2012-0435221R3 CCPC SAR Plan

Principal Issues: Will proposed amendments to a CCPC's SAR plan where the value of SARs are ultimately based on a formula using EBITDA, cause the SAR plan to be an SDA?

Position: No, based on the particular facts and amendments.

Reasons: The SAR plan will continue to satisfy our administrative position concerning SAR plans.

Author: XXXXXXXXXX
Section: 248(1)

XXXXXXXXXX
                                                                                                                                                    2012-043522

XXXXXXXXXX, 2013

Dear XXXXXXXXXX:

Re:  Advance Income Tax Ruling
        XXXXXXXXXX (the “Company”) BN XXXXXXXXXX

This letter is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced Company, the information provided in your emails sent XXXXXXXXXX and your revised income tax ruling request of XXXXXXXXXX and numerous telephone calls (XXXXXXXXXX).

We understand that, to the best of your knowledge and that of the above-referenced Company, none of the issues involved in the ruling request is:

(i)   in an earlier return of the Company or a related person;

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

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

(iv)  before the courts; nor,

(v)   the subject of a ruling previously issued by the Directorate, except with respect to Ruling 2006-0201541R3 on the Current Plan.

Definitions

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c. 1, as amended to the date hereof. Unless otherwise mentioned, all statutory references herein are to the Act.

"Amended and Restated SAR Plan" means the amended and restated stock appreciation rights plan to be adopted by the Company, subject to the receipt of a favourable advance income tax ruling.

"CCPC" means a Canadian-controlled private corporation ("CCPC") as defined in subsection 125(7).

"CRA" means the Canada Revenue Agency.

"Current Plan" or "Plan" means the existing stock appreciation rights plan of the Company dated XXXXXXXXXX.

"TCC" means taxable Canadian corporation as defined in subsection 89(1).

Facts

1.    The Company is a resident of Canada, a TCC and a CCPC.

2.    The taxation year of the Company ends on XXXXXXXXXX.

3.    The head office of the Company is in XXXXXXXXXX, Province of XXXXXXXXXX. The Company files its tax returns at the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Tax Services Office.

4.    The Company is incorporated under the laws of the Province of XXXXXXXXXX. The Company is a holding company and it provides administrative services to its operating subsidiaries.

5.    The Canadian Subsidiaries are incorporated under the laws of Canada or the Province of XXXXXXXXXX and are principally engaged in the active business in Canada of XXXXXXXXXX.

6.    The Canadian Subsidiaries are TCCs and CCPCs.

7.    The U.S. Subsidiaries are incorporated under the laws of various states of the United States (U.S.) and are principally engaged in the same business as the Company. The U.S. Subsidiaries are residents of the U.S. for the purposes of the Act.

Description of the Current Plan (prior to the proposed amendments below)

8. The following terms are defined in the Current Plan and have the meanings specified below:

a)    "Agreement" means an agreement between the Company and an Eligible Participant relating to the grant of Stock Appreciation Rights to such Eligible Participant.

b)    "Board" means the board of directors of the Company or any committee thereof designated to administer the Plan.

c)    "Canadian Subsidiaries" means the Canadian subsidiaries of the Company employing potential Eligible Participants and, more particularly means XXXXXXXXXX.

d)    "Cause" means any one or more of the following:

(i)   an act or acts of personal dishonesty taken by the Grantee resulting in personal enrichment of the Grantee at the expense of the Company;

(ii)  the failure, refusal or neglect by the Grantee to perform his obligations and duties as an employee of the Company which are willful and deliberate on the Grantee's part and which are not remedied within XXXXXXXXXX days after the Grantee's receipt of written notice of such violations from the Company;

(iii) the willful engaging by the Grantee in conduct that is injurious to the Company; or

(iv)  any other act, as deemed by the Board, which from time to time is considered to be harmful or detrimental to the Company.

e)    "Change in Control" means a transaction or series of transactions by which:

(i)   any person, or two or more persons acting as a group (persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or a similar business transaction with a corporation), who prior to such time beneficially owned less than XXXXXXXXXX% of the voting rights attaching to the then outstanding capital stock of the Company, shall acquire shares of the Company's capital stock, and after such transaction or transactions such group beneficially owns more than XXXXXXXXXX% of the voting rights attaching to the Company's outstanding capital stock;

(ii)  the Company shall sell all or substantially all of its assets or undertaking to any group which, immediately after the time of such transaction, beneficially owned less than XXXXXXXXXX% of the then outstanding capital stock of the Company; or

(iii) the Company shall merge or amalgamate with or consolidate into any group which, immediately prior to the time of such transaction, beneficially owned less than XXXXXXXXXX% of the then outstanding capital stock of the Company, and shall not be the surviving corporation of such merger, amalgamation or consolidation. Provided however, that no Change in Control shall occur as a result of any sale or transfer of capital stock of the Company by XXXXXXXXXX to the other, or to an affiliate of either of them, or to their respective descendants and/or family.

f)    "Common Share" means a common share without nominal or par value of the Company.

g)    “Eligible Participant" means any of the outside Board members, the chairman, officers and leaders of the Company or any subsidiary of the Company or any other participant determined to be an Eligible Participant by the Board and who has agreed to enter into a non-compete and confidentiality agreement for a period of XXXXXXXXXX years following his or her termination date.

h)    "Grant Date" means the date on which any Stock Appreciation Right is granted to an Eligible Participant.

i)    "Grantee" has the meaning ascribed thereto in 12 below.

j)    "IPO” means an underwritten public offering of Common Shares or other equity securities of the Company that results in the Common Shares or other equity securities of the Company being listed on a Recognized Stock Exchange.

k)    "Recognized Stock Exchange" means the XXXXXXXXXX or any other stock exchange or quotation service designated as such by the Board.

l)    "Stock Appreciation Right" or "SAR Units" means a contractual right evidenced by an Agreement and credited by the Company to a Grantee by way of a bookkeeping entry in the books of the Company and administered pursuant to the Plan entitling the Grantee to an increase (or decrease) in the value of the Grantee’s proportional share of the outstanding SAR Units over time.

m)    "Termination Date" in respect of a Grantee means the date on which he or she is no longer an employee of the Company or of any subsidiary of the Company for any reason other than Cause, the effective date of Change in Control and the date of termination of the Plan by the Board.

n)    "U.S. Subsidiaries" means the indirectly wholly-owned U.S. subsidiaries of the Company employing potential Eligible Participants and, more particularly means XXXXXXXXXX.

o)    "Valuation Date" means XXXXXXXXXX before the Company’s fiscal year end, the Company’s fiscal year end and the effective date of a Change in Control.

9.    The Company established the Current Plan for Eligible Participants. The Eligible Participants are employees of the Company, the Canadian Subsidiaries or the U.S. Subsidiaries.  The Company received a favorable advance income tax ruling, 2006-0201541R3, on XXXXXXXXXX, 2007 concerning the Plan.

10.   Since the date the Current Plan was established, the Company has granted Stock Appreciation Rights to the Eligible Participants in accordance with the terms of the Current Plan.

11.   The Current Plan is administered by the Board. The Board is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Board deems necessary or desirable. Notwithstanding the above, the Board may not change, amend or terminate the Plan, retroactively or otherwise, in such a way that any Grantee would lose any accrued benefit or vested benefit.

12.   From time to time until the termination of the Plan, the Board may grant Stock Appreciation Rights under the Plan to Eligible Participants (each hereinafter referred to as a "Grantee") as it determines are warranted. Stock Appreciation Rights granted are subject to the following terms and conditions:

a)    Stock Appreciation Rights are only granted on XXXXXXXXXX of each year. In all cases, the value of the Stock Appreciation Rights granted at any time is equal to zero, as determined in accordance with 13 below.

b)    A Stock Appreciation Right automatically vests on the Termination Date.

c)    On the Termination Date, a Grantee is entitled to receive XXXXXXXXXX of the value of the Stock Appreciation Rights granted to such Grantee pursuant to an Agreement provided that such Grantee has one full year of service with the Company or any subsidiary of the Company as of XXXXXXXXXX preceding the Termination Date, XXXXXXXXXX of the value of the Stock Appreciation Rights granted to such Grantee pursuant to an Agreement provided that such Grantee has XXXXXXXXXX full years of service with the Company or any subsidiary of the Company as of XXXXXXXXXX preceding the Termination Date and XXXXXXXXXX% of the value of the Stock Appreciation Rights granted to such Grantee pursuant to an Agreement provided that such Grantee has XXXXXXXXXX full years of service with the Company or any subsidiary of the Company as of XXXXXXXXXX preceding the Termination Date. Years of service are taken into account to the extent that the Eligible Participant was acting during these years either as a Board member, as chairman, president or vice-president of the Company or of any subsidiary of the Company.

d)    Upon vesting of a Stock Appreciation Right, a Grantee is entitled to receive an amount in cash equal to the value of the Grantee's Stock Appreciation Right calculated in accordance with 13 below, net of all applicable withholding taxes. Payment is made as to XXXXXXXXXX% of the aggregate amount payable within XXXXXXXXXX business days of the Termination Date and XXXXXXXXXX% on the XXXXXXXXXX month anniversary of such date.

e)    In the event the employment of a Grantee with the Company or any subsidiary of the Company is terminated for Cause, such Grantee's Stock Appreciation Rights shall become null and void as of the Termination Date and such Grantee shall have no rights to any payment whatsoever in respect of the Plan.

13.   The value of the Grantee’s Stock Appreciation Right in the Current Plan, and referred to in 12a) and 12d) above and 17 and 18 below, is calculated as follows.

The value of Stock Appreciation Rights ("Vs") is calculated as follows:

Vs = A + B + C + D + E
Where:

A     is the basis value and is calculated as follows:

       A = Y × (L1 - L0)

       Where:

       Y is the number of SAR Units of a Grantee at a Valuation Date

       L1 is the Unit Value of a SAR as determined in 14 below

       L0 is the Unit Value of a SAR on the Grant Date

B     is the anti-dilution value and is calculated as follows:

       B = ? (Y1/X1 × N × L')

       Where:

? is the cumulative value of the amount resulting from the calculation in parenthesis in respect of the period from the Grant Date to the relevant valuation date

Y1 is the number of SAR Units held by a Grantee immediately before the Grant Date of new SAR Units

X1 is the number of SAR Units issued to all Grantees immediately before the Grant Date of new SAR Units

N is the number of new SAR Units granted

L' is the unit value of a SAR as determined immediately before the Grant Date of new SAR Units

C     is the negative value for a Grantee whose employment is terminated and is calculated as follows:

   C = ? (Y2/X2 × Z)

   Where:

? is the cumulative value of the amount resulting from the calculation in parenthesis in respect of the period from the Grant Date to the relevant valuation date

Y2 is the number of SAR Units held by a Grantee immediately before the Termination Date of another Grantee

X2 is the total number of SAR Units issued to all Grantees immediately before the Termination Date of another Grantee

Z is the negative accumulated value of SAR Units of a Grantee at Termination Date

D is the value of SAR Units of a Grantee whose termination has been a Termination for Cause and is calculated as follows.

   D = ? (Y3/X3 × Vs0)

   Where:

? is the cumulative value of the amount resulting from the calculation in parenthesis in respect of the period from the Grant Date to the relevant valuation date

Y3 is the number of SAR Units held by a Grantee immediately before the Termination Date of a Grantee whose termination has been a Termination for Cause

X3 is the total number of SAR Units issued to all Grantees immediately before the Termination for Cause of another Grantee

Vs0 is the value of Stock Appreciation Rights of a Grantee at the date of his/her Termination for Cause

E is the value not attributed to a Grantee whose termination occurred before completing XXXXXXXXXX years of service and is calculated as follows:

   E = ? (Y4/X4 × T)

   Where

? is the cumulative value of the amount resulting from the calculation in parenthesis in respect of the period from the Grant Date to the relevant valuation date

Y4 is the number of SAR Units held by a Grantee immediately before the Termination Date of a Grantee whose termination took place before completing XXXXXXXXXX years of service

X4 is the total number of SAR Units issued to all Grantees immediately before the Termination Date of a Grantee whose termination occurred before completing XXXXXXXXXX years of service

T is the value not attributed to a Grantee because XXXXXXXXXX years of service were not completed at the Termination Date

14.   The Unit Value of a Stock Appreciation Right under the Current Plan, referred to in 13 above and 27 below, is as follows:

The Unit Value of Stock Appreciation Rights is determined at each Valuation Date, at the date of an IPO or at the date of a Change in Control as follows:

(XXXXXXXXXX% * Amount 1) + (XXXXXXXXXX% * Amount 2)
_________________________________________
              Number of SAR units outstanding at that time

Where:

Amount 1: is the amount, if any, by which the FMV of the Company exceeds $XXXXXXXXXX US

Amount 2: is the amount, if any, by which the FMV of the Company exceeds $XXXXXXXXXX US

FMV: The Fair Market Value of the Company will be determined as the case may be under (i), (ii) or (iii) below:

(i) Valuation Date: The FMV of the Company at each Valuation Date is determined as:

(XXXXXXXXXX × Adjusted EBITDA) - Funded Debt + Cash + Cumulative Corporate Distribution

Where:

* Adjusted EBITDA means the sum of:

a)    XXXXXXXXXX% of EBITDA for the XXXXXXXXXX months before the Valuation Date;

b)    XXXXXXXXXX% of EBITDA for the XXXXXXXXXX- month period beginning XXXXXXXXXX months before the Valuation Date; and

c)    XXXXXXXXXX% of EBITDA for the XXXXXXXXXX -month period beginning XXXXXXXXXX months before the Valuation Date.

EBITDA means, for any period for the Company, the sum, without duplication, of the net income for such period (excluding extraordinary or unusual gains or losses) and to the extent deducted in determining the net income for such period, interest, income taxes, total depreciation expense and amortization expense, the whole calculated on a consolidated basis.

Funded Debt means, at any time, all obligations for borrowed money plus, without duplication, all obligations for the deferred payment of the purchase of property, all capitalized lease obligations, all balances of purchase price of assets bearing interest or not and the amount of any guarantee, letter of credit or other financial assistance provided in respect of a liability to a third party, the whole calculated on a consolidated basis.

Cash means, at any time, the amount in cash or in cash equivalents in the form of short term investments maturing no more than one year after its date of issuance, and including, without limitation, certificates of deposit, commercial paper, banker's acceptance and any other investments of a similar nature.

Cumulative Corporate Distribution means, for any period from the Plan inception date, the sum, without duplication of any dividends or any distributions to shareholders and excess amounts over the fair market value for any amounts paid to shareholders for their services or dealings with the Company and / or any subsidiary of the Company.

If one or more subsidiaries of the Company are publicly traded on a Recognized Stock Exchange, the FMV of the Company shall be determined, without duplication, by valuating these subsidiaries using the average closing price per Common Share for the immediate XXXXXXXXXX business days preceding the Valuation Date and the immediate XXXXXXXXXX business days following the Valuation Date.

(ii)  IPO: On or after the date of an IPO, the FMV of the Company will be determined as the closing price per Common Share on a Recognized Stock Exchange multiplied by the number of Common Shares outstanding as of such date. The average closing price will be determined by taking the average closing price per Common Share for the immediate XXXXXXXXXX business days preceding the Valuation Date and the immediate XXXXXXXXXX business days following the Valuation Date.

(iii)  Change in Control: On the effective date of a Change in Control, the FMV of the Company will be determined as the aggregate price paid, or attributable to each Common Share, by or on behalf of the acquirer, multiplied by the number of Common Shares outstanding as of such date.

15.   The granting of SAR Units to each Grantee is as determined from time to time by the Board. Additional grants of SAR Units to a Grantee who has SAR Units shall be accounted separately as if he was a new Grantee.

16.   Any grant of a Stock Appreciation Right is evidenced by an Agreement.

17.   The value of a Stock Appreciation Right is not guaranteed, and for greater certainty, no adjustments will be made in determining the value of a Stock Appreciation Right the purpose of which is to provide a guaranteed value. 

18.   In the event of a Change in Control, the Company will terminate the Plan. Notwithstanding 12c) above, the value of the Stock Appreciation Rights will be paid by the Company to each Grantee at the effective date of the Change in Control.

19.   Stock Appreciation Rights are not transferable or assignable other than by will or the laws of succession. Notwithstanding the foregoing, the rights of a Grantee to receive cash on or after the Termination Date in accordance with the terms hereof expires upon the Grantee's death unless such rights devolve either by will or the laws of succession to a legal representative, dependant or relation of the Grantee. In the latter case, the rights of the deceased Grantee may be exercised by such legal representative, dependant or relation, as the case may be, and all references in the Plan or the relevant Agreement to the Grantee shall be considered to refer to such person.

20.   Neither participation in the Plan nor any action under the Plan shall be construed to give any Grantee a right to be retained in the service of the Company.

21.   The Plan is unfunded. The Company's obligations hereunder constitute general, unsecured obligations; payable solely out of its general assets, and no Grantee or other person shall have any right to any specific assets of the Company. The Company does not segregate any assets for the purpose of funding its obligations with respect to Stock Appreciation Rights credited hereunder. The Plan provides that neither the Company nor the Board shall be deemed to be a trustee of any amounts to be distributed or paid pursuant to the Plan and that no liability or obligation of the Company pursuant to the Plan shall be deemed to be secured by any pledge of, or encumbrance on, any property of the Company or any affiliate of the Company.

22.   No Grantee or other person has any claim or right to be issued Common Shares on account of his or her rights pursuant to the Plan and under no circumstances shall a Stock Appreciation Right entitle a Grantee to exercise any voting rights or other rights attaching to the ownership of Common Shares.

23.   The Company is entitled to deduct any amount of withholding taxes and other withholdings from any amount paid or credited hereunder as required by law.

24.   The Plan is binding on all successors and assigns of the Company and a Grantee, including without limitation, the estate of such Grantee, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Grantee's creditors.

25.   The Board may amend the Plan as it deems necessary or appropriate provided, however, that no amendment shall reduce the value of the Stock Appreciation Rights credited to the Grantees in accordance with the terms of the Plan prior to such amendment.

26.   The Board may terminate the Plan at any time, upon which full payment of each Grantee's Stock Appreciation Rights shall be made within XXXXXXXXXX days of the Plan Termination Date. However, in the event the Plan is terminated, the Plan shall not be deemed officially terminated unless all Grantees receive the value of SAR Units in accordance with the terms of this Plan calculated up to the last Valuation Date preceding the date of termination of the Plan, and any amount payable in accordance with this paragraph failing which all SAR Units not so redeemed shall continue to benefit from the applicable terms and conditions of the Plan as if the Plan had never been terminated.

27.   In the event of a Change in Control or IPO within XXXXXXXXXX months after the Plan has been terminated by the Board pursuant to 26 above, the Company shall make proportionate payments to each Grantee present at the date the Plan was terminated for any excess that would have resulted in the calculation of the unit value of Stock Appreciation Rights had the FMV of the Company been determined at the date of the Change in Control or IPO. Payments as described above shall be made by the Company to each Grantee either at the effective date of a Change in Control or at the date of an IPO, provided that no payments will be made for the purpose of guaranteeing the value of a Grantee’s Stock Appreciation Rights as of the date the Plan is terminated.

28.   The actual amount paid by the Company to a Grantee that was an employee of a Canadian or a U.S. subsidiary is charged back by the Company to the particular subsidiary.

Proposed Amendments

Amendments relating to the addition of Threshold Redemption Payments

29.   The Plan will be amended to add new threshold dates allowing the Grantees to redeem a portion of their Stock Appreciation Rights and receive the cash value of the Stock Appreciation Rights at the time when the FMV of the Company reaches certain thresholds. More specifically, the following definitions will be added or modified in the Plan:

a)    "Threshold Date" means a Year End Valuation Date where the FMV of the Company at the Year End Valuation Date, as determined in 38 below, has increased by no less than XXXXXXXXXX% in relation to either:

i.    the FMV of the Company at the XXXXXXXXXX fiscal year end, or

ii.   the FMV of the Company at the immediately preceding Threshold Date for a given grant of Stock Appreciation Rights,

which Threshold Date cannot:

(a)   in the circumstance described above at a)i, occur before the Company’s XXXXXXXXXX fiscal year end, but may occur at any Year End Valuation Date thereafter, or

(b)   in the circumstance described above at a)ii, occur before the XXXXXXXXXX anniversary of the immediately preceding Threshold Date but may occur at any Year End Valuation Date thereafter.

b)    "Threshold Redemption Payment" means a redemption payment of XXXXXXXXXX% of outstanding SAR Units held by a Grantee at a Threshold Date made pursuant to the Plan, as described in 31 below.

c)    "Valuation Date" means:

i.    any date which is XXXXXXXXXX months before the Year End Valuation Date;

ii.   the Company's fiscal year end;

iii.  the effective date of an IPO; or

iv.   the effective date of a Change in Control.

d)    "Year End Valuation Date" means the Company's fiscal year end.

30.   The Plan will also be amended to:

a)    Provide that XXXXXXXXXX% of the Stock Appreciation Rights shall automatically vest on a Threshold Date; and,

b)    Provide for the complete redemption of SAR Units upon vesting of a Stock Appreciation Right on a Threshold Date. 

31.   More specifically, pursuant to the Amended and Restated Plan, upon vesting of a Stock Appreciation Right on a Threshold Date, a Grantee will be entitled to receive an amount in cash calculated in accordance with 38 below, net of all applicable withholding taxes.  Full payment will be made within XXXXXXXXXX business days of the Threshold Date. 

32.   As a result of the redemption of a particular SAR Unit, all rights and obligations associated with the particular SAR Unit will be extinguished and the Grantee’s right will be limited to the right to receive the amount in cash described in 31 above.

Other amendments-Amendments relating to the valuation method

33.   The formula used to calculate the FMV of the Company will be adjusted to better reflect the valuation of the Company. The new formula for purposes of the Amended and Restated SAR Plan, as described in 38, is summarized below.

a) The definition of "Adjusted EBITDA" will be modified to include certain Extraordinary Items, as defined in 38 below, which exceed XXXXXXXXXX% of the EBITDA for the period.

c)    Currently, the value of Stock Appreciation Rights is determined based on the Adjusted EBITDA of the last XXXXXXXXXX years. For Valuation Dates occurring during the XXXXXXXXXX and subsequent calendar years, the value of Stock Appreciation Rights will be determined based on the weighted Adjusted EBITDA of the last XXXXXXXXXX years, as reflected in the definition of “Normalized Adjusted Annual EBITDA in 38 below.

c) The formula to determine the fair market value of the Company will be modified to add the concept of "Normalized Acquisition Adjustment" and the concept of "Divestiture Adjustment".

i.    The "Normalized Acquisition Adjustment" is a positive or negative adjustment intended to normalize the impact of "Business Acquisitions" on the Company's consolidated EBITDA.

ii.   The "Divestiture Adjustment" is a positive or negative adjustment representing the consideration (cash, assets, stock, etc.) received in any "Business Divestiture" minus the retained liabilities associated with the business sold minus the tax liabilities (or plus the tax credits or benefits) associated with such "Business Divestiture" minus the cash proceeds used to reduce Indebtedness of the Company and its subsidiaries.

For this purpose, "Business Acquisition" or "Business Divestiture" means any acquisition or divestiture within XXXXXXXXXX months of the month preceding the Valuation Date of substantially all of the assets of, or more than XXXXXXXXXX% of the stock of, an entity or a discrete business segment of an entity.  As of the date of this ruling, there have been no adjustments under this provision.

34.   The changes in the valuation methodology described above will not result in an immediate increase in the value of the existing SAR Units.

35.   Other amendments will be made to the Plan. These amendments are: 

a)    In the Amended and Restated SAR Plan, the Board will be allowed to decide at any given time that the chairman, president, any vice-president or any other Board member of the Company or any subsidiary of the Company shall cease to be an Eligible Participant.

b)    In the event of a Change in Control and regardless of the number of years of service, the Plan will be amended to provide that Grantees will be entitled to receive a payment equal to the value of the Grantees’ Stock Appreciation Rights upon the Change in Control and such payment will be made entirely as of that date.

36.   As a matter of law in the relevant jurisdiction, the proposed amendments to the Plan, described above, will not result in new agreements coming into existence, or in the extinguishment of the rights of the employees under existing Stock Appreciation Rights.

37.   The proposed amendments to the Plan, described above, can be adopted by the Board pursuant to the powers conferred on the Board in the Plan.  However, for greater certainty, each Grantee will acknowledge and consent in writing to the amendments to the valuation methodology described above.

38.   The Unit Value of Stock Appreciation Rights under the Amended and Restated SAR Plan will be amended as follows:

The Unit Value of a Stock Appreciation Right is determined at each Valuation Date (which Valuation Date may constitute a Threshold Date) as follows:

    (Fair Market Value of the Company as determined under (i), (ii) or (iii) below - U.S. $XXXXXXXXXX) x V

Number of SAR units outstanding at the Valuation Date

V is XXXXXXXXXX% when the FMV of the Company is determined to be up to and including U.S. $XXXXXXXXXX.  In the event the FMV of the Company exceeds U.S. $XXXXXXXXXX, V remains XXXXXXXXXX% for the portion of the FMV of the Company up to and including U.S. $XXXXXXXXXX and is XXXXXXXXXX% for that portion of the FMV of the Company which is in excess of U.S. $XXXXXXXXXX.

(i)   CALCULATION OF FAIR MARKET VALUE AT A VALUATION DATE OTHER THAN AT AN IPO OR A CHANGE IN CONTROL

The FMV of the Company at each Valuation Date, other than a Valuation Date at an IPO or a change in Control, is determined as follows:

          (XXXXXXXXXX x Normalized Adjusted Annual EBITDA) – Indebtedness + Cash + Cumulative Corporate Distribution ± Normalized Acquisition Adjustment ± Divestiture Adjustment

Calculation of Normalized Adjusted Annual EBITDA

The Normalized Adjusted Annual EBITDA is as follows:

For the Valuation Dates occurring prior to XXXXXXXXXX, the sum of:

a) XXXXXXXXXX% of Adjusted EBITDA of the last XXXXXXXXXX months before the Valuation Date

b) XXXXXXXXXX% of Adjusted EBITDA of the period from XXXXXXXXXX to XXXXXXXXXX months before the Valuation Date

c) XXXXXXXXXX% of Adjusted EBITDA of the period from XXXXXXXXXX to XXXXXXXXXX months before the Valuation Date

For the Valuation Dates occurring during the XXXXXXXXXX calendar year and subsequent years, the sum of:

a)    XXXXXXXXXX% of Adjusted EBITDA of the last XXXXXXXXXX months before the Valuation Date

b)    XXXXXXXXXX% of Adjusted EBITDA of the period from XXXXXXXXXX to XXXXXXXXXX months before the Valuation Date

c)    XXXXXXXXXX% of Adjusted EBITDA of the period from XXXXXXXXXX to XXXXXXXXXX months before the Valuation Date

d)    XXXXXXXXXX% of Adjusted EBITDA of the period from XXXXXXXXXX to XXXXXXXXXX months before the Valuation Date

e)    XXXXXXXXXX% of Adjusted EBITDA of the period from XXXXXXXXXX to XXXXXXXXXX months before the Valuation Date

Adjusted EBITDA means the consolidated EBITDA of the Company for that period in U.S. dollars and shall include, without duplication, Extraordinary Items for that period, that portion of the Unusual Items for that period which in the aggregate exceed XXXXXXXXXX% of EBITDA of that same period and, to the extent deducted in determining the net income for such period, the amount charged for expenses relating to this SAR plan, minus any EBITDA that is attributable to a business that has been divested in a Business Divestiture, subject to the following adjustments:

*     add write downs of intangibles due to impairment or for any other reason

*     add losses on disposal of assets

*     subtract gains on disposal of assets

*     add the amount by which compensation paid to any shareholders for their services as directors and officers of the Company or any of the Company’s Affiliates exceeds the fair market value of such services

*     add the amount by which the amounts paid to any shareholder or Affiliates of any shareholder of the Company (other than an Affiliate of an Investor) in business transactions exceeds the fair market value of such transactions.

EBITDA with respect to any company and any period shall mean for that period in U.S. dollars, without duplication, the company’s consolidated net income for such period plus to the extent deducted in determining the net income for such period, interest, income taxes, depreciation expense, amortization expense, foreign exchange gains or losses, in each case as determined in accordance with generally accepted accounting principles in the country in which such company’s headquarters is located and in a manner consistent with that company’s historical policies and practices.

Business Acquisition or Business Divestiture means any acquisition or divestiture within XXXXXXXXXX months of the month preceding the Valuation Date of substantially all of the assets of, or more than XXXXXXXXXX% of the stock of, an entity or a discrete business segment of an entity.

Additional Period means the period beginning XXXXXXXXXX months preceding the month preceding the Valuation Date and ending on the closing date of the Business Acquisition.

Deal Value means the aggregate consideration paid plus all Indebtedness assumed in any Business Acquisition.

Indebtedness means all obligations for borrowed money plus, without duplication, all obligations for the deferred payment of the purchase of property, all capitalized lease obligations, all balances of the purchase price of assets bearing interest or not and the amount of any guarantee, letter of credit or other financial assistance provided in respect of liability of a third party, the whole calculated on a consolidated basis and in U.S. dollars.

Extraordinary Items means items which result from transactions or events that have all of the following characteristics: (1) they are not expected to occur frequently over several years and (2) they do not typify the normal business activities of the entity and (3) they do not depend primarily on decisions or determinations by management or owners, the whole without duplication of the items considered in the calculation of Normalized Acquisition Adjustment or Divestiture Adjustment.

Unusual Items means items which result from transactions or events that have one or all of the following characteristics; (1) they are not expected to occur frequently over several years and (2) they do not typify the normal business activities of the entity, the whole without duplication of the items considered in the calculation of Normalized Acquisition Adjustment or Divestiture Adjustment.

Cash means, at any time, cash or in cash equivalents in the form of short term investments maturing no more than one year after its date of issuance, and including, without limitation, certificates of deposit, commercial paper, banker's acceptance and any other investment of a similar nature and in U.S. dollars.

Cumulative Corporate Distribution means, for any period from the Plan inception date, the sum, without duplication, of any dividends or any distributions to shareholders and excess amount over fair market value for any amounts paid to shareholders for their services or dealings with the Company and / or any subsidiary of the Company and in U.S. dollars.

If one or more subsidiaries of the Company are publicly traded on a Recognized Stock Exchange, the FMV of the Company shall be determined, without duplication, by valuating these subsidiaries using the average closing price per Common Share for the immediate XXXXXXXXXX business days preceding the Valuation Date and the immediate XXXXXXXXXX business days following the Valuation Date.

Calculation of Normalized Acquisition Adjustment

Normalized Acquisition Adjustment can be a positive or negative value and shall mean the Acquisition EBITDA for the Additional Period minus the aggregate value of any securities issued in such Business Acquisition unless such securities constitute Indebtedness.

Acquisition EBITDA for the Additional Period:  In calculating the Acquisition EBITDA for the Additional Period, the following must occur:

Number of Days                      Mulitiplier Deal Value                  Normalization                   Product
of Additional                            capped at
Period (“DAP”)                        XXX              

XXX                                        [DAP]             X Deal Value          X XXX                              = XXX
                                               XXX

XXX                                        [DAP - XXX]  X Deal Value            X XXX                             = XXX
                                               XXX

XXX                                        [DAP - XXX]  X Deal Value             X XXX                            = XXX
                                               XXX

XXX                                        [DAP - XXX]  X Deal Value             X XXX                             = XXX
                                               XXX

XXX                                        [DAP - XXX]  X Deal Value             X XXX                              = XXX
                                               XXX

(a)   Acquisition EBITDA is the sum of the above numbers in the last column.

(b)   For example, to calculate the Acquisition EBITDA as at a Valuation Date which is XXXXXXXXXX of a given year, and an acquisition occurred on XXXXXXXXXX of the same year, and the Deal Value of the Target was $XXXXXXXXXX, the Acquisition EBITDA would be:

             i) (capped at) $XXXXXXXXXX  x XXXXXXXXXX; plus

             ii) (capped at) $XXXXXXXXXX x XXXXXXXXXX; plus

             iii) (capped at) $XXXXXXXXXX x XXXXXXXXXX; plus

            iv (capped at) $XXXXXXXXXX x XXXXXXXXXX; plus

            v) XXXXXXXXXX [XXXXXXXXXX] x $XXXXXXXXXX x XXXXXXXXXX =     $XXXXXXXXXX;

            Total:                              $XXXXXXXXXX.

Calculation of Divestiture Adjustment

Divestiture Adjustment means the consideration (cash, assets, stock, etc.) received in any Business Divestiture minus the retained liabilities associated with the business sold minus the tax liabilities(or plus the tax credits or benefits) associated with such Business Divestiture minus the cash proceeds used to reduce Indebtedness of the Company and its subsidiaries.

(ii)  CALCULATION OF FAIR MARKET VALUE AT IPO VALUATION DATE

On or after the date of an IPO, the FMV of the Company is determined as the closing price per Common Share on a Recognized Stock Exchange multiplied by the number of Common Shares outstanding as of such date.  The average closing price will be determined by taking the average closing price per Common Share for the immediate XXXXXXXXXX business days preceding the Valuation Date and the immediate XXXXXXXXXX business days following the Valuation Date. Notwithstanding the foregoing, in the event that during the XXXXXXXXXX month period preceding the date of the IPO any dividend, distribution, transfer or any other corporate action or gesture is made (i) solely in preparation for, or as a consequence of, the IPO and (ii) which does not typify the normal business activities of the Company and (iii) is not part of the Company’s past practices with regards to dividends, distributions, transfers or other similar matters, then an appropriate adjustment will be made to the FMV of the Company so as to reflect the impact of same.

(iii) CALCULATION OF FAIR MARKET VALUE AT CHANGE IN CONTROL VALUATION DATE

On the effective date of a Change in Control, the FMV of the Company is determined as the aggregate price paid or attributable to each Common Share by or on behalf of the acquirer, multiplied by the number of Common Shares outstanding as of such date.  Notwithstanding the foregoing, in the event that during the XXXXXXXXXX month period preceding the date of the Change in Control any dividend, distribution, transfer or any other corporate action or gesture is made (i) solely in preparation for, or as a consequence of, the Change in Control and (ii) which does not typify the normal business activities of the Company and (iii) is not part of the Company’s past practices with regards to dividends, distributions, transfers or other similar matters, then an appropriate adjustment will be made to the FMV of the Company so as to reflect the impact of same.

Purpose of the Proposed Amendments

39.   The purpose of the proposed amendments is to enhance the Company's ability to attract and retain high quality individuals by providing them with an opportunity to benefit from the appreciation in the value of the Company.

40.   More specifically, under the Current Plan, the Eligible Participants can only obtain the benefit of their SAR Units upon a Change in Control or if they leave the Company. Management is of the view that this does not adequately fulfill the objective of retaining high quality individuals that contribute to the growth of the business. Therefore, the purpose of the addition of the Threshold Dates is to allow the Eligible Participants to benefit from an increase in the value of the Company prior to their termination or to a Change in Control.

41.   The purpose of the change in the formula to determine the value of Stock Appreciation Rights is to adopt a formula that is more representative of the value of the Company going forward and to ensure that the value of SAR Units is not unduly affected by a year that is exceptionally good or exceptionally bad. This is consistent with the view of retaining high quality individuals that contribute to the long-term and sustained growth of the business.

Rulings

Provided the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendments and purpose of the proposed amendments, and provided that the proposed amendments are implemented as described above, we rule as follows:

A.    Provided a Grantee is not entitled to receive the value of a Stock Appreciation Right granted to such Grantee, the Plan, as amended, will not constitute a salary deferral arrangement, as defined in subsection 248(1) of the Act. At the particular time a Grantee is entitled to receive the value of the Stock Appreciation Right granted to such Grantee, including for greater certainty on a Threshold Date, it will be a question of fact concerning whether the Plan constitutes a salary deferral arrangement at that time.

B.    Grantees holding SAR Units will not be considered to have disposed of their rights under the Plan, and no amount will be required to be included in the income of a Grantee, solely as a result of the proposed amendments to the Plan.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed amendments are implemented by XXXXXXXXXX.

Comments

The rulings given herein are based solely on the facts and proposed amendments described above.  The documentation submitted with your request does not form part of the facts and proposed amendments and any references in this letter to the documentation are provided solely for the convenience of the reader.

Nothing in this letter should be construed as implying that the CRA has reviewed or is making a determination concerning:

a)    the fair market value of any property referred to in this letter; or

b)    the methodology proposed for determining the fair market value of any property referred to in this letter.

Yours truly,

for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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