2008 Ruling 2007-0240271R3 - Purchase and bump

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Acquisico 1 acquired the shares of Target. Target then amalgamates with a wholly-owned subsidiary (Subco 2) to form Amalco 1. Acquisico 1 then amalgamates with Amalco 1 to form Amalco 2, and the latter designates an amount under 88(1)(d). (1) When is control of the subsidiary referred to in 88(1)(c)(vi) (namely, Amalco 1) acquired? (2) Would the acquisition by Target or Subco 2 of of assets of Amalco 1 acquired by Amalco 2 or of property substituted therefor taint the bump under 88(1)(c)(vi)(B)(I) as a result of 88(4) being applied to (i) make Target a specified shareholder of Amalco 1; (ii) make Subco 2 a specified shareholder of Amalco 1; (iii) make Target and Subco 2 the same corporation as and a continuation of Amalco 1 (i.e. the subsidiary for the purposes of that definition).

Position: (1) Based on the presumption of subsection 88(4), control of Amalco 1 was acquired when Acquisico 1 acquired control of Target and Subco 2. (2) We can ignore acquisitions of property by Target. Acquisitions by other companies of the Target group other than Subco 2 would have to be examined separately.

Reasons: (1) The amalgamation of Target and Subco 2 does not result in an acquisition of control of Amalco 1 but Amalco 1 is deemed to be a continuation of its predecessors for the purposes of 88(1) (88(4)). (2) 88(1)(c)(vi) is generally meant to prevent subsequent sale back of bumped assets and 88(1)(c.2)(iii)(B) precludes a corporation from being a specified shareholder of itself.

XXXXXXXXXX 2007-024027

XXXXXXXXXX , 2008

Re: Advance Income Tax Ruling - XXXXXXXXX . (Business Number XXXXXXXXX , XXXXXXXXX TSO, XXXXXXXXX Taxation Centre)

This is in reply to your ruling request dated XXXXXXXXXX and amended on XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX . We also acknowledge receipt of your emails as well as our telephone conversations. The documents submitted with your request are only part of this document to the extent described herein.

To the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in this ruling is:

(i) in an earlier return of the above-referenced taxpayer or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the above-referenced taxpayer or a related person;

(iii) under objection by the above-referenced taxpayer or a related person;

(iv) before the courts; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

The above-referenced taxpayer has confirmed that the Proposed Transactions will not affect its ability to pay any of its outstanding tax liabilities.

All statutory references herein are to provisions of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c. 1, as amended to the date hereof (the "Act") and all references to monetary amounts are in U.S. dollars.

DEFINITIONS

In this letter, the following terms have the meanings specified:

"ACB" has the meaning assigned to the expression "adjusted cost base" in section 54;

"Acquisico 1" means XXXXXXXXXX ., a corporation incorporated under the First Act and a wholly-owned direct subsidiary of Parent. Acquisico 1's executive offices are located at XXXXXXXXXX . Acquisico 1's authorized capital includes an unlimited number of common shares;

"Acquisico 1 Debt" means a debt incurred by Acquisico 1 having a principal amount equal to the excess of the fair market value of Target Business A over the aggregate of the borrowing costs incurred in respect of that debt, the amount of the equity paid by Parent to Acquisico 1 and the amount of the loans made by Parent to Acquisico 1. The original lenders were XXXXXXXXXX . The mandated lead arrangers were XXXXXXXXXX ;

"Acquisico 2" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX and a wholly-owned direct subsidiary of Parent;

"Affiliate" means, with respect to any Person, any other Person, directly or indirectly controlling, controlled by, or under common control with, such Person. For purposes of this definition, the term "control" (including the correlative terms "controlling", "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise;

"Amalco 1" means the corporation resulting from the First Amalgamation. Amalco 1's authorized capital includes an unlimited number of voting and fully-participating common shares;

"Amalco 2" means XXXXXXXXXX ., the corporation resulting from the Second Amalgamation. Amalco 2's authorized capital includes an unlimited number of voting and fully-participating common shares;

"Amended Note 3" means an amended and restated non-interest-bearing promissory note. The principal amount of Amended Note 3 is equal to the amount owing under Note 3;

"Arm's Length" has the meaning assigned by section 251;

"Arrangement" means the arrangement under the provisions of section 192 of the First Act as set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with the terms of the Arrangement Agreement or the Plan of Arrangement or made at the direction of the Court in the Final Order;

"Arrangement Agreement" means the Arrangement Agreement dated XXXXXXXXXX , among Parent, Acquisico 1 and Target, as amended and restated. Among other things, the Arrangement Agreement provides for the Arrangement;

"Articles of Arrangement" means the articles of arrangement of Target in respect of the Arrangement that were required by the First Act to be filed after the Final Order was made in order for the Arrangement to become effective;

"Capital Property" has the meaning assigned by section 54;

"Certificate of Arrangement" means the certificate of arrangement issued pursuant to subsection 192(7) of the First Act in respect of the Articles of Arrangement;

"Court" means the XXXXXXXXXX

"CRA" means the Canada Revenue Agency;

"Dissenting Holder" means the Holder of a Target Share who would have been entitled to exercise a right of dissent in respect of the approval of the Arrangement pursuant to and in the manner set forth in section 190 of the First Act, as modified by the Plan of Arrangement and the Court;

"Draft Legislation" means Part 2 of the "Legislative Proposals and Draft Regulations relating to Income Tax" released by the Minister of Finance on February 27, 2004;

"Effective Date" means the date of XXXXXXXXXX appearing on the Certificate of Arrangement;

"Effective Time" means XXXXXXXXXX on the Effective Date;

"Excluded Property" has the meaning assigned by subsection 95(1);

"Final Order" means the final order of the Court approving the Arrangement, dated

XXXXXXXXXX ;

"First Act" means the Canada Business Corporations Act, R.S.C. 1985 c. C.44, as amended;

"First Amalgamation" means the amalgamation of Target and Subco 2 to form Amalco 1;

"First Exchange" means the XXXXXXXXXX Stock Exchange;

"Foreign Affiliate" has the meaning assigned by subsection 95(1);

"GP 1" means XXXXXXXXXX , a general partnership formed under the laws of XXXXXXXXXX and in which Subco 1 and Subco 2 have a XXXXXXXXXX % and XXXXXXXXXX % interest respectively. Subco 1's capital invested in GP 1 is $XXXXXXXXXX and Subco 2's capital invested in GP 1 is $XXXXXXXXXX ;

"GP 1 Sub A" means XXXXXXXXXX , an unlimited liability company incorporated under the XXXXXXXXXX all of the shares of which are owned by GP 1 and were acquired for $XXXXXXXXXX ;

"GP 1 Sub A Loan" means the $XXXXXXXXXX non-interest-bearing demand loan made by GP 1 to GP 1 Sub A;

"GP1 Sub B" means XXXXXXXXXX , a limited liability company incorporated under the laws of XXXXXXXXXX . GP 1 Sub A acquired for $XXXXXXXXXX all the issued and outstanding shares of GP1 Sub B;

"GP1 Sub B Loan" means the $XXXXXXXXXX non-interest-bearing demand loan made by GP 1 Sub A to GP1 Sub B;

"GP 1 Third Party Debt" means the approximately $XXXXXXXXXX third-party debt incurred by GP 1;

"GP 2" means XXXXXXXXXX , a general partnership formed under the laws of XXXXXXXXXX . GP 2 operates XXXXXXXXXX ;

"Holders" means (a) when used with reference to the Target Shares, the holders thereof shown from time to time in the register of holders of Target Shares maintained by or on behalf of Target and, where the context so provides, includes joint holders of such Target Shares, (b) when used with reference to the Target Options, Target Deferred Share Units, Target Deferred Share Equivalent and Target Performance Units means the holders thereof shown from time to time in the register maintained by or on behalf of the Target in respect of Target Options, Target Deferred Share Units, Target Deferred Share Equivalent and Target Performance Units;

"Ineligible Property" has the meaning assigned by paragraph 88(1)(c);

"Merger" means the merger of Merger LLC and Sub 1, with Merger LLC being the surviving entity;

"Merger LLC" means a limited liability company incorporated under the laws of XXXXXXXXXX ;

"Note 1" means the promissory note representing indebtedness of Acquisico 2 to Parent. Note 1 was not convertible into shares and interest payable on Note 1 was not dependent on the income or profit of a corporation. Note 1 had a principal amount equal to the fair market value of the consideration for which it was issued;

"Note 2" means the promissory note representing indebtedness of Acquisico 1 to Parent. Note 2 was not convertible into shares and interest payable on Note 2 was not dependent on the income or profit of a corporation. Note 2 had a principal amount equal to the fair market value of the consideration for which it was issued;

"Note 3" means the promissory note representing the XXXXXXXXXX -year interest-bearing loan to Acquisico 1 from Acquisico 2. Note 3 was not convertible into shares and interest payable on Note 3 was not dependent on the income or profit of a corporation. Note 3 had a principal amount equal to the fair market value of the consideration for which it was issued;

"Note 4" means the promissory note representing indebtedness of Sub 1 and/or other Target U.S. Affiliates to Acquisico 2. The principal amount of Note 4 equalled the value of Sub 1 obligations to pay US employees' tax remittances, reimburse Target for employee cash-out payments in accordance with the Plan of Arrangement and to repay certain outstanding indebtedness of Sub 1 and other U.S. Affiliates. Note 4 was not convertible into shares and interest payable on Note 4 was not dependent on the income or profit of a corporation;

"Note 5" means the promissory note representing indebtedness of GP 1 to Acquisico 2. Note 5 was not convertible into shares and interest payable on Note 5 was not dependent on the income or profit of a corporation. Note 5 had a principal amount equal to the fair market value of the consideration for which it was issued;

"Note 6" means the promissory note representing indebtedness of Target to Acquisico 1. Note 6 was not convertible into shares and interest payable on Note 6 was not dependent on the income or profit of a corporation. The principal amount of Note 6 was equal to the obligations of Target under the Target Stock Plans;

"Note 7" means the promissory note representing indebtedness of Subco 2 to Subco 1. Note 7 had a principal amount equal to the fair market value of the consideration for which it was issued;

"Note 8" means the U.S.-dollar-denominated promissory note representing indebtedness of Acquisico 2 to Subco 2. The principal amount of Note 8 was equal to the excess of the fair value of the GP1 Sub B shares over the principal amount of Note 5;

"Note 9" means the interest-free, Canadian-dollar-denominated, demand promissory note issued by Acquisico 1 to Subco 2 for an amount equal to the Canadian dollar equivalent of the principal amount of Note 8;

"Paragraph" refers to a numbered paragraph in this letter;

"Parent" means XXXXXXXXXX corporation publicly traded on the XXXXXXXXXX Stock Exchange. Parent is a XXXXXXXXXX As of XXXXXXXXXX , Parent had approximately XXXXXXXXXX employees and had operations or offices in XXXXXXXXXX countries. Parent's executive offices are located at XXXXXXXXXX ;

"Parent Debt" means a loan made to Parent to finance the acquisition of the Target Shares. The original lenders were XXXXXXXXXX . The mandated lead arrangers are XXXXXXXXXX ;

"permanent establishment" in respect of Parent, has the meaning assigned for the purposes of the Convention Between Canada and XXXXXXXXXX for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital and in respect of Acquisico 2, has the meaning assigned for the purposes of the Convention Between Canada and the XXXXXXXXXX with Respect to Taxes on Income and on Capital;

"Person" means any natural person, trust, partnership, company (including companies with limited or unlimited liability) or body corporate;

"Plan of Arrangement" means the plan of arrangement of the Arrangement;

"Private Corporation" has the meaning assigned by subsection 89(1);

"Proposed Transactions" means the transactions described in the proposed transactions section in this letter;

"Proxy Statement" means the material, including Management Information Circular of Target, filed with the Securities and Exchange Commission in the United States and Canadian securities regulators, including the Notice of Special Meeting and all schedules, appendices and exhibits and all documents incorporated by reference;

"Public Corporation" has the meaning assigned by subsection 89(1);

"Purchase Price" means $XXXXXXXXXX per Target Share;

"Related" has the meaning assigned by section 251;

"Rights" means rights issued under the Rights Plan;

"Rights Plan" means the Shareholder Rights Agreement entered into by Target and XXXXXXXXXX under which, by virtue of a right attached to each Target Share that did not trade separately from the Target Share, a shareholder was entitled to acquire Target Shares at a significant discount to the market price if a person acquired (or announced an intention to acquire) more than XXXXXXXXXX % of the shares of the company, without the support and approval of the Board of Directors;

"Second Amalgamation" means the amalgamation of Acquisico 1 and Amalco 1 to form Amalco 2;

"Specified Shareholder" has the meaning assigned by subsection 248(1), when read in conjunction with subparagraph 88(1)(c.2)(iii);

"Stock Purchase Agreement" means the stock purchase agreement entered into by Parent and XXXXXXXXXX and announced by Parent on XXXXXXXXXX . According to the Stock Purchase Agreement, Parent will sell for US$XXXXXXXXXX in cash to XXXXXXXXXX the subsidiaries that constitute the XXXXXXXXXX business acquired as part of the acquisition of Target. The acquired subsidiaries will include Amalco 2, and the following U.S. entities: XXXXXXXXXX . Sub 3 and the Sub 3 Subs and XXXXXXXXXX . Prior to the disposition of the shares of Amalco 2 under the Stock Purchase Agreement, Amalco 2 will transfer Subco 4, Subco 6 and a newly formed subsidiary (which will have acquired certain business assets and assumed certain liabilities which were formerly assets of Amalco 2 and of Subco 5) to Parent. XXXXXXXXXX has announced that it will sell XXXXXXXXXX ., Sub 3 and the Sub 3 Subs for approximately $XXXXXXXXXX to XXXXXXXXXX in an arm's length back-to-back transaction;

"Sub 1" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX , of which Target owns XXXXXXXXXX % of the common shares and Subco 2 owns XXXXXXXXXX % of the common shares;

"Sub 1 Subs" means XXXXXXXXXX ;

"Sub 1A" means XXXXXXXXXX , an unlimited liability company incorporated under the XXXXXXXXXX ;

"Sub 1B" means XXXXXXXXXX , a limited liability company incorporated under the laws of XXXXXXXXXX ;

"Sub 2" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX ;

"Sub 2 Loan 1" means the interest-bearing loan that Sub 2 owed to GP1 Sub B;

"Sub 2 Loan 2" means the interest-bearing loan that Sub 2 owed to Sub 1B;

"Sub 3" means XXXXXXXXXX ;

"Sub 3 Subs" means XXXXXXXXXX

"Subco 1" means XXXXXXXXXX ., a corporation incorporated under the First Act;

"Subco 2" means XXXXXXXXXX ., a corporation incorporated under the First Act;

"Subco 3" means XXXXXXXXXX ., a corporation incorporated under the First Act;

"Subco 4" means XXXXXXXXXX ., a corporation incorporated under the XXXXXXXXXX ;

"Subco 5" means XXXXXXXXXX , a corporation incorporated under the First Act;

"Subco 6" means XXXXXXXXXX , a corporation incorporated under the XXXXXXXXXX ;

"Subsidiary" of a Person means another Person of which the Person directly or indirectly owns securities or other ownership interests having voting power to elect a majority of the board of directors or other Persons performing similar functions (or, if there are no such voting interests, more than 50% of the equity interests of the other Person);

"Target" means XXXXXXXXXX ., a public corporation incorporated under the First Act whose shares were listed on the First Exchange and the XXXXXXXXXX Stock Exchange. Target's authorized capital consisted of an unlimited number of common shares, an unlimited number of first preferred shares and an unlimited number of second preferred shares;

"Target Business" includes the operation of XXXXXXXXXX ;

"Target Business A" means the part of the Target Business carried on in Canada (principally through GP 2 and Subco 2 (or its successors, Amalco 1 and Amalco 2) and Subco 5, but also through Target and its other Subsidiaries);

"Target Business B" means the part of the Target Business carried on in the U.S. (a significant portion of the US operations of Target (or its successors, Amalco 1 and Amalco 2) and its Subsidiaries are carried on through Sub 2 and its Subsidiaries);

"Target Deferred Share Equivalent" means the XXXXXXXXXX nominal Target Shares that were credited to a participant's account pursuant to Target's Executive Deferred Compensation Incentive Plan, before they were cancelled as described at Paragraph 31(d);

"Target Deferred Share Units" means the XXXXXXXXXX outstanding deferred share unit granted under Target's Deferred Share Unit Plan for Directors;

"Target Options" means the outstanding options granted under Target's Incentive Share Plan to purchase XXXXXXXXXX common shares of Target;

"Target Performance Units" means the XXXXXXXXXX outstanding performance units granted under Target's Incentive Share Plan representing the opportunity to earn up to XXXXXXXXXX common shares of Target;

"Target Restricted Shares" means the XXXXXXXXXX outstanding Target Shares granted under Target's Incentive Share Plan to officers of Target that vested at the end of XXXXXXXXXX years of continued employment, during which the holder of each Target Restricted Share was entitled to all of the rights of a holder of Target Shares, including the right to receive dividends and to vote the shares, but excluding the right to dispose of the Target Restricted Shares;

"Target Shares" means the XXXXXXXXXX issued and outstanding common shares of the capital stock of Target. The Target Shares traded on the First Exchange under the symbol "XXXXXXXXXX " until XXXXXXXXXX ;

"Target Stock Plans" means Target's Incentive Share Plan, amended and restated as of XXXXXXXXXX , Target's Deferred Share Unit Plan for Directors, amended and effective XXXXXXXXXX and Target's Executive Deferred Compensation Incentive Plan, effective as of XXXXXXXXXX ; and

"Taxable Canadian Corporation" has the meaning assigned by subsection 89(1).

FACTS

1. Parent is not resident in Canada and does not carry on business in Canada for the purposes of the Act. Parent does not have a permanent establishment in Canada.

2. Parent owned all the issued and outstanding shares of:

a. Acquisico 1; and

b. Acquisico 2.

3. Acquisico 1 was a Private Corporation and a Taxable Canadian Corporation. Acquisico 1 had not conducted any activities to date other than activities incidental to its incorporation and in connection with the transaction contemplated by the Arrangement Agreement.

4. Acquisico 2 is not resident in Canada and does not carry on business in Canada for the purposes of the Act. Acquisico 2 does not have a permanent establishment in Canada.

5. Target was a Public Corporation and a Taxable Canadian Corporation.

6. The management of Target exercised control and direction over less than 10% of the Target Shares. No group of persons controlled Target and no person or group of Affiliated Persons directly or indirectly beneficially owned or exercised control or direction over 10% or more of the Target Shares.

7. Target directly owned all the issued and outstanding shares of Subco 1, Subco 2, Subco 3, Subco 4, Subco 5, Subco 6 and XXXXXXXXXX % of the issued and outstanding shares of Sub 1.

8. Subco 1 owned:

a. a XXXXXXXXXX % general partnership interest in GP 1; and

b. a XXXXXXXXXX % general partnership interest in GP 2.

9. Subco 2 owned:

a. the remaining XXXXXXXXXX % partnership interest in GP 1;

b. the remaining XXXXXXXXXX % partnership interest in GP 2;

c. all the issued and outstanding preferred shares of Sub 1A having a redemption value of $XXXXXXXXXX ; and

d. XXXXXXXXXX % of the issued and outstanding shares of Sub 1.

10. GP1 owned all the issued and outstanding shares of GP1 Sub A, which in turn owned all the issued and outstanding shares of GP1 Sub B.

11. Sub 1 owned all the issued and outstanding common shares of Sub 1A which owned all the issued and outstanding shares of Sub 1B. Sub 1 is the parent of Sub 1 Subs.

12. Sub 1 owned all the issued and outstanding shares of Sub 2, which acquired all the issued and outstanding shares of Sub 3 on XXXXXXXXXX . Sub 3 owns all the issued and outstanding shares of Sub 3 Subs.

13. Sub 2 used the proceeds of the Sub 2 Loan 1 and Sub 2 Loan 2 to acquire Sub 3.

a. GP 1 incurred the GP 1 Third Party Debt. GP 1 had made the GP 1 Sub A Loan and GP 1 Sub A had made the GP1 Sub B Loan. GP1 Sub B used the proceeds of the GP1 Sub B Loan and the equity investment by GP 1 Sub A in the shares of LLC to make the Sub 2 Loan 1.

b. Sub 1A used the subscription proceeds from the issuance of its preferred shares to invest in the shares of Sub 1B. Sub 1B used the funds to make the Sub 2 Loan 2.

14. Target and its Subsidiaries held the interests in GP 1 and GP 2 as income-producing investments and on account of capital.

15. Target and its Subsidiaries held the shares of Subco 1, Subco 2, Subco 3, Subco 4, Subco 5, Subco 6, Sub 1, Sub 2, GP 1 Sub A, Sub 1A, GP1 Sub B and Sub 1B as income-producing investments and on account of capital.

16. During the period between XXXXXXXXXX , Target management conducted various discussions and negotiations with parties interested in a potential business combination transaction with Target. During XXXXXXXXXX , Parent and several other potential bidders conducted due diligence on Target. Target's board of directors ultimately determined that Target should enter into the Arrangement Agreement with Parent, which provided for the payment of the Purchase Price in cash.

17. Target entered into the Arrangement Agreement.

18. Parent and any person not dealing at arm's length with Parent did not hold any Target Share before the transaction described in Paragraph 31 f.

19. The CRA granted a request to change the fiscal period of GP 1 at the end of the day on XXXXXXXXXX .

20. The Holders of Target Shares approved the Plan of Arrangement in the week the Final Order was obtained.

21. On the day before the Effective Date:

a. Sub 2 paid all the accrued and unpaid interest on the Sub 2 Loan 1 owing to GP1 Sub B;

b. GP1 Sub B used the funds received from Sub 2 to pay a dividend to GP 1 Sub A; and

c. GP 1 Sub A used the funds received from GP1 Sub B to pay a dividend of an equivalent amount to GP 1.

22. On the day before the Effective Date:

a. Sub 2 repaid the amount owing on the Sub 2 Loan 2 to Sub 1B, including all the accrued and unpaid interest;

b. all of the assets of Sub 1B (i.e. the proceeds of the Sub 2 Loan 2) were distributed to Sub 1A. A certificate of cancellation cancelling the certificate of formation of Sub 1B was filed in the office of the Secretary of State of XXXXXXXXXX ;

c. Sub 1A redeemed its preferred shares;

d. Subco 2 immediately used the proceeds from the redemption of the preferred shares of Sub 1A to make an interest-free Canadian-dollar denominated loan to Target; and

e. Target immediately used the proceeds of the loan from Subco 2 to repay some of its outstanding indebtedness to third parties. The settlement of the third-party loans was effective XXXXXXXXXX , but prior to the Effective Time.

23. At the beginning of the Effective Date, GP1 Sub B issued shares to GP 1 Sub A in satisfaction of the amount payable under the GP1 Sub B Loan. GP 1 Sub A distributed a portion of the shares of GP1 Sub B held by it to GP 1 in satisfaction of the GP 1 Sub A Loan.

24. The GP 1 Sub A assets were distributed to GP 1.

25. To finance the acquisition of the Target Shares:

a. Parent incurred the Parent Debt and used the proceeds to pay borrowing costs and to finance the acquisition of the Target Shares.

b. Acquisico 1 incurred the Acquisico 1 Debt. Parent provided a guarantee with respect to the Acquisico 1 Debt.

c. Parent used its excess cash and part of the proceeds from the Parent Debt to make a loan to Acquisico 2, in consideration of which Acquisico 2 issued Note 1 for the same amount. Parent transferred cash to Acquisico 2 in consideration for common shares.

d. Parent used part of the proceeds from the Parent Debt to make a Canadian-dollar denominated loan to Acquisico 1, in consideration of which Acquisico 1 issued Note 2 for the same amount. Parent transferred cash to Acquisico 1 in consideration for common shares.

e. Acquisico 2 made a loan to Acquisico 1, in consideration of which Acquisico 1 issued Note 3.

26. On the Effective Date, Acquisico 2:

a. made a loan to Sub 1 in consideration of which Sub 1 issued Note 4; and

b. made a loan to GP 1 in consideration of which GP 1 issued Note 5.

27. On the Effective Date, Acquisico 1 made a loan to Target in consideration of which Target issued Note 6.

28. The following debts were repaid:

a. Sub 1 used the proceeds of Note 4 to repay the outstanding indebtedness of Sub 1 and other U.S. Affiliates; and

b. GP 1 used the proceeds of Note 5 and the dividend proceeds received from GP1 SubA to repay the GP 1 Third Party Debt.

29. Subco 1 transferred its partnership interest in GP 1 to Subco 2 in consideration for Note 7. A certificate of cancellation was filed with the State of XXXXXXXXXX and GP 1 legally ceased to exist. All of the former partnership assets (namely the shares of GP1 Sub B) were distributed to Subco 2. Subco 2 assumed the indebtedness represented by Note 5.

30. Sub 1 used the proceeds of Note 4 to make the employee remittances required on behalf of the U.S. employees and to reimburse Target for employee cash-out payments.

31. Pursuant to the Plan of Arrangement, the following occurred at the Effective Time in the following order:

a. the Rights Plan was terminated and each Right was cancelled without any payment in respect thereof;

b. each Holder of a Target Option transferred it to Target and it was cancelled in exchange for an amount of cash equal to the fair market value of the Target Option, net of applicable withholdings. Target used the proceeds of Note 6 to make the cash payments required to satisfy its obligations in respect of all the Target Stock Plans;

c. each Holder of a Target Performance Unit transferred it to Target and it was cancelled in exchange for an amount of cash equal to the fair market value of the Target Performance Unit, net of applicable withholdings;

d. each Holder of a Target Deferred Share Equivalent transferred it to Target and it was cancelled in exchange for an amount of cash equal to the fair market value of the Target Deferred Share Equivalent, net of applicable withholdings;

e. the restrictions on each Target Share that was a Target Restricted Share were deemed to have lapsed and terminated; and

f. every Holder of a Target Share transferred it to Acquisico 1 for cash. There were no Dissenting Shareholders.

32. On the Effective Date:

a. at XXXXXXXXXX , Subco 2 transferred all the shares of GP1 Sub B to Acquisico 2 in full satisfaction of its obligations under Note 5 and in consideration of Note 8; and

b. at XXXXXXXXXX , Subco 2 transferred Note 8 to Acquisico 1 for Note 9.

33. Acquisico 1 and Acquisico 2 entered into a set-off agreement whereby the balance of Note 8 was set-off and cancelled against Note 3 and the outstanding amount of Note 3 was reduced accordingly.

34. All outstanding Target Shares were delisted from the First Exchange effective at XXXXXXXXXX on the Effective Date. On the following day, Target made and delivered to the CRA, to take effect immediately, an election to cease to be a public corporation pursuant to the provisions of subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) of the Act and Regulations 4800(2) to (4).

35. On XXXXXXXXXX , Acquisico 2 formed Merger LLC.

36. On XXXXXXXXXX :

a. at XXXXXXXXXX , Acquisico 1 and Acquisico 2 entered into an amended and restated loan agreement in respect of Note 3 and Acquisico 1 issued Amended Note 3 to Acquisico 2; and

b. at XXXXXXXXXX , Acquisico 2 contributed and assigned Amended Note 3 to Merger LLC in exchange for Merger LLC units having a fair value equal to the balance of Amended Note 3.

37. On XXXXXXXXXX , Subco 2 reduced the stated capital of its issued and outstanding shares to a nominal amount without any corresponding payment to Target.

38. On XXXXXXXXXX , Articles of Amalgamation were successively filed to effect:

a. the First Amalgamation to form Amalco 1; and

b. the Second Amalgamation to form Amalco 2. Note 6 was extinguished as a result of the Second Amalgamation.

39. Amalco 2 entered into a transfer agreement whereby it transferred the shares it held in Sub 1 to Merger LLC in full repayment of Amended Note 3. Sub 1 and Merger LLC entered into a merger agreement and completed the Merger with Merger LLC as the surviving entity.

40. Parent entered into the Stock Purchase Agreement.

PROPOSED TRANSACTIONS

41. Target will elect not to have subsection 256(9) deem its control to have been acquired at the commencement of the Effective Date. That election will be made in the return of income of Target for its taxation year deemed to end immediately before control of Target is acquired on the Effective Date.

42. Amalco 2 will designate an amount in respect of capital property (other than Ineligible Property) owned by Target and/or Subco 2 at the Effective Time, including, without limitation, its GP 2 interest and the shares of Sub 1, Subco 1, Subco 3, Subco 4, Subco 5 and Subco 6. That amount will be within the limits described in paragraph 88(1)(d) and will be designated in Amalco 2's return of income for its taxation year that commenced at the time of the Second Amalgamation and ended on XXXXXXXXXX .

43. GP 1 Sub A will be dissolved.

44. The Stock Purchase Agreement is expected to close in XXXXXXXXXX , and is subject to customary approvals from US and Canadian regulatory authorities. The Stock Purchase Agreement and any subsequent transfer by one of the parties to that agreement will not result in any property that became property of Amalco 2 on the Second Amalgamation or "any property acquired by any person in substitution therefor" (within the meaning of that phrase for the purpose of clause 88(1)(c)(vi)(B)) to be acquired by any person described in subclauses 88(1)(c)(vi)(B)(I), (II) or (III) (on the assumption that the "subsidiary" referred to in those subclauses is Amalco 1 and the "parent" is Acquisico 1).

PURPOSES OF THE TRANSACTIONS

The purposes of the transactions described herein are:

a. to permit Parent to simplify and reorganize the corporate structure of Target following its acquisition of the Target Shares; and

b. to move a portion of the acquisition financing into the Subsidiaries of Target that operate in the United States to align the acquisition debt on a basis consistent with the value of the United States operations compared to the overall value of Target.

RULINGS

Provided that the above statements of facts, Proposed Transactions and purposes thereof are accurate and constitute complete disclosure of all relevant facts and Proposed Transactions, our rulings are as follows:

A. The provisions of subsection 87(11) and 88(1) will apply to the Second Amalgamation such that, provided that no property that became property of Amalco 2 on such amalgamation or "any property acquired by any person in substitution therefor" (within the meaning of that phrase for the purpose of clause 88(1)(c)(vi)(B)) is acquired by any person described in subclauses 88(1)(c)(vi)(B)(I), (II) or (III) (on the assumption that the "subsidiary" referred to in those subclauses is Amalco 1 and the "parent" is Acquisico 1) as part of the series of transactions or events that includes the transactions described herein, the cost, pursuant to paragraphs 88(1)(c) and (d), to Amalco 2 of its GP 2 interest and of the shares of Sub 1, Subco 1, Subco 3, Subco 4, Subco 5 and Subco 6 (and any other capital property that will not constitute Ineligible Property) that becomes the property of Amalco 2 on the Second Amalgamation will be deemed to be the cost amount of such property to Amalco 1 immediately before such amalgamation, plus the amount designated by Amalco 2 under paragraph 88(1)(d) in respect of the property.

B. For greater certainty, for the purpose only of applying paragraph 88(1)(c) to determine the cost to Amalco 2 following the Second Amalgamation of:

a. the GP 2 interest, the shares of Sub 1 (and any other capital property that did not constitute Ineligible Property) that were owned by Subco 2 when Acquisico 1 acquired the Target Shares as described in Paragraph 31 f;

b. the shares of Sub 1, Subco 1, Subco 3, Subco 4, Subco 5 and Subco 6
(and any other capital property that did not constitute Ineligible Property) that were owned by Target when Acquisico 1 acquired the Target Shares as described in Paragraph 31 f;

pursuant to subsection 88(4), Amalco 1 will be considered to be the same corporation as, and a continuation of, Target and Subco 2 for the purpose of:

c. determining when Acquisico 1 last acquired control of Amalco 1; and

d. determining whether the GP 2 interest and the shares of Sub 1, Subco 1, Subco 3, Subco 4, Subco 5 and Subco 6 (and any other capital property that did not constitute Ineligible Property) were capital property held by Amalco 1 when Acquisico 1 last acquired control of Target.

C. For greater certainty, the GP 2 interest and the shares of Sub 1, Subco 1, Subco 3, Subco 4, Subco 5 and Subco 6 (and any other capital property that would not otherwise constitute Ineligible Property) that became property of Amalco 2 on the vertical amalgamation of Amalco 1 and Acquisico 1 will not be Ineligible Property for purposes of paragraph 88(1)(c) solely as a result of the facts described herein.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the CRA provided that the Proposed Transactions, other than the transactions described in Paragraph 44, are completed not later than six months of the date of this letter.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.

COMMENTS

Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed:

a. the determination of the amount of the ACB, PUC or FMV of any shares or partnership interest referred to herein;

b. whether the shares of a corporation mentioned herein are Excluded Property;

c. any tax consequences relating to the facts described herein and the Proposed Transactions other than those described in the rulings given above, including whether any subsequent transaction or event is or is not considered to be part of the series of transactions or events described herein; and

d. whether the amount of the designation referred to in Paragraph 42 above will be within the limits described in paragraph 88(1)(d), including any adjustment under paragraph 88(1)(d.4), as proposed to be introduced.

Yours truly,

XXXXXXXXXX
Manager
Corporate Reorganizations Section I
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch