30 November 1995 Ruling 9617343 - REORGANIZATION, INTERLOCKING SHAREHOLDINGS

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:

Distributing corporation holds shares of transferee and transferee holds shares of DC. How to determine types of property.

Position:

Transferee's investment in DC will be determined excluding the investment in the transferee corporation.

Reasons:

reasonable approach, previously used in ruling

XXXXXXXXXX							3-961734
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the above taxpayer. We also acknowledge your letters of XXXXXXXXXX.

To the best of your knowledge, and that of the parties to this ruling, none of the issues contained in this advance income tax ruling is being considered by a Tax Services Office and/or a Taxation Centre in connection with an income tax return previously filed and none of the issues contained herein is under objection or appeal.

PART I: DEFINITIONS

In this letter unless otherwise noted, (1) all section references are references to the Act, and (2) the following terms have the following meanings:

Act: the Income Tax Act (Canada), as amended;

ACB: the adjusted cost base of any property, as defined in the Act;

Arrangement: the plan of arrangement consisting of the transactions and events proposed to be implemented and described in ¶III.3 to ¶III.19 herein;

Butterfly Shares: collectively, the Newco Special Shares owned by XXXXXXXXXX which will be redeemed for cancellation by Newco, and the XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares owned by Newco which will be repurchased and redeemed (respectively) for cancellation by XXXXXXXXXX, both as described in Part III herein;

CBCA: the Canada Business Corporations Act, as amended;

Dissenting Shareholder: any holder of XXXXXXXXXX Common Shares who exercises his right of dissent under §190 of the CBCA, as described in ¶III.4 herein;

Distribution: the transactions described in ¶III.13 to ¶III.18 herein, whereby the Rollover Properties will be transferred to Newco on a tax-deferred basis in exchange for Newco Special Shares and the issuance of the Rollover Note by Newco;

XXXXXXXXXX, a corporation described more fully in Schedule 1, and the "distributing corporation" on the Distribution within the meaning of §55;

XXXXXXXXXX
XXXXXXXXXX Common Shares: the issued and outstanding common shares of XXXXXXXXXX, as described in Schedule 1;

XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares: the new Class XXXXXXXXXX Preferred Shares of XXXXXXXXXX to be issued upon the reorganization of XXXXXXXXXX preferred share capital (as described in ¶III.7, below), the terms of which are identical to the terms of the XXXXXXXXXX Preferred Shares, except that, (1) the redemption amount for each issued and outstanding XXXXXXXXXX New Class XXXXXXXXXX Preferred Share shall be equal to $XXXXXXXXXX multiplied by the Transfer Percentage, and (2) each XXXXXXXXXX New Class XXXXXXXXXX Preferred Share shall be convertible at the option of the holder at any time into a fraction of one XXXXXXXXXX Common Share equal to the redemption amount of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Share divided by the closing price for the XXXXXXXXXX Common Shares quoted on the immediately preceding business day by the exchange on which such shares trade. The entitlement of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares to declared dividends or upon any general distribution of assets of XXXXXXXXXX shall rank senior to the entitlement of the XXXXXXXXXX Common Shares and equally with the entitlement of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares;

XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares: the new Class XXXXXXXXXX Preferred Shares of XXXXXXXXXX to be issued upon the reorganization of XXXXXXXXXX preferred share capital (as described in ¶III.7, below), the terms of which are identical to the terms of the XXXXXXXXXX Preferred Shares, except that, (1) the redemption amount for each issued and outstanding XXXXXXXXXX New Class XXXXXXXXXX Preferred Share shall be equal to $XXXXXXXXXX multiplied by (XXXXXXXXXX), and (2) each XXXXXXXXXX New Class XXXXXXXXXX Preferred Share shall be convertible at the option of the holder at any time into a fraction of one XXXXXXXXXX Common Share equal to the redemption amount of that XXXXXXXXXX New Class XXXXXXXXXX Preferred Share divided by the closing price for the XXXXXXXXXX Common Shares quoted on the immediately preceding business day by the exchange on which such shares trade. The entitlement of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares to declared dividends or upon any general distribution of assets of XXXXXXXXXX shall rank senior to the entitlement of the XXXXXXXXXX Common Shares and equally with the entitlement of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares;

XXXXXXXXXX Non-Voting Shares: the issued and outstanding non-voting common shares of XXXXXXXXXX, described in Schedule 1;

XXXXXXXXXX Preferred Shares: the issued and outstanding preferred shares of XXXXXXXXXX, as described in Schedule 1, all of which are held by XXXXXXXXXX;

Effective Date: the date referred to in the certificate of amendment issued pursuant to §192(7) of the CBCA in respect of the Arrangement;

Executive Stock Purchase Loan: a receivable in the amount of $XXXXXXXXXX owing to XXXXXXXXXX from a senior XXXXXXXXXX executive, which amount was loaned to the executive in order to permit him to purchase shares of XXXXXXXXXX;

fair market value or FMV: the highest price available in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to act;

Inter-Company Loans: certain loans and advances made between members of the XXXXXXXXXX Group;

XXXXXXXXXX, a corporation described more fully in Schedule 11, and in which XXXXXXXXXX owns the XXXXXXXXXX Shares;

XXXXXXXXXX Shares: the XXXXXXXXXX common shares of XXXXXXXXXX owned by XXXXXXXXXX, which shares represent approximately XXXXXXXXXX% of all the issued and outstanding common shares of XXXXXXXXXX;

Look-Through Corporation: a corporation (other than XXXXXXXXXX), (1) over which XXXXXXXXXX or another Look-Through Corporation has the ability to exercise "significant influence" within the guidelines provided by ¶3050 of the CICA Handbook, and (2) in which XXXXXXXXXX or another Look-Through Corporation owns shares (for details, see Schedules 3 to 20);

Newco: a newly-incorporated taxable Canadian corporation which will act as the "transferee corporation" on the Distribution within the meaning of §55;

Newco Common Shares: the issued and outstanding common shares of Newco, the terms of which shall be identical to the terms of the XXXXXXXXXX Common Shares, save and except, that any reference therein to “XXXXXXXXXX” shall be read as a reference to “Newco”, and the entitlement of such shares to declared dividends or upon any general distribution of assets of Newco shall rank junior to the entitlements of the Newco Preferred Shares and the Newco Special Shares;

Newco Preferred Shares: the issued and outstanding preferred shares of Newco, the terms of which shall be identical to the terms of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares, save and except that, (1) the Newco Preferred Shares shall contain no right of conversion or exchange into any other security, (2) any reference therein to “XXXXXXXXXX” shall be read as a reference to “Newco”, and (3) the entitlement of such shares to declared dividends or upon any general distribution of assets of Newco shall rank senior to the entitlements of the Newco Common Shares and the Newco Special Shares;

Newco Special Shares: the issued and outstanding special shares of Newco, which shall, (1) be non-voting, (2) be redeemable and retractable for an aggregate amount (the "redemption amount") equal to the FMV of the consideration for which they were issued (as determined by Newco's board of directors), and (3) entitle the holder to an annual non-cumulative dividend in the amount of XXXXXXXXXX% of the redemption amount. The entitlement of such shares to declared dividends or upon any general distribution of assets of Newco shall rank junior to the entitlement of the Newco Preferred Shares and senior to the entitlement of the Newco Common Shares;

Participant: each holder of XXXXXXXXXX Common Shares immediately prior to the Arrangement, other than a Dissenting Shareholder;

PUC: the paid-up capital of any shares, as determined under the Act;

XXXXXXXXXX, a corporation described more fully in Schedule 2, and a significant shareholder of XXXXXXXXXX;

XXXXXXXXXX: the XXXXXXXXXX Common Shares and the XXXXXXXXXX Preferred Shares owned by XXXXXXXXXX;

XXXXXXXXXX Common Shares: the XXXXXXXXXX shares and XXXXXXXXXX shares of XXXXXXXXXX owned by XXXXXXXXXX, as described in Schedule 2;

XXXXXXXXXX Group: the group of corporations comprised of XXXXXXXXXX and all Look-Through Corporations;

XXXXXXXXXX Percentages: the proportions of cash or near cash, business and investment property (respectively) which each share of the XXXXXXXXXX represents, computed in the manner described in ¶II.17, below;

XXXXXXXXXX Preferred Shares: the XXXXXXXXXX Series XXXXXXXXXX preferred shares, XXXXXXXXXX Series XXXXXXXXXX preferred shares, XXXXXXXXXX Series XXXXXXXXXX preferred shares, and XXXXXXXXXX Series XXXXXXXXXX preferred shares of XXXXXXXXXX owned by XXXXXXXXXX, described in Schedule 2;

Rollover Note: the note issued by Newco to XXXXXXXXXX in partial consideration for the Rollover Properties, as described in ¶III.13, which shall be non-interest-bearing, payable on demand by the holder, and open to repayment by Newco at any time without penalty;

Rollover Properties: all properties of XXXXXXXXXX which will be transferred to Newco in exchange for Newco Special Shares and the Rollover Note, as described in ¶III.13;

XXXXXXXXXX: a portfolio of marketable securities held as investments by XXXXXXXXXX (a Look-Through Corporation);

XXXXXXXXXX

Transfer Percentage: the proportion that the FMV of the Rollover Properties (net of the principal amount of the Rollover Note) immediately before the Distribution is of the FMV of all of XXXXXXXXXX property (net of all of XXXXXXXXXX liabilities) immediately before the Distribution.

PART II: FACTS

XXXXXXXXXX

XXXXXXXXXX is a taxable Canadian corporation and a public corporation, the Common Shares and Non-Voting Shares of which are traded on the XXXXXXXXXX Stock Exchange. Further particulars of XXXXXXXXXX are attached as Schedule 1.

The business of

XXXXXXXXXX

XXXXXXXXXX

The principal assets of XXXXXXXXXX consist of, XXXXXXXXXX. XXXXXXXXXX also owns the XXXXXXXXXX Shares, and has relatively small amounts of cash, accounts receivable and office equipment/leasehold improvements. Any other assets of XXXXXXXXXX are relatively insignificant. Relevant information concerning the various shares in the XXXXXXXXXX is included in Schedules 1 and 2.

Apart from XXXXXXXXXX, there are no corporations in which XXXXXXXXXX owns shares and over which XXXXXXXXXX has the ability to exercise "significant influence" within the guidelines provided by ¶3050 of the CICA Handbook.

XXXXXXXXXX

XXXXXXXXXX is a taxable Canadian corporation and a public corporation, the XXXXXXXXXX Shares of which are traded on the XXXXXXXXXX Stock Exchange. Further particulars of XXXXXXXXXX are attached as Schedule 2.

The business of XXXXXXXXXX consists of

XXXXXXXXXX

The principal assets of XXXXXXXXXX consist of, (1) shares of and receivables owing from Look-Through Corporations, (2) the XXXXXXXXXX, and (3) a significant amount of cash. XXXXXXXXXX also owns XXXXXXXXXX and relatively small amounts of related office leaseholds and equipment, XXXXXXXXXX, shares in corporations other than Look-Through Corporations, and accounts receivable. Any other assets of XXXXXXXXXX are relatively insignificant.

XXXXXXXXXX

The XXXXXXXXXX Group consists of approximately XXXXXXXXXX corporations, incorporated in Canada and elsewhere. Some members of the XXXXXXXXXX Group are the actual owners of interests in XXXXXXXXXX (either directly or through partnerships), while others act as holding bodies corporate, holding the shares of other members of the XXXXXXXXXX Group.

Determination of Types of Property: General Principles

In determining the FMV of the cash or near cash, business and investment property of any particular corporation, accounts receivable, inventories and prepaid expenses will be treated as cash or near cash property (and corresponding liabilities will be treated as current liabilities).

In determining the net FMV of the cash or near cash, business and investment property of any particular corporation, liabilities of the corporation will be allocated as follows, subject to ¶II.13 below concerning the "full consolidation" method:

current liabilities will be allocated to and deducted from cash or near cash property to the extent of the gross FMV of such property;

liabilities (other than current liabilities) that relate to a particular property will be allocated to and deducted from the gross FMV of the particular property, to the extent of the gross FMV of that type of property;

liabilities (other than current liabilities) that pertain to a type of property but not to a specific property will be allocated to and deducted from the gross FMV of that type of property, to the extent of the gross FMV of that type of property following the allocations described in (1) and (2) above; and

liabilities that have not been allocated in accordance with (1) - (3) above will be allocated to and deducted from the gross FMV of each of the three types of property of the corporation pro rata to the respective net FMV of those types of property following the allocations described in (1) - (3) above and prior to any allocations of liabilities as described herein.

As noted in ¶II.30, the classification of the debtor's liability on any Inter-Company Loans will be symmetrical with the classification of the creditor's corresponding receivable.

Where a corporation is a member of a partnership, the corporation will be considered to own a portion of the partnership’s cash or near cash, business and investment property equal to its proportionate interest in the partnership, and to bear a like proportion of the partnership’s cash or near cash, business and investment liabilities.

XXXXXXXXXX Group: Look-Through Principle and Full Consolidation Method

In determining the XXXXXXXXXX Percentages, the "look-through" principle will be applied to Look-Through Corporations, such that XXXXXXXXXX will effectively be considered to own its proportionate share of the net cash or near cash, business and investment property of each Look-Through Corporation.

In applying the "look-through" principle, the "full consolidation" method will be used. Under the "full consolidation" method, for each type of property XXXXXXXXXX proportionate share (based on direct or indirect share ownership) of the gross FMV of that type of property owned by each member of the XXXXXXXXXX Group will be aggregated to produce a consolidated gross amount of that type of property for the XXXXXXXXXX Group. Shares of another Look-Through Corporation will not be so included, since the property and liabilities of such other corporation will be separately accounted for by the entries for that other corporation. Included in the consolidated gross FMV of each type of property so computed will be XXXXXXXXXX proportionate share (i.e., based on its proportionate shareholdings of XXXXXXXXXX) of the gross FMV of XXXXXXXXXX property of that type (excluding the XXXXXXXXXX, as described in ¶II.18, below).

Thus, the consolidated gross FMV of any particular type of XXXXXXXXXX property will be comprised of,

the gross FMV of the property of that type owned directly by XXXXXXXXXX (other than shares of XXXXXXXXXX or Look-Through Corporations);

XXXXXXXXXX proportionate share of the gross FMV of XXXXXXXXXX property of that particular type (excluding the XXXXXXXXXX); and

XXXXXXXXXX proportionate share of the gross FMV of all property of that type owned by each Look-Through Corporation (other than shares of other Look-Through Corporations).

Corresponding calculations will be performed to determine the amount of liabilities relating to that particular type of property, and such consolidated liabilities which relate to that type of property will be deducted from the consolidated gross FMV of that type of property to produce the consolidated net FMV of that type of XXXXXXXXXX property. In this manner, if any relevant corporation is determined (on a stand-alone basis) to have a net amount of a particular type of property of less than zero, such "negative" amount of that type of property will be deducted from the consolidated gross FMV of that type of property (as determined above), to the extent of such consolidated gross FMV, prior to being deducted from the amount of other types of the corporation's property in the manner described in ¶II.10, above.

In the result and on the facts, the consolidated net FMV of each type of XXXXXXXXXX property so computed will exceed zero, viz., no liabilities that relate to any particular type of property will be deducted from the FMV of any other type of property.

Once the consolidated net FMV of each type of XXXXXXXXXX property has been so computed, the XXXXXXXXXX Percentages will be determined. The XXXXXXXXXX Percentage for any particular type of property will be the consolidated net FMV of that type of XXXXXXXXXX property (computed as described in ¶II.15, above), divided by the consolidated net FMV of XXXXXXXXXX cash or near cash, business and investment property. Each share of the XXXXXXXXXX will thus be considered to represent the resulting proportions of cash or near cash, business and investment property.

Interlocking Shareholdings

As noted above, in computing the XXXXXXXXXX Percentages, XXXXXXXXXX interest in XXXXXXXXXX will be accounted for by including XXXXXXXXXX proportionate share of, (1) the gross FMV of each of the cash or near cash, business and investment property of XXXXXXXXXX (other than the XXXXXXXXXX), and (2) XXXXXXXXXX liabilities that relate to each such particular type of property.

Once the XXXXXXXXXX Percentages have been determined, the net FMV of each of the cash or near cash, business and investment property of XXXXXXXXXX will be determined by aggregating, (1) the net FMV of that type of DSW's property (excluding the XXXXXXXXXX), and (2) the FMV of the XXXXXXXXXX multiplied by the XXXXXXXXXX Percentage applicable to that type of property. Liabilities of XXXXXXXXXX will be accounted for in the same manner as described in ¶II.10, above.

Classification of Particular Properties

XXXXXXXXXX does not have the ability to exercise "significant influence" (directly or indirectly) over XXXXXXXXXX, within the guidelines provided by ¶3050 of the CICA Handbook. The ACB to XXXXXXXXXX of the XXXXXXXXXX Shares is $XXXXXXXXXX per share, and they are reported in the financial statements of XXXXXXXXXX as a long-term investment. While not sufficiently large to provide XXXXXXXXXX with the ability to exercise "significant influence" over XXXXXXXXXX, a share block of this size would be relatively difficult to liquidate, representing as it does XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX. The XXXXXXXXXX Shares trade on the XXXXXXXXXX Stock Exchange, and the closing price of these shares on XXXXXXXXXX was $XXXXXXXXXX per share. The XXXXXXXXXX shares were originally acquired by XXXXXXXXXX, and XXXXXXXXXX purpose in acquiring these shares was to make a strategic investment in XXXXXXXXXX. XXXXXXXXXX has continued to accumulate shares in XXXXXXXXXX, having purchased more shares as recently as the first quarter of XXXXXXXXXX. Following the Distribution, XXXXXXXXXX intends to continue holding these shares indefinitely as a long-term investment.

XXXXXXXXXX

The XXXXXXXXXX shares will be classified as an investment property for purposes of the Distribution, based on the facts that, (1) the accounting presentation and treatment of this property is consistent with such classification, (2) liquidation of a block of shares of this size would be difficult to achieve, (3) the original intention in acquiring these shares was one of long-term investment, and (4) following the Distribution XXXXXXXXXX intends to continue holding these shares as a long-term investment.

The Executive Stock Purchase Loan arose as a means by which a senior XXXXXXXXXX executive could acquire shares of XXXXXXXXXX and thereby have further incentive to increase the value of XXXXXXXXXX for its shareholders through the performance of his employment duties. The Executive Stock Purchase Loan is payable by XXXXXXXXXX, is non-interest-bearing, and is secured by the XXXXXXXXXX shares purchased by the executive.

The Executive Stock Purchase Loan will be classified as a business property for purposes of the Distribution, based on the facts that, (1) it arose for the purpose of motivating and compensating a senior XXXXXXXXXX executive in the course of performing employment duties which involve the management of XXXXXXXXXX business, and (2) it generates no income for the holder.

XXXXXXXXXX

XXXXXXXXXX will be classified as an investment property for purposes of the Distribution, based on the facts that, (1) the accounting presentation and treatment of this property is consistent with such classification, (2) there would be some tax cost in liquidating this portfolio of investments, (3) it was originally acquired for investment purposes, and (4) the holder has no present intention of liquidating this portfolio in the foreseeable future.

XXXXXXXXXX

Based on the proportionate usage of the property, XXXXXXXXXX will be classified XXXXXXXXXX as business property, with the remainder classified as investment property. The mortgage on XXXXXXXXXX will be classified in the same proportions.

The Inter-Company Loans have arisen as a means of raising funds to carry on the

XXXXXXXXXX

Because the ultimate use of these funds is the acquisition of interests in or expenditures on XXXXXXXXXX, the Inter-Company Loans essentially constitute long-term capital. The debtors under any such loans do not possess sufficient liquid assets to repay the non-current portion of these loans. Immediate repayment could occur only if the XXXXXXXXXX assets were liquidated. In essence, the non-current portion of any Inter-Company Loan is not a liquid asset reasonably capable of being repaid on a current basis.

The current portion of any Inter-Company Loan will be classified as a current liability, for purposes of the Distribution, on the basis that repayment of such current portion is scheduled or is reasonably likely to occur within 12 months. The non-current portion of any Inter-Company Loan will be classified as relating to business property for purposes of the Distribution, based on the facts that, (1) the accounting presentation and treatment of the Inter-Company Loans (i.e., as non-current assets and liabilities) is consistent with such classification, (2) the ultimate use of these funds can be traced to the acquisition of or expenditures on XXXXXXXXXX properties which are themselves business properties, (3) repayment of such non-current portion is not scheduled or reasonably likely to occur within 12 months, (4) there is presently no intention on the part of any lender under any Inter-Company Loan to attempt to accelerate payment of any non-current portion of any such Inter-Company Loan, and (5) even if such intention existed, there is no practical way in which the debtor could effect payment of the non-current portion of any Inter-Company Loan. In all cases, classification of any amount of any Inter-Company Loan will be symmetrical for the debtor and creditor.

While the outside funds used to finance the Inter-Company Loans are normally raised on an equity basis, XXXXXXXXXX has incurred a significant loan to an arm's-length financial institution which was ultimately used to fund an Inter-Company Loan. For purposes of the Distribution, the current portion of this bank loan will be classified as a current liability and the non-current portion will be classified as relating to business property, for the reasons described above with reference to the Inter-Company Loans.

The Rollover Note is administratively much simpler than having Newco actually assume XXXXXXXXXX liabilities owing to third parties (assuming that such third parties would allow any such substitution of debtors). In determining the net FMV of each type of property owned by Newco and XXXXXXXXXX following the Distribution, the Rollover Note will be classified as a current liability of Newco and a cash or near cash property of XXXXXXXXXX, based on the facts that, (1) it will be payable on the demand of the holder, (2) it is intended that the Rollover Note will be fully repaid within 12 months of issuance, and (3) the accounting presentation and treatment of this property (i.e., as a current liability) will be consistent with such classification. The Rollover Note will represent exclusively current liabilities of XXXXXXXXXX which would otherwise be assumed by Newco on the Distribution.

The amount of the Rollover Note will not exceed the amount of current liabilities of XXXXXXXXXX immediately prior to the Distribution, and no amount of any such current liability will be directly assumed by Newco as part of the Distribution. In this manner, each dollar of the Rollover Note will represent one dollar of current liabilities of XXXXXXXXXX which, but for the existence of the Rollover Note, would have been directly assumed by Newco.

Relationship to Other Transactions

In contemplation of and before the Distribution, no property will become property of XXXXXXXXXX, a corporation controlled by XXXXXXXXXX or a predecessor corporation of any such corporation, otherwise than as a result of a transaction described in §55(3.1)(a)(i) - (iv). If any property becomes property of (or any liability is incurred by) XXXXXXXXXX before or during the Distribution otherwise than as a result of a transaction described in §55(3.1)(a)(i) - (iv), such property will have so become property of (or such liability will have so been incurred by) XXXXXXXXXX irrespective of whether or not the Distribution occurs.

The series of transactions which includes the Distribution will not include any transaction or acquisition of control described in §55(3.1)(b). The only "specified shareholder" of XXXXXXXXXX is XXXXXXXXXX has no intention of disposing of any portion of the XXXXXXXXXX in the foreseeable future (other than in a transaction described in Part III herein).

XXXXXXXXXX has ongoing discussions with various parties concerning possible business transactions with those parties. These discussions and the occurrence or non-occurrence of any such possible business transactions with these parties will proceed whether or not the Arrangement is implemented. The Arrangement will have no material impact on, (1) the occurrence or non-occurrence of these possible business transactions, or (2) the results of any such occurrence or non-occurrence. Therefore, any acquisition of property described in §§55(3.1)(c) or (d) would not be a related transaction or 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. Hence, there will be no acquisition of property described in §§55(3.1)(c)(i) or (d)(i).

Significant Transactions

The following is a description of all significant transactions involving XXXXXXXXXX which have recently been completed or which are expected to be completed prior to or following the completion of the Arrangement:

following the proposed transactions, it is anticipated that either or both of XXXXXXXXXX and Newco may raise additional debt or equity (likely equity by means of an offering of additional common shares or rights to acquire such shares). The purpose of such additional financing by XXXXXXXXXX would be to finance its participation in the proposed U.K. venture (see below). The purpose of such additional financing by Newco would be to XXXXXXXXXX. Such transactions would not involve an acquisition of control of either XXXXXXXXXX or Newco, nor include any sale of shares of XXXXXXXXXX or Newco by persons who, immediately after the Arrangement, would be shareholders of XXXXXXXXXX or Newco;

XXXXXXXXXX has been actively pursuing a major business venture in the U.K. XXXXXXXXXX It is likely that XXXXXXXXXX would hold a minority position in this investment, the majority position being held by institutional investors;

XXXXXXXXXX

The purchasers were arm’s-length and unrelated third parties;

XXXXXXXXXX

prior to the Arrangement, XXXXXXXXXX will cause XXXXXXXXXX, a wholly-owned subsidiary all the issued and outstanding shares of which are owned by XXXXXXXXXX, to wind up into XXXXXXXXXX under §88(1). XXXXXXXXXX has no liabilities, and its only property is XXXXXXXXXX shares of XXXXXXXXXX (which shares are thereby included in the XXXXXXXXXX).

For greater certainty, with the exception of transaction (5), none of the foregoing transactions has been or will be undertaken in contemplation of the Arrangement, and neither the occurrence (or non-occurrence) nor the timing of these transactions is materially affected by whether or not the Arrangement is undertaken and completed.

Parts IV.1 and VI.1 and §112

For purposes of §191(4), the terms and conditions of the Newco Special Shares issued to XXXXXXXXXX will specify an amount in respect of those shares which is equal to both their redemption amount and the FMV of the consideration for which they were issued.

At the time of their repurchase by XXXXXXXXXX, the XXXXXXXXXX Common Shares owned by Newco will not be “short-term preferred shares”, “taxable preferred shares”, or “taxable RFI shares”.

At the time of their redemption by Newco, the Newco Special Shares acquired by XXXXXXXXXX on the Distribution and redeemed by Newco will not be “short-term preferred shares” or “taxable RFI shares”.

At the time of the Distribution, the XXXXXXXXXX Common Shares held by XXXXXXXXXX and transferred to Newco on the Distribution will not be “short-term preferred shares” or “taxable preferred shares”.

Neither XXXXXXXXXX nor Newco is (or will be at the time of the repurchase/redemption of the Butterfly Shares) a "specified financial institution".

At no time during the series of transactions or events which includes the Arrangement will any of the Butterfly Shares be:

the subject of a "guarantee agreement" (as defined in §112(2.2)); or

a share that is or will be issued or acquired as part of a transaction or event or series of transactions or events described in §112(2.5).

No dividend paid or deemed to be paid as part of the Arrangement is or will be part of a "dividend rental arrangement".

Other Information

Newco shall bear a portion of the cost of repurchasing the XXXXXXXXXX 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. To achieve this result, XXXXXXXXXX will make any required payments to Dissenting Shareholders, and under the terms of the Arrangement Newco will owe its share of any such amount to XXXXXXXXXX. The amount so owed to XXXXXXXXXX will be paid within 12 months of the Arrangement and represents a portion of the cash outlay made by XXXXXXXXXX to satisfy legal obligations arising from the Arrangement, and as such will be classified as a cash or near cash property of XXXXXXXXXX and a current liability of Newco.

Presently, XXXXXXXXXX shareholdings in XXXXXXXXXX represent approximately XXXXXXXXXX of (respectively) the votes and value of all outstanding XXXXXXXXXX shares, while XXXXXXXXXX shareholdings in XXXXXXXXXX represent approximately XXXXXXXXXX of (respectively) the votes and value of all outstanding XXXXXXXXXX shares. The history of inter-locking shareholdings between XXXXXXXXXX. XXXXXXXXXX dates back to the XXXXXXXXXX. The inter-locking shareholdings have several important advantages for both companies:

continuity of significant shareholders makes each corporation less susceptible to changing investor whims and preferences, and better able to concentrate on actions which are in the corporation’s long-term interest (i.e., XXXXXXXXXX projects which may take many years to generate cash-flow). This is particularly important in the context of the capital-intensive XXXXXXXXXX sector, where issuers must seek financing from capital markets relatively frequently in order to fund XXXXXXXXXX projects;

shareholder continuity makes possible management continuity, which has resulted in above-average performance for shareholders over many years (XXXXXXXXXX); and

the knowledge that current strategies and policies will continue into the foreseeable future in turn enhances investor confidence, such that investors know what to expect from their investment.

Management and the boards of directors of XXXXXXXXXX significantly overlap.

The primary assets which will be included in the Rollover Properties are XXXXXXXXXX property referred to in ¶II.2 and ¶II.3. In addition, it is anticipated that XXXXXXXXXX properties will also be included in the Rollover Properties, although these will comprise a relatively small amount of XXXXXXXXXX properties. It is possible that other properties may also be included in the Rollover Properties, depending on the circumstances at the time of the Distribution.

PART III: PROPOSED TRANSACTIONS

The following transactions will occur in the order in which they appear.

Incorporation of Newco

Management of XXXXXXXXXX will cause Newco to be incorporated under the CBCA. Newco will be a taxable Canadian corporation, with authorized share capital consisting of,

an unlimited number of Newco Common Shares;

an unlimited number of Newco Preferred Shares; and

an unlimited number of Newco Special Shares.

No shares of Newco will be issued upon incorporation.

Conversion of XXXXXXXXXX Common Shares

Prior to the meeting of XXXXXXXXXX shareholders called to vote on the Arrangement, one or two shareholders of XXXXXXXXXX will convert approximately XXXXXXXXXX Common Shares into an equal number of XXXXXXXXXX Non-Voting Shares, as provided for under the terms of those XXXXXXXXXX Common Shares. Such holders of XXXXXXXXXX Common Shares will hold such shares as capital property and will receive no consideration other than one XXXXXXXXXX Non-Voting Share for each XXXXXXXXXX Common Share so converted. No acquisition of control of XXXXXXXXXX will occur as a result of this share conversion.

Arrangement

Following the issuance by the Court of a final order approving the Arrangement, XXXXXXXXXX will file articles of arrangement pursuant to §192(6) of the CBCA and, upon issuance of a certificate of arrangement pursuant to §192(7) of the CBCA, the transactions described below to III.19 will be implemented and will be deemed to occur in the order described below on the Effective Date (other than the filing of any elections under the Act).

Each holder of XXXXXXXXXX Common Shares will be entitled, pursuant to the terms of the Arrangement, to dissent with respect to the Arrangement, and to be paid the FMV of his XXXXXXXXXX Common Shares in exchange for those shares. Any Dissenting Shareholder who is ultimately entitled to be paid the FMV of his XXXXXXXXXX Common Shares will be deemed under the terms of the Arrangement to have transferred such shares to XXXXXXXXXX immediately prior to the Arrangement. XXXXXXXXXX will pay to each such Dissenting Shareholder the FMV of such shares, which shares will then be cancelled.

Exchange of XXXXXXXXXX Non-Voting Shares

All issued and outstanding XXXXXXXXXX Non-Voting Shares (approximately XXXXXXXXXX) will be exchanged for consideration that consists exclusively of an equal number of XXXXXXXXXX Common Shares, with each holder receiving one XXXXXXXXXX Common Share for each XXXXXXXXXX Non-Voting Share so exchanged. No acquisition of control of XXXXXXXXXX will occur as a result of this share exchange. No election under §85(1) or (2) will be made in respect of this share exchange.

The stated capital of the XXXXXXXXXX Common Shares will be increased by the stated capital of the XXXXXXXXXX Non-Voting Shares immediately before the exchange. The articles of XXXXXXXXXX will be amended to delete the XXXXXXXXXX Non-Voting Shares from the authorized share capital of the corporation, and the terms of the XXXXXXXXXX Common Shares will be modified to eliminate the right of the holder of such shares to convert them to XXXXXXXXXX Non-Voting Shares.

Reorganization of XXXXXXXXXX Preferred Share Capital

Articles of Amendment will be filed under the CBCA to, (1) authorize the creation and issuance of an unlimited number of XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares, and (2) delete the XXXXXXXXXX Preferred Shares. The share capital of XXXXXXXXXX will be reorganized, such that each holder of XXXXXXXXXX Preferred Shares will receive one XXXXXXXXXX New Class XXXXXXXXXX Preferred Share and one XXXXXXXXXX New Class XXXXXXXXXX Preferred Share in exchange for each XXXXXXXXXX Preferred Share held. No acquisition of control of XXXXXXXXXX will occur as a result of such reorganization of capital.

A portion of the stated capital of the XXXXXXXXXX Preferred Shares equal to the Transfer Percentage will be added to the stated capital of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares, while the remainder of the stated capital of the XXXXXXXXXX Preferred Shares will be added to the stated capital of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares.

Transfer of XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares to Newco

Each Participant will transfer to Newco a fraction of the XXXXXXXXXX Common Shares owned by him equal to the Transfer Percentage. Each Participant will receive Newco shares having a fair market value equal to that of the XXXXXXXXXX Common Shares so transferred. For each XXXXXXXXXX Common Share so transferred to Newco, Newco will issue the Participant in full consideration therefor a number of Newco Common Shares equal to 1/the Transfer Percentage. Fractional XXXXXXXXXX Common Shares so transferred will entitle the holder to a number of Newco Common Shares based on this formula which is correspondingly reduced. Similarly, each Participant will transfer to Newco all XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares owned by him. For each XXXXXXXXXX New Class XXXXXXXXXX Preferred Share so transferred to Newco, Newco will issue the Participant in full consideration therefor one Newco Preferred Share.

To the extent that Newco is satisfied that, (1) the provisions of §85.1(1) do not apply to a Participant, and (2) §85(1) would otherwise apply to a transfer of XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares to Newco by such Participant, Newco will jointly elect with such Participant in the prescribed form and within the time established in §85(6) to have §85(1) apply to such transfer. For purposes of §85(1), the agreed amount in respect of such transfer will be equal to the lesser of the FMV of the transferred shares and their cost amount, within the meaning of §248(1), to the Participant at that time.

The aggregate amount added to the stated capital of the Newco Common Shares in respect of such exchanges with Participants will not exceed the total of,

the aggregate PUC of all XXXXXXXXXX Common Shares acquired by Newco from Participants to whom §85.1(1) is applicable;

the aggregate agreed amounts in respect of all XXXXXXXXXX Common Shares acquired by Newco from Participants to whom §85(1) is applicable; and

the FMV of the XXXXXXXXXX Common Shares acquired by Newco from Participants to whom neither §85.1(1) nor §85(1) is applicable.

The aggregate amount added to the stated capital of the Newco Preferred Shares in respect of such exchanges with Participants will not exceed the total of,

the aggregate PUC of all XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares acquired by Newco from Participants to whom §85.1(1) is applicable;

the aggregate agreed amounts in respect of all XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares acquired by Newco from Participants to whom §85(1) is applicable; and

the FMV of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares acquired by Newco from Participants to whom neither §85.1(1) nor §85(1) is applicable.

Distribution

XXXXXXXXXX will transfer the Rollover Properties to Newco. In full consideration for this transfer, Newco will issue to XXXXXXXXXX, (1) the Rollover Note, and (2) XXXXXXXXXX Newco Special Shares with an aggregate FMV and redemption amount equal to the FMV of the Rollover Properties, minus the principal amount of the Rollover Note.

The FMV of the Rollover Properties (net of the principal amount of the Rollover Note) will consist of a proportion of the FMV of each of XXXXXXXXXX net cash or near cash, business and investment property which in each case equals or approximates the Transfer Percentage. In this manner,

the net FMV of Newco's cash or near cash property (immediately following the Distribution) will equal or approximate the Transfer Percentage multiplied by the net FMV of XXXXXXXXXX cash or near cash property (immediately before the Distribution);

the net FMV of Newco's business property (immediately following the Distribution) will equal or approximate the Transfer Percentage multiplied by the net FMV of XXXXXXXXXX business property (immediately before the Distribution); and

the net FMV of Newco's investment property (immediately following the Distribution) will equal or approximate the Transfer Percentage multiplied by the net FMV of XXXXXXXXXX investment property (immediately before the Distribution).

The term "approximate the Transfer Percentage" means within one percent of the Transfer Percentage, expressed as a percentage of the Transfer Percentage.

Immediately following the transactions described above, the aggregate net fair market value of each type of property retained by XXXXXXXXXX, determined in accordance with the guidelines described in ¶II.9 to II.32 above, will equal or approximate the proportion of the aggregate net fair market value of that type of property of XXXXXXXXXX immediately before the Distribution that

the aggregate fair market value of all of the issued and outstanding shares of XXXXXXXXXX other than those held by Newco, immediately before the Distribution,

is of

the aggregate fair market value of all of the issued and outstanding shares of XXXXXXXXXX, immediately before the Distribution.

The term "approximate the proportion" means within one percent of the proportion, expressed as a percentage of the proportion.

XXXXXXXXXX and Newco will jointly elect in the prescribed form and within the time established in §85(6) to have §85(1) apply to such transfer. All Rollover Properties will be "eligible property" as defined in §85(1.1). The Rollover Note will be allocated to particular Rollover Properties, and in no case will the amount so allocated to a particular property exceed the FMV of that property. In particular, a portion of the Rollover Note equal to the FMV of the XXXXXXXXXX Preferred Shares will be allocated to the XXXXXXXXXX Preferred Shares as the sole consideration for such shares, such that no Newco Special Shares will be issued in consideration for the XXXXXXXXXX Preferred Shares. The stated capital of the Newco Special Shares issued to XXXXXXXXXX will not exceed the amount by which the aggregate agreed amounts in respect of the Rollover Properties exceed the principal amount of the Rollover Note.

Newco will then redeem for cancellation the Newco Special Shares issued to XXXXXXXXXX in exchange for the Newco Note, a non-interest-bearing demand promissory note, the principal amount of which will be equal to the aggregate redemption amount of the Newco Special Shares so redeemed.

XXXXXXXXXX will then repurchase for cancellation the XXXXXXXXXX Common Shares owned by Newco and redeem for cancellation the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares owned by Newco in exchange for the XXXXXXXXXX Note, a non-interest-bearing demand promissory note the principal amount of which will be equal to the aggregate of, (i) the FMV of the XXXXXXXXXX Common Shares so repurchased, and (ii) the redemption amount of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares so redeemed. A portion of the XXXXXXXXXX Note equal to the repurchase amount of the XXXXXXXXXX Common Shares so repurchased will be designated as payment for the repurchase amount of such shares, and the remaining portion of the XXXXXXXXXX Note equal to the redemption amount of the XXXXXXXXXX Class XXXXXXXXXX Preferred Shares will be designated as payment for the redemption amount of such shares, such that the repurchase/redemption of these two classes of shares shall occur separately.

The Newco Note and the XXXXXXXXXX Note will then be set off against each other, in full satisfaction of each note.

Stock Split

XXXXXXXXXX will declare a stock split on the XXXXXXXXXX Common Shares, such that each XXXXXXXXXX Common Share then held will be replaced by a number of XXXXXXXXXX Common Shares equal to 1/(1 - the Transfer Percentage). The aggregate stated capital of the XXXXXXXXXX Common Shares will remain unchanged, as will the terms and conditions of such shares.

Post-Distribution

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

The terms of any stock options previously granted by XXXXXXXXXX will be amended to reflect the Arrangement.

PART IV: PURPOSE OF PROPOSED TRANSACTIONS

Pre-Distribution Share Conversion and Exchange

Management of XXXXXXXXXX does not know the identity of the holders of the XXXXXXXXXX Non-Voting Shares, and cannot be sure that the holders of a number of such shares sufficient to constitute a quorum of the shareholders of such class of shares will be present at the shareholders meeting called to vote upon the Arrangement. Therefore, to ensure that a quorum of this class of shareholders is present a small number of XXXXXXXXXX Common Shares will be converted into XXXXXXXXXX Non-Voting Shares.

Moreover, independent of the Arrangement, XXXXXXXXXX management has been considering for some time now the elimination of the small class of XXXXXXXXXX Non-Voting Shares.

XXXXXXXXXX

The reorganization of capital otherwise occurring on the Arrangement represents an appropriate time and cost-efficient opportunity at which to effect the elimination of this class of shares in the view of XXXXXXXXXX management.

Reorganization of XXXXXXXXXX Preferred Share Capital

The reorganization of the preferred share capital of XXXXXXXXXX prior to the distribution is designed to ensure that each shareholder’s proportionate voting position in each of XXXXXXXXXX and Newco is the same as his proportionate voting position in XXXXXXXXXX prior to the Distribution.

Distribution

The objective of the Distribution is to have the XXXXXXXXXX assets are dissimilar from the other properties of XXXXXXXXXX and have different financing characteristics and needs. Moreover, XXXXXXXXXX management believes that the current mixture of XXXXXXXXXX assets makes XXXXXXXXXX difficult for the market to value, since different valuation techniques and multiples are applicable for these different assets. By creating a separate entity to hold the XXXXXXXXXX properties, XXXXXXXXXX management believes that shareholder value can be enhanced through improved market perception of the core businesses of each company and financing which better matches the differing characteristics and needs of each business. The proposed transactions are designed to achieve this result on a tax-deferred basis.

Stock Split

The stock split of XXXXXXXXXX Common Shares occurring at the conclusion of the Arrangement is designed to leave XXXXXXXXXX shareholders with one XXXXXXXXXX Common Share at the conclusion of the Arrangement for each XXXXXXXXXX Common Share held at the commencement of the Arrangement.

PART V: RULINGS PROVIDED

Provided that the above statements of facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions and that the proposed transactions are carried out as set forth herein, the following rulings are given:

Conversion of XXXXXXXXXX Common Shares

The provisions of §51(1) will apply to each holder of XXXXXXXXXX Common Shares who holds such shares as capital property, who does not elect pursuant to §85(1) in respect of the exchange, and who converts such shares into XXXXXXXXXX Non-Voting Shares, as described in ¶III.2, above, such that the conversion of such XXXXXXXXXX Common Shares will be deemed not to be a disposition thereof.

For greater certainty, §51(2) will not apply to any holder of XXXXXXXXXX Common Shares who holds such shares as capital property and who converts such shares held by him into XXXXXXXXXX Non-Voting Shares, as described in ¶III.2, above.

Exchange of XXXXXXXXXX Non-Voting Shares

The provisions of §86(1) will apply to each holder of XXXXXXXXXX Non-Voting Shares who holds such shares as capital property, who does not elect pursuant to §85(1) in respect of the exchange, and who exchanges all such shares held by him for an equal number of XXXXXXXXXX Common Shares, as described in ¶III.5, above.

Any holder of XXXXXXXXXX Non-Voting Shares who does not hold such shares as capital property and who exchanges all such shares held by him for XXXXXXXXXX Common Shares, as described in ¶III.5, above, will be considered to have disposed of such shares for an amount equal to the FMV of such shares, and to have acquired the XXXXXXXXXX Common Shares received therefor at a like cost.

For greater certainty, §86(2) will not apply to any holder of XXXXXXXXXX Non-Voting Shares who holds such shares as capital property and who exchanges all such shares held by him for XXXXXXXXXX Common Shares, as described in ¶III.5, above.

For greater certainty, a disposition of XXXXXXXXXX Common Shares will not occur by reason of the deletion of the right of the holder of such shares to convert such shares into XXXXXXXXXX Non-Voting Shares, as described in ¶III.5 above.

Reorganization of XXXXXXXXXX Preferred Share Capital

The provisions of §86(1) will apply to each holder of XXXXXXXXXX Preferred Shares who holds such shares as capital property, who does not elect pursuant to §85(1) in respect of the exchange, and who exchanges all such shares held by him for an equal number of XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares and an equal number of XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares, as described in ¶III.7, above.

Any holder of a XXXXXXXXXX Preferred Share to whom §86(1) applies will be deemed to have acquired, (1) each XXXXXXXXXX New Class XXXXXXXXXX Preferred Share at a cost equal to a portion of the ACB of the XXXXXXXXXX Preferred Share surrendered equal to the Transfer Percentage, and (2) each XXXXXXXXXX New Class XXXXXXXXXX Preferred Share at a cost equal to the remaining portion of the ACB of the XXXXXXXXXX Preferred Share surrendered.

For greater certainty, §86(2) will not apply to any holder of XXXXXXXXXX Preferred Shares who holds such shares as capital property and who exchanges all such shares held by him in the manner described in ¶III.7, above.

Transfer of XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares to Newco

The provisions of §85.1(1) will apply to the transfer of XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares by each Participant to Newco in exchange for (respectively) Newco Common Shares and Newco Preferred Shares, as described in ¶III.9 above, provided that such Participant,

holds such XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares as capital property;

does not elect pursuant to §85(1) in respect of the exchange, and

Is not a vendor described in any of §§85.1(2)(a) - (d),

such that:

each such Participant (other than a Participant who has, in his return of income for the taxation year in which the exchange occurred, included in computing his income for that year any portion of the gain or loss, otherwise determined, from the disposition of the XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares) shall be deemed to have,

disposed of his XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares for proceeds of disposition equal to their respective ACBs to the Participant immediately before the exchange; and

acquired the Newco Common Shares and the Newco Preferred Shares received in exchange therefor at an aggregate like respective cost.

the cost to Newco of each XXXXXXXXXX Common Share and XXXXXXXXXX New Class XXXXXXXXXX Preferred Share acquired from each such Participant shall be deemed to be the lesser of its FMV immediately before the exchange and its PUC immediately before the exchange.

The provisions of §85(1) (other than §85(1)(e.2)) will apply to the transfer of XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares by each Participant to Newco in the manner described in ¶III.9 above, provided that,

such XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares constitute "eligible property" to the Participant within the meaning of §85(1.1); and

the requisite election is made by the parties in the prescribed form and within the prescribed time,

such that:

each such Participant shall be deemed to have disposed of each of his XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares for proceeds of disposition equal to the agreed amount per share in the election, and the cost to Newco of each such XXXXXXXXXX Common Share and XXXXXXXXXX New Class XXXXXXXXXX Preferred Share will be deemed to be the same amount; and

the aggregate respective costs to a Participant of the Newco Common Shares and the Newco Preferred Shares acquired by such Participant will be deemed to be equal to the aggregate respective agreed amounts in respect of all XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares transferred by that Participant to Newco.

For greater certainty, §85(1)(e.2) will not apply to a Participant who transfers XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares to Newco, as described in ¶III.9 above, and to whom §85(1) applies in respect of such transfer.

Distribution

Provided that the requisite election is made by the parties in the prescribed form and within the prescribed time, the provisions of §85(1) (other than §85(1)(e.2)) will apply to the transfer of the Rollover Properties by XXXXXXXXXX to Newco, the issuance of the Rollover Note to XXXXXXXXXX, and the issuance of Newco Special Shares to XXXXXXXXXX, all as described in ¶III.13 above, such that,

XXXXXXXXXX will be deemed to have disposed of each Rollover Property for proceeds of disposition equal to the agreed amount in the election for such property, and the cost to Newco of any such property will be deemed to be the same amount, subject to §85(5);

the aggregate cost to XXXXXXXXXX of the Newco Special Shares acquired by it will be deemed to be equal to the aggregate agreed amounts in respect of the Rollover Properties, less the principal amount of the Rollover Note;

the cost amount to XXXXXXXXXX of the Rollover Note will be equal to its principal amount; and

the PUC of the Newco Special Shares issued on the transfer of property by XXXXXXXXXX will not exceed the aggregate agreed amounts in respect of the Rollover Properties, less the principal amount of the Rollover Note.

For greater certainty, §85(1)(e.2) will not apply to the transfer of the Rollover Properties by XXXXXXXXXX to Newco, the issuance of the Rollover Note to XXXXXXXXXX by Newco, and the issuance of Newco Special Shares to XXXXXXXXXX by Newco, all as described in ¶III.13 above.

The cost amount to XXXXXXXXXX of the Newco Note described in ¶III.16 above and the cost amount to Newco of the XXXXXXXXXX Note described in ¶III.17 above will, in each case, be equal to the principal amount of such respective note.

On the redemption by Newco of the Newco Special Shares held by XXXXXXXXXX (as described in ¶III.16 above):

§§84(3)(a) and (b) will apply to deem Newco to have paid and XXXXXXXXXX to have received, on a separate class of shares comprising the redeemed Newco Special Shares, a dividend equal to the amount by which the principal amount of the Newco Note issued in payment of the redemption price of the redeemed Newco Special Shares exceeds the PUC of such shares immediately prior to their redemption; and

in computing the capital gain or loss realized by XXXXXXXXXX on the disposition of the Newco Special Shares occurring as a result of the redemption of such shares by Newco, §(j) of the definition of "proceeds of disposition" in §54 will apply to exclude the amount of such deemed dividend from XXXXXXXXXX proceeds of disposition.

On the repurchase for cancellation by XXXXXXXXXX of the XXXXXXXXXX Common Shares owned by Newco and redemption for cancellation by XXXXXXXXXX of the XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares owned by Newco (as described in ¶III.17 above):

§§84(3)(a) and (b) will apply to deem XXXXXXXXXX to have paid and Newco to have received, on two separate classes of shares comprising (respectively) the repurchased XXXXXXXXXX Common Shares and the redeemed XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares, two separate dividends, one of which will be equal to the amount by which the portion of the principal amount of the XXXXXXXXXX Note issued in payment of the repurchase price of the repurchased XXXXXXXXXX Common Shares exceeds the PUC of such shares immediately prior to their repurchase, and the other of which will be equal to the amount by which the portion of the principal amount of the XXXXXXXXXX Note issued in payment of the redemption price of the redeemed XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares exceeds the PUC of such shares immediately prior to their redemption; and

in computing the capital gain or loss realized by Newco on the respective dispositions of the XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares owned by Newco occurring as a result of the repurchase/redemption of such shares by XXXXXXXXXX, §(j) of the definition of "proceeds of disposition" in §54 will apply to exclude the amount of such respective deemed dividends from Newco's proceeds of disposition.

§55(2) will not apply to the dividends received on the repurchase/redemption of the Butterfly Shares, as described in ¶III.16 and ¶III.17 above, by virtue of §55(3)(b), provided that, as part of the series of transactions or events that includes the proposed transactions described herein, there is no:

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

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

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

acquisition of property in the circumstances described in subparagraphs 55(3.1)(c) or (d),

which has not been described herein.

The set-off of the amounts owing under the Newco Note and the XXXXXXXXXX Note, as described in ¶III.18 above, will not result in the application of §80 or §15.

The disposition of the Newco Note and the XXXXXXXXXX Note occurring on the set-off of those notes will not result in any income, gain or loss to XXXXXXXXXX and Newco (respectively).

Parts IV.1 and VI.1, §112 and Part IV

The full amount of each of the deemed dividends on the Butterfly Shares referred to in ¶V.16 and ¶V.17 above:

will be a taxable dividend that will, by virtue of §82(1)(a)(ii) and §12(1)(j), be included in computing the income of the recipient for the year in which it is received;

will, by virtue of §112(1), be deductible in computing the income of the recipient in the year in which it is received and, for greater certainty, such deduction will not be prohibited by any of §§112(2.1), (2.2), (2.3) and (2.4);

will not be subject to tax under Part IV.I or Part VI.1 of the Act; and

will not be subject to tax under Part IV of the Act (provided that in the case of the dividend deemed to be paid on the XXXXXXXXXX Common Shares and XXXXXXXXXX New Class XXXXXXXXXX Preferred Shares the Transfer Percentage exceeds 10%).

Stock Split

The stock split of XXXXXXXXXX Common Shares described in ¶III.19 above, will not constitute a disposition or acquisition of XXXXXXXXXX Common Shares by any Participant.

Other

Any Rollover Property which, immediately before the Distribution, is property of a prescribed class or a separate prescribed class of XXXXXXXXXX, will be deemed by §1102(14) of the Income Tax Regulations to be property of the same prescribed class or separate prescribed class of Newco.

§§15(1), 56(2) and 246(1) of the Act will not be applied as a result of the proposed transactions described herein, in and by themselves.

The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed herein.

Subject to the application of §55(2) to Dissenting Shareholders that are corporations resident in Canada,

§§84(3)(a) and (b) will apply to deem XXXXXXXXXX to have paid and any Dissenting Shareholder to have received, on a separate class of shares comprising the XXXXXXXXXX Common Shares of all Dissenting Shareholders, a dividend equal to the amount by which any payment from XXXXXXXXXX to the Dissenting Shareholder in respect of the repurchase of such person's shares exceeds the PUC of such shares immediately prior to their repurchase;

§212(2) and §215(1) will apply (subject to the provisions of any applicable income tax convention) to require XXXXXXXXXX to withhold and remit 25% of the amount of any such dividend deemed to have been paid to a Dissenting Shareholder who is a non-resident person; and

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

To the extent that §116(5) is otherwise applicable upon the acquisition of a XXXXXXXXXX Common Share,

by XXXXXXXXXX from a Dissenting Shareholder upon the exercise of dissent rights described in ¶III.4 above; or

by Newco from Participants upon the transfer of XXXXXXXXXX Common Shares described in ¶III.9 above,

such provision will not apply by virtue of §116(6)(b).

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada ("IC 70-6R2") and are binding provided the proposed transactions are completed by XXXXXXXXXX.

Opinions

Provided that our understanding of the facts and proposed transactions described herein is correct and further provided that §116(6)(b) is amended in accordance with draft legislation announced by the Department of Finance in June 1996, it is our opinion that the ruling described in V.27, above, will continue to apply to exclude the operation of §116(5).

It is our view that where any person or partnership holds as a capital property any share described herein, and such person (by means of a proposed transaction described in Part III herein) converts such share into another share or shares, or exchanges such share for another share or shares, or transfers such share in exchange for another share or shares, such person or partnership will not be considered to hold such share (or any share or shares received therefor) other than as capital property, solely by reason of such conversion, exchange or transfer or any combination thereof.

It is our view that the amendment of the terms of any stock options of XXXXXXXXXX solely to reflect the Arrangement will not constitute a disposition of such stock options of any holder thereof to whom §7(1.4) applies. No comment is made with respect to the treatment of other holders of stock options of XXXXXXXXXX.

Provided that our understanding of the facts and proposed transactions described herein is correct and further provided that ¶55(3.2)(h) is enacted in substantially the same form as proposed in the draft legislation which was issued by the Minister of Finance in June 1996, it is our opinion that proposed ¶55(3.2)(h) will not apply to deny the application of the provisions of ¶55(3)(b) as described in ¶V.18 above.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of IC 70-6R2 and are not binding on Revenue Canada.

Comment

You have requested (V.13(4), 13(5), 16, 17, 18, and 20(4) of the ruling request) that we provide a ruling on the results of certain transactions. As indicated in subparagraph 14(g) of IC 70-6R2, we are unable to provide rulings on tax-related calculations.

Yours truly,

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