2000 Ruling 2000-0007163 - Public butterfly

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Public butterfly.

DC proposes to refinance existing debt to avoid events of default.

Position: Acceptable.

Reasons: Meets all the requirements

XXXXXXXXXX
XXXXXXXXXX 								2000-000716
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX ("XXXXXXXXXX/DC")

This is in reply to your letters of XXXXXXXXXX and further to our telephone conversations including the conversation on XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer.

To the best of your knowledge and that of the directors and officers of XXXXXXXXXX/DC, none of the issues raised in this ruling request is (i) in an earlier return of the 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 taxpayer or a related person, (iii) under objection by the taxpayer or a related person, (iv) before the courts or if a judgment has been issued, the time limit for appeal to a higher court has not expired, or (v) the subject of a ruling previously issued by the Rulings Directorate.

DEFINITIONS

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

(a) "Act" means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended; all statutory references herein are to provisions of the Act unless otherwise specified;

(b) "adjusted cost base" ("ACB") and "capital property" have the meanings assigned to those expressions in section 54;

(c) "Amalco" means the corporation resulting from the Amalgamation;

(d) "Amalco Common Shares" means the common shares of Amalco to be held by Participants after the Amalgamation described in Paragraph 40;

(e) "Amalgamation" means the amalgamation of Newco with Subco as described in Paragraph 40;

(f) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended;

(g) "Capital Reorganization" means the reorganization of XXXXXXXXXX/DC's capital described in Paragraph 27 whereby each participant will receive one New XXXXXXXXXX/DC Common Share and one XXXXXXXXXX/DC Reorganization Share in exchange for each XXXXXXXXXX/DC Common Share;

(h) "XXXXXXXXXX Business" means the business carried on by XXXXXXXXXX/DC, as described in Paragraph 2;

(i) "XXXXXXXXXX Business" means the business carried on by Subco, as described in Paragraph 2;

(j) "cost amount" has the meaning assigned by subsection 248(1);

(k) "Dissenting Shareholder" means a XXXXXXXXXX/DC Shareholder who or which exercises such shareholder's rights to dissent from the Plan of Arrangement;

(l) "Distribution" means the transactions described in Paragraph 33 whereby XXXXXXXXXX/DC will transfer to Newco the Transferred Property for the consideration described in Paragraph 34;

(m) "Effective Date" means the date on which the Plan of Arrangement shall take effect;

(n) "Exchange" means the transactions described in Paragraph 28 whereby the Participants will exchange their XXXXXXXXXX/DC Reorganization Shares for Newco Common Shares;

(o) "FMV" means fair market value;

(p) "XXXXXXXXXX/DC Common Shares" means the voting, fully participating common shares of XXXXXXXXXX/DC as described in Paragraph 3;

(q) "XXXXXXXXXX/DC Group" means XXXXXXXXXX/DC, all of its direct and indirect subsidiaries and its interests in other corporations, partnerships and entities, excluding corporations over which XXXXXXXXXX/DC does not have Significant Influence;

(r) "XXXXXXXXXX/DC Redemption Amount" means the amount for which each XXXXXXXXXX/DC Reorganization Share will be redeemable by XXXXXXXXXX/DC as described in Paragraph 26;

(s) "XXXXXXXXXX/DC Redemption Note" means the promissory note to be issued to Newco by XXXXXXXXXX/DC as payment of the XXXXXXXXXX/DC Redemption Amounts;

(t) "XXXXXXXXXX/DC Reorganization Shares" means the reorganization shares that XXXXXXXXXX/DC will be authorized to issue pursuant to the amendment to its articles as described in Paragraph 26;

(u) "XXXXXXXXXX/DC Shareholders" means all of the holders of XXXXXXXXXX/DC Common Shares immediately before the Effective Date;

(v) "XXXXXXXXXX/DC Stock Option Plan" means XXXXXXXXXX/DC's stock option plan for its executives and key employees, as described in Paragraph 4;

(w) "Holdco" means XXXXXXXXXX;

(x) "ITAR" refers to the Income Tax Application Rules, R.S.C. 1985, c. 2 (5th Supp.), as amended;

(y) "New XXXXXXXXXX/DC Common Shares" means the common shares which XXXXXXXXXX/DC will be authorized to issue pursuant to the amendment to its articles as described in paragraph 26;

(z) "Newco" means the corporation described in Paragraph 22 to which the Transferred Property will be transferred;

(aa) "Newco Common Shares" means the voting, fully participating common shares of Newco as described in Paragraph 22;

(bb) "Newco Group" means Newco, all of its direct and indirect subsidiaries and its interests in other corporations and entities, excluding corporations over which Newco does not have Significant Influence;

(cc) "Newco Redemption Amount" means the amount for which the Newco Special Share will be redeemable by Newco as described in Paragraph 22;

(dd) "Newco Redemption Note" means the promissory note to be issued to XXXXXXXXXX/DC by Newco as payment of the Newco Redemption Amount;

(ee) "Newco Special Share" means the preferred share of Newco, with the terms and conditions described in Paragraph 22, to be issued to XXXXXXXXXX/DC as described in Paragraph 34;

(ff) "Participant" means a XXXXXXXXXX/DC Shareholder other than a Dissenting Shareholder;

(gg) "Plan of Arrangement" means the plan of arrangement under the CBCA to effect the divisive reorganization described in the Proposed Transactions;

(hh) "Proposed Transactions" means the transactions described in Paragraphs 22 to 41;

(ii) "PUC" means "paid-up capital" as defined in subsection 89(1);

(jj) "XXXXXXXXXX Business" means the business carried on by XXXXXXXXXX/DC, as described in Paragraph 2;

(jj.1) "Significant Influence" has the meaning assigned by Section 3050 of the CICA Handbook;

(kk) "Subco" means XXXXXXXXXX;

(ll) "Subco Common Shares" means common shares in the capital of Subco;

(mm) "Subco Shares" means all of the issued and outstanding shares of Subco;

(nn) "taxable Canadian corporation" has the meaning assigned in subsection 89(1);

(oo) "Transferred Property" means the property of XXXXXXXXXX/DC which will be transferred by XXXXXXXXXX/DC to Newco on the Effective Date, as described in Paragraph 33; and

(pp) "Transfer Percentage" means the proportion, expressed as a percentage, that:

(i) the net FMV of the Transferred Property, is of

(ii) the net FMV of all of XXXXXXXXXX/DC's property,

determined immediately before the Distribution as described in this letter and, in particular, by applying the rules in Paragraphs 30 and 31.

Our understanding of the statements of facts, purposes of proposed transactions and proposed transactions is as follows:

FACTS

Facts Relating to XXXXXXXXXX/DC

2. XXXXXXXXXX/DC is a public corporation as defined in subsection 89(1) which is governed by the CBCA and a taxable Canadian corporation,

XXXXXXXXXX

3 As at XXXXXXXXXX/DC's issued and outstanding share capital consisted only of XXXXXXXXXX/DC Common Shares. The XXXXXXXXXX/DC Common Shares are listed on the XXXXXXXXXX Stock Exchange.

4. XXXXXXXXXX/DC has a stock option plan (the "XXXXXXXXXX/DC Stock Option Plan") for executives and key employees in the XXXXXXXXXX/DC Group, under the terms of which qualifying executives and employees may become entitled to acquire XXXXXXXXXX/DC Common Shares at prices which cannot be lower than the "market price" (as defined under XXXXXXXXXX/DC Stock Option Plan) of such shares at the times that the relevant options are granted. As at the date hereof, XXXXXXXXXX/DC had reserved XXXXXXXXXX/DC Common Shares for issuance pursuant to the terms the XXXXXXXXXX/DC Stock Option Plan.

5. As at XXXXXXXXXX/DC had total long-term indebtedness in the amount of $XXXXXXXXXX, consisting principally of loans from XXXXXXXXXX Subco had total long-term indebtedness in the amount of $XXXXXXXXXX, excluding loans from XXXXXXXXXX/DC.

6. The material assets of XXXXXXXXXX/DC consist of the following:

(a) the Subco Shares;

(b) certain amounts receivable from other members of the XXXXXXXXXX/DC Group;

(c) certain cash and near-cash property, including inventories and rights arising from prepaid expenses ("prepaid expenses") relating to the XXXXXXXXXX Business;

(d) certain property, plants and equipment used in the XXXXXXXXXX Business; and

(e) certain intangible assets used in the XXXXXXXXXX Business.

7. The fiscal year-end for XXXXXXXXXX/DC is the XXXXXXXXXX.

Additional Facts Relating to Subco

8. Subco is a taxable Canadian corporation which is governed by the CBCA and a wholly-owned subsidiary of XXXXXXXXXX/DC, XXXXXXXXXX.

9. The material assets of Subco, which are held directly or through controlled subsidiaries and non-controlled affiliated corporations, consist of the following:

(a) certain cash and near-cash property, including accounts receivable, inventories and prepaid expenses relating to the XXXXXXXXXX Business and the XXXXXXXXXX Business;

(b) certain property, plants and equipment used in the XXXXXXXXXX Business and the XXXXXXXXXX Business; and

(c) certain intangible assets used in the XXXXXXXXXX Business and the XXXXXXXXXX Business.

This description does not account for any properties consisting of shares in the capital stock of and amounts receivable from other members of the XXXXXXXXXX/DC Group.

10. These assets were primarily acquired by Subco from XXXXXXXXXX/DC pursuant to an internal reorganization which commenced on or about XXXXXXXXXX, and was completed on or about XXXXXXXXXX, in consideration for which Subco:

(a) issued to XXXXXXXXXX/DC Subco Common Shares and certain promissory notes with an aggregate principal amount of approximately $XXXXXXXXXX; and

(b) assumed certain of XXXXXXXXXX/DC's current liabilities.

11. The fiscal year-end for Subco is the XXXXXXXXXX.

ADDITIONAL INFORMATION

12. To the best of the knowledge of the directors and senior officers of XXXXXXXXXX/DC, and except as otherwise specified herein, as of the date hereof no person or related group of persons beneficially own(s), directly or indirectly, more than 10% of the issued and outstanding XXXXXXXXXX/DC Common Shares. To the best of the knowledge of the directors and senior officers of XXXXXXXXXX/DC, the only persons beneficially owning or exercising control or direction over shares carrying more than 10% of the votes attached to the XXXXXXXXXX/DC Common Shares are XXXXXXXXXX, which holds XXXXXXXXXX/DC Common Shares (representing approximately XXXXXXXXXX% of the outstanding XXXXXXXXXX/DC Common Shares), Holdco, which holds XXXXXXXXXX/DC Common Shares, XXXXXXXXXX, who holds XXXXXXXXXX/DC Common Shares, and XXXXXXXXXX, who holds XXXXXXXXXX/DC Common Shares (representing XXXXXXXXXX% of the outstanding XXXXXXXXXX/DC Common Shares ). XXXXXXXXXX, the President and Chief Executive Officer of XXXXXXXXXX/DC, and his family, directly or indirectly, own Holdco. Holdco is a private corporation as defined in subsection 89(1) and a taxable Canadian corporation.

13. No property has or will become property of any member of the XXXXXXXXXX/DC Group and no liabilities have been or will be incurred or discharged by any member of the XXXXXXXXXX/DC Group in contemplation of and before the Distribution, except as described herein.

14. On or about XXXXXXXXXX/DC completed a financing transaction by which it borrowed approximately $XXXXXXXXXX from XXXXXXXXXX. The proceeds of this financing were used in part to repay existing indebtedness and the balance is being used for general corporate purposes. As described below in Paragraph 25, this indebtedness will be refinanced as part of the Proposed Transactions. After the Proposed Transactions have been completed, XXXXXXXXXX/DC or Amalco may take out additional long-term financing, depending on their respective working capital requirements. With the exception of the refinancing, these transactions do not relate to, and are independent of, the Proposed Transactions. Similarly the Proposed Transactions would be undertaken regardless of the financing transactions. Therefore, any resulting acquisition or disposition of property would not be an event completed in contemplation of the series of transactions or events which includes the Distribution and would not form part of that series of transactions or events.

15. As part of the ordinary course of its operations, Subco, directly or indirectly, acquires and disposes of interests in controlled subsidiaries and non-controlled affiliated corporations which carry on business activities that are consistent with Subco's business operations. None of these transactions relates to, or was or will be carried out other than independently of, the Proposed Transactions. Similarly, the Proposed Transactions would be undertaken regardless of these transactions. Therefore, any resulting acquisition or disposition of property would not be an event completed in contemplation of the series of transactions or events which includes the Distribution and would not form part of that series of transactions or events.

16. Except as outlined herein, no member of the XXXXXXXXXX/DC Group, and no person who will become a member of the Newco Group, has any specific intention of disposing of any assets currently owned to an unrelated person following the Proposed Transactions and no such member will dispose of any of its assets as part of the series of Proposed Transactions except in the ordinary course of business.

17. There are not, and will not be at any time prior to the completion of the Proposed Transactions, any agreements or undertakings which constitute or include a "guarantee agreement", as defined in subsection 112(2.2), in respect of any of the XXXXXXXXXX/DC Reorganization Shares owned by Newco or the Newco XXXXXXXXXX Share.

18. None of the members of the XXXXXXXXXX/DC Group or the Newco Group has, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the XXXXXXXXXX/DC Reorganization Shares or the Newco XXXXXXXXXX Share to be redeemed as part of the Proposed Transactions.

19. None of the XXXXXXXXXX/DC Reorganization Shares owned by Newco or the Newco XXXXXXXXXX Share will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5).

20. XXXXXXXXXX/DC is not a specified financial institution as defined in subsection 248(1). No member of the XXXXXXXXXX/DC Group or the Newco Group is or will be a specified financial institution at any time which is relevant for the purposes of the Proposed Transactions.

21. Neither XXXXXXXXXX/DC nor Newco will be a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).

PROPOSED TRANSACTIONS

22. Newco is a newly created corporation incorporated under the CBCA and is a taxable Canadian corporation. Prior to the transactions relating hereto, Newco will not have had any assets or liabilities or have issued any outstanding shares. Newco's articles of incorporation provide that its authorized capital consists of the Newco Common Shares. As the first step in the Plan of Arrangement, Newco's articles will be amended to authorize the issuance of the Newco XXXXXXXXXX Share. The Newco Common Shares and the Newco XXXXXXXXXX Shares will have the following attributes:

(a) each Newco Common Share will be a fully participating voting common share with the holder thereof entitled to one vote at meetings of shareholders of Newco;

(b) the Newco XXXXXXXXXX Share will be redeemable at any time at the option of Newco at an amount equal to the FMV of the Transferred Property (the "Newco Redemption Amount");

(c) the Newco XXXXXXXXXX Share will be retractable at any time at the option of the holder at the Newco Redemption Amount;

(d) the holder of the Newco XXXXXXXXXX Share will be entitled to a non-cumulative cash dividend as and when declared by the board of directors of Newco from time to time;

(e) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of Newco if the resulting realizable value of the net assets of Newco after payment of the dividends would be less than the Newco Redemption Amount;

(f) the holder of the Newco XXXXXXXXXX Share will be entitled, upon the liquidation, dissolution or winding-up of Newco, to a payment in priority to all other classes of shares of Newco of an amount equal to the Newco Redemption Amount to the extent of the amount or value of property available under applicable law for payment to shareholders upon such liquidation, dissolution or winding-up, but will be entitled to no more than the amount of that payment; and

(g) the holder of the Newco XXXXXXXXXX Share will not be entitled to vote at meetings of shareholders of Newco, other than as provided under the CBCA.

23. Subject to, among other things, the appropriate shareholder and court approvals, the Proposed Transactions will be undertaken pursuant to the Plan of Arrangement. With the exception of the filing of elections under the Act, the public listing of Newco Common Shares and any restructuring arrangements to be made with respect to the indebtedness of XXXXXXXXXX/DC or Subco, these transactions will occur by virtue of the Plan of Arrangement and will be designated in the Plan of Arrangement to occur on the Effective Date in the order set out below ( except that the amendment of Newco's articles to authorize the issuance of the Newco XXXXXXXXXX Share, as described above in Paragraph 22, will be the first step in the Plan of Arrangement and, therefore, will precede the transactions described below). The Effective Date will be on a date that will be subsequent to the date of this letter.

24. Each XXXXXXXXXX/DC Shareholder will be entitled to dissent from the Plan of Arrangement pursuant to the provisions of the Plan of Arrangement. For the purposes of the transactions comprising the Plan of Arrangement, any Dissenting Shareholder who is ultimately entitled to be paid the fair value of his XXXXXXXXXX/DC Common Shares will be deemed, under the Plan of Arrangement, to have transferred his XXXXXXXXXX/DC Common Shares to XXXXXXXXXX/DC, and such shares will be deemed to have been cancelled by XXXXXXXXXX/DC, immediately prior to the Effective Date. Newco shall bear a portion of the cost of purchasing the XXXXXXXXXX/DC Common Shares of any Dissenting Shareholder equal to the Transfer Percentage. In this manner, such cost (which may take some time to determine) will not affect the pro rata allocation of the property of XXXXXXXXXX/DC as between it and Newco. To achieve this result, XXXXXXXXXX/DC will make any required payments to Dissenting Shareholders and, under the terms of the Plan of Arrangement, Newco will owe its share of any such amount to XXXXXXXXXX/DC. Each amount so owed to XXXXXXXXXX/DC will be paid within XXXXXXXXXX of being determined and will represent a portion of the cash outlay made by XXXXXXXXXX/DC to satisfy legal obligations arising from the Plan of Arrangement. As such, each amount owed by Newco to XXXXXXXXXX/DC will be classified as a property of XXXXXXXXXX/DC and as a liability of Newco,

25. Certain restructuring arrangements will be required to be made in respect to the indebtedness of XXXXXXXXXX/DC or Subco in order to avoid the occurrence of events of default as a result of the implementation of the Proposed Transactions. These arrangements are as follows:

(a) Subco will draw down existing credit facilities with XXXXXXXXXX in order to repay to XXXXXXXXXX/DC an amount of approximately $XXXXXXXXXX of outstanding inter-company indebtedness;

(b) XXXXXXXXXX/DC will use the proceeds of the repayment described in (a) above, together with approximately $XXXXXXXXXX of new financing to repay its existing long-term indebtedness owing to XXXXXXXXXX in the amount of approximately $XXXXXXXXXX (which will be outstanding after XXXXXXXXXX/DC makes a scheduled installment which is due at XXXXXXXXXX);

(c) XXXXXXXXXX will advance new long-term debt to Subco of approximately $XXXXXXXXXX;

(d) Subco will use the proceeds of the long-term debt described in (c) above in part to repay the borrowings from XXXXXXXXXX described in (a) above;

and

(e) in addition to the long-term debt described in (c) above, Subco may borrow up to an additional $XXXXXXXXXX in long-term debt from XXXXXXXXXX and, if so, will use the proceeds thereof to repay other outstanding credit lines.

26. The articles of XXXXXXXXXX/DC will be amended to authorize two new classes of shares, being New XXXXXXXXXX/DC Common Shares and XXXXXXXXXX/DC Reorganization Shares, having the following attributes:

(a) each New XXXXXXXXXX/DC Common Share will be a fully participating, voting common share with the holder thereof entitled to one vote at meetings of shareholders of XXXXXXXXXX/DC;

(b) each XXXXXXXXXX/DC Reorganization Share will be redeemable at any time at the option of XXXXXXXXXX/DC at an amount equal to the FMV of all of XXXXXXXXXX/DC's issued and outstanding shares multiplied by the Transfer Percentage, then divided by the number of issued and outstanding XXXXXXXXXX/DC Reorganization Shares (the "XXXXXXXXXX/DC Redemption Amount");

(c) each XXXXXXXXXX/DC Reorganization Share will be retractable at any time at the option of the holder at the XXXXXXXXXX/DC Redemption Amount;

(d) the holder of a XXXXXXXXXX/DC Reorganization Share will be entitled to a non-cumulative cash dividend as and when declared by the board of directors of XXXXXXXXXX/DC from time to time;

(e) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of XXXXXXXXXX/DC if the resulting realizable value of the net assets of XXXXXXXXXX/DC after payment of the dividends would be less than the aggregate of the XXXXXXXXXX/DC Redemption Amounts;

(f) the holder of a XXXXXXXXXX/DC Reorganization Share will be entitled, upon the liquidation, dissolution or winding-up of XXXXXXXXXX/DC, to a payment in priority to all other classes of shares of XXXXXXXXXX/DC of an amount equal to the XXXXXXXXXX/DC Redemption Amount to the extent of the amount or value of property available under applicable law for payment to shareholders upon such liquidation, dissolution or winding-up, but will be entitled to no more than the amount of that payment; and

(g) the holder of a XXXXXXXXXX/DC Reorganization Share will not be entitled to vote at meetings of shareholders of XXXXXXXXXX/DC.

27. Each issued and outstanding XXXXXXXXXX/DC Common Share held by a Participant will be exchanged for one New XXXXXXXXXX/DC Common Share and one XXXXXXXXXX/DC Reorganization Share (the "Capital Reorganization") and the XXXXXXXXXX/DC Common Shares so exchanged will be cancelled. The aggregate amount added to the stated capital of the XXXXXXXXXX/DC Reorganization Shares in respect of the Capital Reorganization will equal the amount of the stated capital and PUC of the XXXXXXXXXX/DC Common Shares immediately before the Capital Reorganization multiplied by the Transfer Percentage. The aggregate amount added to the stated capital of the New XXXXXXXXXX/DC Common Shares in respect of the Capital Reorganization will equal the amount of the stated capital and PUC of the XXXXXXXXXX/DC Common Shares immediately before the Capital Reorganization minus the aggregate amount added to the stated capital of the XXXXXXXXXX/DC Reorganization Shares in respect of the Capital Reorganization.

28. Each Participant will transfer to Newco (the "Exchange") the XXXXXXXXXX/DC Reorganization Shares owned by such Participant and, in full consideration therefor, Newco will issue one Newco Common Share to the Participant for each XXXXXXXXXX/DC Reorganization Share so transferred. The aggregate amount added to the stated capital of the Newco Common Shares in respect of the Exchange will equal the aggregate amount of the stated capital of the XXXXXXXXXX/DC Reorganization Shares acquired by Newco from Participants. Certain qualifying Participants will be permitted to elect jointly with Newco under subsection 85(1) or 85(2) in respect of the disposition of their XXXXXXXXXX/DC Reorganization Shares arising on the Exchange, in prescribed form and within the time specified in subsection 85(6). The agreed amount in respect of each such XXXXXXXXXX/DC Reorganization Share will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the FMV of such XXXXXXXXXX/DC Reorganization Share, nor will it be less than the amount permitted by paragraph 85(1)(b).

29. The Newco Common Shares will be listed for trading on the XXXXXXXXXX Stock Exchange.

30. Immediately before the Distribution, the property of XXXXXXXXXX/DC will be determined on a "net" basis, but without using the "look-through" principle. Thus, the gross FMV of XXXXXXXXXX/DC's property will be comprised of the gross FMV of the property owned directly by XXXXXXXXXX/DC (including shares of, and amounts receivable from, another member of the XXXXXXXXXX/DC Group). The net FMV of XXXXXXXXXX/DC's property will then be determined. In making this determination, the liabilities of XXXXXXXXXX/DC, determined on an unconsolidated basis, will be deducted by allocating the same against the property of XXXXXXXXXX/DC on an aggregate basis.

31. For greater certainty, the following principles will also be applied in determining the net FMV of XXXXXXXXXX/DC's property for the purposes of the Proposed Transactions:

(a) any tax accounts, such as the balance of any non-capital losses, net capital losses and investment tax credits of XXXXXXXXXX/DC, will not be considered property for purposes of the Proposed Transactions;

(b) liabilities will be determined in accordance with generally accepted accounting principles, except that:

(i) the amount of any deferred income tax will not be considered a liability; and

(ii) any amounts reported on the financial statements of XXXXXXXXXX/DC as equity or as liabilities, as the case may be, because of the application of sections 3065 or 3860 of the CICA Handbook, or otherwise, will be treated in accordance with their legal character.

32. Newco will bear a portion of the transaction costs incurred in the course of implementing the Proposed Transactions (including fees and other charges for the services and disbursements of legal, tax, financial and other professionals, as well as debt restructuring fees and other charges) equal to the Transfer Percentage. In this manner, such costs will not affect the pro-rata allocation of the property of XXXXXXXXXX/DC as between it and Newco. To achieve this result, XXXXXXXXXX/DC will make any required payments in respect of such costs and, under the terms of the Plan of Arrangement, Newco will owe its share of any such amount to XXXXXXXXXX/DC. Each amount so owed to XXXXXXXXXX/DC will be paid within XXXXXXXXXX of the Effective Date and will represent a portion of the cash outlay made by XXXXXXXXXX/DC to satisfy legal obligations arising from the Proposed Transactions. As such, each amount owed by Newco to XXXXXXXXXX/DC will be classified as a property of XXXXXXXXXX/DC and as a liability of Newco.

33. XXXXXXXXXX/DC will transfer to Newco (the "Distribution") all of the Subco Shares (the "Transferred Property") such that the net FMV of the property of Newco immediately after the transfer, determined on an unconsolidated basis, will equal or approximate that proportion of the property of XXXXXXXXXX/DC immediately before the transfer, determined on an unconsolidated basis, that the aggregate of the FMV of the XXXXXXXXXX/DC Reorganization Shares owned by Newco immediately before the transfer is of the aggregate of the FMV of all the issued and outstanding shares of XXXXXXXXXX/DC immediately before the transfer. Immediately before this transfer, the stated capital of the Subco Shares will be reduced to $XXXXXXXXXX without any corresponding repayment of capital.

For purposes of this paragraph the expression "approximate that proportion" means the discrepancy from that proportion, if any, that would not exceed one percent (1%), determined as a percentage of the net FMV of the property that Newco has received as compared to what Newco would have received had it received its appropriate pro-rata share of the net FMV of XXXXXXXXXX/DC's property.

34. As the consideration for the Distribution, Newco will issue to XXXXXXXXXX/DC one Newco XXXXXXXXXX Share having stated capital of $XXXXXXXXXX and a redemption value equal to the Newco Redemption Amount.

35. XXXXXXXXXX/DC and Newco will jointly elect under subsection 85(1), in prescribed form and within the time specified in subsection 85(6), in respect of the disposition of each Transferred Property. The agreed amount in respect of each such Transferred Property will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the FMV of such Transferred Property, nor will it be less than the amount permitted by paragraph 85(1)(b).

36. XXXXXXXXXX/DC will redeem all of the XXXXXXXXXX/DC Reorganization Shares for an amount equal to the aggregate of the XXXXXXXXXX/DC Redemption Amounts and will issue to Newco in consideration therefor the XXXXXXXXXX/DC Redemption Note, being a demand non-interest-bearing promissory note with a principal amount stated as an amount equal to the aggregate of the XXXXXXXXXX/DC Redemption Amounts. Newco will accept the XXXXXXXXXX/DC Redemption Note as full and absolute payment of the XXXXXXXXXX/DC Redemption Amounts with the risk of the note being dishonoured. Immediately before XXXXXXXXXX/DC redeems the XXXXXXXXXX/DC Reorganization Shares, their stated capital will be reduced to $XXXXXXXXXX without any corresponding repayment of capital.

37. Newco will redeem the Newco XXXXXXXXXX Share for an amount equal to the Newco Redemption Amount and will issue to XXXXXXXXXX/DC in consideration therefor the Newco Redemption Note, being a demand non-interest-bearing promissory note with a principal amount stated as an amount equal to the Newco Redemption Amount. XXXXXXXXXX/DC will accept the Newco Redemption Note as full and absolute payment of the Newco Redemption Amount with the risk of the note being dishonoured.

38. [Reserved.]

39. The XXXXXXXXXX/DC Redemption Note and the Newco Redemption Note will be set off against each other in full satisfaction of each note and then cancelled.

40. Immediately after the Subco common shares are listed on the XXXXXXXXXX Stock Exchange, Subco will be amalgamated with Newco under subsection 184(1) of the CBCA (the "Amalgamation") to form Amalco in such manner that:

(a) all of the property (except amounts receivable from any predecessor corporation or shares of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of Amalco by virtue of the merger;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of Amalco by virtue of the merger; and

(c) no securities or other property will be issued on the Amalgamation and the Newco Common Shares will remain outstanding following the Amalgamation as Amalco Common Shares with a stated capital equal to the stated capital of the Newco Common Shares.

The Amalco Common Shares will continue to be listed for trading on the XXXXXXXXXX Stock Exchange.

41. Certain arrangements and amendments will be made with respect to the XXXXXXXXXX/DC Stock Option Plan in connection with the Plan of Arrangement. In particular, the following arrangements will be made with respect to the XXXXXXXXXX/DC Stock Option Plan:

(a) Employees who will continue as employees of XXXXXXXXXX/DC or a member of the XXXXXXXXXX/DC Group will have their outstanding options in respect of XXXXXXXXXX/DC Common Shares exchanged for options in respect of New XXXXXXXXXX/DC Common Shares in accordance with the formulae set forth below:

(i) New XXXXXXXXXX/DC Exercise Price = Original Exercise Price x FMV of New XXXXXXXXXX/DC Common Shares/FMV of XXXXXXXXXX/DC Common Shares; and

(ii) Number of New XXXXXXXXXX/DC Common Shares = Original Number of XXXXXXXXXX/DC Common Shares x (FMV of XXXXXXXXXX/DC Common Shares - Original Exercise Price)/ (FMV of New XXXXXXXXXX/DC Common Shares - New XXXXXXXXXX/DC Exercise Price);

(b) Employees who ultimately will become employees of Amalco will, upon the Amalgamation, have their outstanding options in respect of XXXXXXXXXX/DC Common Shares exchanged for options in respect of Amalco Common Shares in accordance with the formulae set forth below:

(i) Amalco Exercise Price = XXXXXXXXXX/DC Exercise Price x FMV of Amalco Common Shares/FMV of XXXXXXXXXX/DC Common Shares; and

(ii) Number of Amalco Common Shares = Number of XXXXXXXXXX/DC Common Shares x (FMV of XXXXXXXXXX/DC Common Shares - XXXXXXXXXX/DC Exercise Price)/ (FMV of Amalco Common Shares - Amalco Exercise Price).

For these purposes, the FMV of the XXXXXXXXXX/DC Common Shares will be determined as the weighted average trading prices of the XXXXXXXXXX/DC Common Shares for the ten trading days beginning with the Effective Date, the FMV of the New XXXXXXXXXX/DC Common Shares will be determined as the weighted average trading prices of the New XXXXXXXXXX/DC Common Shares for the ten trading days following the Effective Date and the FMV of the Amalco Common Shares will be determined as the weighted average trading prices of the Amalco Common Shares for the ten trading days beginning with the Effective Date.

The purpose of this mechanism is to ensure that, in all cases, the difference between the purchase price for New XXXXXXXXXX/DC Common shares, or Amalco Common Shares, as the case may be, under the new options and the FMV of such shares, determined in accordance with this mechanism, will not exceed the difference between the purchase price for XXXXXXXXXX/DC Common Shares under the old options and the FMV of such shares, determined in accordance with this mechanism.

PURPOSE OF THE PROPOSED TRANSACTIONS

42. XXXXXXXXXX/DC believes that the spin-off of the XXXXXXXXXX Business and the XXXXXXXXXX Business on the basis outlined above is in the best interests of XXXXXXXXXX/DC, Subco and the shareholders because it believes that the separation of its businesses in such manner will enhance the ability of XXXXXXXXXX/DC and Amalco (the successor of Subco) to pursue its independent corporate objectives and strategies and will maximize the value to shareholders of the XXXXXXXXXX Business, the XXXXXXXXXX Business and the XXXXXXXXXX Business.

RULINGS

Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, purposes of the proposed transactions and proposed transactions, we confirm the following:

A. With regard to the purchase by XXXXXXXXXX/DC of XXXXXXXXXX/DC Common Shares held by a Dissenting Shareholder as described in Paragraph 24:

(1) subject to the application of subsection 55(2), the Dissenting Shareholder will be deemed by paragraph 84(3)(b) to have received a dividend equal to the amount by which any payment from XXXXXXXXXX/DC to the Dissenting Shareholder in respect of the purchase of such person's shares exceeds the PUC of such shares immediately prior to their purchase;

(2) subsections 212(2) and 215(1) will apply (subject to the provisions of any applicable income tax convention) to require XXXXXXXXXX/DC to withhold and remit XXXXXXXXXX% of the amount of any such dividend deemed to have been paid to a Dissenting Shareholder who is a non-resident person; and

(3) paragraph (j) of the definition of "proceeds of disposition" in section 54 will apply to exclude the amount of such deemed dividend from the proceeds of disposition of the XXXXXXXXXX/DC Common Shares recognized by the Dissenting Shareholder as a result of the purchase of such shares by XXXXXXXXXX/DC.

B. For each Participant who holds XXXXXXXXXX/DC Common Shares as capital property, the provisions of subsection 86(1) will apply, and the provisions of subsections 86(2) and (2.1) will not apply, to the Capital Reorganization described in Paragraph 27 above, such that:

(1) the cost of the New XXXXXXXXXX/DC Common Shares and XXXXXXXXXX/DC Reorganization Shares received on the Capital Reorganization by such Participant will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB to the Participant, immediately before the Capital Reorganization, of the XXXXXXXXXX/DC Common Shares, that

(a) the FMV, immediately after the Capital Reorganization, of the New XXXXXXXXXX/DC Common Shares or the XXXXXXXXXX/DC Reorganization Shares, as the case may be, received by the Participant

is of

(b) the FMV, immediately after the Capital Reorganization, of all of the shares of XXXXXXXXXX/DC received by the Participant for the XXXXXXXXXX/DC Common Shares; and

(2) pursuant to paragraph 86(1)(c), such Participant will be deemed to have disposed of his XXXXXXXXXX/DC Common Shares for aggregate proceeds of disposition equal to the aggregate cost to the Participant of the New XXXXXXXXXX/DC Common Shares and XXXXXXXXXX/DC Reorganization Shares received by him as determined in (1) above.

C. The provisions of subsection 85.1(1) will apply to the Exchange described in Paragraph 28 in respect of a Participant, provided that such Participant:

(1) holds XXXXXXXXXX/DC Reorganization Shares transferred on the Exchange as capital property;

(2) deals at arm's length with Newco immediately before the Exchange;

(3) does not includes any portion of the gain or loss otherwise determined, from the disposition of such XXXXXXXXXX/DC Reorganization Shares in computing the Participant's income for the taxation year in which the Exchange takes place;

(4) does not file an election under subsection 85(1) or 85(2) with Newco with respect to such XXXXXXXXXX/DC Reorganization Shares; and

(5) does not receive any consideration other than Newco Common Shares;

and further provided that, immediately after the Exchange,

(6) neither such Participant nor any person or persons with whom the Participant does not deal at arm's length, nor such Participant together with any person or persons with whom the Participant does not deal at arm's length, will,

(a) control Newco, or

(b) will beneficially own shares of Newco having a FMV of more than 50% of the FMV of all of the issued and outstanding shares of the capital stock of Newco,

such that such Participant will be deemed to have:

(7) disposed of such XXXXXXXXXX/DC Reorganization Shares for proceeds of disposition equal to the ACB to such Participant of those shares immediately before the Exchange, and

(8) acquired the Newco Common Shares at a cost to such Participant equal to the ACB to such Participant of such XXXXXXXXXX/DC Reorganization Shares immediately before the Exchange,

and the cost to Newco of each XXXXXXXXXX/DC Reorganization Share acquired from each such Participant will be deemed to be the lesser of its FMV immediately before the Exchange and its PUC immediately before the Exchange.

D. Provided the requisite election is made by a Participant and Newco in the prescribed form and within the prescribed time, the provisions of subsection 85(1) or 85(2) will apply to the transfer by such Participant of XXXXXXXXXX/DC Reorganization Shares to Newco in exchange for Newco Common Shares, as described in respect of the Exchange in Paragraph 28, such that the aggregate of the agreed amounts in respect of such transfer will be deemed to be the proceeds of disposition of such XXXXXXXXXX/DC Reorganization Share to the Participant and the cost to Newco of such XXXXXXXXXX/DC Reorganization Share. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer of the XXXXXXXXXX/DC Reorganization Shares.

E. Provided that the requisite election is made by XXXXXXXXXX/DC and Newco in the prescribed form and within the prescribed time, the provisions of subsection 85(1) will apply to the transfer by XXXXXXXXXX/DC of the Transferred Property, as described in Paragraph 33, such that the aggregate of the agreed amounts in respect of such transfer will be deemed to be the proceeds of disposition of the Transferred Property to XXXXXXXXXX/DC, the cost of the Transferred Property to Newco and the cost to XXXXXXXXXX/DC of the Newco XXXXXXXXXX Share. For greater certainty, paragraph 85(1)(e.2) of the Act will not apply to the transfer of the Transferred Property.

F. [Reserved.]

G. Subsection 84(3) will apply:

(1) on the redemption, as described in Paragraph 36, of the XXXXXXXXXX/DC Reorganization Shares held by Newco, to deem XXXXXXXXXX/DC to have paid and Newco to have received; and

(2) on the redemption, as described in Paragraph 37, of the Newco XXXXXXXXXX Share issued to XXXXXXXXXX/DC, to deem Newco to have paid and XXXXXXXXXX/DC to have received;

a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the PUC of such shares immediately before such redemption and any such dividend:

(3) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the recipient of such dividend;

(4) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

(5) will, subject to the application of subsection 55(2), be excluded in determining the proceeds of disposition to the recipient of the shares so purchased for cancellation or redeemed, as the case may be, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54; and

(6) will not be subject to tax under Part IV except to the extent of paragraph 186(1)(b), and will not be subject to tax under Part VI.1 or Part VI.1, by virtue of the fact that both XXXXXXXXXX/DC and Newco will be controlled by Holdco and, therefore, that each will be connected with the other and will have a substantial interest in the other;

The provisions of subsection 112(3) will apply to reduce any loss which otherwise would be determined for the particular holder as a result of the redemption of shares described in Paragraphs 36 and 37.

I. The cost and ACB to Newco of the XXXXXXXXXX/DC Redemption Note and the cost and ACB to XXXXXXXXXX/DC of the Newco Redemption Note will, in each case, upon the issuance thereof, be equal to the principal amount of the particular note. Accordingly, no amount will be included in the income of, and no gain or loss will be realized by, Newco or XXXXXXXXXX/DC upon payment of the principal amount of the particular note by way of set-off as described in Paragraph 39.

J. The set-off of the amounts owing under the Newco Redemption Note and the XXXXXXXXXX/DC Redemption Note, as described in Paragraph 39, will not result in the application of section 80 or section 15.

K. Provided that the transfer by XXXXXXXXXX/DC of the Transferred Property, as described in Paragraph 33, meets the "types of property" requirement in the definition "distribution" in subsection 55(1) and that, as part of the series of transactions or events that includes the Proposed Transactions, there is not (other than as described herein):

(1) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(2) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(3) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii); or

(4) an acquisition of property in the circumstances described in paragraph 55(3.1)(c) or (d);

then, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in the rulings given in G(1) and G(2) above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

L. Provided that the XXXXXXXXXX/DC Common Shares constitute capital property to a particular Participant immediately prior to the commencement of the Proposed Transactions, the Proposed Transactions will not, in and by themselves, cause the New XXXXXXXXXX/DC Common Shares, the XXXXXXXXXX/DC Reorganization Shares, the Newco Common Shares or the Amalco Common Shares to be received by that Participant as a result of the Proposed Transactions not to be capital property of that Participant. Furthermore, the Proposed Transactions will not, in and by themselves, cause the Newco XXXXXXXXXX Share to be received by XXXXXXXXXX/DC not to be capital property of XXXXXXXXXX/DC.

M. Upon the Amalgamation described in Paragraph 40:

(1) the provisions of section 87 will, pursuant to subsection 87(1.1), apply in respect of Newco, Subco and Amalco; and

(2) provided that the Newco Common Shares are held by the Participant as capital property, the provisions of subsection 87(4) will apply to such Participant, such that the Participant will be considered to have received Amalco Common Shares in consideration for the disposition by such Participant of the Newco Common Shares and will be deemed to have disposed of such Newco Common Shares for proceeds equal to, and to have acquired the Amalco Common Shares at a cost equal to, the total of the ACBs to the Participant of such Newco Common Shares immediately before the Amalgamation.

N. The provisions of subsection 7(1.4) will apply to the exchange of options in respect of the XXXXXXXXXX/DC Common Shares for options in respect of New XXXXXXXXXX/DC Common Shares, as described in Subparagraph 41(a), such that the holders of such old options who exchange them for new options as described in Subparagraph 41(a) will be deemed not to have disposed of their old options and not to have acquired their new options, and the new options will be deemed to be the same options as, and a continuation of, the old options. For greater certainty, to the extent that subsection 7(1.4) is applicable to these exchanges, paragraph 7(1)(b) will not apply in respect of such exchanges.

O. The provisions of subsection 7(1.4) will apply to the exchanges of options in respect of XXXXXXXXXX/DC Common Shares for options in respect of Subco Common Shares, and to the exchanges of options in respect of Subco Common Shares for options in respect of Amalco Common Shares, as described in Subparagraph 41(b), such that the holders of such old options who exchange them for new options as described in Subparagraph 41(b) will be deemed not to have disposed of their old options and not to have acquired their new options, and the new options will be deemed to be the same options as, and a continuation of, the old options. For greater certainty, to the extent that subsection 7(1.4) is applicable to these exchanges, paragraph 7(1)(b) will not apply in respect of such exchanges.

P. [Reserved.]

Q. The control of XXXXXXXXXX/DC or Subco will not be considered to be have been acquired by a person or group of persons by reason only of the Proposed Transactions.

R. Provided that the New XXXXXXXXXX/DC Common Shares, the Newco Common Shares and the Amalco Common Shares are listed on a prescribed stock exchange, such shares will be a "qualified investment":

(1) for a deferred profit sharing plan by virtue of paragraph (d) of the definition "qualified investment" in section 204;

(2) for a registered retirement savings plan by virtue of paragraph (a) of the definition "qualified investment" in subsection 146(1);

(3) for a registered retirement income fund by virtue of paragraph (a) of the definition "qualified investment" in subsection 146.3(1); and

(4) for a registered education savings plan by virtue of paragraph (a) of the definition "qualified investment" in subsection 146.1(1).

S. The provisions of subsections 15(1), 56(2), 56(4) and 246(1) will not apply to any of the Proposed Transactions, in and of themselves.

T. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences as described in the Rulings given.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.

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 Canada Customs and Revenue Agency has reviewed, accepted or otherwise agreed to any tax consequences relating to the facts and Proposed Transactions described herein other than those specifically described in the rulings given above.

OPINIONS

A. In the event that the proposed amendments to add subsection 55(3.02) and the definition "specified corporation" in subsection 55(1) are enacted substantially in the form proposed in Legislative Proposals released by the Department of Finance on November 30, 1999, and provided that:

(a) there is not a distribution by XXXXXXXXXX/DC to a corporation that is not an acquiror before the day that is three years after the Effective Date;

(b) there is not a distribution by Newco or any other acquiror in relation to XXXXXXXXXX/DC before the day that is three years after the Effective Date;

and provided that as part of the series of transactions or events that includes the Proposed Transactions there is not:

(c) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(d) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(e) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii); or

(f) an acquisition of property in circumstances described in paragraph 55(3.1)(c) or (d).

which has not been described herein, it is then our opinion that, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Rulings G(1) and G(2) above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

B. Whether an acquisition or disposition of shares occurs in a series of transactions or events as part of which the dividends referred to in the rulings given in G(1) and G(2) above are received for the purposes of paragraph 55(3.1)(b) is a question of fact that will depend on the circumstances. In general, an acquisition or disposition of shares of XXXXXXXXXX/DC by a person who is not a specified shareholder of XXXXXXXXXX/DC before the public announcement of the Proposed Transactions and acquires or disposes of shares of XXXXXXXXXX/DC primarily for the purpose of realizing a trading profit that results from a perceived discount on the shares of XXXXXXXXXX/DC, will not necessarily be considered to occur as part of a series of transactions or events which includes the Proposed Transactions.

The foregoing opinions are not rulings, and, in accordance with the practice referred to in Information Circular 70-6R3, are not binding on the Canada Customs and Revenue Agency.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch