2003 Ruling 2002-0170353 - EMPLOYEE STOCK OPTION PRESCRIBED 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 CCRA.

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

Principal Issues:

Is the plan, as amended, an employee stock option plan that is subject to section 7(1) and will the shares be prescribed shares?

Position: Yes

Reasons:

The amendments to the plan will ensure the prescribed share rules will apply.

XXXXXXXXXX 2002-017035

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

RE: XXXXXXXXXX
Advance Tax Ruling - Issue and Exercise of Options

This letter is in reply to your letters of XXXXXXXXXX, in respect of your request for an advance income tax ruling on behalf of the above-noted corporations.

This letter is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

Definitions and Abbreviations

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

a. "Act" means: the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;

b. "Affiliate" means: an affiliate of the Parent;

c. "Board" means: the Board of Directors of the Parent;

d. "Certificate of Incorporation" means: the Restated Certificate of Incorporation of the Parent dated XXXXXXXXXX;

e. "Committee" means: the XXXXXXXXXX or its successor;

f. "Compensation Year" means: the Parent's fiscal year of XXXXXXXXXX;

g. "Corporation" means: XXXXXXXXXX, a taxable Canadian corporation XXXXXXXXXX;

h. "Disability" means: "permanent disability" as defined by the XXXXXXXXXX;

i. "Employee" means: XXXXXXXXXX;

j. "Employer" means: a Participant's employer whether it is the Corporation or a Subsidiary that participates in the Plan;

k. "Exercise Window" means: the period from the date the Parent discloses the Fair Value to and including the date XXXXXXXXXX calendar days following such disclosure. Notwithstanding the foregoing, at the sole discretion of the Committee, a different disclosed period of time may be designated as the Exercise Window.

To further clarify, Exercise Windows are the periods of time during which Participants may exercise vested Options. It is anticipated that Exercise Windows will arise quarterly;

l. "Fair Value" means: the value of a Share of Management Stock as most recently determined by an independent appraisal firm selected by the Parent, such appraisal to be performed at least annually (but which will generally be set each fiscal quarter);

m. "Management Stock" means: for the purposes of the rulings provided herein, the class of shares of the Management Stock as defined in the Certificate of Incorporation that may be issued by the Parent, pursuant to an Option, to active employees of the Parent or employees of a Subsidiary or an Affiliate. All Management Stock share certificates bear the following statement:

"XXXXXXXXXX";

n. "Option" means: an agreement between the Parent and a Participant, which permits the Participant to acquire Management Stock under the terms of the Plan;

o. "Option Agreement" means: an agreement entered into between the Parent and a Participant that sets forth the terms and conditions applicable to specific Options granted to that Participant under the Plan;

p. "Option Price" means: the price per Share to be paid by a Participant to acquire Shares under an Option;

q. "Option Guide" means: the Option Exercise Guide issued by the Parent and made available to Participants through a website;

r. "Parent" means: XXXXXXXXXX , a corporation incorporated under, and governed by, the laws of the State of XXXXXXXXXX. The Parent's address is:

XXXXXXXXXX

s. "Participant" means: an officer or highly compensated salaried employee of an Employer, who has been selected by the Committee to receive an Option;

t. "Parent's Plan" means: the XXXXXXXXXX;

u. "Plan Administrator" means: XXXXXXXXXX, a corporation that deals at arm's length with the Parent, the Subsidiaries and Affiliates, and assists in the administration of employee stock option plans;

v. "Plan" means: the XXXXXXXXXX a copy of which, dated XXXXXXXXXX, was provided with your request;

w. "Redemption Window" means: the period in each fiscal quarter during which the Committee considers Participants' requests for redemptions of Shares as described in 21 below. A Redemption Window is defined in the Option Guide and generally opens on the XXXXXXXXXX business day of the month following the end of a fiscal quarter and ends on the last day of the month following the month in which the window opens;

x. "Reduction in Force" means: the termination of a Participant's employment through no fault of the Participant, due to job elimination, reduction in the overall number of jobs, plant or facility sale or closure or the restructuring of the Participant's Employer, where the Participant is not offered continuing employment with the Parent or a Subsidiary;

y. "Regulations" means: the Income Tax Regulations;

z. "Retirement" means: a Participant's 'retirement' as defined in the Employer-sponsored pension plan in which the Participant participates as of the last day of the Participant's employment with the Employer, or the Participant's initial date of leave from active service with the Employer, pursuant to an agreement signed by the Participant and the Employer, which results in the Participant's retirement immediately following the leave of absence, and the terms "Retire" and "Retired" shall be construed accordingly;

aa. "Retirement Exercise Period" means: the period beginning with the opening of the first Exercise Window subsequent to a Participant's Retirement date until the last day of the Exercise Window immediately following the XXXXXXXXXX anniversary of the Participant's Retirement date, as the case may be, during which an Option may be exercised in accordance with paragraph 9 below, except that, in no event will an Option be exercisable beyond the last day of the Exercise Window immediately following the tenth anniversary of the grant of an Option;

bb. "Retiree Stock" means: Management Stock, or such other stock as is permitted by the Certificate of Incorporation, that is reserved for retired employees of the Parent or employees of a Subsidiary or an Affiliate;

cc. "Shares" means: Management Stock or Retiree Stock, as the case may be;

dd. "Subsidiary" means: a subsidiary of the Parent; and,

ee. "Termination for Cause" means: the involuntary termination of a Participant's employment with the Parent or a Subsidiary as a result of dishonesty, fraud, misappropriation of funds, theft relating to the employee's position, acts punishable by law, misconduct as described in the Parent's employee handbook, or such other serious misconduct as shall be determined by the Committee to constitute conduct which warrants forfeiture as described in 11. below.

In addition, in this letter, the terms "employee", "officer", "private corporation", and "taxable Canadian corporation" have the meanings defined in subsection 248(1) of the Act; and, the term "arm's length" has the meaning assigned by subsection 251(1) of the Act.

Facts

1. The issued and outstanding share capital of the Corporation consists of Class A shares and Class B shares. All of the Class A shares are owned by the Parent and, as a consequence, the Corporation is a Subsidiary of the Parent. XXXXXXXXXX, a XXXXXXXXXX corporation, owns all of the Class B shares. XXXXXXXXXX is a Subsidiary of, and is controlled by, the Parent.

2. The Parent is not resident in Canada, does not carry on business in Canada, and does not have a permanent establishment in Canada. The capital stock of the Parent is privately held and there is no general third party market for this capital stock. The capital stock of the Parent include Shares which are held by key employees and retired employees of the Parent, its Subsidiaries and its Affiliates.

3. The Parent established the Parent's Plan for the benefit of certain key executives of the Parent as well as certain key executives of its Subsidiaries and Affiliates.

The Plan

4. The Plan has been established and Options have been granted to XXXXXXXXXX employees of the Corporation under the Plan. XXXXXXXXXX employee has exercised any of these Options.

5. The purpose of the Plan is to encourage stock ownership by key management employees and provide greater incentive for certain selected officers and highly compensated employees to attain and maintain the highest standards of performance through the grant of Options to purchase shares of Management Stock.

6. Subsection 7(5) of the Act does not apply to exclude the application of section 7 of the Act to the Options granted in accordance with the Plan to Participants such that as the result of the exercise or disposition of an Option:

(a) section 7 of the Act will apply except in circumstances where 8(d) below applies [Plan section XXXXXXXXXX]; and

(b) paragraph 110(1)(d) of the Act will apply to the extent the requirements of that paragraph are satisfied.

7. The salient terms and conditions of the Plan pertaining to the issue and exercise of Options are as follows:

(a) Prior to the commencement of each Compensation Year, the Committee reviews recommendations for participation in the Plan. From such recommendations, the Committee, in its sole discretion, designates those individuals, if any, who will be selected as Participants for the Compensation Year. The Committee also decides the number of Options to grant to each Participant. The Plan stipulates that employees eligible to become Participants are to be selected from among those employees of an Employer that participates in the Plan, who will, in the absolute discretion of the Committee, contribute substantially to the progress and earning power of that Employer or the Parent [Plan section XXXXXXXXXX];

(b) The Employer shall cause a Participant to be notified of their selection by the Committee as promptly as practicable [Plan section XXXXXXXXXX]. For greater certainty, it is understood that a Participant will only be granted and receive Options on the date the Option Agreement is entered into;

(c) The grant of an Option to a Participant by the Committee in one year does not preclude the grant of an Option in a subsequent year and more than one set of Options may be granted to a Participant during any year [Plan section XXXXXXXXXX];

(d) Each Option that is granted to a Participant is evidenced by an Option Agreement which sets forth the terms and conditions applicable to the Option. In particular, an Option Agreement, provides:

1. the Option Price for the Share of Management Stock that may be acquired under the Option;
2. the duration of the Option;
3. the exercise procedure; and
4. the total number of Shares that can be acquired under the Option
[Plan section XXXXXXXXXX];

(e) The Option Price for the Share of Management Stock that may be acquired under an Option granted under the Plan, is the Fair Value of a Share of Management Stock at the time the Option is granted to the particular Participant [Plan section XXXXXXXXXX];

(f) The disclosure of Fair Value shall be at the sole discretion of the Parent [Plan section XXXXXXXXXX]. As a consequence, Exercise Windows will only be established as and when the Parent discloses the Fair Value. It is, nevertheless, anticipated that the Parent will disclose the Fair Value at the end of each quarter;

(g) Options granted under the Plan expire at XXXXXXXXXX.

(h) Options granted under the Plan vest on the XXXXXXXXXX anniversary of the date of grant and may be exercised pursuant to the Plan as described in 7(i) below [Plan section XXXXXXXXXX], during the period beginning on the XXXXXXXXXX.

(i) A Participant may exercise a vested Option, in whole or in part, during an Exercise Window, by giving written notice of the exercise to the Parent. Vested Options may be exercised during any Exercise Window within the parameters described in 7(g) above. The date upon which the Parent receives all forms and payment (if any) is deemed to be the exercise date of the Option. The written notice must specify the original date of the grant of the Option and the number of Shares with respect to which the Option is being exercised. Written notice is generally provided through the completion and submission of a Stock Option Exercise Letter of Authorization a sample of which was provided with your initial submission. [Plan section XXXXXXXXXX];

(j) Subject to 8(d) and 10 below [Plan sections XXXXXXXXXX ], payment for Shares of Management Stock acquired on the exercise of an Option must be made either in cash or, at the Participant's election, with Shares of Management Stock that were previously acquired by the Participant. However, the Participant must have held the previously acquired Shares of Management Stock for a minimum of XXXXXXXXXX months before the Parent will be obligated to accept them as payment from the Participant upon exercise of the Option [Plan section XXXXXXXXXX]; and,

(k) Shares acquired pursuant to Options granted under the Plan are subject to all of the provisions of the Certificate of Incorporation [Plan section XXXXXXXXXX].

8. The Plan provides for the following rights on the termination of a Participant's employment with the Parent or a Subsidiary:

(a) If a Participant ceases to be employed by the Parent or a Subsidiary for reasons other than Retirement, death, Reduction in Force or Disability, the Participant's Options will immediately terminate, unless extended by the Committee [Plan section XXXXXXXXXX];

(b) If a Participant ceases to be employed by the Parent or a Subsidiary due to the Participant's Retirement, the Participant may exercise the Participant's Options in accordance with the terms of the Plan for retired employees as described in 9 below [Plan section XXXXXXXXXX];

(c) If a Participant ceases to be employed by the Parent or a Subsidiary because the Participant dies, incurs a Disability, or is terminated due to a Reduction in Force (each an "Event"), the Participant or the Participant's beneficiary, executors, administrators, legatees or heirs of the Participant's estate, as the case may be, shall have the right to exercise any unexercised Options during any Exercise Window following the Event until the last day of the Exercise Window immediately following the XXXXXXXXXX anniversary of the Event, regardless of whether the Options were exercisable at the time of the Event, provided, however, that Options shall in no case be exercisable after the last day of the Exercise Window which immediately follows the XXXXXXXXXX anniversary of the grant of the Option [Plan section XXXXXXXXXX]; and,

(d) Where 8(c) above applies, Options must be exercised, as that term is used in the Plan, in accordance with 7(i) and 7(j) above [Plan section XXXXXXXXXX], except that, in lieu of Management Stock, the Parent shall distribute a lump sum cash payment equal to the Fair Value of the Management Stock less the aggregate Option Price [Plan section XXXXXXXXXX].

9. In the event a Participant ceases to be employed by the Parent or a Subsidiary due to Retirement, the Participant may, regardless of whether the Options were exercisable on such date of Retirement, exercise any Options during the Retirement Exercise Period. However, the Committee may cancel an Option during a Retirement Exercise Period if, in the opinion of the Committee, the Participant is or has been employed after the Retirement date by a competitor or is or has been engaged in activities contrary to the best interests of the Parent or a Subsidiary. Any Options that are not exercised and have not previously expired, will expire at the end of the Retirement Exercise Period [Plan section XXXXXXXXXX].

10. Additional salient terms and conditions of the Plan pertaining to the exercise of Options are as follows:

(a) A Participant who exercises an Option pursuant to 9 above [Plan section XXXXXXXXXX], and in accordance with 7(i) and 7(j) above [Plan section XXXXXXXXXX], will, in lieu of Shares of Management Stock, receive Shares of Retiree Stock, with a Fair Value equal to the Fair Value of the Shares of Management Stock that the Participant would otherwise receive on the exercise of the Option, provided the Participant is permitted, under the terms of the Certificate of Incorporation, to hold the Shares [Plan section XXXXXXXXXX];

(b) The Parent has no obligation to redeem the Shares at any time. Furthermore, except in certain exceptions described in 10(d) below (which are not and never would be applicable to the transactions as proposed herein), a Participant is required to hold Shares issued on the exercise of an Option pursuant to 9 above [Plan section XXXXXXXXXX], for a minimum of XXXXXXXXXX months from the date of the exercise. Following the XXXXXXXXXX-month holding period, a retired Participant may request the Parent to repurchase the Participant's Shares. [Plan section XXXXXXXXXX];

(c) Notwithstanding the provisions described in 10(a) and 10(b) above, the Certificate of Incorporation provides that Shares held by a retired Participant will be repurchased by the Parent commencing on the XXXXXXXXXX anniversary of the Participant's retirement in the manner described in 20(a) below, and that all decisions to repurchase Shares from a retired Participant are at the sole discretion of the Parent; and,

(d) XXXXXXXXXX.

11. In the event of a Participant's Termination for Cause, the Participant shall, at the Committee's discretion, forfeit all Options granted under the Plan without compensation or payment. A forfeiture will include any Option which was exercised by the Participant prior to a Termination for Cause where Shares have not been issued to the Participant as of the date of the Termination for Cause [Plan section XXXXXXXXXX].

12. The Options and the Option Agreements may not be assigned nor transferred by a Participant and cannot be subject to claims of a Participant's creditors. However, in the event of a Participant's death, rights under the Option and the Option Agreement may be transferred to designated beneficiaries or the Participant's estate [Plan section XXXXXXXXXX].

13. The Parent may set aside or earmark cash or investments to meet its obligations under the Plan. However, legal and beneficial title to, and beneficial ownership of, these assets shall remain the property of the Parent and no Participant or beneficiary shall acquire any property interest in any specific assets of the Parent. Nothing in the Plan shall be considered as creating a trust or creating any fiduciary relationship. Any right to receive payments from the Parent under the Plan shall be no greater than the rights of any unsecured creditor of the Parent [Plan section XXXXXXXXXX].

14. The Committee can establish certain rules and policies that are necessary or appropriate to carry out the purpose of the Plan. The Committee has the authority to amend the Plan as is necessary, provided that any amendments that significantly increase the cost of the Plan must be approved by the board of directors of the Employer. No amendment to the Plan may adversely affect any Participant's earned benefits thereunder except in the case of a Termination for Cause. The Committee also has full discretionary authority with respect to the interpretation of the Plan and its decisions are final and binding [Plan section XXXXXXXXXX].

15. The number of Shares subject to any Option and the Option Price will be proportionately adjusted for any increase or decrease in the number of authorized Shares subsequent to the date the Plan took effect that results from:

(a) a subdivision or consolidation of shares of the Parent or any other capital adjustment,

(b) the payment of a stock dividend, or

(c) any other increases or decreases in shares of the Parent without receipt of consideration by the Parent [Plan section XXXXXXXXXX].

16. If the Parent is the surviving corporation in any merger or consolidation, any Option shall pertain, apply, and relate to the securities to which a holder of the number of Shares subject to the Option would have been entitled after the merger or consolidation. In the event of a dissolution, liquidation or acquisition of the Parent, or upon a merger or consolidation in which the Parent is not the surviving corporation, all Options that are outstanding shall become exercisable immediately prior to such liquidation or acquisition [Plan section XXXXXXXXXX].

17. An Employer has the power and right to deduct or withhold, or require a Participant to remit to the Employer, an amount sufficient to satisfy the taxes required under the Act or the Regulations, to be withheld with respect to any taxable event arising as a result of the Plan [Plan section XXXXXXXXXX].

18. With respect to any tax withholding, Participants may, subject to the approval of the Committee, elect to satisfy the withholding requirement by tendering Shares to the Parent for redemption, which Shares have been owned by the Participant for XXXXXXXXXX months or more and have a Fair Value on the date the withholding is determined, equal to the withholding tax. All decisions of this nature are subject to the restrictions and limitations that the Committee, in its sole discretion, deems appropriate [Plan section XXXXXXXXXX].

19. The Plan may be terminated by the Parent at any time in its sole discretion; however, any termination of the Plan will not affect Options issued under the Plan prior to the termination [Plan section XXXXXXXXXX].

Plan Administration

20. The Parent is a private company and, as a consequence, there is generally no third party market for the Shares. Furthermore, the terms of the Shares and the share certificates contain restrictions on the transferability of the Shares. In accordance with the terms of the Shares, Participants do not have any right to cause the Parent to redeem the Shares. However, in accordance with the terms of the Certificate of Incorporation, a Participant's Shares may be redeemed or repurchased in certain circumstances by the Parent. In particular, XXXXXXXXXX of the Certificate of Incorporation, provide that:

(a) Shares of Retiree Stock will be redeemed by the Parent at the rate of XXXXXXXXXX percent per year of the total Shares held by a holder on the XXXXXXXXXX anniversary of the Participant's Retirement, commencing on the XXXXXXXXXX anniversary of the Participant's Retirement except that the Parent will have the right to redeem Shares of Retiree Stock if the holder is directly or indirectly employed or compensated by a competitor;

(b) The Parent has the right to redeem Shares of the Management Stock only:

i. when the Participant no longer meets the issuance criteria set out in the Certificate of Incorporation and the holder or an eligible transferee has not elected to convert the Shares into Retiree Shares; or

ii. XXXXXXXXXX; and,

(c) The Parent has the right to repurchase any Shares at a price and upon such terms as are agreeable to the Parent and the holder.

21. Subject to the above provisions of the Certificate of Incorporation, and, subject to certain specified minimum hold requirements established by the Committee, a Participant may, during a Redemption Window, request the repurchase or redemption of Shares for proceeds equal to the Share's most recently determined Fair Value. The Committee requires Participants to hold, and continue to hold following each exercise of an Option, Shares equal in value to XXXXXXXXXX% of the gross gain in the value of the Shares received on the exercise of the Options exercised, until the Participant ceases to be actively employed by the Parent or a Subsidiary. After a XXXXXXXXXX month hold period, if applicable, a Participant may be eligible to have Management Stock bought back during a Redemption Window. Redemptions of Management Stock are determined at the sole discretion of the Parent. [The Option Guide]

Swap Attestation Process

22. Notwithstanding 7(j) above, in the actual administration of the Plan, Participants have not been able to exercise Options and acquire Shares using previously acquired Shares to pay the Option Price. Instead, Participants have been permitted to acquire Shares for Cash or, at the Participant's election, through the use of a "Swap Attestation Process" as described in the Option Guide. Under the Swap Attestation Process, a Participant does not exercise an Option by physically delivering the currently held Shares to the Parent or to the Plan Administrator, as described in 7(j) above, to pay for Shares being acquired under an Option. Instead, the Participant verifies in writing that the Participant owns enough Shares to complete the transaction and has held such Shares for a minimum of XXXXXXXXXX months, if applicable. The total value of the Shares that would otherwise have been received on the exercise of the Option is reduced by the value of the Shares that would otherwise be required to pay for the Shares on the exercise of the Option. The Participant then receives a number of Shares that have a total value equal to the reduced value. Historically, Participants have initiated the Swap Attestation Process by completing a Stock Swap Attestation form (a copy of which was submitted with the request).

Recent Transactions

23. The Parent has selected the Employee who is employed by the Corporation to be a Participant under the Plan.

24. The Employee currently owns Shares of Management Stock that were acquired more than one year ago.

Proposed Transactions

25. The Corporation proposes to amend the wording of the Plan as described above, to reflect the terms of the Plan as it is, in fact, administered. In particular, the Plan will be amended as follows:

(a) The term "Redemption Window" as defined above, will be included in the Plan;

(b) 7(j) above [Plan section XXXXXXXXXX ] will be amended to replace the provisions described with provisions that provide for the transactions that actually occur on the exercise of an Option as described in 22 above;

(c) The Stock Swap Attestation Form will be revised to reflect the provisions described in 22 above;

(d) 10 above [Plan section XXXXXXXXXX ] will be amended to provide that Participants cannot redeem Shares except as provided in the Plan and only with the permission of the Parent;

(e) 10 above [Plan section XXXXXXXXXX ] will be further amended to provide redemption and repurchase provisions for Shares acquired under the Plan in order to create liquidity and a market for the Shares, which would not otherwise exist, and to incorporate into the Plan the terms that have administratively been applied in respect of the Plan since its inception. In particular, 10 above [Plan section XXXXXXXXXX ] will be amended to provide that:

XXXXXXXXXX

(f) XXXXXXXXXX; and

(g) provisions will be added or amended as required to provide that the XXXXXXXXXX month holding period referred to in 10(b) and 21 above, will not apply in respect of Shares acquired with cash by a Participant under an Option, so long as the Participant meets the retention requirements described in 21 above.

26. The Parent proposes to grant Options (the "New Options") to the Employee at a time when the Employee deals at arm's length with the Corporation, the Parent and all Affiliates, entitling the Employee to acquire XXXXXXXXXX Shares of Management Stock at an Option Price set by the Parent equal to the Fair Value of a Share of Management Stock on the date of the grant of the New Options.

27. The Employee intends to exercise the New Options during the next available Exercise Window after the New Options have vested. However, since the Employee already owns Shares of Management Stock, which he has held for a period longer than XXXXXXXXXX months, the Employee proposes to use the Stock Attestation Process, as described above, instead of paying the Option Price in cash. The Employee will submit a completed Stock Option Exercise Letter of Authorization and the Stock Swap Attestation form to initiate the process.

28. The Parent, acting through the Plan Administrator, proposes to accept the Stock Option Exercise Letter of Authorization and the Stock Swap Attestation form from the Employee and issue Shares of the Management Stock to the Employee. The number of Shares to be issued to the Employee will be determined as described in 22 above.

For example, if the Option Price is determined to be $XXXXXXXXXX and the Fair Value of a Share at the time of its issue is determined to be $XXXXXXXXXX:

(i) the Employee's aggregate cost to exercise the New Options would be XXXXXXXXXX Shares x $XXXXXXXXXX or $XXXXXXXXXX;

(ii) the number of Shares required to pay the aggregate cost would be
$XXXXXXXXXX or XXXXXXXXXX Shares (rounded to XXXXXXXXXX Shares plus $XXXXXXXXXX cash); and,

(iii) the aggregate Fair Value of the XXXXXXXXXX Shares received on exercise of the Options would be XXXXXXXXXX x $XXXXXXXXXX or $XXXXXXXXXX.

However, by using the Stock Attestation Process, the Employee will receive XXXXXXXXXX Shares of Management Stock being the difference between the XXXXXXXXXX Shares under option and XXXXXXXXXX Shares being the number of whole Shares that would be required to pay the Option Price.

Purpose of Proposed Transactions

29. The purpose of granting the New Options to the Employee is to encourage the Employee's ownership in the Parent and provide greater incentives to the Employee to maintain high employment standards. The purpose of the Employee exercising the New Options is to take advantage of the opportunity granted to him under the Plan to acquire Shares in a favourable and tax efficient manner.

Additional Information

30. To the best of your knowledge and that of the Parent, the Corporation and the Employee, none of the issues involved in this ruling are:

i) in an earlier return of the Corporation or the Employee, or any person related to the Corporation, the Employee or a Participant;

ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation, the Employee or a Participant, or any person related to the Corporation, the Employee or a Participant;

iii) under objection by the Corporation, the Employee, a Participant, or any person related to the Corporation, the Employee or a Participant;

iv) before the courts; nor

v) the subject of an income tax ruling previously issued by CCRA to the Corporation, the Employer or a Participant.

Rulings

Provided that

(a) the preceding statements constitute a complete and accurate disclosure of the facts, the Plan, the proposed transactions and the purpose of the proposed transactions;

(b) with respect to the New Options, the administration of the Plan and any related agreements continues to be substantially as described above; and,

(c) the Fair Value of a Share is equal to the fair market value of a Share at all relevant times,

we rule as follows:

A. Paragraph 7(1)(b) will not apply to the Employee solely as a consequence of the amendment of the Plan as described in 25 above.

B. Paragraph 7(1)(b) of the Act will apply to the disposition of the New Options for Shares as described in 27 above such that the Employee shall be deemed to receive a benefit equal to the fair market value of the Shares received as consideration.

C. Provided the Employee deals at arm's length with the Corporation, the Parent and each Affiliate at the time the Shares are issued to the Employee, the Shares acquired, as consideration for the New Options, will be prescribed shares as that term is defined in subsection 6204(1) of the Regulations.

D. To the extent provided therein, paragraph 110(1)(d) of the Act will apply to permit the Employee to deduct an amount, as a consequence of the disposition of the New Options, in the manner described in 27 above, provided the Participant deals at arm's length with the Company, the Parent and all Affiliates, at the time the agreement is entered into.

E. The Stock Verification Process used in the manner described in 27 and 28 above will not result in a "disposition", as that term is defined in subsection 248(1) of the Act, of any of the Employee's Shares.

F. Subsection 53(1)(j) of the Act will apply to include the amount of any benefit determined under paragraph 7(1)(b) of the Act in computing the adjusted cost base of the Shares acquired as consideration for the disposition of the New Options.

CAVEATS

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 issued by the CCRA on May 17, 2002, and are binding in respect to the proposed transactions described in 25 through 28 above, provided the transactions described in 25 and 26 occur before XXXXXXXXXX and the transactions described in 27 and 28 occur within the period specified therein.

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

Nothing in this letter should be construed as implying that the CCRA has agreed that:

(a) the Fair Value of a Share as determined in accordance with the Plan at any time will represents the fair market value of the Share at that particular time;

(b) the provisions of subsection 7(1.4) of the Act will be satisfied in the event the New Options are exchanged for other options and, in particular, should an event described in 16 above occur;

(c) subsection 7(1.4) of the Act will apply when an Option for Management Stock is converted into an Option for Retiree Stock by the operation of the Plan described in 10(a) above;

(d) except as specifically provided, the provisions of section 7 or paragraph 110(1)(d) of the Act will be satisfied in the event the Shares acquired under the New Options are exchanged for any other securities;

(e) the provisions of subsections 110(1.5) and 110(1.6) of the Act will be satisfied should an event described in 15 above occur; nor that,

(f) the exercise date determined as described in 7(i) above will be relevant for the purpose of computing any benefit under subsection 7(1) of the Act, which benefit will be determined on the date the Shares are acquired from the exercise of the New Option or the Option is disposed of, as the case may be.

Yours truly,

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