30 November 1996 Ruling 9640333 - DISTRESS PREFERRED SHARES

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:

Issue of distress preferred shares by a corporation. Was the corporation in financial difficulty due to fact that an arm's length party had guaranteed certain debts or payment would be made?

Position:

In this case yes. The debts ultimately were to be acquired by the guarantor prior to the issue of the distress preferred shares.

Reasons:

The corporation was in serious financial difficulty with limited cash flow. It was not reasonable to expect the guarantor to continue to have to fund the corporation's operations without some form of debt restructuring. There was no abuse of the provisions of the Act.

XXXXXXXXXX							964033
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, as amended by your letters dated XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above noted taxpayers. You have advised that to the best of your knowledge, and that of all the taxpayers involved, none of the issues raised in this letter are being considered by any Tax Service Office ("TSO") and/or Taxation Centre in connection with any tax return already filed by the taxpayers, nor are any of these issues under objection or appeal.

Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter (herein referred to as the "Act") and unless otherwise expressly stated:

(a) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

(b) "public corporation" has the meaning assigned by subsection 89(1) of the Act;

(c) "Canadian-controlled private corporation" has the meaning assigned by subsection 125(7) of the Act;

(d) "specified financial institution" has the meaning assigned by subsection 248(1) of the Act;

(e) "arm's length" has the meaning assigned by section 251 of the Act;

(f)"non-resident" has the meaning assigned by subsection 248(1) of the Act; and

(g)any reference to an amount of money is expressed in Canadian dollars.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is set out as follows:

FACTS

1.XXXXXXXXXX It is a taxable Canadian corporation, and a specified financial institution. XXXXXXXXXX Revenue Canada account number is XXXXXXXXXX and it deals with the XXXXXXXXXX TSO.

2.XXXXXXXXXX was incorporated on XXXXXXXXXX under the laws of the Province of XXXXXXXXXX and was inactive until XXXXXXXXXX principal business activity is XXXXXXXXXX. XXXXXXXXXX authorized share capital consists of an unlimited number of common shares and XXXXXXXXXX non-voting Class XXXXXXXXXX Special Shares of which only XXXXXXXXXX common shares are issued and outstanding. XXXXXXXXXX is a taxable Canadian corporation and a Canadian controlled-private corporation.

3.XXXXXXXXXX owns all the issued and outstanding common shares of XXXXXXXXXX. XXXXXXXXXX authorized and issued share capital consists of the following:

Authorized:

- XXXXXXXXXX Class XXXXXXXXXX Preferred Shares;
- an unlimited number of Preferred Shares;
- an unlimited number of Class XXXXXXXXXX Common Shares, XXXXXXXXXX;
- XXXXXXXXXX Class XXXXXXXXXX Common Shares, XXXXXXXXXX;
- XXXXXXXXXX Class XXXXXXXXXX Common Shares;
- XXXXXXXXXX Class XXXXXXXXXX Common Shares; and
- XXXXXXXXXX Class XXXXXXXXXX Special Shares.

Issued:

- XXXXXXXXXX Preferred Shares;
- XXXXXXXXXX Class XXXXXXXXXX Common Shares, XXXXXXXXXX; and
- XXXXXXXXXX Class XXXXXXXXXX Common Shares.

XXXXXXXXXX

4.As discussed in more detail below, XXXXXXXXXX sole purpose is to act as the general partner of XXXXXXXXXX.

XXXXXXXXXX

5.XXXXXXXXXX is indirectly controlled by XXXXXXXXXX, an individual resident in Canada, through a series of corporations owned directly or indirectly by XXXXXXXXXX described as follows:

XXXXXXXXXX

6. XXXXXXXXXX

are taxable Canadian corporations and Canadian controlled-private corporations.

7.XXXXXXXXXX was formed on XXXXXXXXXX and registered under XXXXXXXXXX to carry on the business of operating XXXXXXXXXX. Other than XXXXXXXXXX interest in XXXXXXXXXX, as required by law, it has no other assets or liabilities, and carries on no other business other than the management of XXXXXXXXXX. The other units of XXXXXXXXXX were divided into XXXXXXXXXX limited partnership units and were marketed to members of the general public. As noted above,

XXXXXXXXXX

8.XXXXXXXXXX, under the Act such entities are considered to be related, and consequently, they are deemed not to deal with each other at arm's length.

XXXXXXXXXX

9.The XXXXXXXXXX units of XXXXXXXXXX are owned by over XXXXXXXXXX individuals and corporations that deal at arm's length with XXXXXXXXXX.

10.The TSO, taxation centre ("TC"), and the Revenue Canada account number ("RCT #") of the various members of XXXXXXXXXX are as follows:

Corporation TSO\TC RCT #

XXXXXXXXXX

11.XXXXXXXXXX is a taxable Canadian corporation and a public corporation whose shares are listed for trading on the XXXXXXXXXX exchange. A total number of XXXXXXXXXX shares are issued and outstanding. The sole business of

XXXXXXXXXX

12.XXXXXXXXXX is a U.S. resident corporation with its corporate head office based in XXXXXXXXXX. XXXXXXXXXX shares are listed for trading on the XXXXXXXXXX Stock Exchange. XXXXXXXXXX business includes

XXXXXXXXXX

XXXXXXXXXX

13.XXXXXXXXXX is a taxable Canadian corporation all the issued and outstanding shares of which are owned by XXXXXXXXXX, itself being a taxable Canadian corporation, which is XXXXXXXXXX% owned by XXXXXXXXXX. XXXXXXXXXX business operations is to provide XXXXXXXXXX, as discussed in more detail below. Its Revenue Canada account number is XXXXXXXXXX and it deals with the XXXXXXXXXX TSO.

14.XXXXXXXXXX deals at arm's length with XXXXXXXXXX.

15.XXXXXXXXXX deal at arm's length with XXXXXXXXXX.

Financial Difficulty

16. XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX

17.Under the terms of the Management Agreement, as operating manager XXXXXXXXXX agrees:

XXXXXXXXXX

18.In addition to the above requirements, under the terms of the Management Agreement,

XXXXXXXXXX

19.XXXXXXXXXX main assets (hereinafter collectively referred to as the "Assets") consist of:

(a)XXXXXXXXXX

(b)real and immoveable property, XXXXXXXXXX

(c)equipment, machinery, goods, chattels and other tangible property;

(d)rights and benefits under various agreements and contracts,

XXXXXXXXXX

(e) intangibles, such as goodwill, patents, trademarks, tradenames, copyrights or other intellectual property or rights; and

(f) amounts owing to XXXXXXXXXX, including accounts receivable.

20.The main liabilities of XXXXXXXXXX are:

XXXXXXXXXX

XXXXXXXXXX

21. XXXXXXXXXX

22. XXXXXXXXXX

23. XXXXXXXXXX

24. XXXXXXXXXX

25. XXXXXXXXXX

26. XXXXXXXXXX

XXXXXXXXXX

27. XXXXXXXXXX

XXXXXXXXXX

28. XXXXXXXXXX

29. XXXXXXXXXX

30. XXXXXXXXXX

31. XXXXXXXXXX

32. XXXXXXXXXX

33. XXXXXXXXXX

34. XXXXXXXXXX

35. XXXXXXXXXX

XXXXXXXXXX

36. XXXXXXXXXX

37. XXXXXXXXXX

38. XXXXXXXXXX

39.The failure by XXXXXXXXXX to make any regular payment under any loan, which includes the Term Loan and XXXXXXXXXX Senior Debt, constitutes an "Event of Default" under the terms of the XXXXXXXXXX Debt. Where an Event of Default occurs the entire amount of principal and interest owing under the XXXXXXXXXX Debt becomes due and payable.

XXXXXXXXXX

40.As a result of the expected defaults under the Term Loan, the XXXXXXXXXX Senior Debt, and the XXXXXXXXXX Debt, you advise that under the terms of the various agreements the full amounts of the following debts owing to XXXXXXXXXX automatically become due and payable on demand at the expiration of the grace period on XXXXXXXXXX, and subject to the Priority Agreement:

XXXXXXXXXX

You also advise that it is the intention of XXXXXXXXXX that demand for repayment will be made should the distress preferred share refinancing, which is the subject of this ruling letter, not proceed, and therefore, it is reasonable to expect that XXXXXXXXXX will default on the repayment of the above noted debts at that time.

41.As a result of the expected defaults under the Term Loan, the XXXXXXXXXX Senior Debt, and the XXXXXXXXXX Debt, the $XXXXXXXXXX Debt owed by XXXXXXXXXX automatically becomes due and payable on demand at the expiration of the grace period on XXXXXXXXXX, again subject to the Priority Agreement. You advise that in the event that the other lenders demand repayment of their debts, it is management's view that XXXXXXXXXX would also make such demand, and that it is reasonable to expect that XXXXXXXXXX will default on the repayment of the XXXXXXXXXX Debt at that time (see 44 below).

42.XXXXXXXXXX, is not personally in a position to advance additional funds to XXXXXXXXXX. For example,

XXXXXXXXXX

As a result, and except as discussed below, XXXXXXXXXX is unable to sell these shares of XXXXXXXXXX before XXXXXXXXXX, nor can XXXXXXXXXX use these shares as collateral to secure any loan prior to XXXXXXXXXX.

XXXXXXXXXX

XXXXXXXXXX

43.As noted in 16 above, XXXXXXXXXX is currently in default under the terms of several of its debt obligations and currently operates in a deficit position. Accordingly, we have been advised that XXXXXXXXXX is also attempting to restructure its debts and does not generate any excess cash flow which can be used by XXXXXXXXXX. In addition, for many of the same reasons as XXXXXXXXXX, as described in 22 to 26 above, XXXXXXXXXX has not been able to meet its operating financial targets. For XXXXXXXXXX current fiscal year ending XXXXXXXXXX, they are forecasting an operating loss (before interest) of approximately $XXXXXXXXXX and a cash loss after interest charges of approximately $XXXXXXXXXX. As a consequence of this shortfall, and as described in 42 above, XXXXXXXXXX did not generate enough cash flow from operations to meet its payroll on XXXXXXXXXX. Without the XXXXXXXXXX line of credit financing secured from XXXXXXXXXX, as described above, XXXXXXXXXX would have defaulted on its payroll failing additional direct financial support from XXXXXXXXXX. XXXXXXXXXX have relied and continue to rely heavily on XXXXXXXXXX for ongoing financial assistance and XXXXXXXXXX have any unencumbered assets or unused lines of credit which could be used to support XXXXXXXXXX. The other members of XXXXXXXXXX are also not in any position to advance funds to XXXXXXXXXX and have no unencumbered assets or unused lines of credit which could be used to support XXXXXXXXXX.

44. XXXXXXXXXX

As reflected above, without the issue of distress preferred shares by XXXXXXXXXX would continue to generate negative cash flows each year and XXXXXXXXXX are prepared to provide any additional financing to XXXXXXXXXX under the existing circumstances. XXXXXXXXXX, as guarantor of the Term Loan, is not prepared to continue to fund the annual payments under the Term Loan XXXXXXXXXX whether the issue of distress preferred shares by XXXXXXXXXX takes place or not. As principal debt holder XXXXXXXXXX will definitely take whatever actions are available to it, as may be required, to prevent the ongoing cash drain on its business operations to reduce its overall exposure in XXXXXXXXXX, which as noted above, will include a demand for repayment of the principal amount of the various debts owing to it by XXXXXXXXXX.

45.In the opinion of the management of XXXXXXXXXX, there is no realistic prospect for XXXXXXXXXX to raise new equity at this time.

PROPOSED TRANSACTIONS

46.XXXXXXXXXX will incorporate, under the laws of XXXXXXXXXX subsidiary corporations, XXXXXXXXXX. Collectively, the XXXXXXXXXX subsidiary corporations will be referred to as the "XXXXXXXXXX".

47.The authorized share capital of XXXXXXXXXX will be XXXXXXXXXX common shares and approximately XXXXXXXXXX Class XXXXXXXXXX Special Shares. On incorporation XXXXXXXXXX will issue XXXXXXXXXX common shares to XXXXXXXXXX for $XXXXXXXXXX and such amount will be added to the stated capital of the common shares.

48.The authorized share capital of XXXXXXXXXX will be XXXXXXXXXX common shares and approximately XXXXXXXXXX Class XXXXXXXXXX Special Shares. On incorporation XXXXXXXXXX will issue XXXXXXXXXX common shares to XXXXXXXXXX for $XXXXXXXXXX and such amount will be added to the stated capital of the common shares.

49.The authorized share capital of XXXXXXXXXX will be XXXXXXXXXX common shares and approximately XXXXXXXXXX Class XXXXXXXXXX Special Shares. On incorporation XXXXXXXXXX will issue XXXXXXXXXX common shares to XXXXXXXXXX for $XXXXXXXXXX and such amount will be added to the stated capital of the common shares.

50.Each of the XXXXXXXXXX will be related to XXXXXXXXXX and will be a single-purpose corporation used only to facilitate the refinancing of XXXXXXXXXX debts. As such, the activities the XXXXXXXXXX will be limited to acquiring, holding and realizing upon certain indebtedness and activities ancillary thereto and issuing its special shares and activities ancillary thereto. Each of the XXXXXXXXXX will be a "taxable Canadian corporation" as defined in subsection 89(1) of the Act.

51.The principal attributes of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX will be as follows:

(a)have an issue price of $XXXXXXXXXX per share and will rank ahead of the XXXXXXXXXX common shares with respect to the payment of dividends and upon any distribution on a liquidation, dissolution or winding-up of XXXXXXXXXX will be entitled to receive in priority to the holders of theXXXXXXXXXX common shares an amount equal to the amount for which such share was issued (the Redemption Amount);

(b) the holders of the Class XXXXXXXXXX Special Shares will not be generally entitled to notice of, or to vote at, any meetings of the shareholders of XXXXXXXXXX; however, such shareholders will be entitled to vote in all circumstances required by law, wherever any of the terms attaching to the Class XXXXXXXXXX Special Shares are to be amended, and after an "Event of Retraction", as defined in 55 below, has occurred and is continuing, unless such right is waived by the holder;

(c)be retractable in whole or in part by the holder at the Redemption Amount upon or after an Event of Retraction, and on or after the XXXXXXXXXX of the date of issuance of the Class XXXXXXXXXX Special Shares, or as permitted by the "Unanimous Shareholder Agreement A", as that term is defined in 77 below;

(d) be redeemable at any time and are required to be redeemed on XXXXXXXXXX of the date of issuance of the Class XXXXXXXXXX Special Shares at the Redemption Amount;

(e)cumulative quarterly cash dividends will be payable on the Class XXXXXXXXXX Special Shares at an annual rate equal to the XXXXXXXXXX. Such dividends may be increased upon the occurrence of an "Adverse Yield Event" as described in 93 below;

(f) on any redemption or retraction of the Class XXXXXXXXXX Special Shares, or on liquidation or winding-up of XXXXXXXXXX, the Redemption Amount of the Class XXXXXXXXXX Special Shares may be satisfied in cash, or if agreed by XXXXXXXXXX and the holder, by the transfer by XXXXXXXXXX to the holder of that portion of the New Term Loan, as defined in 59 below, having a principal amount equal to the Redemption Amount;

(g)immediately prior to a redemption or retraction of the Class XXXXXXXXXX Special Shares, or a liquidation or winding-up of XXXXXXXXXX will declare and pay a special cash dividend on the Class XXXXXXXXXX Special Shares in an amount equal to the amount of all accrued and unpaid dividends on the Class XXXXXXXXXX Special Shares to the date of such redemption, retraction, liquidation, or winding-up. Such special cash dividend may be increased upon the occurrence of an Adverse Yield Event.

52.The principal attributes of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX will be as follows:

(a)have an issue price of $XXXXXXXXXX per share and will rank ahead of the XXXXXXXXXX common shares with respect to the payment of dividends and upon any distribution on a liquidation, dissolution or winding-up of XXXXXXXXXX will be entitled to receive in priority to the holders of the XXXXXXXXXX common shares an amount equal to the amount for which such share was issued (the Redemption Amount);

(b) the holders of the Class XXXXXXXXXX Special Shares will not be generally entitled to notice of, or to vote at, any meetings of the shareholders of XXXXXXXXXX; however, such shareholders will be entitled to vote in all circumstances required by law, wherever any of the terms attaching to the Class XXXXXXXXXX Special Shares are to be amended, and after an "Event of Retraction", as defined in 55 below, has occurred and is continuing, unless such right is waived by the holder;

(c)be retractable in whole or in part by the holder at the Redemption Amount upon or after an Event of Retraction, and on or after the XXXXXXXXXX of the date of issuance of the Class XXXXXXXXXX Special Shares, or as permitted by the "Unanimous Shareholder Agreement B", as that term is defined in 78 below;

(d) be redeemable at any time and are required to be redeemed on the XXXXXXXXXX of the date of issuance of the Class XXXXXXXXXX Special Shares at the Redemption Amount;

(e)cumulative quarterly cash dividends will be payable on the Class XXXXXXXXXX Special Shares at an annual rate equal to the sum of XXXXXXXXXX. Such dividends may be increased upon the occurrence of an "Adverse Yield Event" as described in 93 below;

(f) on any redemption or retraction of the Class XXXXXXXXXX Special Shares, or on liquidation or winding-up of XXXXXXXXXX, the Redemption Amount of the Class XXXXXXXXXX Special Shares may be satisfied in cash, or if agreed by XXXXXXXXXX and the holder, by the transfer by XXXXXXXXXX to the holder of that portion of the XXXXXXXXXX Debt, as defined in 64 below, having a principal amount equal to the Redemption Amount;

(g)immediately prior to a redemption or retraction of the Class XXXXXXXXXX Special Shares, or a liquidation or winding-up of XXXXXXXXXX will declare and pay a special cash dividend on the Class XXXXXXXXXX Special Shares in an amount equal to the amount of all accrued and unpaid dividends on the Class XXXXXXXXXX Special Shares to the date of such redemption, retraction, liquidation or winding-up. Such special cash dividends may be increased upon the occurrence of an Adverse Yield Event.

53.The principal attributes of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX will be as follows:

(a)have an issue price of $XXXXXXXXXX per share and will rank ahead of the XXXXXXXXXX common shares with respect to the payment of dividends and upon any distribution on a liquidation, dissolution or winding-up of XXXXXXXXXX will be entitled to receive in priority to the holders of the XXXXXXXXXX common shares an amount equal to the amount for which such share was issued (the Redemption Amount);

(b) the holders of the Class XXXXXXXXXX Special Shares will not be generally entitled to notice of, or to vote at, any meetings of the shareholders of XXXXXXXXXX; however, such shareholders will be entitled to vote in all circumstances required by law, wherever any of the terms attaching to the Class XXXXXXXXXX Special Shares are to be amended, and after an "Event of Retraction", as defined in 55 below, has occurred and is continuing, unless such right is waived by the holder;

(c)be retractable in whole or in part by the holder at the Redemption Amount upon or after an Event of Retraction, and on or after the XXXXXXXXXX of the date of issuance of the Class XXXXXXXXXX Special Shares, or as permitted by the "Unanimous Shareholder Agreement XXXXXXXXXX", as that term is defined in 79 below;

(d) be redeemable at any time and are required to be redeemed on the XXXXXXXXXX of the date of issuance of the Class XXXXXXXXXX Special Shares at the Redemption Amount;

(e)cumulative quarterly cash dividends will be payable on the Class XXXXXXXXXX Special Shares at an annual rate equal to the sum of XXXXXXXXXX. Such dividends may be increased upon the occurrence of an "Adverse Yield Event" as described in 93 below;

(f) on any redemption or retraction of the Class XXXXXXXXXX Special Shares, or on liquidation or winding-up of XXXXXXXXXX, the Redemption Amount of the Class XXXXXXXXXX Special Shares may be satisfied in cash, or if agreed by XXXXXXXXXX and the holder, by the transfer by XXXXXXXXXX to the holder of that portion of the New XXXXXXXXXX Debt, as defined in 70 below, having a principal amount equal to the Redemption Amount.

(g)immediately prior to a redemption or retraction of the Class XXXXXXXXXX Shares or a liquidation or winding-up of XXXXXXXXXX will declare and pay a special cash dividend on the Class XXXXXXXXXX Special Shares in an amount equal to the amount of all accrued and unpaid dividends on the Class XXXXXXXXXX Special Shares to the date of such redemption, retraction, liquidation or winding-up. Such special cash dividends may be increased upon the occurrence of an Adverse Yield Event.

54.The XXXXXXXXXX, to be issued to XXXXXXXXXX as provided for in 60, 65 and 71 below, respectively, may either individually, or collectively, be referred to as "DPS" throughout the remainder of this letter.

55.An "Event of Retraction", with respect to any of the XXXXXXXXXX DPS shall include any of the following events:

(a)any XXXXXXXXXX shall have failed to declare and pay in full the regular dividend payable on its DPS as and when the same is payable in accordance with the terms and conditions of such DPS;

(b)any XXXXXXXXXX shall have failed to redeem all or any part of its DPS at the time and in the manner required by the terms and conditions of such DPS;

(c)XXXXXXXXXX shall have failed to make a contribution of capital or principal repayment to any XXXXXXXXXX under the terms of each respective XXXXXXXXXX Support Agreement, as described in 97, as necessary to fund a dividend payment on, or a redemption of such XXXXXXXXXX DPS;

(d)an order shall have been made or an effective resolution shall have passed for the winding-up, dissolution or liquidation of XXXXXXXXXX;

(e)XXXXXXXXXX shall have made a general assignment for the benefit of its creditors, or institutes or consents to proceedings under any law relating to bankruptcy, insolvency or reorganization, or shall be declared bankrupt or insolvent, or a custodian or sequestrator or receiver/manager or any other officer with similar power shall be appointed for XXXXXXXXXX;

(f)an encumbrancer shall take possession of the property of XXXXXXXXXX or any part thereof, or if a distress or execution or other similar process is levied or enforced there against; and

(g)there shall have occurred a change in any applicable legislation or similar event which has the effect of precluding the holder of DPS from obtaining the intended tax results based on legislation and other relevant circumstances in existence prior to the date of issuance of the DPS.

56.As discussed in 35 above, XXXXXXXXXX and the Term Lenders have entered into a Loan Repurchase Agreement pursuant to which XXXXXXXXXX has agreed to purchase the Term Loan, along with the related security, from the Term Lenders for its outstanding principal amount of approximately $XXXXXXXXXX, plus accrued interest to the date of such purchase. Such purchase will take place on or before XXXXXXXXXX, but will occur no later than the date of closing of these Proposed Transactions.

57.After XXXXXXXXXX purchase of the Term Loan, XXXXXXXXXX will enter into an agreement (the "Assignment and Security Sharing Agreement XXXXXXXXXX") with XXXXXXXXXX, under which XXXXXXXXXX shall agree to sell and XXXXXXXXXX shall agree to purchase from XXXXXXXXXX the full amount of the approximately $XXXXXXXXXX owing by XXXXXXXXXX under the Term Loan, plus accrued interest, along with the related security.

58.XXXXXXXXXX will then borrow approximately $XXXXXXXXXX, as a daylight demand loan from the XXXXXXXXXX, and XXXXXXXXXX will use such loan proceeds to purchase the approximately $XXXXXXXXXX owing by XXXXXXXXXX under the Term Loan from XXXXXXXXXX, as described above. The demand loan will bear interest at the prime rate of XXXXXXXXXX, be secured by a security interest in all property and assets of XXXXXXXXXX, and be evidenced by a demand promissory note issued by XXXXXXXXXX. XXXXXXXXXX shall make the demand loan by delivering a bank draft (the "First Bank Draft XXXXXXXXXX"), payable to XXXXXXXXXX in the amount of $XXXXXXXXXX. XXXXXXXXXX shall satisfy the purchase price for the Term Loan by endorsing the First Bank Draft XXXXXXXXXX in favour of XXXXXXXXXX and delivering the endorsed First Bank Draft XXXXXXXXXX to XXXXXXXXXX.

59.Effective immediately after XXXXXXXXXX purchases the Term Loan from XXXXXXXXXX, as described above, and until further written notice that may be unilaterally given by XXXXXXXXXX or any other beneficial owner of the Term Loan to XXXXXXXXXX shall agree that no interest will accrue or be payable on the Term Loan (herein referred to as the "New Term Loan"). All other terms and conditions of the New Term Loan will remain in force and effect.

60.XXXXXXXXXX will then subscribe for approximately XXXXXXXXXX Class XXXXXXXXXX Special Shares of XXXXXXXXXX (the "Class XXXXXXXXXX Shares"). The total subscription price of approximately $XXXXXXXXXX will be paid by XXXXXXXXXX by delivering a bank draft payable to XXXXXXXXXX (the "Second Bank Draft XXXXXXXXXX"). The entire amount of the subscription proceeds received by XXXXXXXXXX from the issuance of the Class XXXXXXXXXX Shares will be added to XXXXXXXXXX stated capital account in respect of the Class XXXXXXXXXX Shares issued.

61.XXXXXXXXXX will make additional advances to XXXXXXXXXX, in the amount of approximately $XXXXXXXXXX under the security of the XXXXXXXXXX Senior Debt, bringing the total amount of principal and interest outstanding under the XXXXXXXXXX Senior Debt to approximately $XXXXXXXXXX. Such additional advances will be used by XXXXXXXXXX to repay certain amounts owed by it as described in 76 below.

62.XXXXXXXXXX will then enter into an agreement (the "Assignment and Security Sharing Agreement XXXXXXXXXX") with XXXXXXXXXX, under which XXXXXXXXXX shall agree to sell and XXXXXXXXXX shall agree to purchase the full amount of the approximately $XXXXXXXXXX owing under the XXXXXXXXXX Senior Debt along with the related security.

63.XXXXXXXXXX will borrow approximately $XXXXXXXXXX as a daylight demand loan from XXXXXXXXXX and use the proceeds from such loan to purchase the approximately $XXXXXXXXXX owing by XXXXXXXXXX under the XXXXXXXXXX Senior Debt from XXXXXXXXXX, as described above. The demand loan will bear interest at the prime rate of XXXXXXXXXX, be repayable on demand, be secured by a security interest in all property and assets of XXXXXXXXXX, and be evidenced by a demand promissory note issued by XXXXXXXXXX. XXXXXXXXXX shall make the demand loan by delivering a bank draft (the "First Bank Draft XXXXXXXXXX"), payable to XXXXXXXXXX in the amount of $XXXXXXXXXX. XXXXXXXXXX shall satisfy the purchase price for the XXXXXXXXXX Senior Debt and related security by endorsing the First Bank Draft XXXXXXXXXX in favour of XXXXXXXXXX and delivering the endorsed First Bank Draft XXXXXXXXXX to XXXXXXXXXX.

64.Effective immediately after XXXXXXXXXX purchases the XXXXXXXXXX Senior Debt from XXXXXXXXXX, as described above, and until further written notice that may be unilaterally given by XXXXXXXXXX or any other beneficial owner of the XXXXXXXXXX Senior Debt to XXXXXXXXXX shall agree that no interest will accrue or be payable on the XXXXXXXXXX Debt (herein referred to as the "New XXXXXXXXXX Senior Debt"). All other terms and conditions of the New XXXXXXXXXX Senior Debt will remain in force and effect.

65.XXXXXXXXXX will then subscribe for approximately XXXXXXXXXX Class XXXXXXXXXX Special Shares of XXXXXXXXXX (the Class XXXXXXXXXX Special Shares). The subscription price of $XXXXXXXXXX will be paid by XXXXXXXXXX by delivering a bank draft payable to XXXXXXXXXX (the "Second Bank Draft XXXXXXXXXX"). The entire amount of the subscription proceeds received by XXXXXXXXXX from the issuance of the Class XXXXXXXXXX Shares will be added to XXXXXXXXXX stated capital account in respect of the Class XXXXXXXXXX Shares issued.

66.XXXXXXXXXX will purchase from XXXXXXXXXX the approximately $XXXXXXXXXX Debt owing by XXXXXXXXXX, along with the related security, for its estimated fair market value of approximately $XXXXXXXXXX.

67.XXXXXXXXXX shall enter into an agreement to amend the terms of the XXXXXXXXXX Debt to permit additional advances under the debt. XXXXXXXXXX will then provide additional advances to XXXXXXXXXX under the security of the XXXXXXXXXX Debt equal to approximately $XXXXXXXXXX, bringing the total amount outstanding to approximately $XXXXXXXXXX. Such additional advances will be used by XXXXXXXXXX to repay certain amounts owed by it as described in 76 below. XXXXXXXXXX, will then forgive approximately $XXXXXXXXXX of the XXXXXXXXXX Debt (the difference between the purchase price paid by XXXXXXXXXX and the face amount at the time of such purchase). The revised total principal amount of the XXXXXXXXXX Debt will be approximately $XXXXXXXXXX after the above advances and forgiveness. XXXXXXXXXX will also enter into an agreement whereby they will guarantee that XXXXXXXXXX. All necessary consents of the parties to the Priority Agreement will be obtained.

68.XXXXXXXXXX will enter into an agreement (the "Assignment and Security Sharing Agreement XXXXXXXXXX") with XXXXXXXXXX, under which XXXXXXXXXX shall agree to sell and XXXXXXXXXX shall agree to purchase the XXXXXXXXXX Debt and the related security for approximately $XXXXXXXXXX

69.XXXXXXXXXX will borrow approximately $XXXXXXXXXX as a daylight demand loan from XXXXXXXXXX and use the proceeds from such loan to purchase the approximately $XXXXXXXXXX owing by XXXXXXXXXX under the XXXXXXXXXX Debt from XXXXXXXXXX, as described above. The demand loan will bear interest at the prime rate of XXXXXXXXXX, be repayable on demand, be secured by a security interest in all property and assets of XXXXXXXXXX, and be evidenced by a demand promissory note issued by XXXXXXXXXX shall make the demand loan by delivering a bank draft (the "First Bank Draft XXXXXXXXXX"), payable to XXXXXXXXXX in the amount of approximately $XXXXXXXXXX. XXXXXXXXXX shall satisfy the purchase price for the XXXXXXXXXX Debt and related security by endorsing the First Bank Draft XXXXXXXXXX in favour of XXXXXXXXXX and delivering the endorsed First Bank Draft XXXXXXXXXX to XXXXXXXXXX.

70.Effective immediately after XXXXXXXXXX purchases the XXXXXXXXXX Debt from XXXXXXXXXX, as described above, and until further written notice that may be unilaterally given by XXXXXXXXXX or any other beneficial owner of the XXXXXXXXXX Debt to XXXXXXXXXX shall agree that no interest will accrue or be payable on the XXXXXXXXXX Debt (herein referred to as the "New XXXXXXXXXX Debt"). All other terms and conditions of the New XXXXXXXXXX Debt will remain in force and effect.

71.XXXXXXXXXX will subscribe for approximately XXXXXXXXXX Class XXXXXXXXXX Special Shares of XXXXXXXXXX (the "Class XXXXXXXXXX Shares"). The subscription price of approximately $XXXXXXXXXX will be paid by XXXXXXXXXX by delivering a bank draft payable to XXXXXXXXXX (the "Second Bank Draft XXXXXXXXXX"). The entire amount of the subscription proceeds received by XXXXXXXXXX from the issuance of the Class XXXXXXXXXX Shares will be added to XXXXXXXXXX stated capital account in respect of the Class XXXXXXXXXX Shares issued.

72.Each of XXXXXXXXXX will repay its respective daylight demand loan, described above in 58, 63 and 69, respectively, by endorsing the Second Bank Draft XXXXXXXXXX, as applicable, in favour of XXXXXXXXXX and delivering such endorsed Second Bank Draft XXXXXXXXXX, as applicable, to XXXXXXXXXX.

73.XXXXXXXXXX agrees to pay all costs related to the restructuring of the New Term Loan and agrees to pay or cause to be paid to XXXXXXXXXX, as a contribution of capital, such amount as may be required to allow XXXXXXXXXX to pay the costs associated with the issuance of its shares.

74.XXXXXXXXXX agrees to pay all costs related to the restructuring of the New XXXXXXXXXX Senior Debt and agrees to pay or cause to be paid to XXXXXXXXXX, as a contribution of capital, such amount as may be required to allow XXXXXXXXXX to pay the costs associated with the issuance of its shares.

75.XXXXXXXXXX agrees to pay all costs related to the restructuring of the New XXXXXXXXXX Debt and agrees to pay or cause to be paid to XXXXXXXXXX, as a contribution of capital, such amount as may be required to allow XXXXXXXXXX to pay the costs associated with the issuance of its shares.

76.XXXXXXXXXX will use the aggregate $XXXXXXXXXX proceeds from the additional advances made by XXXXXXXXXX under the XXXXXXXXXX Senior Debt, referred to in 61 above, and the additional advances made by XXXXXXXXXX under the XXXXXXXXXX Debt, referred to in 67 above, as follows:

(a)to pay costs (which are estimated as $XXXXXXXXXX) associated with the restructuring of the debts of XXXXXXXXXX (which includes modification of the terms of debts to suspend interest);

(b)to repay the $XXXXXXXXXX Working Capital Advances;

(c)to repay approximately $XXXXXXXXXX of the XXXXXXXXXX Debt (XXXXXXXXXX);

(d)to repay the $XXXXXXXXXX Advances;

(e)to repay the XXXXXXXXXX Standby Loan; and

(g) to repay the $XXXXXXXXXX Loan.

It is anticipated that the costs referred to in (a) will include structuring and underwriting fees to XXXXXXXXXX of approximately $XXXXXXXXXX, and legal and accounting fees for structuring of approximately $XXXXXXXXXX.

77.XXXXXXXXXX will enter into a unanimous shareholder agreement (the "Unanimous Shareholder Agreement XXXXXXXXXX") with XXXXXXXXXX. The Unanimous Shareholder Agreement XXXXXXXXXX will provide, among other things, that without the prior written consent of XXXXXXXXXX as holders of the Class XXXXXXXXXX Shares of XXXXXXXXXX, or except as otherwise provided or required:

(a)no transfer or encumbrance of common shares of XXXXXXXXXX except to XXXXXXXXXX will be effective;

(b)no additional shares of XXXXXXXXXX may be issued;

(c)other than as contemplated therein no transfer or encumbrance of assets of XXXXXXXXXX will be effected; and

(d)XXXXXXXXXX will not carry on any activities, engage in any business transaction, incur any indebtedness, create any security over its assets, make any guarantee, amalgamate, merge or consolidate, or declare or pay any dividends other than on its Class XXXXXXXXXX Shares, or purchase or redeem any of its shares other than its Class XXXXXXXXXX Shares.

78.XXXXXXXXXX will enter into a unanimous shareholder agreement (the "Unanimous Shareholder Agreement XXXXXXXXXX") with XXXXXXXXXX. The Unanimous Shareholder Agreement XXXXXXXXXX will provide, among other things, that without the prior written consent of XXXXXXXXXX as holders of the Class XXXXXXXXXX Shares of XXXXXXXXXX, or except as otherwise provide or required:

(a)no transfer or encumbrance of common shares of XXXXXXXXXX except to XXXXXXXXXX will be effective;

(b)no additional shares of XXXXXXXXXX may be issued;

(c)other than as contemplated therein no transfer or encumbrance of assets of XXXXXXXXXX will be effected; and

(d)other than as contemplated therein, XXXXXXXXXX will not carry on any activities, engage in any business transaction, incur any indebtedness, create any security over its assets, make any guarantee, amalgamate, merge or consolidate, or declare or pay any dividends other than on its Class XXXXXXXXXX Shares, or purchase or redeem any of its shares other than its Class XXXXXXXXXX Shares.

79.XXXXXXXXXX will enter into a unanimous shareholder agreement (the "Unanimous Shareholder Agreement XXXXXXXXXX") with XXXXXXXXXX. The Unanimous Shareholder Agreement XXXXXXXXXX will provide, among other things, that without the prior written consent of XXXXXXXXXX as holders of the Class XXXXXXXXXX Shares of XXXXXXXXXX or except as otherwise provided or required:

(a)no transfer or encumbrance of common shares of XXXXXXXXXX except to XXXXXXXXXX will be effective;

(b)no additional shares of XXXXXXXXXX may be issued;

(c)other than as contemplated therein no transfer or encumbrance of assets of XXXXXXXXXX will be effected; and

(d)other than as contemplated therein, XXXXXXXXXX will not carry on any activities, engage in any business transaction, incur any indebtedness, create any security over its assets, make any guarantee, amalgamate, merge or consolidate, or declare or pay any dividends other than on its Class XXXXXXXXXX Shares, or purchase or redeem any of its shares other than its Class XXXXXXXXXX Shares.

80.XXXXXXXXXX will enter into an agreement, (the "Put Agreement XXXXXXXXXX"), under which XXXXXXXXXX would, upon the occurrence of an Event of Retraction, immediately prior to the time the Class XXXXXXXXXX Shares are to be redeemed and in certain other circumstances, be required to acquire all of the outstanding Class XXXXXXXXXX Shares owned by XXXXXXXXXX for an amount equal to their Redemption Amount, plus accrued and unpaid dividends and plus such additional amounts as may be necessary to place XXXXXXXXXX in the same after tax position as XXXXXXXXXX would have been in had the purchase price for the shares (plus accrued and unpaid dividends) been received as a tax free intercorporate dividend. XXXXXXXXXX will also have the right to call the Class XXXXXXXXXX Shares from the holders in certain circumstances. Put Agreement XXXXXXXXXX will be secured by XXXXXXXXXX providing security satisfactory to XXXXXXXXXX.

81.XXXXXXXXXX will pay an annual fee (the "Put Fee XXXXXXXXXX"), XXXXXXXXXX as consideration for entering into the Put Agreement XXXXXXXXXX described in paragraph 80.

82.XXXXXXXXXX will enter into an agreement, (the "Debt Put/Call Agreement XXXXXXXXXX"), pursuant to which:

(a)XXXXXXXXXX will have the right at any time to require the XXXXXXXXXX or any subsequent holder of its Class XXXXXXXXXX Shares to purchase all or any portion of the New Term Loan then outstanding,

and

(b)any holder of Class XXXXXXXXXX Shares of XXXXXXXXXX will have the right in certain circumstances to purchase all or any portion of the New Term Loan then outstanding,

for a purchase price equal to the principal amount of the portion of the New Term Loan then outstanding and owing to XXXXXXXXXX, or part thereof, as the case may be.

83.Under the Debt Put/Call Agreement XXXXXXXXXX, the holder of Class XXXXXXXXXX Shares of XXXXXXXXXX will pay the purchase price for the relevant portion of the New Term Loan, or part thereof, by way of certified cheque or bank draft and, upon delivery of such cheque or bank draft XXXXXXXXXX will redeem a number of its Class XXXXXXXXXX Shares, the aggregate Redemption Amount of which will equal the purchase price of the New Term Loan, or part thereof, sold by XXXXXXXXXX to the holder of Class XXXXXXXXXX Shares. XXXXXXXXXX will satisfy the Redemption Amount for such Class XXXXXXXXXX Shares by endorsing such cheque or bank draft in favour of the holder of the Class XXXXXXXXXX Shares being redeemed.

84.XXXXXXXXXX will enter into an agreement, ("Put Agreement XXXXXXXXXX"), under which XXXXXXXXXX would, upon the occurrence of an Event of Retraction, immediately prior to the time the Class XXXXXXXXXX Shares are to be redeemed and in certain other circumstances, be required to acquire all of the outstanding Class XXXXXXXXXX Shares owned by XXXXXXXXXX for an amount equal to their Redemption Amount, plus accrued and unpaid dividends and plus such additional amounts as may be necessary to place XXXXXXXXXX in the same after tax position as XXXXXXXXXX would have been in had the purchase price for the shares (plus accrued and unpaid dividends) been received as a tax free intercorporate dividend. XXXXXXXXXX will also have the right to call the Class XXXXXXXXXX Shares from the holders in certain circumstances. Put Agreement XXXXXXXXXX will be secured by XXXXXXXXXX providing security satisfactory to XXXXXXXXXX.

85.XXXXXXXXXX will pay an annual fee (the "Put Fee XXXXXXXXXX"), XXXXXXXXXX as consideration for entering into the Put Agreement XXXXXXXXXX described in 84 above.

86.XXXXXXXXXX will enter into an agreement, (the "Debt Put/Call Agreement XXXXXXXXXX"), pursuant to which:

(a)XXXXXXXXXX will have the right at any time to require the XXXXXXXXXX or any subsequent holder of its Class XXXXXXXXXX Shares to purchase all or any portion of the New XXXXXXXXXX Senior Debt then outstanding,

and

(b)any holder of Class XXXXXXXXXX Shares of XXXXXXXXXX will have the right in certain circumstances to purchase all or any portion of the New XXXXXXXXXX Senior Debt then outstanding,

for a purchase price equal to the principal amount of the portion of the New XXXXXXXXXX Senior Debt then outstanding and owing to XXXXXXXXXX, or part thereof, as the case may be.

87.Under the Debt Put/Call Agreement XXXXXXXXXX, the holder of Class XXXXXXXXXX Shares of XXXXXXXXXX will pay the purchase price for the relevant portion of the New XXXXXXXXXX Senior Debt, or part thereof, by way of certified cheque or bank draft and, upon delivery of such cheque or bank draft XXXXXXXXXX will redeem a number of its Class XXXXXXXXXX Shares, the aggregate Redemption Amount of which will equal the purchase price of the New XXXXXXXXXX Senior Debt, or part thereof, sold by XXXXXXXXXX to the holder of Class XXXXXXXXXX Shares. XXXXXXXXXX will satisfy the Redemption Amount for such Class XXXXXXXXXX Shares by endorsing such cheque or bank draft in favour of the holder of the Class XXXXXXXXXX Shares being redeemed.

88.The shareholder of the Class XXXXXXXXXX Shares and XXXXXXXXXX will enter into an agreement, ("Put Agreement XXXXXXXXXX"), under which XXXXXXXXXX would, upon the occurrence of an Event of Retraction, immediately prior to the time when the Class XXXXXXXXXX Shares are to be redeemed and in certain other circumstances, be required to acquire all of the outstanding Class XXXXXXXXXX Shares owned by XXXXXXXXXX for an amount equal to their Redemption Amount, plus accrued and unpaid dividends and plus such additional amounts as may be necessary to place XXXXXXXXXX in the same after tax position as XXXXXXXXXX would have been in had the purchase price for the shares (plus accrued and unpaid dividends) been received as a tax free intercorporate dividend. XXXXXXXXXX will also have the right to call the Class XXXXXXXXXX Shares from the holders in certain circumstances. Put Agreement XXXXXXXXXX will be secured by XXXXXXXXXX providing security satisfactory to XXXXXXXXXX.

89.XXXXXXXXXX will pay an annual fee (the "Put Fee XXXXXXXXXX"), XXXXXXXXXX as consideration for entering into the Put Agreement XXXXXXXXXX described in 88 above.

90.XXXXXXXXXX will enter into an agreement, (the "Debt Put/Call Agreement XXXXXXXXXX"), pursuant to which:

(a)XXXXXXXXXX will have the right at any time to require the XXXXXXXXXX or any subsequent holder of its Class XXXXXXXXXX Shares to purchase all or any portion of the New XXXXXXXXXX Debt then outstanding,

and

(b)any holder of Class XXXXXXXXXX Shares of XXXXXXXXXX will have the right in certain circumstances to purchase all or any portion of the New XXXXXXXXXX Debt then outstanding,

for a purchase price equal to the principal amount of the portion of the New XXXXXXXXXX Debt then outstanding and owing to XXXXXXXXXX, or part thereof, as the case may be.

91.Under the Debt Put/Call Agreement XXXXXXXXXX, the holder of Class XXXXXXXXXX Shares of XXXXXXXXXX will pay the purchase price for the relevant portion of the New XXXXXXXXXX Debt, or part thereof, by way of certified cheque or bank draft and, upon delivery of such cheque or bank draft XXXXXXXXXX will redeem a number of its Class XXXXXXXXXX Shares, the aggregate Redemption Amount of which will equal the purchase price of the New XXXXXXXXXX Debt, or part thereof, sold by XXXXXXXXXX to the holder of Class XXXXXXXXXX Shares. XXXXXXXXXX will satisfy the Redemption Amount for such Class XXXXXXXXXX Shares by endorsing such cheque or bank draft in favour of the holder of the Class XXXXXXXXXX Shares being redeemed.

92.XXXXXXXXXX will enter into separate agreements with each holder of DPS of XXXXXXXXXX, (the "Share Put Agreement XXXXXXXXXX", "Share Put Agreement XXXXXXXXXX", and "Share Put Agreement XXXXXXXXXX", respectively), which will provide that in any circumstance in which such DPS holder is entitled to call all or any part of the relevant portion of the New Term Loan, the New XXXXXXXXXX Senior Debt or the New XXXXXXXXXX Debt pursuant to the Debt Put/Call Agreement XXXXXXXXXX, the Debt Put/Call Agreement XXXXXXXXXX, or the Debt Put/Call Agreement XXXXXXXXXX, respectively, as the case may be, XXXXXXXXXX will, at the option of such holder of DPS of XXXXXXXXXX, as the case may be, purchase all or any part of the DPS held by such holder then outstanding for a purchase price equal to the respective Redemption Amount of such DPS, plus accrued and unpaid dividends and plus such additional amounts as may be necessary to place XXXXXXXXXX in the same after tax position as XXXXXXXXXX would have been in had the purchase price for the shares (plus accrued and unpaid dividends) been received as a tax free intercorporate dividend.

93."Adverse Yield Event" means:

(i)any new legislation or any change in any applicable existing or new legislation (and for these purposes "legislation" shall include any order-in-council, regulation, rule, guideline, treaty or directive, whether or not having the force of law) of Canada or any province of Canada (other than any such change which results in a change in any rate of tax, including surtax, applicable to financial institutions or corporations generally), any announcement by any governmental authority, entity or agency (including any central bank or other fiscal or monetary authority or agency) of Canada or any province of Canada regarding the enactment of such new legislation or the making of any such change, any change in the interpretation or administration of any applicable legislation by any governmental authority, entity or agency (including any central bank or other fiscal or monetary authority or agency) of Canada or any province of Canada, or any notice from Revenue Canada that the income tax ruling in respect of these transactions has ceased to be applicable in accordance with its terms for any reason whatsoever;

(ii)any judgment or order of a court of competent jurisdiction in Canada or any province of Canada in any matter or case, whether or not an appeal has been instituted and notwithstanding the existence of any right of appeal;

(iii)any change in the status of XXXXXXXXXX, as the case may be, (including, without limitation, the loss of its status as a taxable Canadian corporation) under any applicable legislation of Canada or any province of Canada;

(iv)any request or direction (whether or not having the force of law) from any authority, entity or agency (including any central bank or other fiscal or monetary authority of agency) in Canada or any province of Canada;

(v)any assessment or reassessment of any person for any Canadian federal or provincial tax or both,

which, in the sole opinion of any holder of XXXXXXXXXX, as the case may be, has, or may reasonably be expected to have, one or more of the following effects:

(vi) requiring such holder, in computing its income subject to tax, to include the amount of any dividends or other distribution, or any part thereof received or receivable or deemed to be received or receivable by such holder, or accrued and unpaid (whether or not declared or set aside) on any of the XXXXXXXXXX, as the case may be, held by such holder, and precluding such holder, in computing its taxable income, from deducting an amount equal to such amount;

(vii)precluding such holder, in computing its income subject to tax, from deducting any amount paid or payable on account of interest on any indebtedness or on account of costs and expenses incurred, or considered by the relevant taxing authority to have been incurred, by such holder in connection with, or arising directly or indirectly as a result of, its acquisition or holding or both of any of the XXXXXXXXXX, as the case may be;

(viii)imposing upon such holder any tax (other than income tax on any amount described in (vi) and (vii) above), or levying any penalty of other charge, or on in respect of any redemption proceeds or any dividend or other distribution or any part thereof received or receivable or deemed to be received or receivable by such holder, or accrued and unpaid (whether or not declared or set aside), on any of the XXXXXXXXXX, as the case may be, held by such holder or otherwise on or in respect of the acquisition, holding or disposition (excluding any income or capital gains tax in respect of an actual gain on disposition) of any of the XXXXXXXXXX, as the case may be, or any combination of the foregoing;

(ix)(A)imposing, modifying or deeming applicable any reserve, liquidity, cash margin, special deposit, deposit insurance or similar requirement against assets held by, or deposits in or for the account of, or in respect of any acquisition of funds or loan by, a Canadian office of such holder; or

(B)imposing on such holder, or expecting there to be maintained by such holder, any capital adequacy or additional capital requirement (including without limitation, a requirement that affects such holder's allocation of capital resources to its obligations) in connection with the assets or obligations;

and the result of any of the foregoing is to increase the cost to such holder or reduce the income receivable, or the effective return on capital or assets realizable, by such holder with respect to or in connection with any of the XXXXXXXXXX, as the case may be, held by such holder, or to cause such holder to make any payment or forego any interest, fees, dividends, distributions or other return on, or calculated by reference to, any sum received or receivable in connection with any of the XXXXXXXXXX, as the case may be, held by such holder;

(x) increasing the after-tax cost by any amount to such holder of holding any of the XXXXXXXXXX, as the case may be, or otherwise decreasing the after-tax return to such holder on any of the XXXXXXXXXX, as the case may be, held by such holder by any amount;

(xi)imposing upon such holder any interest, penalty or other charge in respect of any amounts described in subparagraphs (vi), (vii), (viii), (ix) or (x) above; or

(xii)making it unlawful or impossible for such holder to continue to hold any of the XXXXXXXXXX, as the case may be, held by such holder or to give effect to its obligations under the transaction documents relating to the issuance and holding of the XXXXXXXXXX, as the case may be;

provided that, for the purpose of subparagraphs (vi), (vii), (viii), (x) and (xi) above, it is to be assumed that:

(A)the holder referred to therein is, at all relevant times and throughout all relevant periods both taxable and paying tax at the highest Canadian federal corporate tax rate (including federal surtaxes) and the greatest of the maximum rates of provincial corporate tax rate applicable in any province of Canada (including provincial surtaxes) at such times and throughout such periods; and

(B)such holder has, as its sole assets, the XXXXXXXXXX, as the case may be, held by it and has revenues, costs and expenses relating only to such XXXXXXXXXX, as the case may be.

For the purpose of this definition of "Adverse Yield Event":

(a)each event described in any of subparagraphs (i), (ii), (iii), (iv) and (v) above shall be deemed to have occurred upon the date such event first has or may have any of the effects described in any of the subparagraphs (vi), (vii), (viii), (ix), (x), (xi) or (xii) above notwithstanding that such date may precede the date of actual occurrence of such event and any reference to a holder of XXXXXXXXXX, as the case may be, shall be a reference to any beneficial and/or registered holder thereof; and

(b)any assessment or reassessment referred to in subparagraph (v) above shall be deemed to include all other assessments or reassessments (for other taxation years and/jurisdictions) that may possibly be issued in respect of one or more of the issues contained in such assessment or reassessment.

94.Notwithstanding the terms and conditions of any XXXXXXXXXX DPS, or any mandatory redemptions of the DPS that may be required by XXXXXXXXXX, an amount or amounts by which, in aggregate, are equal to or greater than the "Excess Cash Flow" arising in any fiscal period shall be applied to redeem the DPS within XXXXXXXXXX after the end of that fiscal period.

"Excess Cash Flow" in respect of any fiscal period of XXXXXXXXXX is the increase in cash flow for that fiscal period from all sources, as would be reported on a Consolidated Statement of Changes in Financial Position prepared in accordance with generally accepted accounting principles if only directly and indirectly owned subsidiaries of XXXXXXXXXX were included, but before outlays for:

(a) the payment of dividends other than dividends paid on the DPS of any of the XXXXXXXXXX;

(b) capital expenditures or any payment on capital account other than in respect of:

(i)the purchase or redemption of the DPS of any of the XXXXXXXXXX, other than redemptions made in the period in respect of the prior period's Excess Cash Flow;

(ii)repayments of indebtedness incurred in the normal and ordinary course of business and in existence at the date the DPS of any of the XXXXXXXXXX are issued,

(iii)repayments of additional debt incurred for the specific purpose of funding current operating requirements;

(iv)expenditures or payments between any of XXXXXXXXXX and its directly or indirectly owned subsidiaries;

(v)reasonable capital expenditures or payments on capital account incurred in the normal and ordinary course of the existing business and repayments of additional debt for the specific purpose of making such capital expenditures or payments on capital account; and

(vi)repayments of additional debt incurred for the specific purpose of enabling XXXXXXXXXX to repay debt to any of the XXXXXXXXXX;

(c)payments or repayments of loans or amounts owing to shareholders of XXXXXXXXXX or to any other member of XXXXXXXXXX or redemptions of any of the shares of XXXXXXXXXX other than:

(i)repayment of the amounts owing to XXXXXXXXXX as described in 20(l) and (n) above; and

(ii)payment of any reasonable operating expenditure or charge to XXXXXXXXXX that is incurred by XXXXXXXXXX in the normal and ordinary course of XXXXXXXXXX business; and

(d)loans or other amounts advanced to directors, officers and shareholders of XXXXXXXXXX or to any other persons, firms, or corporations.

For purposes of this definition of "Excess Cash Flow", additional debt shall not include a debt which arose as a result of the use of cash or funds for a purpose that is not envisioned herein.

95.To the extent that XXXXXXXXXX has Excess Cash Flow at the end of any fiscal period, it will make repayments on the indebtedness it owes to each of the XXXXXXXXXX, (the New Term Loan Debt, the New XXXXXXXXXX Senior Debt or the New XXXXXXXXXX Debt, as the case may be), and each such XXXXXXXXXX will use such funds to make redemptions of its own DPS.

96.XXXXXXXXXX will enter into separate agreements with each of XXXXXXXXXX (the "Support Agreement XXXXXXXXXX, respectively), pursuant to which XXXXXXXXXX will agree to:

(a)pay or cause to be paid to XXXXXXXXXX, as the case may be, as a contribution of capital, such amounts as may be required from time to time to allow XXXXXXXXXX, as the case may be, to pay its ongoing costs and expenses of the operation and administration, including such amounts described in 73, 74 and 75 above, as the case may be, to allow each XXXXXXXXXX to pay the costs associated with the issuance of its shares;

(b)pay to each particular XXXXXXXXXX, as a contribution of capital, such amounts as may be required by that XXXXXXXXXX from time to time to pay any dividends on its outstanding DPS;

(c)make such repayments on the New Term Loan, the New XXXXXXXXXX Senior Debt, or the New XXXXXXXXXX Debt, as the case may be, as may be required to enable that particular XXXXXXXXXX to satisfy all of the share redemption obligations relating to its DPS.

97.Each XXXXXXXXXX will agree to hold any payment it receives from XXXXXXXXXX under its particular Support Agreement for the benefit of XXXXXXXXXX until such time as such XXXXXXXXXX requires the funds for the purpose described in 96 above.

98.Each XXXXXXXXXX will be wound-up, subject to the operation of any applicable law, without any undue delay after the time that is the earlier of:

(a) the time at which all of its DPS are redeemed or cancelled; and

(b) five years from the date when the DPS are issued by that particular XXXXXXXXXX.

PURPOSE OF THE PROPOSED TRANSACTIONS

99.The Proposed Transactions are necessary in order to allow XXXXXXXXXX to restructure its debts and prevent payment defaults under its Term Debt, XXXXXXXXXX Senior Debt and XXXXXXXXXX Debt that would otherwise reasonably be expected to occur.

RULINGS GIVEN

Provided the foregoing statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions, we confirm the following:

A.The Class XXXXXXXXXX Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares, all of which are to be issued to XXXXXXXXXX, as described in 60, 65 and 71 above, respectively, and where applicable sold to a Third Party Purchaser, will be

(a)shares described in subparagraph (e)(iii) of the definition of "term preferred share" in subsection 248(1) of the Act for a period not exceeding five years from the date of their issuance and,

(b)"exempt shares" pursuant to paragraph (c) of the definition thereof in subsection 112(2.6) for that same period

and, accordingly, subsections 112(2.1), (2.2), (2.3) and (2.4) will not apply to deny XXXXXXXXXX, or a Canadian resident corporate Third Party Purchaser, as the case may be, a deduction under subsection 112(1) for dividends received or deemed to have been received by it on such shares during such period.

B.No amount will be included in computing the income of any of XXXXXXXXXX, as the case may be, under paragraph 12(1)(c) or (x), or subsection 12(3), 12(9), 16(1) or 246(1), or section 9 of the Act in respect of capital contributions made or required to be made by XXXXXXXXXX, as the case may be, as described in 96 and 97 above, nor will such amounts constitute proceeds of disposition, as defined in section 54 of the Act, to XXXXXXXXXX, as the case may be, from the disposition by such XXXXXXXXXX of any property.

C.Section 80 of the Act will not apply to XXXXXXXXXX by virtue of the fact that no interest will be paid or payable by XXXXXXXXXX to

(a)XXXXXXXXXX on the New Term Loan;

(b)XXXXXXXXXX on the New Senior XXXXXXXXXX Debt; and

(c)XXXXXXXXXX on the New XXXXXXXXXX Debt

or by virtue of the failure of any of the above XXXXXXXXXX, as the case may be, to demand payment of the aforementioned debts owing to it by XXXXXXXXXX.

D.Subject to paragraph 20(1)(e.1):

(i)expenses incurred by XXXXXXXXXX, in the course of borrowing money and issuing its Class XXXXXXXXXX Shares, Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares, respectively, will be deductible by XXXXXXXXXX, as the case may be, pursuant to subparagraph 20(1)(e) of the Act to the extent such expenses are reasonable in the circumstances; and

(ii)the expenses incurred by XXXXXXXXXX in the course of restructuring its debt obligations, will be deductible by XXXXXXXXXX pursuant to subparagraph 20(1)(e)(ii.2) of the Act to the extent such expenses are reasonable in the circumstances;

E.The cost amount, within the meaning of subsection 248(1) of the Act, to XXXXXXXXXX of the Class XXXXXXXXXX Shares, Class XXXXXXXXXX Shares, and Class XXXXXXXXXX Shares, as described in 60, 65 and 71 above, respectively, will, immediately after the time that such shares are issued, be equal to the amount paid by XXXXXXXXXX for those shares.

F.The cost amount, within the meaning of subsection 248(1) of the Act, to

(a)XXXXXXXXXX of the New Term Loan;

(b)XXXXXXXXXX of the New Senior XXXXXXXXXX Debt; and

(c)XXXXXXXXXX of the New XXXXXXXXXX Debt;

will, immediately after such debt is acquired from XXXXXXXXXX by the respective XXXXXXXXXX, be equal to the purchase price paid therefor by each XXXXXXXXXX, as described in 58, 63 and 69 above, as the case may be.

G.No amount will be included in computing the income of XXXXXXXXXX under subsection 56(2) of the Act in respect of any capital contributions made by XXXXXXXXXX to XXXXXXXXXX, as described in 96 above, as the case may be.

H.If the New Term Loan, the New Senior XXXXXXXXXX Debt, or the New XXXXXXXXXX Debt is reacquired by XXXXXXXXXX, the cost amount of each such debt within the meaning of subsection 248(1) of the Act, to XXXXXXXXXX will be the purchase price paid therefor, as described in 83, 87 and 91 above.

I.No amount will be included in the income of the XXXXXXXXXX pursuant to subsection 15(1) or 246(1) of the Act solely by virtue of the fact that no interest will be paid or payable by XXXXXXXXXX to

(a)XXXXXXXXXX on the New Term Loan;

(b)XXXXXXXXXX on the New Senior XXXXXXXXXX Debt; and

(c)XXXXXXXXXX on the New XXXXXXXXXX Debt,

as described in 59, 64 and 70 above, as the case may be.

J.If the New Term Loan held by XXXXXXXXXX, the New Senior XXXXXXXXXX Debt held by XXXXXXXXXX, or the New XXXXXXXXXX Debt held by XXXXXXXXXX, as the case may be, is acquired by XXXXXXXXXX under the applicable Debt Put/Call Agreement, as described in 82, 86 and 90 above, as the case may be, the cost amount, within the meaning of subsection 248(1) of the Act, to XXXXXXXXXX will be the purchase price paid therefor, as described in 83, 86 and 90 above, respectively.

K.Subsection 112(4) of the Act will not apply to any loss realized by XXXXXXXXXX on the New Term Loan, the New XXXXXXXXXX Senior Debt, or the New XXXXXXXXXX Debt subsequent to such debt being acquired by XXXXXXXXXX under the applicable Debt Put/Call Agreement in respect of any dividends received by XXXXXXXXXX on the Class XXXXXXXXXX, Class XXXXXXXXXX or Class XXXXXXXXXX Special Shares.

L.That the Put Fee XXXXXXXXXX, the Put Fee XXXXXXXXXX and the Put Fee XXXXXXXXXX payable by XXXXXXXXXX, as described in 81, 85 and 89, respectively, will be deductible to XXXXXXXXXX under subparagraph 20(1)(e)(ii.2) of the Act.

M.As a result of the Proposed Transactions, in and of themselves, subsection 245(2) of the Act will not apply to redetermine the tax consequences confirmed in the rulings given.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3, issued on December 30, 1996, and are binding on Revenue Canada provided the proposed transactions are carried out by XXXXXXXXXX. These rulings are based on the Act in its present form and does not take into account the effect of any proposed amendments.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch