2005 Ruling 2005-0114501R3 - employee stock option

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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

Position: Yes

Reasons: This ruling was previously given in respect of a proposal that did not proceed on a timely basis. The proposal has been resubmitted and is, in general, the same as previously proposed. There have been certain amendments but these are not significant to the requested rulings.

The Plan is complex and has undergone a number of amendments. Essentially the Plan is a stock option arrangement that permits employees to acquire shares of a foreign, private corporation where the shares would not be prescribed shares due to certain terms of the shares. However, the Plan provides that these terms are not applicable to shares acquired under the options and substitutes similar and/or identical terms in the Plan documentation with the understanding that these terms are included in the option agreement to provide a market for the shares. Accordingly, the shares are converted to prescribed shares. The ruling also confirms that a stock attestation procedure commonly used in the U.S. to acquire shares under options will result in the application of paragraph 7(1)(b) under the Act.

XXXXXXXXXX 2005-011450

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

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

This letter is in reply to your letters of February 3 and 28, 2005, 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, once the proposed amendments described in 30 below are made, the following terms will 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 or Retiree Stock, as the case may be, 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 shares of Management Stock or Retiree Stock, as applicable, 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 Gain" means: the amount by which the Fair Value at the time of exercise of an Option exceeds the Option Price, multiplied by the number of Options exercised; or in the case of a Swap Attestation as described in 15(k) below, the Fair Value of the Management Stock received on a Swap Attestation plus any monetary amounts received as a result of rounding down the number of Shares received;

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

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

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

XXXXXXXXXX;

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

u. "Permitted Beneficiary" means: a holder of an Option upon the death of a Participant who is that Participant's Permitted Legatee (or, for certain selected Participants, Permitted Legatees as designated by the Participant) who has been designated by will, trust or other valid instrument to receive the Participant's Management Stock or, as applicable, Retiree Stock, upon the Participant's death consistent with the restrictions articulated in the Certificate of Incorporation and the resolutions of the Board, including those restrictions limiting the number of holders who may hold Shares through the Participant of Management Stock and, as applicable, Retiree Stock;

v. "Permitted Legatee" means: an individual, trust or entity who or which may be the recipient of Shares of Management Stock or, as applicable, Retiree Stock as a result of the death of an original holder of the Management Stock or, as applicable Retiree Stock, as articulated in the Certificate of Incorporation. For the purposes of the Plan, any individual, trust or entity who or which may hold Management Stock or, as applicable, Retiree Stock, upon the death of the original holder of the Shares, within the parameters of the Certificate of Incorporation and the restrictions articulated by the Board may also hold Options, as a Permitted Beneficiary, as determined within the terms of the Plan and said restrictions;

w. "Parent's Plan" means: the XXXXXXXXXX;

x. "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;

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

z. "Profit Shares" means: the number of Shares equal to the Option Gain, less required tax withholdings, divided by the Fair Value at the time of exercise, or in the case of a Swap Attestation, the Shares received by a Participant on the Swap Attestation. The Parent in its sole discretion, shall determine the Profit Shares with respect to each Option exercise, and the resultant Profit Shares shall be rounded down to the nearest whole share of Management Stock or, as applicable, Retiree Stock;

aa. "Qualifying Management Stock" means: (a) a Share of Management Stock or Retiree Stock that was previously acquired by a particular Participant or Permitted Beneficiary and has been held by that Participant or Permitted Beneficiary for at least XXXXXXXXXX months; or (b) a Share of Management Stock or Retiree Stock that has been held by a particular Participant or Permitted Beneficiary for less than XXXXXXXXXX months, but only if such Share was not subject to the XXXXXXXXXX month hold period at the time the Shares were issued;

bb. "Redemption Window" means: the period in each fiscal quarter during which the Committee considers Participants' requests for redemptions of Shares as described in 15(m) 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;

cc. "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;

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

ee. "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;

ff. "Retirement" means: the earlier of the Participant's retirement, as defined in the Employer-sponsored pension plan in which the Participant participates as of his last day of employment with the Employer, the Participant's date of death, or the Participant's date of Disability (provided the Participant was eligible to retire under the Employer-sponsored pension plan in which the Participant participated as of his/her date of death or Disability) 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;

gg. "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 or if the Option was issued after XXXXXXXXXX the last day of the Exercise Window immediately following the XXXXXXXXXX anniversary of the Participant's Retirement date, during which an Option may be exercised in accordance with 17 below, except that, in no event will an Option be exercisable beyond the last day of the Exercise Window immediately following the XXXXXXXXXX anniversary of the grant of an Option;

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

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

jj. "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 19 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 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.

3. The capital stock of the Parent includes Shares which are held by key employees and retired employees of the Parent, its Subsidiaries and its Affiliates. The terms of the Shares and the share certificates contain restrictions on the transferability of the Shares and provide that holders do not have any right to cause the Parent to redeem them. However, in accordance with the terms of the Certificate of Incorporation, Shares may be redeemed or repurchased in certain circumstances by the Parent. In particular, XXXXXXXXXX of the Certificate of Incorporation, provides (in part) that:

(a) all Retiree Stock must be redeemed by the Parent no later than the XXXXXXXXXX anniversary following a Participant's Retirement;

(b) the Parent will have a right to redeem all Shares of Retiree Stock if the holder becomes employed or compensated by a competitor of the Parent;

(c) 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;

(d) 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;

(e) Retiree Stock held by Permitted Legatees or permitted assignees of retired officers, directors or employees shall be redeemed XXXXXXXXXX after the permitted legatee or assignee has exercised the final Option issued to the Participant under the Plan and bequeathed or assigned to the Permitted Legatee or assignee, but no later than the XXXXXXXXXX anniversary of the Participant's Retirement;

(f) if the Participant has not bequeathed or assigned any Options to a Permitted Legatee or assignee, the Retiree Stock held by the Permitted Legatee or assignee shall be redeemed by the Parent on the earlier of the XXXXXXXXXX anniversary of the death of the Participant or the XXXXXXXXXX anniversary of the Participant's Retirement;

(g) when a Participant incurs a Disability or dies, the Parent shall redeem any Management Stock held by the Participant (or the Participant's Permitted Legatee or assignee) XXXXXXXXXX after the disabled Participant (or the Permitted Legatee or assignee) has exercised the final Option issued to the Participant under the Plan. If the disabled Participant has no unexercised Options as of the date of Disability, the Parent shall redeem the Management Stock of the disabled Participant as of the XXXXXXXXXX anniversary of the Disability. If a deceased Participant has not bequeathed any options to a Permitted Legatee, any Management Stock held by the Permitted Legatee shall be redeemed on the XXXXXXXXXX anniversary of the Participant's death; and,

(h) subject to (d) above, all such redemptions and repurchases will be at the Share's most recently determined Fair Value.

4. Section XXXXXXXXXX of the Certificate of Incorporation also provides that "immediate families" includes "grandchildren".

5. 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.

6. The Plan has been established and Options have been granted to XXXXXXXXXX employees of the Corporation under the Plan. None of the employees have exercised any of these Options.

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

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

9. Rulings in respect of the proposed exercise of certain Options that were to be issued under the Plan to the Employee were requested and issued by the Canada Revenue Agency ("CRA") on XXXXXXXXXX, 2003 (our file 2002-017035). An amendment to the ruling was requested and provided on XXXXXXXXXX, 2004 (our file 2004-006715). However, the Employee did not proceed with the proposed transaction within the time allowed in the ruling or its amendment (the "Rulings").

10. No employees of the Corporation have exercised any Options acquired under the Plan.

11. The amendments to the Plan as described in the above Rulings were made to reflect the terms of the Plan as it is, in fact, administered. These amendments are reflected in the Plan as described herein.

12. The Corporation has amended the Plan subsequent to the issue of the Rulings and has in particular:

(a) added the terms:

i. "Option Gain",

ii. "Profit Shares" and

iii. "Qualifying Management Stock"; and

(b) amended the provisions pertaining to Swap Attestations,

in order to clarify the Swap Attestation provisions.

The Plan

13. 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.

14. 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 16(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.

15. After the amendments described in 30 below are made, the salient terms and conditions of the Plan pertaining to the issue and exercise of Options will be as follows:

(a) At 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 within a reasonable period of time [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:

i. the Option Price for a Share that may be acquired under the Option;

ii. the duration of the Option;

iii. the exercise procedure; and

iv. the total number of Shares that can be acquired under the Option [Plan section XXXXXXXXXX];

(e) The Option Price for a 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 or Permitted Beneficiary (as the case may be) and the Option Price for a Share of Retiree Stock that may be acquired under an Option granted under the Plan, is the Fair Value of a Share of Retiree Stock at the time the Option is granted to the particular Participant or Permitted Beneficiary (as the case may be) [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 15(i) below [Plan section XXXXXXXXXX], during the period beginning on the XXXXXXXXXX;

(i) A Participant or Permitted Beneficiary may exercise a vested Option, in whole or in part, during an Exercise Window that falls within the parameters described in 15(g) above, by giving written notice of the exercise to the Parent which notice shall constitute the Participant or Permitted Beneficiary's binding agreement to pay the Option Price in compliance with the provisions of the Option Agreement. The written notice must specify the original date of the grant of the Option and the number of Shares of Management Stock, or, if applicable, Retiree Stock, with respect to which the Option is being exercised. Written notice will generally be provided through the completion and submission of a Stock Option Exercise Letter of Authorization a sample of which was provided with your initial request. The date upon which the Parent receives the written notice together with payment (if any) is deemed to be the exercise date of the Option [Plan section XXXXXXXXXX];

(j) Subject to 16(d) and 18 below [Plan sections XXXXXXXXXX], payment for Shares acquired on the exercise of an Option shall be made in cash or at the election of the Participant in accordance with the provisions of 15(k) below [Plan section XXXXXXXXXX];

(k) Participants or Permitted Beneficiaries may, at their sole election, acquire Profit Shares under an Option through a "Swap Attestation". Under a Swap Attestation, a Participant or Permitted Beneficiary may utilize the value of Qualifying Management Stock which the Participant or Permitted Beneficiary currently holds, to pay for the Shares being acquired on the surrender of an Option, by verifying that the Participant or Permitted Beneficiary, as the case may be, owns enough Qualifying Management Stock to complete the transaction. The number of Profit Shares to be received will be equal to the amount of the Option Gain (the Fair Value at the time of exercise of the Shares that could have otherwise been received on the surrender of the Option less the amount of the Qualifying Management Stock that would have otherwise been required to pay the total Option Price) less any taxes withheld, divided by the Fair Value, at the time of exercise, of the Shares to be received under the Option, rounded down to the next whole Share. The Participant will receive a cash amount equal to the value of the rounding reduction. Participants must hold all Profit Shares for at least XXXXXXXXXX months from the date of issue before they are eligible to be used as Qualifying Management Stock for a Swap Attestation. Participants electing to utilize the Swap Attestation shall do so by completing and submitting a Stock Option Attestation Letter of Authorization (Stock Swap Attestation Form) to the administrator of the Plan [Plan section XXXXXXXXXX];

(l) Shares acquired pursuant to Options granted under the Plan are subject to all of the provisions of the Certificate of Incorporation except as provided in 15(m), 15 (n) and 15(o) below, and will contain the following statement:

"XXXXXXXXXX" [Plan section XXXXXXXXXX];

(m) A Participant may request and be eligible to have Shares repurchased during a Redemption Window for the Share's most recently determined Fair Value. A Participant must hold all Profit Shares for at least XXXXXXXXXX months from the date of issue, before they are eligible for redemption by the Parent. However, Participants may only have Shares redeemed or repurchased as provided in the Plan. All redemptions or repurchases of Shares may only be made with the permission of, and at the sole discretion of, the Parent [Plan section XXXXXXXXXX];

(n) In order to create liquidity and a market for the Shares, which would not otherwise exist, Participants may have certain of their Shares redeemed or repurchased under the Plan in accordance with the terms of the Plan. In that regard, the provisions of XXXXXXXXXX of the Certificate of Incorporation relating to the redemption and repurchase of Shares will have no application to any Shares acquired under the Plan or in exchange for Shares acquired under the Plan. However, all of the relevant provisions of the Certificate of Incorporation (as described in 3 and 4 above) are incorporated by reference into the terms of the Plan [Plan section XXXXXXXXXX]; and

(o) A Participant is required to hold, and continue to hold, for each exercise of an Option, Shares of Management Stock or, as applicable, Shares of Retiree Stock equal in value to XXXXXXXXXX% of the Option Gain on exercise of an Option until the Participant ceases to be in active employment with the Parent or a Subsidiary [Plan section XXXXXXXXXX].

16. A Participant has the following rights on the termination of 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 or the Participant's Permitted Beneficiary may exercise the Participant's Options in accordance with the terms of the Plan for retired employees as described in 17 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, prior to the date on which the Participant met the Retirement age and service requirements while employed by the Parent or a Subsidiary, or is terminated due to a Reduction in Force (each an "Event"), the Participant, the Participant's Permitted Legatee, the Participant's attorney-in-fact, 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.

Permitted Legatees, Permitted Beneficiaries, Disabled Participants, and Retirees, whose Retirement was the result of a Disability, shall be required to hold Shares acquired upon the exercise of an Option for a period of not less than XXXXXXXXXX months from the date of issuance [Plan section XXXXXXXXXX]; and,

(d) Where 16(c) above applies to a Participant who ceases to be employed due to a Reduction in Force, Options must be exercised, as that term is used here, in accordance with 15(i) and 15(j) above [Plan section XXXXXXXXXX ], except that, in lieu of Shares, the Parent shall pay a lump sum cash payment equal to the Fair Value of the Shares at the time of exercise less the aggregate Option Price times the number of Options so exercised [Plan section XXXXXXXXXX].

17. In the event a Participant ceases to be employed by the Parent or a Subsidiary due to Retirement, the Participant or the Participant's Permitted Beneficiary, may, regardless of whether the Options were exercisable on the date of Retirement, exercise any Options during the Participant's Retirement Exercise Period. However, the Committee may cancel an Option held by the Participant during the Participant's Retirement Exercise Period if the Participant is or has been employed after the Retirement date by a competitor or is or has been engaged in activities contrary, in the opinion of the Committee, 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].

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

(a) A Participant or Permitted Beneficiary, as the case may be, who exercises an Option pursuant to 17 above [Plan section XXXXXXXXXX], in accordance with 15(i) and 15(j) above [Plan section XXXXXXXXXX ], will, in lieu of Shares of Management Stock, receive Shares of Retiree Stock provided the Participant or Permitted Beneficiary is permitted, under the terms of the Certificate of Incorporation, to hold the Shares. The Fair Value of the Retiree Shares shall be equal to the Fair Value of the Shares of Management Stock that the Participant would have otherwise received on the exercise of the Option [Plan section XXXXXXXXXX];

(b) Except in certain exceptions described in 18(c) below (which are not and never would be applicable to the transactions as proposed herein), a Participant, or a Permitted Beneficiary or Permitted Legatee of a Participant is required to hold all Profit Shares (whether such Shares are comprised of Management Stock, Retiree Stock or other stock) issued to such holder or in the aggregate to all such holders on the exercise of an Option pursuant to 17 above [Plan section XXXXXXXXXX], for a minimum of XXXXXXXXXX months from the date of the issue of such Shares before such Profit Shares may be eligible for redemption in accordance with the terms of the Plan [Plan section XXXXXXXXXX]; and

(c) XXXXXXXXXX.

19. 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].

20. The Options and the Option Agreements may not be assigned nor transferred by a Participant or a Permitted Beneficiary and cannot be subject to claims of a Participant's or Permitted Beneficiary's creditors [Plan section XXXXXXXXXX].

21. Participants shall have the right to designate a beneficiary, and in some cases more than one beneficiary, who will be the Permitted Legatees of the Participant and may receive the Participant's Shares upon the Participant's death or may succeed to the Participant's rights under the Option Agreement as the Participant's Permitted Beneficiaries. Subject to the Certificate of Incorporation and resolutions of the Board, selected Participants are permitted to transfer Shares including Shares acquired under an Option, to certain trusts and persons. For these selected Participants, Permitted Beneficiaries may be designated consistent with the restrictions designated for said Participants in the Certificate of Incorporation and the Board resolutions. The combined number of Permitted Legatees and Permitted Beneficiaries of a Participant may not exceed the number of shareholders who may, in accordance with the Certificate of Incorporation and the resolutions of the Board, hold Shares if the Participant were living. In case of a failure of designation or the death of a Permitted Beneficiary without a designated successor, Options may be exercised by the Permitted Legatee(s) who are designated in the Participant's will, trust or other lawful instrument, or otherwise through the laws of intestate succession XXXXXXXXXX where the Participant resided consistent with the restrictions designated by the Certificate and Board resolutions including restrictions concerning the number of shareholders entitled to hold shares if the Participant were living. When Shares are tendered to the Corporation for redemption, the resulting payment shall be made to the Participant's Permitted Legatee [Plan section XXXXXXXXXX].

22. Any beneficiary statement or intestate succession order designating any person, trust, or entity as a beneficiary who is not a Permitted Beneficiary shall be null and void, and in such case, all affected Options and, as required to meet the Board's restrictions concerning the number of permitted shareholders, Shares shall be transferred to the Participant's executor or administrator, as designated by the probate court or other court of competent jurisdiction. All Options held by the executor or administrator shall be exercised by said executor or administrator in accordance with the rules of the Plan as described herein and any resulting Shares held by the executor or administrator will be subject to a minimum XXXXXXXXXX -month hold period from date of issuance [Plan section XXXXXXXXXX].

23. 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, Permitted Legatee or Permitted 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].

24. 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 under the Plan 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].

25. 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].

26. 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].

27. An Employer has the power and right to deduct or withhold, or require a Participant or Permitted Beneficiary 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].

28. With respect to any tax withholding required as a result of the exercise of an Option, Participants or Permitted Beneficiaries may, subject to the approval of the Committee, elect to satisfy the withholding requirement by tendering Shares to the Parent for redemption, which Shares:

(a) have been owned by the Participant and/or Permitted Beneficiary for XXXXXXXXXX months or more; or

(b) have not been owned by the Participant and/or Permitted Beneficiary for XXXXXXXXXX months or more and did not have a XXXXXXXXXX-month hold condition when the shares were issued;

and have a Fair Value on the date the withholding is determined, equal to the required 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].

29. 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].

Proposed Plan Amendments

30. The Corporation proposes to amend the Plan as follows:

(a) the terms:

i. "XXXXXXXXXX",

ii. "Permitted Beneficiary" and

iii. "Permitted Legatee"

and their meanings will be added to have the meanings set out in the above definitions and abbreviations;

(b) the term "Option" will be amended to have the meaning set out in the above definitions and abbreviations to allow the issue of Options to purchase Retiree Stock. Other terms will be amended as necessary to provide for the amendment;

(c) the term "Retirement" will be amended to have the meaning set out in the above definitions and abbreviations; and

(d) the salient provisions of the Plan will be amended to provide as described in 15 through 29 above. The amendments include a number of minor amendments to the wording as well as certain amendments to:

i. provide for the acquisition of Shares of Retiree Stock by certain Participants;

ii allow beneficiaries and legatees of a deceased Participant to participate in the Plan to the extent provided therein; and

iii. incorporate restrictions on the assignment of Options and Shares acquired under the Plan.

Proposed Transactions

31. 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.

32. The Employee will 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 Swap Attestation as described in 15(k) 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.

33. The Parent, acting through the Plan Administrator, proposes to accept the Stock Option Exercise Letter of Authorization and the Swap Attestation Form from the Employee and issue Shares of the Management Stock to the Employee.

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:

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

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

(c) 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 Swap Attestation, 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 Plan Amendments and Proposed Transactions

34. 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

35. 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:

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

(b) 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;

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

(d) before the courts; nor

(e) the subject of an income tax ruling previously issued by CRA to the Corporation, the Employer or a Participant except as identified in 9 above.

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 are 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 30 above.

B. Paragraph 7(1)(b) of the Act will apply to the disposition of the New Options for Shares as described in 32 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 32 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 Swap Attestation used in the manner described in 32 and 33 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 used as Qualifying Management Stock.

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 CRA on May 17, 2002, and are binding in respect to the proposed plan amendments and transactions described in 30 through 33 above, provided the transactions described in 30 and 31 occur before XXXXXXXXXX and the transactions described in 32 and 33 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 CRA has agreed that:

(a) the Fair Value of a Share, as determined in accordance with the Plan, at any time will represent 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 26 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 18(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 25 above occur; nor that,

(f) the exercise date determined as described in 15(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