2006 Ruling 2006-0180251R3 - Withholding Tax Exemption

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: 1.Is the requirement to establish a cash collateral account (the "Collection Account") acceptable, that is not economically obliging the borrower to repay the loan? 2. Are the events of default under the loan agreement acceptable events of default? 3.Are the EBITDA and negative covenant provisions under the loan agreement acceptable? 4. Is the requirement for Payment with respect to Net Asset Proceeds acceptable?

Position: 1.YES 2. YES 3. YES 4. YES

Reasons: Corporation is in financial difficulty. It is the terms of the loan that compel early repayment and the Loan precludes such use of the Collection Account. The Credit Agreement contain acceptable events of default and the payment terms with respect to EBITDA and Net Asset Proceeds are acceptable provisions as those types of Rulings have been given before.

XXXXXXXXXX 								2006-018025

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - XXXXXXXXXX

We are writing in response to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling in respect of the above-named taxpayer. We also acknowledge information provided in numerous telephone conversations and electronic correspondences.

To the best of your knowledge and that of the taxpayer involved, none of the issues contained in this ruling request are:

(i) dealt with in an earlier return of the taxpayer or a related person;

(ii) being considered by a tax services office or a taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

(iii) under objection by the taxpayer or a related person;

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

(v) subject to a ruling previously issued by the Income Tax Rulings Directorate to the taxpayer or a related person.

DEFINITIONS

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

(a) "25% Cap" has the meaning set out in 15(e) below;

(b) "Act" means the Income Tax Act, R. S. C. 1985(5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act;

(c) "Administrative Agent" means XXXXXXXXXX;

(d) "Applicable Prepayment Premium" means the applicable premium described in 15(b)(iii) below;

(e) "Applicable Term Margin" means the applicable interest rate spread described in 15(j) below;

(f) "Base Rate" means, in respect of the Term Loans, the higher of (i) the rate of interest publicly announced by XXXXXXXXXX at its principal office in XXXXXXXXXX as its prime rate, and (ii) the federal funds effective rate from time to time plus XXXXXXXXXX%;

(g) "Base Rate Loan" means a loan or portion of a loan for which the applicable interest rate is based upon the Base Rate;

(h) "Board" means the XXXXXXXXXX;

(i) "Borrower" means XXXXXXXXXX, a corporation resident in Canada for purposes of the Act and formed under the laws of Canada;

(j) "Closing Date" means the date on which the Term Loans and the initial advance under the Revolving Credit Facility is made;

(k) "Collection Account" means the account described in 15(e) below;

(l) "Collection Account Deposits" means the amounts to be deposited by the Borrower in the Collection Account;

(m) "Company" means the Parent and its subsidiaries, collectively, all of which are involved directly or indirectly in the XXXXXXXXXX industry;

(n) "CRA" means the Canada Revenue Agency;

(o) "Credit Agreement" means the credit agreement relating to the Facilities;

(p) "XXXXXXXXXX" has the meaning set out in 8 below;

(q) "EBITDA" means the consolidated earnings of the Parent before interest, taxes, depreciation and amortization as considered in 15(j) and (n) below;

(r) "Eurodollar Loan" means a loan or portion of a loan for which the applicable interest rate is based on the Eurodollar Rate;

(s) "Eurodollar Rate" means, in respect of the Term Loans, (a) LIBOR divided by (b) XXXXXXXXXX minus Eurocurrency Reserve Requirements;

(t) "Eurocurrency Reserve Requirements" means for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other governmental authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for Eurocurrency funding maintained by a member bank of the Federal Reserve System;

(u) "Facilities" means the financing facilities pursuant to which the Revolving Credit Facility, Term Loan B, and Term Loan C will be offered as described in 13 below;

(v) "Guarantors" means the Parent and all of the Parent's present and future direct or indirect subsidiaries (other than the Borrower, and XXXXXXXXXX, a direct subsidiary of the Parent (but not the Borrower));

(w) "Immaterial Subsidiaries" means a subsidiary of the Parent that did not account for at least XXXXXXXXXX% of the consolidated earnings of the Parent before interest and taxes and does not have at least XXXXXXXXXX% of the consolidated assets of the Parent and is not a party in the determination of the borrowing base for purposes of the Revolving Credit Facility;

(x) "Interest Period" means with respect to any Eurodollar Loan (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending XXXXXXXXXX months thereafter, as selected by the Borrower and (b) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such Eurodollar Loan and ending XXXXXXXXXX months thereafter as selected by the Borrower by irrevocable notice to the Administrative Agent;

(y) "Lenders" means the lenders described in 14 below;

(z) "Leverage Ratio" means the ratio of the aggregate amount of the loans made pursuant to the Credit Agreement (including unfunded letters of credit) and capital lease obligations of the Parent and its subsidiaries less amounts on deposit in the Collection Account to the EBITDA;

(aa) "LIBOR" means London Interbank Offered Rate, which is the rate of interest at which the most creditworthy international banks are willing to lend to each other;

(bb) "Loan Parties" means the Borrower and the Guarantors;

(cc) "Mandatory Prepayments" means the mandatory prepayments described in 15(c) below;

(dd) "Net Asset Proceeds" has the meaning set out in 15(f) below;

(ee) "Parent" means XXXXXXXXXX, a corporation resident in XXXXXXXXXX for purposes of the Act and formed under the laws of XXXXXXXXXX;

(ff) "Revolving Credit Facility" means the facility described in 13(a) below;

(gg) "Term Loan B" means the loan described in 13(b) below;

(hh) "Term Loan C" means the loan described in 13(c) below; and

(ii) "Term Loans" mean Term Loan B and Term Loan C;

FACTS

1. The Borrower is a XXXXXXXXXX earning income from operations in Canada and the United States. The majority of the Borrower's sales revenue is earned in U.S. dollars and a significant portion of its costs are incurred in Canadian dollars.

2. The sole shareholder of the Borrower is the Parent, a corporation resident in XXXXXXXXXX whose common shares are listed on the XXXXXXXXXX Stock Exchange and the XXXXXXXXXX Stock Exchange. On the Closing Date, the investment of the Parent in the Borrower will be the principal asset of the Parent.

3. The Company is currently in financial difficulty. Since the beginning of XXXXXXXXXX, the Parent's consolidated debt to equity ratio has increased from XXXXXXXXXX% to XXXXXXXXXX% at XXXXXXXXXX. During this period, total debt has increased from US$XXXXXXXXXX to US$XXXXXXXXXX, while shareholders equity has decreased from US$XXXXXXXXXX to US$XXXXXXXXXX This has constituted a significant and painful erosion of the Company's financial position and is due to a number of factors beyond the Company's control. The two most significant, persistent, and damaging of these factors are:

(a) XXXXXXXXXX, and

(b) the progressive weakening of the U.S. dollar vs. the Canadian dollar (foreign exchange rates).

4. XXXXXXXXXX, the Borrower began making XXXXXXXXXX payments in XXXXXXXXXX and, by XXXXXXXXXX, had made approximately US$XXXXXXXXXX in XXXXXXXXXX. These payments increased cost of goods sold and have reduced pre-tax income by US$XXXXXXXXXX since XXXXXXXXXX (after-tax this has reduced the Parent's consolidated equity by US$XXXXXXXXXX).

5. The Company earns revenues and incurs expenses in both U.S. dollars and Canadian dollars. The following sets out, in U.S. dollars, the impact of foreign exchange fluctuations on the Company. With respect to foreign exchange rates, since the beginning of 2003, the U.S. dollar has weakened by 40% against the Canadian dollar. At the beginning of 2003, the Canadian dollar equalled approximately US$0.63 and by the first quarter of 2006 was as high as US$0.88 (a strengthening of the Canadian dollar of approximately US$0.25). At XXXXXXXXXX, the Parent estimated that its consolidated operating expenses increase US$XXXXXXXXXX for each US$0.01 weakening in the foreign exchange rate. Thus, total annual operating expenses for XXXXXXXXXX are expected be more than US$XXXXXXXXXX higher than XXXXXXXXXX due solely to the impacts of foreign exchange. Since XXXXXXXXXX, the Parent has reported in its external disclosures the following cost of sales impacts related to its Canadian operations due to foreign exchange changes:

(a) XXXXXXXXXX - the U.S. dollar weakened 20%, increasing cost of goods sold by US$XXXXXXXXXX;

(b) XXXXXXXXXX - the U.S. dollar weakened 7%, increasing cost of goods sold by US$XXXXXXXXXX; and

(c) XXXXXXXXXX - the U.S. dollar weakened 8%, increasing cost of goods sold by US$XXXXXXXXXX.

Cumulatively, the weakening U.S. dollar has increased the Company's cost of goods sold by US$XXXXXXXXXX. These costs have been borne in large measure by the Borrower and its operations.

6. Both XXXXXXXXXX businesses are highly cyclical and, in the past three years, the market prices XXXXXXXXXX have been insufficient to compensate for the above uncontrollable cost factors. The Company has experienced significant financial losses in two of the past three years and the capital structure has deteriorated.

7. The Parent and the Borrower XXXXXXXXXX, and no longer have access to long-term capital at normal market rates. XXXXXXXXXX. In addition, the existing Canadian revolving credit facility expires on XXXXXXXXXX and, if not renewed or repaid, outstanding borrowings at that time will convert into term loans payable in one year.

8. The Borrower expects its financial position to improve through XXXXXXXXXX and beyond due to the cyclical recovery in XXXXXXXXXX prices and the anticipated weakening of the Canadian dollar (as forecast by Resource Information Systems, Inc. (RISI)), improvements to its operating efficiency through the XXXXXXXXXX.

9. Historically, the Parent and the Borrower have had adequate access to capital through revolving credit agreements with both Canadian and U.S. lenders. As XXXXXXXXXX and foreign exchange rates have damaged the Parent's and the Borrower's financial position, access to traditional lenders has become increasingly difficult with terms and collateral requirements increasing, and future renewals uncertain.

10. After a lengthy, competitive process, the Borrower is negotiating a credit agreement (described in 13, 14 and 15 below) with a group of lenders which will refinance its Canadian and U.S. revolving credit facilities, permit the XXXXXXXXXX, and provide future operating liquidity. The new term debt will be priced at an initial spread over LIBOR of XXXXXXXXXX basis points versus the Borrower's historical borrowing spread of XXXXXXXXXX to XXXXXXXXXX basis points. Interest rates at inception will be approximately XXXXXXXXXX% versus the Borrower's traditional interest rates of XXXXXXXXXX% to XXXXXXXXXX%. Interest expense in XXXXXXXXXX is expected to increase to more than US$XXXXXXXXXX from approximately US$XXXXXXXXXX in XXXXXXXXXX. The Lenders under the Term Loans which have been negotiated are not the Borrower's traditional lenders and the terms of the Term Loans are XXXXXXXXXX than the typical financing arrangements of the Borrower.

11. The Parent's outstanding debt includes XXXXXXXXXX.

12. The Borrower deals at arm's length with the Lenders. As indicated in 15(l) below, if withholding tax applies to the interest paid on the Term Loans, this cost will be borne by the Borrower. This would mean that the Term Loans would not be economically viable for the Borrower.

PROPOSED TRANSACTIONS

13. The Lenders will make loans under the Facilities to the Borrower. The Facilities to be made available to the Borrower will consist of:

(a) US$XXXXXXXXXX Revolving Credit Facility having a final maturity date that is XXXXXXXXXX years after the Closing Date. The Revolving Credit Facility will include a US$XXXXXXXXXX swing line facility (the "Swing Line"). Borrowings under the Revolving Credit Facility will be denominated in US dollars or Canadian dollars at the option of the Borrower;

(b) Term Loan B due and payable in full XXXXXXXXXX years after the Closing Date, and the proceeds of which are to be advanced on the Closing Date and which will be used solely (i) to make expenditures related to XXXXXXXXXX facilities located in XXXXXXXXXX, (ii) to repay debt owing to the Parent that is related to the Borrower's existing XXXXXXXXXX operations (proceeds used to repay amounts owing to the Parent will be reinvested by the Parent in the Borrower and the Borrower's operations) and (iii) pay fees and expenses with respect to the purposes in (i) and (ii) above. Term Loan B will be denominated in U.S. dollars; and,

(c) Term Loan C due and payable in full XXXXXXXXXX after the Closing Date, and the proceeds of which are to be advanced on the Closing Date and are to be used to (i) refinance the Borrower's and the Parent's existing revolving credit facilities, (ii) repay all amounts due under the Borrower's XXXXXXXXXX agreement, (iii) meet the Borrower's ongoing working capital requirements and other general corporate needs, and (iv) to pay fees and expenses with respect to the purposes in (i) and (ii) above.

The aggregate amounts of Term Loan B and Term Loan C will not exceed US$XXXXXXXXXX.

14. It is expected that the Lenders under the Facilities will be as follows:

(a) Revolving Credit Facility: one or more Canadian financial institutions;

(b) Term Loan B: XXXXXXXXXX, a non-resident of Canada; and

(c) Term Loan C: the lender under Term Loan C will be the same lender as the lender under Term Loan B, and shortly after the Closing Date, XXXXXXXXXX may syndicate a portion of the Term Loans to one or more other persons.

15. A summary of the relevant provisions of the Term Loans is as follows:

(a) Neither of the Term Loans will be amortizing.

(b) Optional prepayments, being any prepayments other than Mandatory Prepayments, of Term Loan B and Term Loan C will be permitted, in whole or in part, provided that the borrowing availability on the Revolving Credit Facility equals or exceeds US$XXXXXXXXXX as follows:

(i) Assuming an event of default has not occurred and is not continuing, optional prepayments will be applied first, to Term Loan B until paid in full, and then to Term Loan C until paid in full;

(ii) Optional prepayments of Term Loan B or Term Loan C made prior to the XXXXXXXXXX anniversary of the Closing Date will require the payment of the Applicable Prepayment Premium except as provided in clause (iv) below;

(iii) The Applicable Prepayment Premium will be as follows:

A) XXXXXXXXXX% if the prepayment is made in the first XXXXXXXXXX years of the Term Loans; and

B) XXXXXXXXXX% if the prepayment is made in the XXXXXXXXXX year of the Term Loans.

(iv) If the Borrower chooses to repay the entire outstanding balance of Term Loan C while amounts are on deposit in the Collection Account (described in 15(e) below), the Applicable Prepayment Premium will be adjusted to reflect the Applicable Prepayment Premium that would have applied if the prepayment was reduced by all amounts deposited in the Collection Account that would not have resulted in the requirement to pay an Applicable Prepayment Premium had the amounts been applied to repay Term Loan C at the time such amounts were deposited in the Collection Account.

(c) Subject to the 25% Cap, the following amounts must be used to make the Mandatory Prepayments of the Term Loans:

(i) XXXXXXXXXX% of the net cash proceeds of equity issuances by the Parent or any of its subsidiaries (other than equity issuances in connection with the exercise of employee options or equity issued to a Loan Party);

(ii) XXXXXXXXXX% of the net cash proceeds of debt issuances (with certain exclusions) by the Parent or any of its subsidiaries;

(iii) XXXXXXXXXX% of the Parent's consolidated excess cash flow, reduced by optional prepayments made during the year;

(iv) subject to certain reinvestment rights, XXXXXXXXXX% of the net cash proceeds from extraordinary tax refunds, pension plan reversions, judgments and settlements, condemnation awards (other than in connection with a condemnation proceeding relating to an asset of the Parent or any of its subsidiaries) insurance proceeds (other than in connection with an insurance claim related to an asset of the Parent or any of its subsidiaries or business interruption insurance), indemnity payments, and other extraordinary cash payments received by the Parent or any of its subsidiaries (other than Duty Refunds which are addressed below);

(v) XXXXXXXXXX% of the net after-tax cash proceeds received by the Parent or any of its subsidiaries from XXXXXXXXXX;

The percentages in (i) and (iii) may be reduced in certain circumstances if the financial circumstances of the Parent (determined on a consolidated basis) improve.

The Applicable Prepayment Premium will not apply to Mandatory Prepayments made using proceeds described in paragraphs (iii) and (v) above.

(d) Mandatory Prepayments will be applied as follows:

(i) if the proceeds funding the repayment relate to priority collateral for the Revolving Credit Facility then, first, to the Swing Line loans until paid in full, second, to the Revolving Credit Facility loans (other than the Swing Line) until paid in full, third, to Term Loan B until paid in full and fourth, to Term Loan C until paid in full (subject to the 25% Cap described below); and,

(ii) if the proceeds funding the repayment do not relate to priority collateral for the Revolving Credit Facility then, first, to Term Loan B until paid in full, second, to Term Loan C until paid in full (subject to the 25% Cap described below), third, to the Swing Line loans until paid in full and fourth, to the Revolving Credit Facility loans (other than the Swing Line) until paid in full.

(e) In the event that Mandatory Prepayments on or prior to the 5th anniversary of the Closing Date would result in more than 25% of the aggregate principal amount of Term Loan C being repaid (the "25% Cap"), in lieu of making such prepayment, the amount over 25% is required to be deposited into the Collection Account which will form part of the collateral for the Facilities and will be applied as a prepayment of Term Loan C immediately after the 5th anniversary of the Closing Date. Amounts in the Collection Account will remain the property of the Borrower, although they will be part of the security for Term Loan C. The Borrower will be entitled to receive the income earned in respect of amounts on deposit in the Collection Account. The Applicable Prepayment Premium will not apply in respect of Mandatory Prepayments from proceeds on deposit in the Collection Account if no Applicable Prepayment Premium would have been due at the time the proceeds were deposited in the Collection Account.

(f) In addition to Mandatory Prepayments, on a receipt of asset sales or certain insurance or casualty proceeds by the Parent or any of its subsidiaries other than certain carve-outs and subject to reinvestment rights, the Borrower will be required to apply the net proceeds from asset sales or insurance or casualty proceeds received by the Parent or any of its subsidiaries (the "Net Asset Proceeds") in the order set out in 15(d) above.

In the event that prepayments from Net Asset Proceeds on or prior to the 5th anniversary of the Closing Date would result in more than 25% of the aggregate principal amount of Term Loan C being repaid, the Borrower will offer to repay Term Loan C. If a Term Loan C lender declines an offer to repay, the Borrower will make another offer to repay to the non-declining Term Loan C lenders.

The Applicable Prepayment Premium will apply, as set out in 15(b)(iii) above, to any portion of a Term Loan that is prepaid using cumulative Net Asset Proceeds in excess of $XXXXXXXXXX.

(g) Failure to make an offer to repay as required in 15(f) above will be an event of default.

(h) All obligations of the Loan Parties under the Revolving Credit Facility, Term Loan B and Term Loan C will be secured by a perfected, first priority lien on and security interest in substantially all of the assets of the Loan Parties owned on the Closing Date or acquired after the Closing Date.

(i) The Term Loans made on the Closing Date by each Lender may at the option of the Borrower be incurred as Base Rate Loans and/or Eurodollar Loans. The Borrower will select Eurodollar versus Base Rate Loans depending on its view of interest rates. A Eurodollar Loan allows the Borrower to lock-in the interest rate for a Term Loan or portion of a Term Loan for a XXXXXXXXXX-month period based on LIBOR whereas with a Base Rate Loan the interest rate will be based on U.S. floating rates and could change daily. Base Rate Loans may be converted to Eurodollar Loans provided that an event of default has not occurred and is not continuing and an agent or the majority of the Lenders have not determined in their sole discretion to cease permitting conversion, and the conversion date is more than XXXXXXXXXX month prior to the maturity date of the applicable Term Loan. With respect to Eurodollar Loans, the Borrower must give notice of the interest period for which the loan will be a Eurodollar Loan (with a maximum interest period of XXXXXXXXXX months). At the end of the interest period, the Eurodollar Loan may be converted to a Base Rate Loan or continued as a Eurodollar Loan (provided an event of default has not occurred and is not continuing and the agents and the Lenders are permitting Eurodollar Loans and the maturity date of the loan is not within XXXXXXXXXX month). Where a required notice is not given in respect of the continuation of Eurodollar Loans they will be converted automatically to Base Rate Loans. Because the Eurodollar Loans are at a fixed rate for the applicable interest period, the Borrower will be required to indemnify the Lenders for any loss or expense incurred by a Lender as a consequence of (i) a default by the Borrower in making a borrowing of, conversion of, or continuation of a Eurodollar Loan after the Borrower has delivered an applicable notice, and (ii) for the making of a prepayment of a Eurodollar Loan on a date that is not the last day of the interest period. To minimize the potential indemnity payments by the Borrower, all payments under a Facility will be applied first to the portion of the loan, which is a Base Rate Loan.

(j) The Term Loans will bear interest at either (i) the Eurodollar Rate for the portion of Term Loan B or C that is a Eurodollar Loan; or (ii) the Base Rate for the portion of Term Loan B or C that is a Base Rate Loan plus, in each case, a margin (the "Applicable Term Margin") as set out below:

			Eurodollar Loan		Base Rate Loan
Initial Margin	XXXXXX %			XXXXXX %
Leverage Ratio:
>3.5x			XXXXXX %			XXXXXX %
>3.0 but 

The Applicable Term Margins for the Term Loans will be decreased by XXXXXXXXXX if EBITDA during the most recent quarter for which financial statements have been delivered exceeds US$XXXXXXXXXX and will be increased by XXXXXXXXXX if EBITDA during the most recent quarter for which financial statements have been delivered is less than XXXXXXXXXX % of the EBITDA reflected in the Borrower's projections.

The initial margin will apply from the Closing Date until the Administrative Agent receives a certified copy of the calculation of the Leverage Ratio and EBITDA for the period ended XXXXXXXXXX and thereafter the margin will be based on the Leverage Ratio and EBITDA for the preceding fiscal quarter provided that the required financial information has been delivered.

(k) If any event of default occurs and is continuing, interest will accrue under the Term Loans at a rate per annum equal to the initial margin (as described in 15(j) above) plus XXXXXXXXXX%.

(l) The Borrower will be required to gross-up the amount of interest paid to the Lenders if, contrary to the Borrower's expectations, any withholding tax is payable in respect of the Term Loans so that the withholding tax cost is borne by the Borrower rather than the Lenders. (It is likely that at least some of the Lenders will be XXXXXXXXXX. As a consequence of such Lenders not enjoying the benefits of XXXXXXXXXX, the application of a gross-up of interest payable based on a 25% withholding rate to already high interest expense would be very costly to the Borrower.)

(m) The Facilities contain positive covenants which, in general, include requirements for the Parent and the Borrower to (or to cause each of their subsidiaries):

(i) to provide financial statements;

(ii) to provide other financial information and related certifications;

(iii) to comply with requirements regarding conduct of the business and maintenance of existence;

(iv) to maintain the property of the business and to maintain insurance;

(v) to keep proper books and records and permit representatives of the Lenders to visit and inspect the books and records and to discuss the financial condition of the business with officers, employees of the Company and their respective independent certified public accountants;

(vi) to notify the Administrative Agent and the Lenders of the occurrence of a default or an event of default, litigation involving US$XXXXXXXXXX or more or a proceeding to obtain injunctive or similar relief where the relief if not granted would have a material adverse effect, certain events related to pension plans, any denial in the application for an environmental permit or revocation of an environmental permit, or any development which would be reasonably be expected to have a material adverse effect;

(vii) to comply and ensure compliance in all material respects with environmental laws and permits, comply with all environmental actions by governmental authorities and provide notification of releases of material environmental concerns, provide notice of the receipt of any environmental liens, actions reasonably expected to cost $XXXXXXXXXX or more and the commencement or potential commencement of an environmental action which is reasonably expected to have a material adverse effect;

(viii) to grant security in respect of any assets created or acquired after the Closing Date;

(ix) with respect to the Revolving Credit Facility, to provide certificates regarding the borrowing base;

(x) to use the proceeds in accordance with the purposes specified in the Credit Agreement;

(xi) to provide information regarding pension plans, to perform all material obligations with respect to pension plans, to make all required contributions, pay premiums and withhold as required, and ensure that each plan is fully funded subject to and in accordance with all legal requirements;

(xii) to pay all taxes on a timely basis unless (A) the taxes are being disputed in good faith and adequate financial reserves are maintained on the books or (B) the aggregate amount of unpaid taxes does not exceed $XXXXXXXXXX;

(xiii) to take any further actions necessary for the purposes of implementing or effectuating the provisions of the Credit Agreement and related agreements and allowing the Administrative Agent or Lenders to enforce their rights under the agreements;

(xiv) to notify the Administrative Agent of any change in the location of collateral; and

(xv) to obtain necessary collateral access agreements.

(n) The Facilities contain negative covenants requiring, in general, that the Borrower and the Parent shall not and shall not permit any subsidiaries to, directly or indirectly:

(i) have EBITDA of less than specified amounts including:

A) having negative EBITDA for the XXXXXXXXXX consecutive fiscal quarters ending on XXXXXXXXXX and XXXXXXXXXX;

B) having EBITDA of less than US$XXXXXXXXXX for the XXXXXXXXXX consecutive fiscal quarters ending on XXXXXXXXXX; and

C) having EBITDA of less than a specified amount for XXXXXXXXXX fiscal consecutive fiscal quarters beginning with quarter 1 of XXXXXXXXXX;

(ii) have a Leverage Ratio of greater than XXXXXXXXXX to XXXXXXXXXX, for the preceding XXXXXXXXXX consecutive fiscal quarters calculated at the end of each fiscal quarter ending on or after XXXXXXXXXX;

(iii) incur indebtedness except certain permitted indebtedness;

(iv) incur any liens except certain permitted liens;

(v) merge, consolidate, amalgamate, liquidate, wind-up, dissolve or dispose of all or substantially all of its property or business except for certain related party transactions or permitted investments which may be structured in such a manner;

(vi) dispose of property except for permitted dispositions;

(vii) declare or pay dividends or make payments in respect of capital stock except certain permitted payments;

(viii) make or commit to capital expenditures in excess of specified amounts;

(ix) make investments other than certain permitted investments;

(x) make a payment or offer to make a payment in respect of existing debentures and senior secured notes or amend the terms in a manner determined by the Administrative Agent to be adverse to the Lenders;

(xi) enter into transactions with affiliates (other than the Loan Parties) unless the transaction is otherwise permitted by the Credit Agreement;

(xii) enter into a sale and leaseback arrangement;

(xiii) change the fiscal year or the fiscal quarters of the Parent or the Borrower;

(xiv) enter into an agreement that prohibits or limits the ability to provide security under the Credit Agreement and related documents;

(xv) subject to some exceptions, enter into any agreement that adversely effects a subsidiaries' ability to make payments to or invest in the Parent, Borrower or other subsidiaries;

(xvi) enter into any business except for those currently engaged in and those reasonably related thereto or expand the business or assets (beyond a specified threshold) of XXXXXXXXXX;

(xvii) enter into hedging agreements except in the ordinary course of business and not for speculation purposes; and,

(xviii) maintain balances of more than a specified amount in accounts that are not subject to control agreements satisfactory to the Administrative Agent.

(o) A general summary of the events of default under the Facilities is as follows:

(i) Failure to pay the principal, interest or any other amount payable under the Credit Agreement or other related agreement when due. The aggregate principal amount or amount of extensions of credit under the Revolving Credit Facility exceeding specified amounts unless, in certain circumstances, the Borrower eliminates such excess within XXXXXXXXXX business days;

(ii) Any representation or warranty made or deemed made by any Loan Party in connection with the Facilities being inaccurate in a material respect (except that the materiality qualifier shall not apply where the representation or warranty is already qualified by materiality) on the date made or deemed made;

(iii) Any Loan Party defaulting in the observance or performance of any agreement described in 15(e), 15(f), 15(m)(i), (ii) above (other than to the extent described in 15(o)(iv) below), (iii), (iv), (v), (ix), (x) and (xii), 15(n) above and the requirement to provide notice of a default or event of default as described in 15(m)(vi) above and an event of default under the liens or security interests described under 15(h);

(iv) Any Loan Party defaulting in the observance or performance of the agreement to provide information relating to changes to the outstanding debentures and senior notes or the governing documents of any Loan Party or to provide copies of financial information sent to holders of debt securities or XXXXXXXXXX securities generally unless the default is remedied within XXXXXXXXXX days;

(v) Any Loan Party defaulting in the observance of a provision or performance of an activity under the Credit Agreement, any lien or security interests for the Facilities, the payment of fees to agents for the Lenders or a contingent obligation in respect of letters of credit issued under the Facilities and such default shall continue unremedied for XXXXXXXXXX days;

(vi) The Parent or any of its subsidiaries shall default on indebtedness having an aggregate outstanding principal amount in excess of $XXXXXXXXXX;

(vii) The Parent or any of its subsidiaries (other than an Immaterial Subsidiary) shall:

A) commence a bankruptcy, insolvency or other protection from creditor proceeding,

B) have a bankruptcy, insolvency or other similar proceeding commenced against them that results in an entry of an order for relief or that remains outstanding for more than XXXXXXXXXX days,

C) have a warrant of attachment or similar process commenced against them that results in an entry of an order for relief and that remains outstanding for more than XXXXXXXXXX days,

D) take any action that furthers the acts set out above, or

E) generally not be able to pay debts as they become due or admit in writing to not being able to pay debs as they become due.

(viii) Specified deficiencies and similar occurrences under pension or similar benefit plans of the Parent or any of its subsidiaries including requirements to make payments in excess of US$XXXXXXXXXX with respect to a fiscal year;

(ix) One or more judgments or similar orders shall be entered against the Parent or any of its subsidiaries when taken as a whole, involving a liability of $XXXXXXXXXX (which is not paid or covered by insurance);

(x) Any of the security documents shall cease to be in full force and effect (or any Loan Party or affiliate of a Loan Party shall so assert) or any lien on property with an aggregate value of $XXXXXXXXXX or more created by any of the security documents shall cease to be enforceable with the same effect and priority;

(xi) The guaranty by a Guarantor shall cease to be in full force and effect (or any Loan Party or affiliate of a Loan Party shall so assert);

(xii) The Parent, Borrower or any of their subsidiaries is prevented in any way by the order of a court or governmental authority from conducting any material part of their business for more than XXXXXXXXXX days;

(xiii) Any strike, lockout or labour dispute which causes, for more than XXXXXXXXXX days, the cessation or substantial curtailment of revenue producing activities of the Parent, Borrower and their subsidiaries, taken as a whole, if such event would reasonably be expected to result in a material adverse effect;

(xiv) A change of control shall occur where a change of control means:

A) any person or group becoming the beneficial owner, directly or indirectly, of more than XXXXXXXXXX% of the outstanding common stock of the Parent,

B) the Parent ceasing to own and control, directly or indirectly, all of the economic and voting rights of all of the outstanding capital stock of the Borrower and each Guarantor (other than the Parent) free and clear of all liens (other than liens related to the Facilities and non-consensual permitted liens),

C) the board of directors of the Parent (or directors nominated from time to time by the majority of the then current board of directors of the Parent or its nominees) shall cease to consist of a majority of the directors, or

D) the occurrence of any "Change of Control" (or similar term) under the indentures relating to the existing XXXXXXXXXX.

PURPOSE OF PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to refinance the existing obligations of the Borrower and the members of the corporate group under a single borrower and to have additional funds available to fund working capital requirements and for general corporate purposes.

RULING GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transactions and purpose of the proposed transactions, and that the final agreements referred to in this letter are substantially the same as the documents provided to us as reflected herein, and provided further that the proposed transactions are completed in the manner described above, we rule as follows:

Interest payments made by the Borrower to a non-resident Lender pursuant to the terms of Term Loan C will be exempt from withholding taxes under Part XIII of the Act pursuant to subparagraph 212(1)(b)(vii) of the Act, provided that at the time of payment the Lender deals at arm's length with the Borrower.

The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 issued by the CRA on May 17, 2002, and is binding provided the Loan Agreements are entered into on or before XXXXXXXXXX .

The ruling is based on the Act in its present form and does 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 to or accepted:

(i) the GST implications of any of the proposed transactions;

(ii) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein; nor

(iii) the nature of the legal relationship entered into or contemplated by the entities named above.

Yours truly,

XXXXXXXXXX
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch