2007 Ruling 2007-0231331R3 - Amalgamation 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: Availability of the bump under 87(11) and 88(1)(d).

Reasons: We issued a favourable opinion on proposed 88(1)(c.3)(vi).

XXXXXXXXXX 								2007-023133

XXXXXXXXXX , 2007

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your amended ruling request dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. 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 described herein 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:

XXXXXXXXXX

"ACo" means XXXXXXXXXX a corporation incorporated under the laws of XXXXXXXXXX and a Subsidiary of Investor 1 Group;

"Acquisition Debt Financing" means the $XXXXXXXXXX third-party borrowing for the acquisition whereby XXXXXXXXXX acted as joint lead arrangers and joint bookrunners;

"Adjusted Cost Base" has the meaning assigned by section 54;

"Affiliate" means any person directly or indirectly controlling, controlled by, or under common control with, another 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;

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

"Arrangement Agreement" means the arrangement agreement dated XXXXXXXXXX , between Bidco and Target and any amendment thereto for the acquisition by Bidco of the Target Shares. The Arrangement Agreement has been unanimously approved by the board of directors of Target, and the resulting Plan of Arrangement has received shareholder approval, Canadian court approval and all other necessary regulatory approvals. The acquisition by Bidco of the Target Shares occurred on XXXXXXXXXX;

"Bidco" means XXXXXXXXXX, a corporation incorporated under the Second Act and continued under the Third Act as a XXXXXXXXXX limited liability company and thereafter amalgamated with Subsidiary#2 prior to the Effective Date;

"Bidco Loan" means an interest-bearing debt of approximately $XXXXXXXXXX owed by Bidco to Shareholder 3 as described in Paragraph 29(A) below;

"Bidco Note" means an interest-bearing debt of approximately $XXXXXXXXXX owed by Bidco to Shareholder 6;

"Buyerco" means XXXXXXXXXX, a new unlimited liability corporation formed under the Third Act and wholly owned by Bidco. Buyerco's authorized capital consists of an unlimited number of voting and fully participating common shares;

"Buyerco Note" means the interest-bearing debt of approximately $XXXXXXXXXX owed by Buyerco to Bidco;

"Capital Property" has the meaning assigned by subsection 248(1);

"CRA" means the Canada Revenue Agency;

"Dissenting Shareholders" means the shareholders of Target who exercised their rights of dissent, pursuant to and in the manner set forth in section 190 of the First Act;

"Effective Date" means the date shown on the certificate of arrangement in respect of the Plan of Arrangement;

"Effective Time" means the time as specified in writing by Bidco on the Effective Date;

"Eligible Shareholders" means Specified Shareholder and other Taxable Canadian Corporations related to Specified Shareholder dealing at arm's length with Buyerco, namely XXXXXXXXXX. None of the Eligible Shareholders is not related to any of the other entities listed in this letter, except to its respective Holding Company, before the transfer described at Paragraph 34;

"Exchange A" means the XXXXXXXXXX Stock Exchange;

"Exchange B" means the XXXXXXXXXX Stock Exchange;

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

"FMV" means fair market value;

"First Amalgamation" means the short-form amalgamation of Target, Subco 1, Subco 2, Subco 3, Subco 4 and Subco 5 pursuant to the First Act;

"Holdco Alternative" means the arrangement under which each Eligible Shareholder formed a Holding Company under the terms and conditions of Sections XXXXXXXXXX of the Plan of Arrangement;

"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, 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 and (c) when used with reference to the Target RSUs, means the holders thereof shown from time to time in the registers maintained by or on behalf of the Target in respect of the Target RSUs;

"Holding Company" means a new XXXXXXXXXX unlimited liability company formed under the Third Act by an Eligible Shareholder to transfer its Target Shares to such company in order to effect the Holdco Alternative;

"Holding Company Share" means a common share of a Holding Company;

"Investment" means any shares, partnership interests, loans, indebtedness or options to acquire the foregoing;

"Investor 1" means Affiliates of Investor 1 Group;

"Investor 2" means XXXXXXXXXX;

"Investor 1 Group" means XXXXXXXXXX;

"Investors" means Investor 1 and Investor 2;

"Loan 1" means a loan in the amount of approximately $XXXXXXXXXX from Target to XXXXXXXXXX, an indirect Subsidiary of Target;

"Loan 2" means a loan of approximately $XXXXXXXXXX made by Shareholder 3 to LP1;

"LP1" means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX, held prior to the Effective Time by Subco 1, as general partner with a XXXXXXXXXX% interest, and by Subco 5 and Subco 3 as limited partners with XXXXXXXXXX% and XXXXXXXXXX% interest respectively;

"LP1 Company Debt" means the third-party borrowing owed by LP1 prior to the Effective Date;

"Management" means certain members of Target's management who have agreed to exchange a portion of their outstanding Target Shares, Target Options and Target RSUs for the Rollover Consideration totalling approximately $XXXXXXXXXX;

XXXXXXXXXX

"New Subco 1" means a new Canadian corporation formed under the First Act and wholly owned by Target. New Subco 1's authorized capital consists of an unlimited number of voting and fully participating common shares;

"Non-Resident" means: (i) a person (within the meaning of subsection 248(1) but, for greater certainty, not including a partnership) who is not resident in Canada for the purposes of the Act; or (ii) a partnership that is not a "Canadian partnership" as defined in subsection 248(1);

"Other Shareholders" means XXXXXXXXXX which directly or indirectly owned approximately XXXXXXXXXX % of the total Target Shares, XXXXXXXXXX. which directly or indirectly owned approximately XXXXXXXXXX% of the total Target Shares and Management who never owned directly or indirectly more than approximately XXXXXXXXXX% of the total Target Shares from XXXXXXXXXX until the Effective Time. For the sake of this definition, direct or indirect ownership is determined based on actual ownership or deemed ownership under the presumptions included in the definition of "specified shareholder" in subsection 248(1);

"Paragraph" refers to a numbered paragraph in this advance income tax rulings request;

"Parent" means XXXXXXXXXX, a corporation incorporated under the Second Act wholly owned by Aco and continued as a XXXXXXXXXX limited liability company and thereafter amalgamated with Subsidiary#1 prior to the Effective Date;

"Plan of Arrangement" means the plan of arrangement substantially in the form of Exhibit C of the Arrangement Agreement and any amendment thereto;

"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;

"Replacement Options" means the options to acquire shares of Bidco (or an Affiliate of Bidco) granted in exchange for Target Options pursuant to the Arrangement Agreement;

"Right of Payment" means the right to receive a cash payment issued by Bidco to Management as consideration for each Target Option and Rollover Target RSU as described in Paragraph 33 below;

"Rollover Consideration" means collectively the Replacement Options for the Rollover Target Options, an equity interest in Shareholder 1 for the Rollover Target Shares and the Right of Payment totaling approximately $XXXXXXXXXX;

"Rollover Target Options" means the Target Options held by Management exchanged for Replacement Options pursuant to the Arrangement Agreement;

"Rollover Target RSUs" means the Target RSUs transferred on a taxable basis to Bidco in exchange for the Right of Payment in an amount equal to the Purchase Price, which right is contributed to Shareholder 1 for an equity interest in Shareholder 1;

"Rollover Target Shares" means the portion of the Target Shares transferred, on a taxable basis, by Management to Shareholder 7 in exchange for an equity interest in Shareholder 1;

"Safe Income on Hand of Target" in respect of particular shares at a particular time means the portion of the unrealized gain inherent in the shares at that time that cannot reasonably be considered to be attributable to anything other than income earned or realized (as determined pursuant to subsection 55(5)), to the extent that it is on hand, by any corporation after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events that includes the Proposed Transactions;

"Second Act" means the XXXXXXXXXX;

"Second Amalco" means the corporate entity resulting from the Second Amalgamation. Second Amalco's authorized capital will consist of an unlimited number of voting and fully participating common shares;

"Second Amalgamation" means the amalgamation of Buyerco and each of the Holding Companies pursuant to the Third Act;

"Shareholder 1" means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX, owned by XXXXXXXXXX (as general partner), the Investors and Management (as limited partners) after the completion of the transactions contemplated by the Arrangement Agreement;

"Shareholder 2" means XXXXXXXXXX corporation formed under the laws of XXXXXXXXXX and wholly owned by Shareholder 1;

"Shareholder 3" means XXXXXXXXXX corporation formed under the laws of XXXXXXXXXX and wholly owned by Shareholder 2;

"Shareholder 4" means an unlimited liability corporation incorporated under the Third Act, resulting from the amalgamation of Parent and Subsidiary#1 and wholly owned by Shareholder 3;

"Shareholder 4 Note" means an interest-bearing debt of approximately $XXXXXXXXXX owed by Shareholder 4 to Shareholder 3;

"Shareholder 5" means XXXXXXXXXX, a new unlimited liability company formed by Parent under the Third Act;

"Shareholder 6" means a new limited partnership formed under the laws of XXXXXXXXXX held by Shareholder 5 as general partner with a XXXXXXXXXX% interest and Parent as limited partner with a XXXXXXXXXX% interest;

"Shareholder 7" means XXXXXXXXXX, a new unlimited liability company formed under the Third Act and wholly owned by Shareholder 1;

"Shareholder 7 Shares" means the shares of Shareholder 7;

"Shareholder Related Parties" means, with respect to Investor 1 Group, XXXXXXXXXX; and, with respect to Investor 2, XXXXXXXXXX;

"Specified Person" has the meaning assigned by paragraph 88(1)(c.2);

"specified shareholder" has the meaning assigned by subparagraph 88(1)(c.2)(iii) and subsection 248(1);

"Specified Shareholder" means XXXXXXXXXX, a corporation incorporated under the First Act that has entered into the Voting Agreement and which beneficially owned, directly or indirectly, approximately XXXXXXXXXX% of the Target Shares;

"Stated Capital Account" has the meaning assigned by section 26 of the First Act;

"Subco 1" means XXXXXXXXXX, a corporation incorporated under the First Act and wholly owned by Target;

"Subco 2" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX and wholly owned by Target;

"Subco 3" means XXXXXXXXXX , a corporation incorporated under the Second Act and wholly owned by Subco 2;

"Subco 4" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX and wholly owned by Target;

"Subco 5" means XXXXXXXXXX, a corporation incorporated under the Second Act and owned equally by Subco 2 and Subco 4;

"Subco 6" means XXXXXXXXXX a corporation formed under the Second Act and wholly owned by Subco 5;

"Subco 7" means XXXXXXXXXX, a corporation formed under the Second Act and wholly owned by Subco 5;

"Subco 8" means XXXXXXXXXX, a corporation formed under the XXXXXXXXXX and owned equally by Subco 2 and Subco 4;

"Subco 9" means XXXXXXXXXX, a corporation formed under the XXXXXXXXXX and wholly owned by Subco 2;

"Subject Corporations" means Subco 6, Subco 7, Subco 8 and Subco 9;

"Subsidiary" with respect to any person, means any other person of which the first person owns, directly or indirectly, 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 second person);

"Subsidiary #1" means XXXXXXXXXX, a new unlimited liability company formed under the Third Act and wholly owned by Parent;

"Subsidiary #2" means XXXXXXXXXX, a new unlimited liability company formed under the Third Act and wholly owned by Bidco;

"Target" means XXXXXXXXXX, a corporation incorporated under the First Act XXXXXXXXXX, or the corporate entity resulting from the First Amalgamation, as the context requires;

"Target Loans" means the loans made by Bidco to Target (or one or more of its Subsidiaries) in an amount required to pay for the cancellation of Target Options and Target RSUs as part of the Arrangement Agreement;

"Target RSU" means the deferred share units granted under the Target RSU Plan;

"Target RSU Plan" means the RSU plan for directors of Target;

"Target Options" means options to purchase Target Shares granted under any of the Target Stock Option Plans which have not been duly exercised prior to the Effective Time;

"Target Share" means a common share of the capital stock of Target and, prior to delisting of Target, listed under the symbol "XXXXXXXXXX" on Exchange A. The total Target Shares constitute all the issued and outstanding shares of the capital stock of Target;

"Target Stock Option Plans" means the Target equity incentive plans;

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

"Tax-Exempt" means a Holder of Target Shares that is exempt from tax under Part I of the Act;

"Third Amalco" means the corporate entity resulting from the Third Amalgamation. Third Amalco's authorized capital will consist of an unlimited number of voting and fully participating common shares;

"Third Amalgamation" means the short-form amalgamation of Second Amalco and Target pursuant to the Third Act;

"Third Act" means the XXXXXXXXXX;

"Transferred Shares" means the Target Shares transferred to a Holding Company;

"US LLC Subcos" means all of the Subsidiaries of LP1 which are limited liability companies incorporated in the United States;

"US Subco 1" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX and wholly owned by LP1; and

"Voting Agreement" means the voting agreement dated as at XXXXXXXXXX between Bidco and Specified Shareholder pursuant to which Specified Shareholder agreed, among other things, to vote the Target Shares it beneficially owned in favour of the Arrangement Agreement.

BACKGROUND AND FACTS

1. Target is a Taxable Canadian Corporation and a public corporation whose shares were listed on Exchange A and on Exchange B.

2. Additional Target Shares could be issued under the Target Options and Target RSUs.

3. Specified Shareholder directly or indirectly owned more than 10% of the Target Shares (approximately XXXXXXXXXX% of the total Target Shares). Each one of the Other Shareholders directly or indirectly owned less than 10% of the Target Shares. Other than Specified Shareholder, the directors and officers of Target are not aware of any person who beneficially owned, directly or indirectly, or exercised control over 10% or more of the Target Shares. For the purpose of this Paragraph, direct or indirect ownership is determined based on actual ownership or deemed ownership under the presumptions included in the definition of "specified shareholder" in subsection 248(1).

4. No person comprising Investor 1 Group held any Target Shares. No person not dealing at arm's length with Investor 1 Group held, to Investor 1 Group's knowledge, any Target Shares.

5. From XXXXXXXXXX until the Effective Time, except for nominal holdings (XXXXXXXXXX Target Shares held by XXXXXXXXXX and XXXXXXXXXX Target Shares held by XXXXXXXXXX), neither XXXXXXXXXX nor, to XXXXXXXXXX knowledge, any person not dealing at arm's length with XXXXXXXXXX held any Target Shares.

6. On XXXXXXXXXX, Target entered into the Arrangement Agreement whereby Bidco, a wholly-owned subsidiary of Parent, acquired, pursuant to the Plan of Arrangement, all of the Target Shares. Management received the Rollover Consideration and the other Holders received cash. The total value of this transaction is estimated at approximately $XXXXXXXXXX, which includes the Rollover Consideration of approximately $XXXXXXXXXX. The transaction closed on XXXXXXXXXX.

7. No interests in Affiliates of Shareholder 1 or in Shareholder 1 have been syndicated.

8. Pursuant to the Voting Agreement, Specified Shareholder covenanted that, for a period of XXXXXXXXXX months after the Effective Date, Specified Shareholder shall use commercially reasonable efforts not to (i) own, purchase or acquire, directly or indirectly an Investment in any of Bidco, Bidco's Subsidiaries, an Affiliate of Investor 1 Group, Investor 2 or Shareholder Related Parties, save for shares of XXXXXXXXXX in which the restriction applies for a period of XXXXXXXXXX months, or (ii) acquire any Investment in an Affiliate of Bidco that has acquired a direct or indirect Investment in Bidco provided that such Affiliate has been identified by Bidco in written notice to the attention of Specified Shareholder received at least XXXXXXXXXX weeks prior to the date on which the Shareholder or a Related Person otherwise intended to acquire the Investment in such Affiliate. Specified Shareholder shall cause any person to whom Specified Shareholder is Related and in respect of which Specified Shareholder owns, directly or indirectly, a majority of the voting shares, to use the same efforts.

9. The LP1 interest and the shares of the Subject Corporations have been owned as income producing investments by Target and its Subsidiaries and are treated as capital properties by their holders.

The following transactions have been completed sequentially in the order provided below:

9(A). Parent was continued under the Third Act as a limited liability company.

9(B). Bidco was continued under the Third Act as a limited liability company.

9(C). Parent formed Subsidiary#1. Parent subscribed for common shares of Subsidiary#1 in consideration for approximately $XXXXXXXXXX.

9(D). Bidco formed Subsidiary#2. Bidco subscribed for common shares of Subsidiary#2 in consideration for approximately $XXXXXXXXXX.

9(E). The Investors formed XXXXXXXXXX, a XXXXXXXXXX limited liability company. The Investors subscribed for equity interests in XXXXXXXXXX in consideration for approximately $XXXXXXXXXX.

9(F). XXXXXXXXXX and the Investors formed Shareholder 1. XXXXXXXXXX and the Investors subscribed for units of Shareholder 1 in consideration for approximately $XXXXXXXXXX and $XXXXXXXXXX respectively.

9(G). Shareholder 1 formed Shareholder 7. Shareholder 1 subscribed for common shares of Shareholder 7 in consideration for approximately $XXXXXXXXXX.

9(H). Shareholder 1 formed Shareholder 2. Shareholder 1 subscribed for common shares of Shareholder 2 in consideration for approximately $XXXXXXXXXX .

9(I). Shareholder 2 formed Shareholder 3. Shareholder 2 subscribed for common shares of Shareholder 3 in consideration for approximately $XXXXXXXXXX.

9(J). Aco transferred at fair market value the shares of Parent to Shareholder 3 in consideration for XXXXXXXXXX. Aco has applied for a tax clearance certificate pursuant to subsection 116(4).

9(K). Parent formed Shareholder 5. Parent subscribed for common shares of Shareholder 5 in consideration for $XXXXXXXXXX.

9(L). Parent, as limited partner and Shareholder 5, as general partner, formed Shareholder 6. Parent and Shareholder 5 subscribed for limited partnership units of Shareholder 6 in consideration for approximately $XXXXXXXXXX and $XXXXXXXXXX respectively.

9(M). Parent transferred the shares of Bidco to Shareholder 6 in consideration for limited partnership units of Shareholder 6. Parent and Shareholder 6 will jointly elect under subsection 97(2) to transfer the shares of Bidco for an amount equal to the Adjusted Cost Base of such shares to Parent.

9(N). Parent and Subsidiary#1 amalgamated pursuant to the Third Act to form Shareholder 4.

9(O). Contemporaneously with the transaction described in Paragraph 9(N), Bidco and Subsidiary#2 amalgamated pursuant to the Third Act to form Bidco.

9(P). Bidco formed Buyerco. Bidco subscribed for common shares of Buyerco in consideration for approximately $XXXXXXXXXX.

10. The Eligible Shareholders each formed a Holding Company.

11. The Eligible Shareholders transferred all of their Target Shares to their respective Holding Company in exchange for Holding Company Shares. The Eligible Shareholders and their respective Holding Company will jointly elect pursuant to subsection 85(1) in prescribed form and within the prescribed time to transfer the Target Shares at an amount equal to the Adjusted Cost Base thereof to the Eligible Shareholder. The Target Shares are capital property to the Holding Company for Canadian income tax purposes.

12. The amount added to the stated capital of the Holding Company Shares issued in Paragraph 11 above was an amount equal to the aggregate Adjusted Cost Base of the Target Shares so transferred.

13. Each Holding Company declared and paid one or more dividends on the Holding Company Shares to be satisfied by the issuance of one or more promissory notes. The aggregate amount of such dividend(s) did not exceed the Safe Income on Hand of Target in respect of the Transferred Shares.

14. The Eligible Shareholders contributed the promissory notes described in Paragraph 13 to their respective Holding Company in exchange for Holding Company Shares. The promissory notes were cancelled by way of set-off.

15. Prior to the Effective Time, Subco 2, Subco 3, Subco 4 and Subco 5 were continued under the First Act.

16. Subco 2, Subco 3, Subco 4 and Subco 5 reduced the Stated Capital Account in respect of their outstanding shares to $XXXXXXXXXX without any payment thereon.

17. On the Effective Time, New Subco 1 acquired a general partnership interest in LP1 in consideration for $XXXXXXXXXX.

18. The Investors contributed approximately $XXXXXXXXXX into Shareholder 1 for limited partnership interests of Shareholder 1.

19. Shareholder 1 contributed approximately $XXXXXXXXXX of limited partnership interests of Shareholder 1 for common shares of Shareholder 7.

20. Shareholder 1 contributed approximately $XXXXXXXXXX into Shareholder 2 for common shares of Shareholder 2.

21. Shareholder 2 contributed $XXXXXXXXXX into Shareholder 3 for common shares of Shareholder 3.

22. Shareholder 3 borrowed approximately $XXXXXXXXXX under the Acquisition Debt Financing.

23. Shareholder 3 contributed approximately $XXXXXXXXXX into Shareholder 4 for common shares of Shareholder 4.

24. Shareholder 4 borrowed approximately $XXXXXXXXXX from Shareholder 3 under the Shareholder 4 Note.

25. Shareholder 4 contributed approximately $XXXXXXXXXX into Shareholder 5 for common shares of Shareholder 5.

26. Shareholder 4 and Shareholder 5 contributed respectively approximately $XXXXXXXXXX and $XXXXXXXXXX into Shareholder 6 for a XXXXXXXXXX% limited partnership interest and a XXXXXXXXXX% general partnership interest.

27. Shareholder 6 contributed approximately $XXXXXXXXXX into Bidco for common shares of Bidco.

28. Bidco borrowed approximately $XXXXXXXXXX from Shareholder 6 under the Bidco Note.

29. XXXXXXXXXX following the Effective Time, Shareholder 3 made the Loan 2 to LP1.

29(A). Contemporaneously, Bidco borrowed approximately $XXXXXXXXXX from Shareholder 3 under the Bidco Loan.

30. Contemporaneously, Bidco made one or more Target Loans available to Target (or one or more of its Subsidiaries) in an amount required to pay for the cancellation of Target Options and Target RSUs as part of the Arrangement Agreement.

31. XXXXXXXXXX following the preceding steps, the First Amalgamation was completed.

32. XXXXXXXXXX following the preceding steps, Target or a Subsidiary of Target repaid certain indebtedness.

33. XXXXXXXXXX following the preceding step, except for the Rollover Target Options, each Target Option and Target RSU was cancelled in consideration for the right to receive a cash payment and Management received a Right of Payment. The right to receive a cash payment held by a person who is not part of Management was satisfied on or prior to step 34.

34. XXXXXXXXXX following the preceding step, Bidco acquired (i) each Target Share (excluding the Rollover Target Shares) for the Purchase Price paid in cash and (ii) each Holding Company Share for an amount of cash calculated on the basis of the Purchase Price for the Number of Target Shares that was owned by the Holding Company at that moment. The Rollover Target Options were exchanged for Replacement Options.

35. Simultaneously with the acquisitions and the exchange described in Paragraph 34, Shareholder 7 acquired the Rollover Target Shares in exchange for an equity interest in Shareholder 1. Management subscribed for an equity interest in Shareholder 1 in consideration for the Right of Payment.

36. Following the preceding steps, LP1 repaid the LP1 Company Debt.

37. All of the US LLC Subcos have been liquidated into LP1.

37(A). Target transferred Loan 1 to Bidco in repayment of a portion of the Target Loans.

37(B). Bidco transferred Loan 1 to Shareholder 3 in repayment of the Bidco Loan.

38. Shareholder 1 transferred its Shareholder 7 Shares and the Right of Payment to Shareholder 2 for common shares of Shareholder 2; Shareholder 2 transferred its Shareholder 7 Shares and the Right of Payment to Shareholder 3 for common shares of Shareholder 3; Shareholder 3 transferred its Shareholder 7 Shares and the Right of Payment to Shareholder 4 for common shares of Shareholder 4; Shareholder 4 transferred its Shareholder 7 Shares and the Right of Payment to Shareholder 6 in exchange for limited partnership interests in Shareholder 6; and Shareholder 6 transferred its Shareholder 7 Shares and the Right of Payment to Bidco in exchange for common shares of Bidco.

PROPOSED TRANSACTIONS

The following transactions will be completed sequentially in the order provided below:

39. Shareholder 7 will be wound up into Bidco in accordance with the Third Act in such a manner that Bidco will acquire all the property of Shareholder 7 and will assume all of its liabilities.

40. Bidco will transfer the Target Shares, the Holding Company Shares and the Target Loans to Buyerco in consideration for the Buyerco Note and common shares of Buyerco.

41. Second Amalco will be created on the Second Amalgamation. A designation to increase the cost of the Target Shares owned by a Holding Company prior to the Second Amalgamation will be made in accordance with paragraph 88(1)(d) by Second Amalco in its return of income under Part I for its first taxation year ending after the Second Amalgamation.

42. Target will be continued under the Third Act and Third Amalco will be created on the Third Amalgamation. A designation to increase the cost of (i) the LP1 interest and (ii) shares of the Subject Corporations will be made in accordance with paragraph 88(1)(d) by Third Amalco in its return of income under Part I for its first taxation year ending after the Third Amalgamation.

43. Third Amalco will distribute its LP1 interest to Bidco by reducing the paid-up capital of its common shares in an amount equal to the FMV of its LP1 interest. The FMV of the LP1 interest is less than the paid-up capital of the Third Amalco common shares.

44. Bidco will distribute its LP1 interest to Shareholder 6 by reducing the paid-up capital of its common shares in an amount equal to the FMV of the LP1 interest.

45. Shareholder 6 will distribute its LP1 interest to Shareholder 4 and Shareholder 5 by reducing its capital in an amount equal to the FMV of the LP1 interest and in proportion to the respective capital accounts of Shareholder 4 and Shareholder 5.

46. Shareholder 5 will distribute its LP1 interest to Shareholder 4 by reducing the paid-up capital of its common shares in an amount equal to the FMV of its LP1 interest.

47. Shareholder 4 will distribute its LP1 interest to Shareholder 3 by reducing the paid-up capital of its common shares in an amount equal to the FMV of its LP1 interest.

48. LP1 will be merged into US Subco 1 and New Subco 1 will transfer its interest in US Subco 1 to Shareholder 3 in consideration for $XXXXXXXXXX.

PURPOSES OF THE PROPOSED TRANSACTIONS

The purposes of the transactions are to:

1) create capital appreciation for the members of Shareholder 1 through their investment in Target;

2) ensure that the Acquisition Debt Financing incurred to acquire Target is deductible, for U.S. tax purposes, against the operating income of the US Subsidiaries; and

3) effect Canadian tax consolidation and a simplification of the structure through the amalgamations of certain Canadian Subsidiaries and the transfer of the LP1 interest to Shareholder 3.

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. For the purposes of determining the cost to Third Amalco of each property of Target that became property of Third Amalco on the Third Amalgamation, each such property will be, for the purposes of paragraph 88(1)(c), "ineligible property".

However, but for the transfer of the Target Shares by the Eligible Shareholders to their respective Holding Company as described in Paragraph 11, the provisions of subsections 87(11) and 88(1) would apply to the Third Amalgamation such that, for purposes of the Act, the cost to Third Amalco of each property that Target owned without interruption at and since the time Bidco acquired control of Target and that became property of Third Amalco pursuant to the Third Amalgamation would be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the property to Target plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), and provided such property is capital property but not depreciable property and that no such property acquired by Third Amalco on the Third Amalgamation (or "any property acquired by any person in substitution therefor" within the meaning of that phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III) (on the assumption that the "subsidiary" referred to in those subclauses is Target and the "parent" is Second Amalco) as part of the series of the transactions or events that includes the Third Amalgamation, such portion of the amount, if any, by which:

(a) the aggregate of the Adjusted Cost Base to Second Amalco of its Target Shares immediately before the Third Amalgamation

exceeded

(b) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1),

as is designated by Third Amalco under paragraph 88(1)(d) in respect of such property in its return of income under Part I of the Act for the taxation year in which the amalgamation occurred.

B. The provisions of subsections 87(11) and 88(1) will apply to the Second Amalgamation such that, for purposes of the Act, the cost to Second Amalco of each Target Share owned without interruption at and since the time Bidco acquired control of Holding Company and that became property of Second Amalco pursuant to the Second Amalgamation will be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the Target Shares to the particular Holding Company plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), and provided that such Target Share is capital property and that no such Target Share acquired by Second Amalco on the Second Amalgamation (or "any property acquired by any person in substitution therefor" within the meaning of that phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III) (on the assumption that the "subsidiary" referred to in those subclauses is the particular Holding Company and the "parent" is Buyerco) as part of the series of the transactions or events that includes the Second Amalgamation, such portion of the amount, if any, by which:

(a) the aggregate of the Adjusted Cost Base to Buyerco of its shares of the particular Holding Company immediately before the Second Amalgamation

exceeded

(b) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1),

as is designated by Second Amalco under paragraph 88(1)(d) in respect of such Target Share in its return of income under Part I of the Act for the taxation year in which the amalgamation occurred.

C. The cost to Bidco, Shareholder 4, Shareholder 5 and Shareholder 6 of its LP1 interest will be equal to the FMV of the LP1 interest at the time of the distribution described in Paragraph 47 above.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed within six months of the date of this letter.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

OPINION

Provided that proposed subparagraph 88(1)(c.3)(vi) is enacted as proposed in Bill C-33 (First Reading in the Senate, June 15, 2007), the provisions of subsections 87(11) and 88(1) will apply to the Third Amalgamation such that, for purposes of the Act, the cost to Third Amalco of each property that Target owned without interruption at and since the time Bidco acquired control of Target and that became property of Third Amalco pursuant to the Third Amalgamation will be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the property to Target plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), and provided that such property is capital property but not depreciable property and that no such property acquired by Third Amalco on the Third Amalgamation (or "any property acquired by any person in substitution therefor" within the meaning of that phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III) (on the assumption that the "subsidiary" referred to in those subclauses is Target and the "parent" is Second Amalco) as part of the series of the transactions or events that includes the Third Amalgamation, such portion of the amount, if any, by which:

(a) the aggregate of the Adjusted Cost Base to Second Amalco of its Target Shares immediately before the Third Amalgamation

exceeded

(b) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1),

as is designated by Third Amalco under paragraph 88(1)(d) in respect of such property in its return of income under Part I of the Act for the taxation year in which the Third Amalgamation occurred.

As indicated in paragraph 22 of Information Circular 70-6R5, an expression of opinion is not an advance income tax ruling and, accordingly, is not binding on the CRA.

COMMENTS

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

(a) the determination of the fair market value or Adjusted Cost Base of any particular asset or the paid-up capital in respect of any share referred to herein;

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above;

(c) whether the non-resident corporations described in this letter are foreign affiliates or controlled foreign affiliates;

(d) whether the amount of the designation referred to in Paragraphs 41 and 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;

(e) the deductibility of any amount of interest;

(f) the application or non-application of the general anti-avoidance provisions of any province; or

(g) any limitation to the timing and scope for the application of paragraph 88(1)(c)(vi) to transactions and events which are not described as part of the Proposed Transactions.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch