal 2013.

Ms. Reisman’s 2012 bonus of $500,000 was earned pursuant to the fiscal 2012 Special Achievement Bonus Program. 100% of the payment ofthe fiscal 2012 Special Achievement Bonus to Ms. Reisman was made in April 2012.

Ms. Reisman did not receive a bonus payment in fiscal 2011.

(6) Ms. Brekken currently holds the position of Chief Financial Officer.

27


Ms. Brekken was hired as Vice President, Finance November 10, 2003, and was subsequently appointed as Senior Vice President Finance &Chief Accounting Officer effective October 29, 2008. Ms. Brekken was appointed as Chief Financial Officer on April 3, 2011.

Ms. Brekken’s 2013 bonus of $126,000 was earned pursuant to the Annual Bonus Incentive Program.

Ms. Brekken’s 2012 bonus of $60,000 was earned pursuant to the Annual Bonus Incentive Program and $140,000 was earned pursuant to thefiscal 2012 Special Achievement Bonus Program.

Ms. Brekken’s 2011 bonus of $30,600 was earned pursuant to the Annual Bonus Incentive Program.

On November 19, 2010, Ms. Brekken was granted 5,000 stock options as part of a group stock option grant to senior level employees andExecutives. The Black-Scholes fair value of these options on the grant date is $13,120. The following assumptions were used in the calculationof the grant date fair value of these stock options: risk-free rate of 2.14%; time to maturity of 5.9 years; dividend yield of 3.00%; and volatility of23.6%.

On April 3, 2011, Ms. Brekken was granted 75,000 stock options in recognition of her appointment to the position of CFO. The Black-Scholesfair value of these options on the grant date is $222,308. The following assumptions were used in the calculation of the grant date fair value ofthese stock options: risk free rate of 2.68%; time to maturity of 5.3 years; dividend yield of 3.42%; and volatility of 32.8%.

On August 13, 2012, Ms Brekken was granted 20,000 stock options as part of a group employee stock option grant. The Black-Scholes fairvalue of these options on the grant date is $28,400. The following assumptions were used in the calculation of the grant date fair value of thesestock options: risk-free rate of 1.20%; time to maturity of 2.99 years; dividend yield of 5.21%; and volatility of 37.32%.

Pursuant to the RRSP matching program, the Company matched Ms. Brekken’s RRSP contribution of $8,124, $7,391, and $5,982, for fiscalyears 2013, 2012, and 2011, respectively.

(7) Ms. Gray was hired as Executive Vice President, Retail & Consumer Experience on July 5, 2007. Ms Gray’s title was changed to GroupExecutive Vice President, Consumer Experience & Print effective February 2012.

Ms. Gray’s 2013 bonus of $190,000 was earned pursuant to the Annual Bonus Incentive Program.

Ms. Gray’s 2012 bonus of $94,000 was earned pursuant to the Annual Bonus Incentive Program and $150,000 was earned pursuant to the fiscal2012 Special Achievement Bonus Program.

Ms. Gray did not receive a bonus payment in fiscal 2011.

On August 13, 2012, Ms Gray was granted 25,000 stock options as part of a group employee stock option grant. The Black-Scholes fair value ofthese options on the grant date is $35,500. The following assumptions were used in the calculation of the grant date fair value of these stockoptions: risk-free rate of 1.20%; time to maturity of 2.99 years; dividend yield of 5.21%; and volatility of 37.32%.

Pursuant to the RRSP matching program, the Company matched Ms. Gray’s RRSP contribution of $14,134, $12,181, and $12,205, for fiscalyears 2013, 2012, and 2011, respectively.

(8) Mr. Mortson was hired as Executive Vice President, Supply Chain on January 3, 2012.

Mr. Mortson’s 2013 bonus of $140,000 was earned pursuant to the Annual Bonus Incentive Program.

Mr. Mortson’s 2012 bonus of $35,000 was earned pursuant to the Annual Bonus Incentive Program.

Mr. Mortson received a $50,000 one-time bonus on January 3, 2013 as per his employment agreement, which is reflected in the All OtherCompensation column.

On January 3, 2012, Mr. Mortson was granted 100,000 stock options as per his employment offer. The Black-Scholes fair value of these optionson the grant date is $124,000. The following assumptions were used in the calculation of the grant date fair value of these stock options: risk freerate of 1.05%; time to maturity of 2.99 years; dividend yield of 5.87%; and volatility of 37.97%.

On August 13, 2012, Mr. Mortson was granted 20,000 stock options as part of a group employee stock option grant. The Black-Scholes fairvalue of these options on the grant date is $28,400. The following assumptions were used in the calculation of the grant date fair value of thesestock options: risk-free rate of 1.20%; time to maturity of 2.99 years; dividend yield of 5.21%; and volatility of 37.32%.

Pursuant to the RRSP matching program, the Company matched Mr. Mortson’s RRSP contribution of $10,500, and $875, for fiscal years 2013,and 2012, respectively.

(9) Mr. Oberai was hired as Vice President, Online on April 16, 2006 and was subsequently appointed as Chief Information Officer & ExecutiveVice President Digital effective August 20, 2012.

Mr. Oberai’s 2013 bonus of $136,493 was earned pursuant to the Annual Bonus Incentive Program.

Mr. Oberai’s 2012 bonus of $65,000 was earned pursuant to the Annual Bonus Incentive Program and $160,000 was earned pursuant to thefiscal 2012 Special Achievement Bonus Program.

Mr. Oberai did not receive a bonus payment in fiscal 2011.

On November 19, 2010, Mr. Oberai was granted 50,000 stock options as part of a group stock option grant to senior level employees andExecutives. The Black-Scholes fair value of these options on the grant date is $131,200. The following assumptions were used in the calculationof the grant date fair value of these stock options: risk-free rate of 2.14%; time to maturity of 5.9 years; dividend yield of 3.00%; and volatility of23.6%.

On August 13, 2012, Mr. Oberai was granted 20,000 stock options as part of a group employee stock option grant. The Black-Scholes fair valueof these options on the grant date is $28,400. The following assumptions were used in the calculation of the grant date fair value of these stockoptions: risk-free rate of 1.20%; time to maturity of 2.99 years; dividend yield of 5.21%; and volatility of 37.32%.

Pursuant to the RRSP matching program, the Company matched Mr. Oberai’s RRSP contribution of $10,125, $8,250, and $7,975, for fiscalyears 2013, 2012, and 2011, respectively.

28


OUTSTANDING OPTION-BASED AWARDS

The following table shows the number and value of outstanding stock options held by each of the NamedExecutive Officers as at March 30, 2013.

Option-Based Awards(1)

Name

Number ofSecurities

UnderlyingUnexercised

Options(#)

OptionExercisePrice ($) Option Expiration Date

Value ofUnexercisedin-the-moneyOptions(2) ($)

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . nil nil nil nilKay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 $ 8.00 August 13, 2017 $ 62,400Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 $12.88 April 3, 2021 nilKay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 $13.99 May 27, 2019 nilKay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 $15.21 November 19, 2020 nilKay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 $15.80 November 5, 2017 nilJoyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 $ 8.00 August 13, 2017 $ 78,000Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 $13.03 October 29, 2019 nilJoyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 $13.99 May 27, 2019 nilJoyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 $16.75 July 5, 2017 nilMichael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 $ 7.25 January 3, 2017 $387,000Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 $ 8.00 August 13, 2017 $ 62,400Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 $ 8.00 August 13, 2017 $ 62,400Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 $13.03 October 29, 2019 nilSumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 $13.50 April 17, 2016 nilSumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 $13.99 May 27, 2019 nilSumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 $15.21 November 19, 2020 nilSumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 $15.80 November 5, 2017 nil

(1) The information in this table represents outstanding option-based awards prior to the implementation of the Option Buyback Program.

(2) This column contains the aggregate dollar value of in-the-money vested and unvested unexercised options as at March 30, 2013, using theMarch 28, 2013 closing Share price of $11.12.

INCENTIVE PLAN AWARDS — VALUE VESTED OR EARNED DURING THE YEAR

The following table shows the value of any outstanding stock options held by each of the Named Executiveswhich vested during fiscal 2013 along with amounts earned under non-equity incentive compensation plans in fiscal2013. The value of the options has been calculated based on the closing share price on the date on which the optionsvested.

NameOption-Based Awards —

Value Vested During the Year(1) ($)Non-equity incentive plan compensation(2) —

Value Earned During the Year ($)

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . n/a nilKay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $126,000Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $190,000Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . $115,600 $140,000Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $136,493

(1) This column includes the aggregate dollar value that would have been realized if stock options were exercised on the vesting date.

(2) Non-equity incentive plan compensation includes amounts earned by an individual during a fiscal year under the Annual Bonus IncentiveProgram. Amounts earned under the Annual Bonus Incentive Program, where applicable, are paid out in the first quarter of the fiscal yearfollowing the fiscal year in which they were earned.

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MATERIAL TERMS AND CONDITIONS OF EMPLOYMENT AGREEMENTS

Indigo has employment agreements with its Chief Financial Officer; Group Executive Vice President ConsumerExperience & Print; Executive Vice President, Supply Chain; and its Chief Information Officer & Executive VicePresident Digital. The key terms of these agreements are outlined below.

Kay Brekken, Chief Financial Officer

Indigo has an employment agreement with its Chief Financial Officer, Ms. Kay Brekken. If Ms. Brekken’semployment had been terminated without cause on the last day of fiscal 2013, the Company would have been obligatedto pay out $467,250 to Ms. Brekken under the terms of this agreement.

Ms. Brekken’s employment contract is dated April 3, 2011, the date of her appointment to the role of ChiefFinancial Officer.

In the event that Ms. Brekken is terminated for any reason without cause she is entitled to: salary continuanceequal to twelve months of her base salary plus one additional month of salary-plus-target-bonus payment for eachadditional year or partial year of service, up to a maximum of 18 months’ salary continuation; a pro rata amount of thecorporate bonus portion of the Annual Bonus Incentive for the portion of the bonus period prior to terminationprovided that the bonus was actually payable for that period; and all benefit programs for the relevant period duringwhich salary continued except for long term disability and accidental death and dismemberment coverage. In the eventthat Ms. Brekken accepts alternate full time employment during the salary continuation period, she is entitled toreceive a final payment equal to 50% of the outstanding continuation payments.

Joyce Gray, Group Executive Vice President Consumer Experience & Print

Indigo has an employment agreement with its Group Executive Vice President Consumer Experience & Print,Ms. Joyce Gray. If Ms. Gray’s employment had been terminated without cause on the last day of fiscal 2013, theCompany would have been obligated to pay out $497,500 to Ms. Gray under the terms of this agreement.

Ms. Gray’s employment with the Company commenced on July 7, 2007.

In the event that Ms. Gray is terminated for any reason without cause, she is entitled to: salary continuance equalto nine months of her base salary; a pro rata amount of the corporate bonus portion of the Annual Bonus Incentive forthe portion of the bonus period prior to termination provided that the bonus was actually payable for that period; and allbenefit programs for the relevant period during which salary continued except for long term disability and accidentaldeath and dismemberment coverage.

Any such payments to Ms. Gray will cease in the event that she accepts alternate full time employment orconsulting work leading to full time employment.

Michael Mortson, Executive Vice President, Supply Chain

Indigo has an employment agreement with its Executive Vice President, Supply Chain, Mr. Michael Mortson. IfMr. Mortson’s employment had been terminated without cause on the last day of fiscal 2013, the Company would beobligated to pay out $350,000 to Mr. Mortson under the terms of this agreement.

Mr. Mortson’s employment contract is dated December 6, 2011. Mr. Mortson’s employment with Companycommenced on January 3, 2012.

In the event that Mr. Mortson is terminated for any reason without cause, he is entitled to: salary continuanceequal to twelve months of his base salary and all benefit programs for the relevant period during which salary iscontinued except for long term disability and accidental death and dismemberment coverage. In the event thatMr. Mortson accepts alternate full time employment during the salary continuation period, continuation payments willcease.

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Sumit Oberai, Chief Information Officer & Executive Vice President Digital

Indigo has an employment agreement with its Chief Information Officer & Executive Vice President Digital,Mr. Sumit Oberai. Mr. Oberai’s employment agreement does not include a termination clause. Accordingly, upontermination Mr. Oberai’s entitlement will be determined under common law.

Mr. Oberai’s employment contract is dated August 30, 2012; the date of his promotion to the position of ChiefInformation Officer.

Change of Control

Indigo does not have any plans or programs under which payments to any of the NEOs are triggered by a changeof control of the Company, a change in the NEO’s responsibilities or a constructive termination of the NEO.

The only payments or benefits payable by the Company in the event of termination of employment are thoseprovided under the terms of the Company’s existing compensation and benefits program or as provided for in the NEOemployment agreements.

The table below outlines the amounts that would be payable to each Named Executive Officer in the event oftermination without cause on the last day of fiscal 2013. In the event of termination with cause on the last day of fiscal2013, there would be no payments due to the NEO. In addition to the amounts outlined in the table below, Ms. Gray,Ms. Brekken and Mr. Mortson would be entitled to all benefit programs, except for long term disability and accidentaldeath and dismemberment coverage, for their respective continuance terms as noted above.

2013 Potential Payments Upon Termination

BaseSalary

Annual BonusIncentive

TotalPayout

Heather Reisman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . no written employment contract as described above

Kay Brekken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $341,250 $126,000 $467,250

Joyce Gray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $307,500 $190,000 $497,500

Michael Mortson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 n/a $350,000

Sumit Oberai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . no termination provision in employment agreement

Pension

The Company does not provide a pension plan to any of its employees.

COMPENSATION OF DIRECTORS

At the annual meeting on August 19, 2003, shareholders’ approval was received to create a directors’ DSU Plan.The DSU Plan provides for Outside Directors to receive deferred share units as compensation for their services.

Under the DSU Plan, Outside Directors receive 100% of their directors’ compensation in deferred share units.Each director will be entitled to the number of deferred share units equal to the amount of the cash compensation thedirector would otherwise receive divided by the closing price of a Share on the TSX as at the date of the grant. DSUsare not paid cash dividends, instead, pursuant to the DSU Plan, each director will be granted notional dividendequivalents in the form of additional DSUs in respect of normal cash dividends. Directors cannot redeem their DSUsuntil their Board service is terminated. Deferred share units will expire if they are not redeemed by the end of thecalendar year following the year in which a director’s Board service is terminated. Deferred Share Units are non-assignable and non-transferable.

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The value of the payout of DSUs is dependent on the value of Shares at the time of the redemption. There is noprotection for these directors from the possibility of declining Share prices. By tying the value of the OutsideDirectors’ payment to the Company’s Share performance and requiring the directors to hold their DSUs until theirBoard service comes to an end, the directors’ attention will be focused on the long-term performance of the Company,which, in turn, aligns their interests with the interests of our shareholders.

For a full summary of the DSU Plan please refer to the section entitled Summary of the DSU Plan on page 11 ofthis circular.

Compensation allocated to Indigo’s Outside Directors in fiscal 2013 is based on the following fee schedule:

Fee Description ($)

Annual Board Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Committee Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000

Committee Chair Retainer:

Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

HR and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500

Technology Advisor Retainer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500

Board Meeting Fees:

In Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

By Phone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000

Committee Meeting Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Committee Chair Meeting Fees:

Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500

HR and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500

The following grants of deferred share units were approved by our Board of Directors on May 28, 2013:

Name of DirectorNumber of Units

EarnedNumber of Units

Granted for NDEs(1)

Frank Clegg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,751 1,535

Jonathan Deitcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,441 1,892

Mitchell Goldhar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,825 684

James Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,949 3,193

Michael Kirby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199 3,915

Anne Marie O’Donovan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,509 503

(1) NDEs are notional dividend equivalents and represent the DSUs awarded to directors in respect of cash dividend payouts.

Directors’ compensation is determined by the Corporate Governance Committee based on regular review of athird party study of board compensation of Canadian companies similar in size to Indigo.

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DIRECTOR COMPENSATION TABLE

The following table outlines the dollar value of the compensation awarded to each Outside Director in fiscal 2013.All compensation received by Indigo directors for Board service is paid through equity-based compensation. There isno cash compensation paid to directors.

NameShare-based

AwardsAll Other

Compensation(1)Total

Compensation

Frank Clegg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,500 $14,865 $ 79,365

Jonathan Deitcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,000 $18,289 $ 51,289

Mitchell Goldhar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 $ 6,629 $ 33,629

James Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,500 $30,882 $107,382

Michael Kirby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $88,500 $37,861 $126,361

Anne Marie O’Donovan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,000 $ 4,888 $ 47,888

(1) The amounts shown under All Other Compensation includes the dollar value of the notional dividend equivalents (NDEs), awarded in the formof DSUs, granted to each Outside Director in respect of cash dividend payments in fiscal 2013.

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OUTSTANDING SHARE-BASED AWARDS FOR DIRECTORS

The following table shows the total number of deferred share units allocated to each outside Director for theirentire tenure as a director up to March 30, 2013, along with the market value of such units as calculated using theclosing share price of Indigo’s Shares on March 30, 2013.

Share-Based Awards

Name

Number of DSUsthat have not

been redeemed(1)

(#)

Market or payout valueof DSUs that have not

been redeemed($)

Frank Clegg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,572 $ 428,918

Jonathan Deitcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,714 $ 497,222

Mitchell Goldhar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,127 $ 190,457

James Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,813 $ 854,166

Michael Kirby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,869 $1,043,827

Anne Marie O’Donovan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,956 $ 155,194

(1) Each deferred share unit vests immediately and represents the right of the director to receive, after termination of Board service, one Shareissued from treasury.

SECURITY BASED COMPENSATION ARRANGEMENTS

The following is the summary of the Company’s security based compensation arrangements as of March 30, 2013and the information shown below is before the number of Shares reserved for issuance under the Stock Option Plan andthe DSU Plan were increased and before the Option Buyback Program.

Plan Category

Number of securities to beissued upon exercise of

outstanding options,warrants and rights(1)

Weighted-averageexercise price of

outstandingoptions, warrants

and rights

Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securities

which may be issued inconnection with outstanding

options, warrants and rights)(2)(3)

Equity compensation plansapproved by security holders . .

1,912,052 Shares $ 12.64 for options$ 10.21 for DSUs(4)

617,687 Shares

Equity compensation plans notapproved by security holders . .

none n/a n/a

Total . . . . . . . . . . . . . . . . . . . . . . . 1,912,052 Shares $ 12.64 for options$ 10.21 for DSUs

617,687 Shares

(1) Number of securities to be issued upon exercise of outstanding options, warrants and rights includes 1,627,000 Shares in relation to the StockOption Plan and 285,052 Shares in relation to the DSU Plan.

(2) Number of securities remaining available for future issuance under equity compensation plans includes 552,739 Shares in relation to the StockOption Plan and 64,948 Shares in relation to the DSU Plan.

(3) The maximum number of Shares reserved for issuance under the Stock Option Plan is 10% of the issued and outstanding Shares of theCorporation less 350,000 Shares and the maximum number of Shares reserved for issuance under the DSU Plan is 350,000 Shares, in each casebefore the amendments to those plans to be voted on at the meeting.

(4) The weighted-average exercise price of outstanding DSUs is calculated by dividing the aggregate grant date value of the issued and outstandingDSUs by the total number of issued and outstanding DSUs. The grant date value of the DSUs is determined by multiplying the Company’sShare price on the date of the DSU grant by the number of DSUs granted on that date.

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INDEBTEDNESS OF DIRECTORS AND EXECUTIVES

Indebtedness of Directors and Executives Under Other Programs

No officer, director, employee or former officer, director or employee of the Company, or any associates of theforegoing is or was during fiscal 2013 indebted to the Company.

Report Presented by:

(Signed) MICHAEL KIRBY

(Signed) JAMES HALL

(Signed) FRANK CLEGG

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STATEMENT OF CORPORATE GOVERNANCE PRACTICES

In 2005, the Ontario Securities Commission adopted NI 58-101 — Disclosure of Corporate Governance Practices(the “National Instrument”) for listed companies with respect to corporate governance. Indigo has the followingcorporate governance practices.

Board Responsibilities and Composition

The Board of Directors is responsible for the supervision of our management and for approving our overalldirection in a manner which is in our best interests. The Board of Directors participates fully in assessing andapproving strategic plans and prospective decisions proposed by management. To ensure that the principal businessrisks that are borne by Indigo are appropriate, the Board of Directors receives periodic reports from management of itsassessment and management of such risks. The Board of Directors regularly monitors our financial performance. Thismonitoring function often entails review and comment by the Board of Directors on various management reports. Ourinternal accounting and control procedures are monitored by the Audit Committee of the Board of Directors on behalfof the Board of Directors. The Audit Committee reviews detailed financial information contained in managementreports and hears and acts upon the recommendations of Indigo’s auditors. In respect of senior management successionplanning, the Board of Directors is involved in identifying candidates from within and outside Indigo to fill seniormanagement positions. The mandate of the Board is attached as Appendix “A” to this circular.

As a practice, the Board of Directors approves significant corporate communications with shareholders. TheBoard of Directors currently consists of nine members, all of whom are standing for re-election. Indigo has historicallyendeavoured to have a sufficient number of directors to encourage a variety of opinions on matters which come beforethe Board of Directors, while at the same time limiting its membership to a number of directors that facilitates effectiveand efficient decision making. While there are no specific criteria for Board of Directors’ membership, we seek toattract directors with a wealth of business knowledge and a diversity of business experience. Directors makerecommendations of new individuals to serve on the Board for consideration by the Corporate Governance Committeeas they become aware of suitable, available candidates.

A number of our directors sit on the boards of other reporting issuers. For each such director, the following tablelists the name of the reporting issuer on whose board of directors the director currently serves.

Director Reporting Issuer

Heather Reisman . . . . Onex Corporation

Mitchell Goldhar . . . . Calloway Real Estate Investment Trust

James Hall . . . . . . . . . Immunovaccine Inc.

Michael Kirby . . . . . . Extendicare REITMDC Partners Inc.Just Energy Income Fund

Gerald Schwartz . . . . Onex CorporationCelestica Inc.Bank of Nova Scotia (Honorary director)

Of the Board of Directors, Ms. O’Donovan, and Messrs. Clegg, Deitcher, Goldhar, Hall, and Kirby are consideredby the Board of Directors to be “independent directors” within the meaning of the National Instrument.

The remaining members are not independent within the meaning of the National Instrument, Ms. Reisman being amember of management, Mr. Schwartz being Ms. Reisman’s spouse, and Mr. Silver being a former Indigo employeeand now the President of Trilogy Growth, a partnership with Trilogy Retail Enterprises L.P., the majority shareholderof Indigo.

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The Board of Directors therefore has a majority of independent directors. A number of directors possess anextensive knowledge of the retailing and distribution businesses in Canada, and their participation as directorscontributes to the effectiveness of the Board of Directors.

The Board of Directors believes that six of the nine directors standing for election are independent directors whoare free from any interests in or relationships with the significant shareholder or any of its affiliates. The Board ofDirectors believes that the membership on the Board of Directors of these six directors fairly reflects the investment inIndigo by minority shareholders.

Indigo is controlled by Trilogy which, directly or indirectly, owns approximately 51.50% of the total number ofour outstanding common shares and is a “significant security holder” within the meaning of the National Instrument.

Mr. Schwartz controls Trilogy.

Board Functioning and Independence

The Board of Directors adopted a corporate governance policy which, among other things, sets out those matters,in addition to those required by statute, which must be brought by the CEO or other senior management to the Board ofDirectors for approval. The corporate governance policy ensures that all major strategic decisions, including anychange in our strategic direction and acquisitions and/or divestitures of a material nature, will be presented bymanagement to the Board of Directors for approval. As part of its ongoing activity, the Board of Directors regularlyreceives and comments upon reports of management as to the performance of Indigo’s business and management’sexpectations and planned actions in respect thereto.

Ms. Reisman is Chair of the Board of Directors and CEO of Indigo. In the view of the Board of Directors, the factthat Ms. Reisman occupies both offices does not impair the ability of the Board of Directors to act independently ofmanagement. They have reached this conclusion for the following reasons:

• six of the Corporation’s nine directors are independent;

• the Audit Committee is comprised solely of independent directors and meets on a regular basis; and

• all of the Board’s Committees are comprised exclusively of independent directors.

On May 18, 2006, the Board approved the appointment of Michael Kirby, a director, as our independent leaddirector (the “Lead Director”) who is responsible for ensuring that the Board functions independently of management.

On May 18, 2006, the Board also adopted the following governance practices:

• at each regular meeting, the Board shall routinely meet with Ms. Reisman and the Corporation’s ChiefFinancial Officer without the presence of other members of management to consider any matter not easily orappropriately discussed in the larger forum. The topics discussed may include the effectiveness of themeeting just concluded, the performance of any individual member of management or the Board, theperformance of the Board itself, or, indeed, any matter of concern to any director;

• the Board, at each meeting other than unscheduled meetings called for the sole purpose of approving specifictransactions, shall have a session in the absence of Ms. Reisman, or any other member of management;

• the performance of Ms. Reisman will be considered in the absence of Ms. Reisman and Mr. Schwartz at leastonce a year when her compensation is settled; and

• any member of the Board may provide to the Lead Director agenda items for discussion at any meeting andthe Lead Director has the right to place items on the Board’s agenda in his or her discretion.

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It is within the Board’s discretion to request and hold meetings among only independent directors if they deemsuch a meeting necessary to allow for open and candid discussion among the independent directors. It is the generalpractice for the full board of directors to meet without management, but with the CEO present, following all regularlyscheduled in-person board meetings. Four such Board meetings were held in fiscal 2013.

All Committees of the Board are comprised solely of independent directors. In fiscal 2013 there were a total of 12meetings of independent directors meeting in their capacity as Audit, HR and Compensation and CorporateGovernance Committee members. The Committee members meet in camera, without the presence of management, atthe conclusion of each such meeting. The Board feels that these regularly scheduled committee meetings allow forcandid discussion among independent directors.

The corporate governance policy provides a formal position description for the office of the CEO. The Board ofDirectors has approved formal corporate objectives which the CEO is responsible for achieving. The Board ofDirectors, the Human Resources and Compensation Committee and the CEO engage in regular ongoing dialogueregarding the performance of the senior management team in achieving Indigo’s strategic objectives as recommendedby management and approved by the Board of Directors.

Board Committees

The Board of Directors has an Audit Committee, a Human Resources and Compensation Committee and aCorporate Governance Committee. Each committee has a formal mandate outlining its responsibilities and itsobligations to report its recommendations and decisions to the Board of Directors, as well as a written positiondescription of each committee chair.

The Audit Committee is composed of four Outside Directors, all of whom are independent. The Audit Committeeis responsible for the oversight of Indigo’s internal accounting and control systems. It receives and reviews thefinancial statements, annual and special meeting materials and other disclosure documents of Indigo and makesrecommendations thereon to the Board of Directors before such statements, materials and documents are approved bythe Board of Directors. The Audit Committee communicates directly with Indigo’s auditors in order to discuss auditand related matters whenever appropriate.

The Human Resources and Compensation Committee is composed of three Outside Directors, all of whom areindependent. The Human Resources and Compensation Committee has been charged by the Board of Directors withthe responsibility of reviewing and making recommendations to the Board of Directors regarding compensationpolicies and practices. Specifically, the Committee’s charter provides that the Committee shall: obtain appropriateinformation about compensation policies and payments by Canadian companies of a comparable size to Indigo;establish objectives, evaluate performance, recommend compensation, and develop a process for succession planning;review and approve appointments, promotions, terminations of senior management; and recommend grants of stockoptions subject to the Board of Directors’ subsequent ratification. The composition, expertise, and role of theCommittee is described in detail in the Compensation Discussion and Analysis above.

The Corporate Governance Committee is composed of three Outside Directors, all of whom are independent. It isresponsible for proposing to the full Board of Directors new nominees to the Board of Directors and for assessingdirectors on an ongoing basis. The Committee uses an annual questionnaire of Board members on corporategovernance and the effectiveness of the Board as a tool to assess individual directors and the Board as a whole. TheCommittee establishes qualifications for new directors, and evaluates proposed directors against this framework. ThisCommittee performs the role which might otherwise be served by a nominating committee, and serves to educate newboard members by providing an information package of all relevant governance material, and by inviting new membersto conduct due diligence on the Corporation, and to interview existing independent directors. The Committee promotescontinuing education for existing Board members by providing informative material to the Board in advance of regularBoard meetings and by providing regular business update presentations from key business units describingperformance against stated business objectives. These educational sessions, which coincide with regular Board

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meetings, cover one or more aspects of the business, and typically follow an informal presentation and open discussionformat. Committees are empowered to engage, or to request that management engage, outside advisors at our expense.

The Board of Directors would also consider any such request by an individual member of the Board of Directorson its merits at the time it was made.

Ethical Business Conduct

The Board of Directors has approved the Corporation’s written code of conduct (the “Code”), which is intended tobe observed by all directors and employees of Indigo. The Code is a set of standards and expectations that serves as aguideline for all employees to follow. A copy of the Code can be obtained on SEDAR at www.sedar.com. TheCorporation also has a whistleblower policy pursuant to which directors, officers and employees are encouraged toreport violations of the Code. The Company has implemented employee hotlines to enable employees to seek supportand to report violations of the Code. The Company provides annual training with respect to ethical and complianceissues and ensures that every employee reviews and acknowledges, in writing, their understanding and acceptance ofthe Code each year. The Board has concluded that such measures are appropriate and sufficient to ensure compliancewith the Code.

The Board encourages and expects directors to disclose any perceived conflicts and to abstain from voting on anysuch matters.

Shareholder Communications

We endeavour to keep all shareholders well informed as to our financial performance, primarily by means of ourannual and quarterly reports.

We shall provide to any person, upon request, a copy of: (i) our current Annual Information Form; (ii) thecomparative financial statements for our most recently completed financial year together with the accompanying reportof the auditor and related management’s discussion and analysis (“MD&A”); and (iii) one copy of any of our interimfinancial statements and related MD&A for any subsequent fiscal periods, provided that we may require payment of areasonable charge if the request is made by a person who is not one of our security holders.

With the approval of the Board of Directors, management has appointed Ms. Heather Reisman, our ChiefExecutive Officer, as the individual responsible for receiving shareholder inquiries and dealing with shareholderconcerns. While being guided by regulatory requirements and Indigo’s policies with respect to confidentiality anddisclosure, Ms. Reisman is available for interviews by stakeholders, including analysts, the media, and investors.Ms. Reisman endeavours to respond promptly and appropriately to all such requests and/or inquiries.

AUDIT COMMITTEE INFORMATION

Information regarding our Audit Committee may be found in the section entitled “Audit Committee” in ourAnnual Information Form for the financial year ended March 30, 2013. A copy of the Annual Information Form can beobtained by contacting us at 468 King Street West, Suite 500, Toronto, Ontario, Canada, M5V 1L8 and will beavailable on SEDAR at www.sedar.com.

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE

We purchase and maintain liability insurance for the benefit of the directors and officers to cover liability incurredby such persons in such capacities. The policy provided for coverage in the amount of $21,000,000 with deductibleamounts ranging from $0 to $75,000 for the year ended March 30, 2013, and $0 to $75,000 for the year endedMarch 31, 2012.

For the year ended March 30, 2013, the premium cost of this insurance was $74,000.

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ADDITIONAL INFORMATION

Financial information for the financial year ended March 30, 2013, is provided in our comparative financialstatements and MD&A which are included in the Annual Report. Security holders who wish to request a copy of, or tobe added to the mailing list, for the annual and interim financial statements and MD&A should contact us at 468 KingStreet West, Suite 500, Toronto, Ontario, Canada, M5V 1L8.

Copies of our current Annual Information Form, together with one copy of any document, or the pertinent pagesof any document incorporated by reference in the current Annual Information Form; our most recently filedcomparative annual financial statements, together with the accompanying report of the auditor, and any of our interimfinancial statements that have been filed for any period after the end of our most recently completed financial year; andthis circular are available to anyone, upon request, from the Secretary of the Corporation, and without charge to oursecurity holders.

The Annual Report (including the financial statements and MD&A), our current Annual Information Form, andother information relating to the Corporation is available on SEDAR at www.sedar.com.

DIRECTORS’ APPROVAL

The contents of this circular and its sending to our shareholders have been approved by our directors.

By Order of the Board of Directors

Kay BrekkenChief Financial Officer

Toronto, CanadaMay 24, 2013

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Appendix “A”

INDIGO BOOKS & MUSIC INC.

(the “Corporation”)

Mandate of theBoard of Directors

1. PURPOSE

The purpose of this Mandate is to clarify and to define the boundaries between the roles and responsibilities ofmanagement and the Board of Directors of the Corporation (the “Board”). The Board does not manage theCorporation; rather it delegates this function to management, and then supervises and evaluates management’sexecution of Board approved strategies and business plans.

2. PRINCIPAL DUTIES OF THE BOARD

(a) General

The Board must be fully informed of the Corporation’s affairs, be actively engaged in the development of theCorporation’s strategic direction and must supervise how that direction is conducted by management. Indoing so, the Board is responsible to appoint a competent executive management team. The Board willoversee and monitor the management of the business of the Corporation by that team.

The Corporation will maximize its wealth and well-being through thoughtful, independent businessdecisions. Through an appropriate system of corporate governance and financial controls, the Board willensure fair financial reporting to the public, as well as ethical and legal corporate conduct. To ensure that thedecisions and actions of management serve the interests of the Corporation, the Board will carry out itsMandate through the following committees of the Board: the Audit Committee, the Human Resources andCompensation Committee, and the Corporate Governance Committee. The Board may also appoint othercommittees from time to time.

(b) Satisfy Itself as to the Integrity of Management

The Board will satisfy itself as to the integrity of the chief executive officer (“CEO”) and senior managementof the Corporation through monitoring compliance with the Corporation’s Code of Business Conduct (the“Code”) and its Whistleblower Policy. The Board will satisfy itself that the CEO and senior managementcreate a culture of integrity throughout the organization by overseeing and monitoring management to ensurea culture of integrity is maintained.

(c) Adoption of a Strategic Planning Process

• The Board will adopt a strategic planning process and review and approve annually a corporate strategicplan for the operating subsidiaries of the Corporation which takes into account, among other things,industry and other trends, product strategies, new product developments, major new business, capitalexpenditures, specific problem areas, action plans, and the opportunities and risks of the business.

• The Board will review operating and financial performance results relative to established strategy,budgets and objectives.

• The Board will monitor the progress of the Corporation against the goals addressed in the strategic plan.

(d) Identification of Principal Risks and Implementing Managing Systems

• The Board will identify and review with management the principal business risks to the Corporation.The Board will ensure that appropriate procedures are implemented to monitor and mitigate those risks.

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• The Board will ensure that effective systems are in place to monitor the integrity of the Corporation’sinternal controls and management information systems.

• The Board will confirm that management processes are in place to address and comply with applicablecorporate, securities and other compliance matters, as well as with applicable laws and regulations.

• The Board will confirm and monitor that processes are in place to comply with the Corporation’s by-laws, Code of Business Conduct and Whistleblower Policy.

(e) Succession Planning (Appointment, Training and Monitoring Management)

The Board delegates authority to the CEO for the overall management of the Corporation. This includesstrategy and operations to ensure the Corporation’s long term success. To ensure the integrity of the CEO, theBoard will:

• approve the Human Resources and Compensation Committee’s position description for the CEO. Thisposition description will delineate management’s responsibilities and the corporate goals and objectivesthat the CEO is responsible for meeting;

• assess the performance of the CEO against a set of mutually agreed corporate objectives through aprocess that includes a comparison of the CEO’s performance against the duties outlined in the CEOposition description and review of the CEO’s performance by the Board and the Human Resources andCompensation Committee; and

• approve CEO compensation as determined by the Human Resources and Compensation Committee,through a process described in its charter.

In meeting its responsibility for ensuring succession planning, the Board will satisfy itself that managementpossesses the necessary level of integrity, skill and experience. In doing so, the Board will:

• establish boundaries between Board and management responsibilities and establish limits of authoritydelegated to management. In doing so, the Board will decide how engaged it wants to be in influencingmanagement’s decisions and the Corporation’s direction. The CEO and the directors will agree amongstthemselves which level of Board engagement best fits the Corporation;

• appoint corporate Officers and approve their compensation, based on level and amount of responsibility,as recommended by the Human Resources and Compensation Committee;

• monitor the performance of the CEO against corporate objectives directed at maximizing the financialvalue of the Corporation; and

• establish a process to adequately provide for CEO succession.

(f) Communications Policy

The Board will confirm that management has established a system for corporate communications toshareholders and the public, including processes for consistent, transparent and timely public disclosure. Indoing so, the Board will:

• adopt a communications and disclosure policy relating to, among other matters, the confidentiality ofthe Corporation’s business information and conflicts of interest;

• ensure the Corporation maintains the communications systems to effectively communicate with itsstakeholders. These programs include the corporate disclosure policy and Whistleblower Policy, and

• assure themselves that information and reporting systems exist in the Corporation that are reasonablydesigned to provide timely accurate information sufficient to allow themselves and management toreach informed decisions.

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(g) Approach to Corporate Governance and Governance Guidelines

Transparency, accountability and integrity are not just key elements of good governance, but are fundamentalvalues to the Corporation. To ensure that the Corporation continues to uphold a high standard in governancepractices, the Board will:

• appoint a Corporate Governance Committee composed of directors who meet the criteria forindependence contained in applicable laws and stock exchange rules and regulations;

• clearly articulate what is expected from a director by developing a position description for directors, theChair, the CEO and the chair of each Board committee;

• review and assess the adequacy of the Audit Committee charter on an annual basis; and

• review and assess the adequacy of the Corporate Governance Committee charter on an annual basis.

3. BOARD ORGANIZATION

The Corporation will only recruit individuals who have sufficient time and energy to devote to the task of being adirector.

(a) Qualifications

The Board will determine Board member qualifications. In doing so, the Board will first determine thecompetencies and skills the Board as a whole is expected to possess. The Board will then determine whatcompetencies and skills existing directors have, to ensure the capabilities and qualities of each directorcontribute to the Board’s role in the Corporation.

(b) Composition

The Board will consist of directors who represent diverse personal experiences and backgrounds, particularlyamongst the independent directors. At a minimum, each director shall have demonstrated the highestpersonal and professional integrity; significant achievement in his or her field; experience and expertiserelevant to the Corporation’s business; a reputation for sound and mature business judgment; thecommitment to devote the necessary time and effort in order to conduct his or her duties effectively; and,where required, financial literacy.

(c) Size

The Corporation’s articles permit a maximum of 20 directors. To facilitate effective decision-making, theBoard believes that the appropriate size of the Board is in the range of 8 to 12 directors.

(d) Independent Directors

The Board will ensure that the Board is composed of a majority of independent directors.

4. NOMINATION OF DIRECTORS

Although directors may be nominated to bring special expertise or a point of view to Board deliberations, they arenot chosen to represent a particular constituency. The best interests of the Corporation must be paramount at all times.To ensure this, the Board will:

• appoint a Corporate Governance Committee composed of independent directors; and

• confirm a formal process for selecting directors by the Corporate Governance Committee.

A-3

5. BOARD INDEPENDENCE

To promote the effective functioning of the Board and its committees, the Board will:

• establish committees composed of independent directors and approve their respective charters and thelimits of authority delegated to each committee; and

• ensure that, at the Corporation’s expense, the Board and its committees may retain outside legal andother experts where reasonably required to assist and advise the Board and committees in carrying outtheir duties and responsibilities.

6. EVALUATION

The Board will establish appropriate processes for the regular evaluation of the effectiveness and performance ofthe Board, the Board’s mandate, Board committees, the charters of each Board committee, individual directors and theposition descriptions applicable to each individual director.

7. BOARD COMPENSATION

The Board will review the adequacy and form of directors’ compensation to ensure it realistically reflects theresponsibilities and risks involved in being a director. Therefore, the Board will:

• appoint a Corporate Governance Committee composed entirely of independent directors; and

• approve the Corporate Governance Committee’s process and determination of directors’ compensation.This process is outlined in the Corporate Governance Committee charter.

8. ETHICAL BUSINESS CONDUCT

To encourage and promote a culture of ethical business conduct in the Corporation, the Board has adopted aWhistleblower Policy and a Code of Business Conduct (the “Code”) for directors, officers and employees, monitorscompliance with that Code and has made the Code publicly available.

9. MEASURES FOR RECEIVING FEEDBACK FROM SECURITY HOLDERS

Interested investors and analysts may, after all significant public announcements, including the release of interimand annual financial information, discuss with Senior Officers the impact on the Corporation of such information. TheCEO and the Chief Financial Officer are available to discuss matters of concern to shareholders. They can be reachedat:

Indigo Books & Music Inc.tel: (416) 364-4499fax: (416) 640-8922

10. BOARD’S EXPECTATION OF MANAGEMENT

The Board expects management to act in the best interests of the Corporation. To this end, management willuphold the highest standards of ethical behaviour, expressed by the values set out in the Corporation’s Code ofBusiness Conduct and will create a culture of integrity throughout the Corporation. Management is expected to striveto enhance the financial value and the long term sustainability of the Corporation.

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