FEB I& 'SZ 5L-4T 13Y 3017dM P=-A" S C@.W:S P. 2/40 =Mt March 14, 1992 RATUS 139UTMENTS ZNC. 1944 INASCO LIMMID PRIVATE PLACMUNT "ISOP011211 22 ZDA-WO, 397, Ni We have provided B.A.T Industries and Imasco with copies of XDR No. 297 and requested their assistance in providing the relevant documents, agreements and correspondence pertaining to the 1914 private placement purchase of Zzasco shares by BATUS Investmantsp the 1284 purchase of I'sasco shares from Westanley Trading G Xnvestment Co. and Imbat, and the 1988 sale of Imasco shares to Westanlay. We have also sought assistance fron N.k.T and Inasca in answering tXe IDA questions. This Reftmnss and the numbered wthibitx submitted herewith reflect the result* of this effort. The information ve are providing (together with the information and documents we have provided Ln response to earlier IDRs) clearly veri!its the events elect= N) C:D BAT Industries document for Province of British Columbia 13 April 1999 09-13 222-02 M8 $181 B&I TOBACCO BAT WIND MR lt(02/044 F-Lz 14 192 ::: JSWI SZNT By S-ERMAN MEM-C-N 9 a5iTIM P - 3/40 and substantiates the stronq business reasons for the investment in Imasco shares by WMIS Znvestments. As many of the doc=ants are proprietary and highly confidential, ve must insist upon the highest deg-rea of confidential handling by the Service in accordan= with trio regulations. 4=213Y or. IRAammm DogjarNTS A complete understanding of the history of the investment xlea group of companies (the in I=asco by the S.A.T. Ind4st- llarzup"), as vs11 as the series of relatad events leading up to the 1984 private placement purchase from Imasca of 2,400p000 shares of Imasco common stock (the "Private Placement") by ZATUS Investments (*Znv*stmantm"), Ls essential background for a full comprehension of the business reasons for the transactions at issue bars. As shown an the ownership schadulss provided by B.A.T and incl@ded as 2xhibit 1, the Group's ownership of Imesco goes back to 1908-Y As of October 1981, the Group held 49.4% of Imascols Prior to 1970, Im"40 Limited was known an Zaperial Tobacco Company of Canada Limited. 'Until July 23, 1976, Dritiih-Amrican Tobacco Co., Ltd. was the top- tier holding =mpany of the Group. At thar. data, - following a reorganization, Tobacco Securities Trust Co. Ltd. becams, the top-tier holding company and chanqed its nano to B.A.T industriess P.9/40 including tha possibility af giving proxies to Imasco0s; GUtaid* dirseters or placing the Group's shares Li% a voting trust. 92&00 an -r-amea car=Mn stock Za connection with its consideration c! possible mechanisms to support Imascols exemption application., the Group propmed the concept of a "cap," or upper limit, an the number of common shares that could be issued by lzamca. T-l,,e telex of November 12, 1981 from Mr. Rickatlz of B.A.T to Mr. Par6 (Exhibit _) wMlains this concept as follows: The senior shareholder is willing to contemplate these arrangements [for highly conditional proxies to vote the Group's stock in Zmasca] bacauss it has every confidence in the Canadian management of Imasco but it ramains a long-term investor in Imasco and does not wish to set its investment reduced below 404. it is proposed, therefore, that at the next acn- veniant general meeting the Board of imasco will a=anqa for the anandzent of the charter to provide for a maxizum limit to the number of ordinary and preference shares which may be issued by the Directors without further approval in general meet- ing. The zaximm will be calculated to that the senior shareholder's interest will not fall below 40%.V if the "cap" were put in place, Ricketts indicAtad, B.A.T V=3A be willing to have Imasco "make *very reasonable effort (in line See also Zxhibitx &M C) C) C:D C=) BAT Industries document for Province of British Columbia 13 April 1999 021 17/92 09:16 C502 568 0183 W11", TOBACCO BAT Z1.%ZWR Q 009/044 F=-- '.4 '9?- 11:2Z-M SEW BY SX---61@344 PE-_--AN& P. 1V4e with earlier undertakings to rim) to reduce the senior @hax-molder's vote to 404 by the and of 1983." At the time of this propo"l, the number of shares that could be issued under Imasco I 9 charter was totally unli-Itad. The documents show that B.A.T proposed the cap an a result of a serious concern that the Group's Intsrsst in Z=ascc might be further diluted if circ=stancss were such that it could not subscribe for any part of a new equity offeriAg by Imasco. In addition, it was of course understood that the Group's common stock interest could be diluted through the exercise of conversion rights enjoyed by the Series 3 Preference shares$ (Vdhibit -). Therefore, consideration of the 40% figure was based on the assumption of full dilution, both from conversion of outstanding preference shares and any new issue of common shares. Adoption of the cap and maintommea of the Group's minimum 40t position proved to be overriding concerns from 1981 right up to the time of the Private Placement in 1984. Heighten.ing those concerns, the Group's intarest in Inasco had been diluted during this period by a successive series of now equity issues by Imesco. The $100 an. equity issue in 1902 was particularly significant and was obviously intended to fulfill Mr. ParGis Canadianization undertaking to the Government because the Group@ Interest was reduced by this issue to 45.3% on an actual basis 9 C) BAT Industries document for Province of British Columbia 13 April 1999 02/-17/% 09:16 V502 U8 8133 UP TOBACM BAT 41NDSOR Q010/044 P. II/A* r=- L4 '92 ii:2AAM SEnT BY SWERrAN mE-=-Q4 I C-RT---N arA to 40.44 on a fully-diluted basis - (Uhibit The Private Placement was indisputably part of a Group strategy to red--ses, the serious dilution problem and prevent further erosion aff the Group's interest. While Imasco resisted the cap concept, ultimately it vas proposed and adopted by vote of the shareholders at a "Spoicial and Annual Mating" bald an July 5, 1984. The resolution adopted decreased the authorized shares of common. stock from an unlimited number to a maximum of 57,500,000. (Exhibit& and ). The following explanation for the cap concept was included in the notice a! the mosting and the management proxy circular sent to Imasca shareholders on Zune 8, 1994: The authorized share capital of the Corporation consists of 1,650,000 dt fte Shares, an unlimited number of Preference Shares (the "Preference Sharsen) and an unlimited number of common Shares of Which, as indicated above, as at Kay 9p 1984 there Vero 1,121,882 at Preference Shares and 51,052,051 Commion Shares out- standing, Between March 1971 and Xay 9, 1984, B.A.T's mmership, of the outstanding Common shares has declined from approxi- xUaly 500 to 40.4% primarily as a result of the issue by the Corporation from time'- to time of Common Shares and sac=itiea convortMe into common shares for financing and acquisition purposes. Z.A.T ban, however, advised the corporation that it desire& to maintain its investment in the Corporation at approximately 40% of the outstanding Common Sharon. Although it has no present piano to do the C *ration to t may in the future from t NJ NJ C% N) BAT Industries document for Province of British Columbia 13 April 1999 42/17/92 09-17 VgO2 US 8183 8111 TOBACCO BAT WINDSOR 121011/044 FU 43U IVZ4=:' SEST. Et' SFERM-N tZEWN L CURT114 P. W40 continue to issue capital for financing and acquisition purposes, In considering the desire of B.A.T to maintain its investment at approx1mately 401, the Board of Directors has concluded that it would be in the interam of the shareholders of the Corporation to place a limit an the number of Common Shares which the Board of Di--@*tars can issue without shareholder approval. Zt is therefore proposed to decrease the number of authorized Common Shares from an unlimited number to 57,500,000. In order to maintain its algroximats 404 investment in the Corpora- t n, in addition to the aforementioned linizad Co=an Shares, it may be necessary for 3.A.T or its affiliates, a2konq other thirqs, to purchase Common Shares on the market which would increase it& investment in the Corporation to between 404 and 45% from time to time. B.A.T has indicated to the Corporation that is has no present plans to make any such purchases. The !994 Pr4yata PlaceZtnt Prior to implementation of the cap, it was realiaed that even after the cap was in place there could be a dilution of ths Group's investment to as low as 35.9* it all 57,300,000 authorized shares were actually issued by Imasco. This problem was discussed at a meeting of the B.A.T Chairman's Policy Co=-,' ttes held an May 8, ID84. As a result of that meeting, the C7C recommended that the question of vhsthar the Group should increase its present holding in Imasco to a level which would prevent dilu - tion below 40% should be considered. (Zxhibit rQ C:) rQ a% C:) C=) BAT Industries document for Province of British Columbia 13 April 1999 02/.17/92 09! 17 '0502 S" 8183 BAW TOBACCO BAT XINWOR Q1012/044 F0 14 'S:-: 11: 25W ZEZ14T F- P@ M-Arl 9 CLJZT:rf P.13/40 This initiative lad to a series of discussions which ultizataly resulted in the Private Placement sale of 3,400#000 shares from 1=18CC to 11%Va4tM&ftt s (Zxhibits _ through Also very important in the chronology leading up to the Private Placement was the proposed acquisition of Canadian Tire by Itasca in 1912. This proposed acquisition, which was ultimately not ocnau=at&d, would have required the issuance of additional shares of Inasco (Exhibits through _), and it had been agreed that the Group would support the transaction by purchasing for cash sufficient cc=cn shares to assure maintenance of the Group's equity interest at the 40. level (calculated on a fully-diluted basis) . Indeed, since, at the time, the cap had not yet been implemented and the aff det, of the Canadian Tire acquisition would have been a dilution to below 404, the Group was clearly, compalled to subscribe f or the additional shares in cannaction with this proposed acquisition in order to avoid a further dilution. (Mibit Planning far the Canadian Tire acquisition included 100-1 consideration at BATUS taking the purchase of the newly issued Itasca shares that were to be allotted to the Croup. (ley% 4 I%it4l - --) - Thus, the conceptual groundwork was unequivocally laid in 1983 for investments' purchase fro& Imasco in the 1984 private Placement. 12 CD N.) C711 CD CD BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09:18 LMM 593 813-1 912 TOBACCO BAT 11M)SOR Q013o@ FE3 I,& 192 M717 -_-Y -E----" 9 C.IMN P. 14.140 Documants pertaining directly to the 1984 Private PlUnant. are attached as fthibits _ through _- The f irst mention of such a purchase (independent of the General Tire vAttor) appears in the 4pril 10, 1984 note from Roger Ackman, 1--co's general Counsel, to Richard Baker, his counterpart at B.A.T, reflecting discussions between top executives of Imanco and B.A.T. (Exhibit -). Xr. Ac)=an acknowledges, as an assumption, the "BAT right to purchase sufficient co = n shares to increase percentage to 454.u Mr. Bakar's nota, of April 13, 1984 Czxhibit specifically addresses the possibility of the Group purchasing 4.1% of Imasco's stock in 1994 and raises the prospect of BATUS involvement, as follows: (a) the purchase will have to be in DAWS; (b) another St will have to be sold intra-gToup to RATUS. Tn addition proper evaluation of the technical requirements involves BATUS- Imasco, participation which may take s time to got underway. Baker's note also reflects the sense of urgen4 that the B.A.T Board should approve the purchase of shares soon attar approval of the "capm by th* rzasco Board, which van then expected to take place at the June general shareholders meeting. The concern here was that, it Inesco made a "sudden acquisition,* there night not be enough time for the Group to will such a barren= rNIJ CD N) CY,% C) CD CD BAT Industries document for Province of British Columbia 13 April 1999 W17/% 09:18 V502 368 8183 BIZ TOBACCO BAT TINDSOR Q014/044 FEB 14 '92 II: SDI BY S-CRr4*4 'TZ-414 P. LV4 purchase - There was also a risk that if the Group's interest did, in fact, fall below 40%, there would be a 'Catch-22' problem under FTRA, in that the Group might be considered no longer to be in "control" of Imasco so that the consent of the Canadian Government night be needed before increasing the Group's ownership percentage from that level back up to 40k. Mr. Baker I not& of My 4, 1984 to r-te CPC recommended that the additional shares be purchased mas soon as possible". It also noted -- There are various tax, trading, 1*01 and insider dealing considu ations which are being studied it present to work out the optizal method at purchasing and a further paper Vill be prepared and submitted as soon as possible. This is clearly a reference to such issues as whether SATUS should be the purchaser of the shares, an issue that had been considered and studied a year earlier in connection with the Group's involvement La the Canadian Tire acquisition. (Exhibits and -) . If fact, the July 19 83 memorand= free J. X. Caudill and ?.A. Burke had analyzed the loan covenant and tax issues in depth. Note also that as of May 1994, it Vag contemplated that the purchase could either be made through the market or through subscription for shares in the event of a further share issuance by Znamco. The notion Private D@ NOW N) 14 C:) BAT Industries document for Province of British Columbia 13 April 1999 02/@7/92 09- la IMS02 568 8183 SO TOBAcco BAT W=R 10015/044 FEB q.4 '92 -!-':&-AM Sei-s BY 5,--_RrWf MEDIW Z CLRTIri P. 160,40 Placement ijis., a sale by Imasco directly and exclusively to the Croup was developed later in the year. The documents identified an Txhibits _ through reflect the sometimes heated negotiations and discussions that ultimately led to the Private Placement purr-haze by Investments. In the final analysis, after some initial resistance to the basic concept by Lmascc based on the Perceived likely reactions of the Canadian authorities, the exchanges, the banks, instituti=al invesvors, and private shareholders, these negotiations came down to the issue at price# including the question of Whether a significant "promiuz" should be paid. The price vas Finally @at at $46.23 per share, being the closing price on November 27, 1224 plus a it Premium. (Mibit BATCS' active participation In structuring the Private Placement is evidenced by the letter and accompanying memorand= from Mr. Leonard Arentsen, BATUS Senior Vice President-rinance, dated cataber 30, 1984. (Zxhibit _). Axong other subjects this addresses the use of a UTUA subsidiary and the funding arrangements for the transaction, including RATUS' preference for a Canadian dollar debt. The November 21, 1984 SATUS Cro Report previously provided in response to IDR No. 283 also reflects the par-ticipation by MM in planning for the Private Placement. beffauftAwn rQ CD BAT Industries document for Province of British Columbia 13 April 1999 132.oJ7-42 09! 112 151502 Sig 8193 B4a TOBACCO -- BAT ZINDSOR Q 0 16/044 r:M 14 192 1q.1ZM SCIr BY 9-0;f1pi mm-Al 6 W-;.!'N P. 0/40 Announcement of the Private Placement was made an November 29, 1904. (Uhibits, _ and Included therein was reference to the fact that the 6.6% increase in Imasco's equity would "strengthen its ability to finance future acquisitions in Canada and. the United States. 0 Complete documentation of the Private Placement transaction itself an wall as the various implementing actions may be fo=d in the Closing Books of Imasco and Investments, copies of which are attached. In conjunction with the negotiations for the Private Placement, it was agreed thaz the "P an authorized common shares should be raised to the level of 60,000,000. (Zxhi3DLt -) . Imasco had raised this point when it reali2ed that the Private Placement at the agreed level of 3,400,000 shares would be too high in relation to the then existizq cap of 37,300,000. Accordingly, the cap was increased to 40,000,000 at the special meeting of shareholders held an February 8, 1585. (Exhibit We have included additional documents (Exhibits throuo Which reflect. events subsequent to the 1#84 Private Place- mant, including the 19$6 purchases of Imasco shares by Znvest- ments, Investments' open market purchase of 140,000 shares of race durinqr Auquat 19$7, and Investments' 1988 male of Imam* shares. The documents show that the arrangements between Zmsco and the Group, including the cap and the =JR-= 40% Group share- 08NOW now N) N) CY% C:) 00 BAT Industries document for Province of British Columbia 13 April 1999 e---02 598 81832 B471 TOBACCO BAT WINMOR :2017eM RS 14 '92 I.'-IZ7$;M SE:-T SY -f-_D@ S CLJRT:N P..V48 holding level, retain matters of great importance to this day. Also Included in the exhibits are documents responsive to specific questions raised in ZDR No. 397, as identified La our answers below. L. We rafor generally to the JaGk=== mat forth above and to tU referenced documents to supplement our response@ to these; SV*CifiC questions. A. As cutlinod above, lonq-observad forzal mants called for Xmasco to co-unicate, important acquisition plans to B.A.T in advance and to seek advice tram. its "sanior shareholder" regarding those plans. Zt appears that this process did not typically involve or lead to requests for financial assistance or support from the Group since Imasca had adequate sources of equity financing an its own.z' it is also important to notl4k that dUC4-q the pericd that the Group hold more than 49% of the Imasco squity, Fin considerations virtually precluded any increasa in the Group's shareholdings since any significant purchase would have resulted in a tore-than-504 position and this in turn would have ruled out any 7%M eximption possibilities. Xoreaver, Zmasco's 1978 Canadianization undertaking to the Znforentially, it appears that Zmasco had Canadian souraft for IOU ital and thus sixil4qly did not cage Croup for its bomWing nooft, have to call upon t OWNSWASU 17 NJ cr% C:) N-0 BAT IndustrIGS document for Province of Brlt!Sh Columbia 13 April 1999 OV L7,92 09! 20 L"W! 5d& 8 183 811 TOBACCO --- BAT I JNVOR 0018/044 j.: cjp ... gy %--,- _rM CLAT P. L9/48 _%Ml M= I IN Canadian Government that the Group's i.'1t&raSt would be reduced to 40% by 1993, made it Practically and Politically difficult for the Group to take up any new stock issues until the 1984 Private Placamant.. The Canadian Tire acquisition proposed in 1992 was, however, an example of an agreement by the croup to provide financial support for an Imasco acquisition by subscribing for a Proportionate amount of additional stock so as to simply maintain the level of Group investment at the 40t figUZ6. The history shows that the reason for tbs 1984 Private Placement, rather than being that of Imasco seeking Group assistance in f-l-iancinq now acquisitions, was the Group's firm resolve not to have its interest in Zzaace further diluted. Mainzain-Inq the Group I a interest at no loss than 404 was- ths_ principal purpose for the acquisition as well as for the successful effort to impose a "cap" an any new stock issuances by Tuasco. With regard to the use of the Private Placement funds, the documents indicate that Izasco used the funds to help defray the costs of its 1984 acquisitions of Peoples Drug and Rea and Derick particularly the latter, which took place virtualli canta--poranacusly vita the Private Placement. (Zxhibit Th, o Group was, of course, &war* of these nal or acquisitions as a result at the pro-acquisition notification/consultation arrange- mants we have described and documented. The evidence suggests t4at lZaasca ultimately viewed the PrIvate Placement,-as a M) Oftamr.= C) C:) CD CD BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09- 20 IMEQ2 Bea 8133 833 TOBACCO SAT WINDSOR Q019/044 ra 14 S2 IL, 213p- =- fr 13Y SHM-Ri rM-AM & CA 7-1.14 P.2V42 relatively easy and cost-officiant way to raise the needed capital, Z=asco was able to save the, customary 4-54 underwriting commission. b. As explained above, the impetus behind the Private Placement was the Group's desire to assure maintenance of at lua&L a 4a4 ownership interest in Inalco. Thus, the Private Placement proposal was not principally initiated by Imasco but rather by the Or--up. 0. Discussions between B.A.T and BATUS regarding a possible Investment in Izasco by BATUS or a RAT= subsidiary were initiated in 1263 in connection with the proposed Canadian Tire acquisition, and the, basic structure was worked out well In advance of the actual transaction. rnvestmants was represented with regard to th* specific details and legal documentation of the Private Placement tranxaction by the Now York City law firm of Chadb*urne A Park*. d. Uhibits through _ relate to the 1986 Genstar acquisition. in keeping with its customary arrangement, Zmasco informed B.A.T of its interest in Genstar and sought B.A.T's advice and approval well in advance of the acquisition. Discussions did include "possible financing sc*narios,6 but it is not clear whether Imasco asked for any financial suppmort fro* the Croup. No doubt the Croup was very interested in rizasce # a azquisition of 4enstar, having itself already targeted and all. CD C:1 r-,% BAT Industries document for Province of British Columbia 13 April 1999 .17,192- 09-21 '0502 568 818.3 B37 TOBACCO BAT IINDSOR la 020/N4 FM I-, 1SZ II: 2-.Ql Wfr BY SAE;:@--N 9 QRTZN P.21/42 entered the financial nu-vice& sector (Zagle Star and kl2i9d Dunbar acquisitions) JV Significantly, the Genstar acquisition did not have the effect of reducing the Croup I a interest below the critical 40* level. km of the Spring of 1987, following ths. Genstar acquisi- tion, L-jasco had 120,000,000 authorized commor shares, of which 119,154,833 were issued and outstanding, 12,120,000 wore Mod by Investments and 35,940,832 were owed by Westanlay. Thus, the total Group holdings comprised 48,060,832 shares, or 40.3%. The tew 120,000,000 share cap reflected the 2-for-1 split that was approved by the sharen*ldars at a Special meeting Uald on VArch 4, 1983. This now higher cap was contemplated at the time of the 1984 Private Placement and vas fully consistent with the 40* minimum. Ultimately, consideration of a possible further slight dilution of the Group parcantaqa, resulting from an Imasca proposal to raise the cap by 500,000 shares to 120,500#000 -- which would have diluted the Group's interest to just under 404 led to Investments' open market purchases of 140,000 sbares during-August of 1287. (Exhibits _ and 0. other than the 1284 Private Placement and the proposed 1993 Canadian Tire acquisition, B.A.T and its affiliates did not generally support Imasco financially in a onn action with specific acquisitions. The Group's interest VAG in maintaining This ultimately, led to thdk BATUS acquisLi,@icn of Farmers Group In 1988. 20 C:) r*j CY% C=) BAT Industries document for Province of British Columbia 13 April 1999 02@, 17/92 e9:21 TtWZ 568 8183 Bil TOBACCO BAT WINDSOR W021/044 FEE 14 192 11132AM MNT BY Sk-ERVRi rrr"--iR4 & =r:.4 P.n/48 its investment. Position at not 1084 than 401k. IM&SCO Wag apparently generally able to f I-nance acquisitions through its wim resources. 2. The November 29, 1044 press announcement at Invearmental purchase of Imasca shares (Zzhibit states, in part -- Ws move reflects B.A.T Industries' belief that there is a growing climate of Conf idence in Cafiada a n-d that the proposed relaxation of investment controls. man this an appropriate place for this significant investment. Imasco is a large &ad successful company with interests in tobacco, retailing and fast food both in Canada and tj%e U. S. As we have stated, Imasce was obviously perceived as "a large$ successful and growinq Canadian Corporation," and the conclusion comes throuqh loud and clear from a review of the documents that the Group valued very highly its long-term investment in Masao. obviously, the legal constraints of FM as vell as the a='s length nature of the dealings between Group management and Imesca management did not give the Group a ftras band to increase its investment percentage at will. RopefUlly, the s4nsa-yof disbelief an the part of the Service that is Implied by the wordinq of this question will be dispelled by a review of tAe facts. Kota further in this regard that the critical investment Laval to be maintained was 40%, not 401 therefore, the 1916 stock issuance did not rsairs action I;y the Group. aftwMAMOU 22 C:) r1j cl- C:) C=) CD BAT Industries document for Province of Britl8h Columbia 13 April 1999 02/.17^n GS- 22 '0502 5e8 8183 BAW TOBACCO - BAT IINDSOR 002Z,044 MD 14 '92 1113ER' SE@J_? ly SiEFMAN M@ & C-JRT114 P.23/40 IL (See Response to Item l.d.). b. (Sea Response to Item l.d.). 3. The preparation to undertake a major V.S. acquisition, concerning which I.A.T advised DATU3 in late L965, was a Group effort involving the relationship of Group companies to outside landing sources. Ranct B&TUS directed its focus upon outside loan covenant restrictions that could have limited its fluturs borrowing capacity. By contrast, since Investments purchased the Imasco stock in '11986 from a =&the.- of the Group, the overall Group cash position was unaffected ande therefore, the prepara- tion for a major acquisition was not impeded by this transaction. The 1968 sale of Imasco stock by Investments and its liquidation into DATUS was, of course, convenient in bringing additional funds directly to BATV3 at the tima of its purchase of Tamara Group. However, we acknowledge that the 1282 sale did not involve relations with outside lenders. While this intcrma,- tion may therefore Conflict with the response to TOR 92, item 30 the facts as developed over the two years zinc* that statement LrAicate that the earlier response was essentially incorrect. The 1986 Masao stock purchases from Wostanl* .Y and Imbat did have, as one purpose, a reduction :Ln the rate a! CaniAian withholding taxes from 13% (applicable to a U.S. corporate shareholder whIch is the beneficial owner of less than 101k of the stock of a Canadian corporation) to la% (applicable to a U.S. corporate shareholder which is the benstiVial owner of at leaeft 22 CD r%J C7% C) N) -CIA. BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09:22 WM 568 8183 BIX TOBACCO BAT I INMR QFJ23/QM FEB I- 192 I 1 SC4 T St r=-Wi L QAT:N P.24/40 lot of the stocJc of a Canadian corporation). (See Article X 2(a) and (b) of the TI. S. -Canada tax treaty.) Combined with Znvestments' ability to utilize the section 902 indirect foreign tax credit for Canadian tax" paid by Zmasco with reispact to 'dividends paid to Znvestments, the 1986 transactions thereby increased the Canadian/U.S. tax afficlency of the 1984 Privata Placement purchase. 4. Neither B.A.T, Wastanlay, :-*at, nor any other amber of the Group hold any preemptive rights to Purchase treasury stock or any other stock of Imasca in the event of an increase in capitalization. As the above history shows, however, the Group had a strong interest in maintaining iza shareholding at no less than 40t, and =asco I a management was solicitous to acknowledge and acconmodate that interest. In order to assure that the Group would not be diluted if circumstances, particularly MA considerations, were such that the Group could not subscribe tar any part of a now Ilasoo offering, Imasco agreed, with the consent of its shareholders at general meeting, to cap the amount of now share capital that cc-.:Id be issued. Further, due to the threat that even after the cap was implemented the Group I s interest might still be diluted to as low as 35-94, Imasco agreed to the 1984 Private Placement purchase by Znvestments. 8. a. -b. We are advised by Roderick MacKinnon, Corporate secretary and Counsel to MLA SC* that the term "called for trading" simply means listing, the shares an the eW;:pVaftt atook 23 NJ CD r1-j Ln BAT Industries document for Province of British Columbia 13 April 1999 02/17/S2 09-22 10502 568 8133 80 TOBACCO SAT ZINDSOR 0024/944 exchange so that the holder of the shares will be 109411Y Abl* tD trade then an the exchange should it wish to do so. Thus the "callad for trad.4nq" concept Is equivalent to listing shares an the Now York Stock 2xchanqo so they am be traded there. Accordingly, Inasca covenanted that the shares sold to Znvsstments in the ftivats. Placement would be "called for trad-Inq10 on the-Toronto, Kontreal and Vancouver stock exchanq" Vhere Imasco stock was generally traded by the public. C. Mr. McKinnon conf irms that Investments was Purchasing %treasury stock", as that term is conceived of in Canada - It in not clear to us whether the shares issued to Investments were, strictly speaking, "treasury stock* in the narrov U.S. sense of the term -- ", authorized and previously issued stock that prior to the time of sale has boon repurchased by the Issuer but not retired and is being hold by the company in "treasury" - or simply authorized stock that has not previously been issued. =xis is obviously &.distinction Without a difference for present purposes; in either case, the 3,400,000 shares were sold in the Private Placement directly frcm. Imasco to Investments. d,,-b,. These questims seen to reflect a zinunder- standing by the Service as to the meaning of mealled for trad- Ing," and the above explanation should corsect that misunder- standing. CaUing the shares lar trading has nothing to do with ZMZCQ "racallinq" Zho Wharso tron Xavestments'-p:1 the qaastlans Dwe" 24 BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09:23 V502 568 8183 BIW TOBACCO BAT WINDSOR Q025/044 FEB I- 92 1 t -- 32Ri SE'; T. 32Y 3-6-7-1*4 W----HM & CURT:M P. W40 seem to imply. calling the shares for trading on the excharge was, as noted, for Investments' benefit and simply meant that Investments would be free in the future to sell the shares on the axamnfes. Ther4f are, covenant (2) was to apply if the Private Placement Agreement was ratified by the Imasco Board of Directors. if Board ratification had not been obtained and the deal were terminated, the shares would obviously not have been sold to Investments and thus would not have been called for tradirg. As the "Cczplat-4on Data" was December 14 (with the Call for trading to be made no more than 14 days thereafter) and Board ratification was to be sought by December 10, it would be known Aothav the aqreftar.t was terminated before the call for trading had to be made. As the c'-csing documents indicate, other provisions of the Canadian securities laws did circunscriba Investments' trend= to trade the shares following their call for trading. (see *,a.# lusco I a Closing Back, Tab 24.) Moreover, as indicated in response to rDR No. 145, the fact that the Izasco shares were not registered under Canadian securities laws did restrict Investments an to the Way in which it could sell the stares. Imasco has provided the following co=ants explaining the Nature of those restrictions: The common Shares of Zmanco Limited issued to BATUS Investowfts %M. in December 19S4 were issued pursuant to a private placement examputon under the Securities &at (Quebec), requiring a "hold parladIf of its r11j 25 CD C:D CD PQ BAT Industries document for Province of British Columbia 13 April 1999 02<17,o,92 09- 21. Vt-702 2-64 8133 BAN TOBACCO --- BAT X1.4=R W26/044 FE3 14 'SZ 1.:3a:M WiT BY SS-0-MI MC-94 I C.;RTLN P.ZF/40 =rjWu imubj act to turt-her exeWt trades within *6 2 ix =Mt4s. Sugh st*res Voris ixmdi AftlY listed 4" Us be.- ISA stock 43MMA,46 an which pw"Q N&Arwk trade (31*tr A j Toronto Ud Under 4adian sacul4tims law, gm Cowan Mose co! U&SCO he d by *TUN d its arAll 1*4 (the M. ..T drahpll) natituts a nccptx 1! blackff whi h may baly traded by Or JKWSIL Ut t* Wool tus ]Lsqkrd nq thd. 1941 nvootment areie# it iA admed such shoes Vs d by jkFa f=z Vjjkh4n the a shares at Zzascci hold by the as a wh#le ara (an4 were at all 1) Lnetuded in th4 particulars -A-A of iss"4 and @-"W of of Za *co %ftich 00 f ilod the. th Vs st-ft-ok saishanges and the nMI USt#W fine paid to "id a ahmq4s waft I and are) the tats. mmbW of lzmi@w-W and shares, inalwUnq **" bald by thd fears of the B.A.V Group, -4. (PM Provided) 7* a* Co ism of all dcc=onts filed with Canada and any ly Canadian Provinc in connection with the Private Placement are incliled in in&$ Is Closing SaoX, prepared by its attoxnsys, 0qilVT, 31mmault, of Montreal, a copy of which is attached. Also attadad are aspects of the ownership reports filed byzT&&xcc with the 4=4L" 4utt wities. covering the period of investments' I&4of ftammo shares. (fthibit area* b. T Connection with the Prbats Placement, s"lisation was .de an Oatzber 26, 1984 to the VA. Treasury for T moves" oonee"t %*%der section 422 TA L970 to the aiioisitlan of NJ 26 CD r%j C7% CD CD co BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09- 24 C502 S68 $183 B&T TOBACCO --- BAT WI SUSOR 0027/044 M 14 !'SZ 'LI -3W +T BY S-Errm MED4*1 & W"IN P.22/40 IM4,900 shares bya subsidiary of DATUS Zno.,, refa=od to tharsin as "Moco Xna. 0 1 copy of that document, as wall as the consent of tbo Treasury d 6ted November 2 i 19U are attached as 2Xhibits mrr @- Ths: Is. were I to aur knowladq44 no required Yj. a. rilin4a - A COY it Investasato I closiag Sock, prepared by its atto"Yft chafto =a a 31arks, is attached. :8. Docume to submitted to the Nontreal, Toronto and Vaneviver stock a chaaw (including the caLls for trading) are incl4c!od in the co Closing Back. The only other common share issue 409lated see following the I"4 Private Placement was cited on 19, 19$6, in **nnoction with the Genstar acquisition. JL =VV of rMscols Prospectus Issued therewith is as Exhih.r. S. At the' special shareholders zzating in 1295p Xnvest- zent44 was rMsd by its President, IL?* Prigon, Sub- IPZ=Y s*qu4*t1y, puzzoa it to authorisation by Xnveetments I Board of Directors# the ppxy for voting its shares, at shareholder zest- inqs vas given tci any one of the Dixectors, of Zmascoo (Uh4bit la. DucirAj the yaws 1944 thrOUqh 1*84, Waxies to vote the 4" hold Wastanley and Imbst were held by the Chairman of II. Our 4isw of the records indicates %hat the previous respe*84, eta" that the price paid by Zmestments in 1986 was based'an the Sid4o vwX*t price of the stock pl:M@,-,ths present NJ 27 C:) PQ 01% CD N-) %O BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09:24 CE-.4 SS8 89,83 BAW TOBACCO BAT WINDSOR 121028/044 FEE 14 '92 11'3" @-r By SiVe" MED-A4 9 CLRTI14 P.29/40 F value of the dividend, was Incorrect. The total purchase price of U#111, $132,1484900 for the Mwes was determined based cm a stock price of C $34.30 and an exomage rats of .72, resulting in a price per shar4 of U.S. $24.94 per share for the 5,320,000 oh-raw purchaseds The C $34.50 pZiCG, 4g3Mod upon as a coiling, Vag ban" on the stocks trading price an a=* 6, L986, the date the x0raftent Val finally revised prior to settlement. Ths exchange rate of .72 was the exchange rate an OUno 13, 1986, the date. Of the aging Monts go fte provision for the present value of the was rm vsd from the agrooments War* they vers f inalized. (2zhibit Investmwts did not receive the June diviAnd an the itiortai shares purchased. T-- b. jestanloy a* Our responi AS to items a-c above are verified by a review of t1qt records as lontreal Trust Company, Zmanco's Registrar and payim Avant, V14ch shav that a dividend of 21 Cents par cmmn wag paid to the registered holders of record an the diva .+r4'record i &to of nay 10,p 1984# as follow: - WOW Hadley as to 38, $60, 632 common shares - Ub t as to 2,60a,000 comman shares ft ZIM &*zenta as to Gf800,000 sommion shares 25 CD CD C:) BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09:25 'MS02 568 $183 B&I TOBACCO BAT I I NDSOR It 02VO44 rES !4 192 W36W S&T VY %@-RPM M---PM L CJRTIN P.W48 12. a as shown an Exhibit II, imbat purchased its shares of XMWM an NoTeiker 23, 1976 from B.A.T Wustriog- b. Tfjig information Ms boon requested from B.A.T and v511 be fur4nd. Q* coyies of Zmbat's financial StateMMUts for the years :1946 Ise$ are st'"ched. do-** in ZXhjbjt .As reflected the U.X. Xn1and Ravelme 'bag propc an gasgs"Ont &qairst L-Lbat on its gain from the Xiss *&is to estments ex the theory that Imbat vas a resi4qnt of the q6z. at the time of the sale. Znland Revenue is tber*4*rs not ch4leming in BAY way 121batIm otmership of the 1=s*4 shares or kbe validity of its sale of those shares to Invetiments but simply questioning whether Labat was subjaft to V.$. Uz an th I resulting gain as a U.X. resident company. I PKAX- Xmbatis jamitieft s that management and cdatmal ~ not tran.4jamood fxm aftterdam to La.-Aon until July 1, 1986, following the sal* to Investments. Accordingly, at the relevant time Us company Ivas resident La t.-s Netherlands for tax purposes and, ihomfore, the Nothsclands could have a tax claim aqaia#t 164 ::V in respect of this trammation &@d Zabat's real4ed gain on @X* sale is not tumble in the U.K. We unad"waim that is issue ham not yet been resolved in dLsamesions and cier"Wipandance between the Group Tax Director and the 24aaAd RS*M+ Zrapectoz. 29 rQ 0 NJ BAT Industries document for Province of British Columbia 13 April 1999 01)/17,,92 09! 23 e_W2 U3 818-9 817 TOBACCO BAT JINDSCR WOZ04" FEB i4 'U 11'3dW1 *9 a- s4em"4 MEEHM S QRM4 P.31/40 13. Copies- of Mostanley I a f inancial statements f or the years 1044 throng - IM are atUched as e-kibit 14. (Provi uply Provided). 13. a. T a Passumad 11.54 interest rate" was used as an estimate Apf to& ILMcast of barriming. (See warxpapers attaal* as t _). we do not kMM how that prociss interest rateVas. deUrminod, ducept that it presumably raf lacted the best astizatei at the time based u1pon than provai2ing rates. b. The total dividoW income used in the calculation was $9.4 Killion-! (I** workpapers, Rwhibit Ca %ite attached vorkpapers appear to have. been used to Ps"&= this "Vert. (ZZh4%4t d. 2@4 CIPO in 1984 was Leonard Arontsen (now de- ceased). Ths rt in question van prepared fcw hi= by tl.,* Tax DepA."Nv@, ;:41Y by Larry Oliver, Tax Director, or Kim Id. FL&&so acto in regard to this itsm. that the original memo fwMished response to XM 253) which refers to the analy4is in quos+dn makes it clear that the analysis was pre- pared to tot the off act of distributing the Izasco shares to SA.T as a dividend, a hypothetical transaction Aich did not take plam. a* to tax law changes, it was assumed that no foreign tax crsd# would be available for such transaction and, 30 CD r"i CY% CD CD CD (-IF4 NJ BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09,26 =502 563 8133 Ba;1 TOBACCO BAT 41 NWOR 0031/0" '4 '92 1J.39AM *PM By Sam Mmm & ai"IN P.3V40 therefore, SATUB would be limited to claizing the deduction for foreign tax&& paid. b. lb* computation assumed that SATUS would have the cash for only ha* a year because a dividdrA would be paid at J@W.s 30 - thus bSO + 0)/2 - 125 Mul (300 + 230)/3 - 373. C9 *6 amount of Zmasca sarnimp of $10.30 was detersined by di4dinq the dividend by tU cost of thA stock. This computation.-was based an historical oost and dividend& paid. 4. 14his assumption was made because a sale of an asset allows the "ller to pay off not only the debt related to the asset but &14* additional daft up to the amount of the sale& Price. 17. a. ixshw4L rats fluctuations for the years 19BG through 1998 were reversed out of the calculation of back gain as per the mlaulat attached an Exhibit (Sea 17b. for furo-W MP, anat: an of the book t--setzent of exchange rate f luctkations.) I ote, that the Sum, of the 1966 through 1915 dsf erred curroni gains ($42,061,833) is $271,049 greater than the -hount shown joa Exhibit .. We have not been able to reconcile the nu4bers, but the difference is insignificant in any events. b. 11he exchange rate fluctuaZion. was calculated monthly. The calculations for 1985 through 1987 are included as Xxhibf t .--& Welbave been unable to locate the 1988 aa1=LatLww. Dogma Mo N) 31 C) PQ all C) CD C) I-Si L-4 BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09. 2i e502 -:68 8193 SIR TOILAX(M SAT WIND= 12032,044 FE3 14 1SZ !I,-3!Am SdMT V seem rwa4 & aF-1114 P.W46 a, Tlke $23,224,526 figure (rarised to $23,601,373 per Mib= _) is the 1988 aw-banq@ rate fluctuation for the investment accouni- The $18,303F203 figure is the deferred currency lass row Iting from .the note payable. These figures are- not roMatsd and t us are not rsc=cilabla- d. ritr book purpose the 1945 exchange rate lose an the irmatment ($4,563,549) Was 01840 PAL. There Vas an additional smail Movement of a $14,909 credit which we cannot OXP1aJM' resulti in a not PAL expense of $122,012. For tax purposes, the not1book PAL expense was added back to income. (Note that the bc#k t--satment of the 1983 loss affected both the investam* balazc i and the income statement, and thus vas nct reversed vut of t to computation describ" in item 17a.) Tor the yea.-s i966 through Isal, the exchange translation an the invastmonVrasulted in a gain. For back purposes, this amunt was not treated as inazze. Rather, the investment account was increased and the offsetting credit vast posted to the Dal=* Eheet accounto @'ON= Noncurrent Uabilities." Thus, vhen the investasnt Vas wc@d, these asiounts wers rwrersed cut of the back basis and the li4ilitY account. Me bookie continued to Shov suall ancants an @Q PAL for transaction gain (1028)2,in 1914 through 1208. *A are not sure what caused these expenses/incomof but in all rears @jw amount vas rovers" out or income for tax purpo"s. 32 C) f\) CP. a) CD C) U14 BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 9)!Y - 26 lez-02 -:-.a s&lrlz saw TOSAMO -- BAT WI NDWR Q4)3&-044 FM i4 cz 11--%RM Strfr :-y S-c-41w MEZHW & Oirrm P. 34148 it. The ansual acamitment fees of $1500000 were not paid to DA=7 kut rawlifr to Royal Sank of Canada. 19. a.-b. These questions vers, raised by the Service based upon information previously provided in response to -earlier IORM and at course did not reflect the Service's considexation of the additlional docame#tation and information wa are providing vith this Response. fully, th"efors, this additional dOCINJAMU@ tian elad InfelvAttan Vill dispel what we Consider to be an inappropriate So4s of incredulity on the part of the Service evidenced by the ions of thass questions. It should be very a'-ear that the G-r-rbu."WhIs investment in Xaasco, and maintenance of the level of that- investment at-*bb-cowts, was of vital business concern to the Grm . V. Indsied, the implication of these questions is that no ratia4l, bus_'9%ss*xs* would have made a decision to purchase er hold Irzkosco stock, This reflects a misapprehension of Us owing" V@1_4 and the mature of a substantial equity position such " the Group's lonq-standinq investment in Tmasco. Xt is worth noting vtat many corporate investors take substantial posfti@s in companies that return far lass ir. dividends than Z*sco, or *van no dividends at all, and that they have so@jintsntioq et selling. The value of a substantial equity position ever tion may be based upon any rmabor of proprietary suitability cons4derstions in addition to dividend flow -- sAu, Lntet*al growth, market penetration, futuve takeover potential, to name a few. rt is inappxopciate tar the service to oat itself 4@4 AJ@ 32 C> r,Q) c7N C:) Q4 (-n BAT Industries document for Province Of British Columbia 13 April 1999 9)2/17/92 4)9- 27 10502 U.;, :i!33 B3 .1 TOBACCO SAT 3INDSOR 034/(44 FE3 14 '92 111: -37M -,;m & CAT114 up as the arbiter of whar-her the Group's decision to acquire the T@M&Soc shsrea in 1984, or tAs decision to hold an to the Groupie investors, was a ratlonal business judgwot. C. T I our )McwLs4q*, there havis been no outside salts cf lease a @wex to unrelated parties from holdings of ImasqO st#ck bV a -o@up companies other than the 19913- sale of 273,400 skares of ON preference stock. (Oa Exhlbit 20. a. have detailed &ban the business purposes for the purchase of co shares by Znvostaents. We acknowledge that, in Ireneral,-,the business purposes s4c-md vers Group-wide and dAd not psrta@n to investments in particular. Nowever, the business reality Oar conglomerate groups is that various entities within the group are selected to make acquisitions. Far example, siaply because an@ acquisition or investment opportunity comes to the attention of JLhe M&L--man C., the top-tier holding company does *at *can th+ the acquisition cannot legally be made by ancther immber og the q.-oup arA be so treated for tax purposes, when it is annowVed, for example, that Phillip Harris has made an acquisition of a food company, this does not mean that Phillip xOrris cmpanlas ;AC. , the holding company, made the =1K. rer- acquisition itse*. n.. are no basis for the,?$srvice to dictate how a grepp of corporations structure an acquisition, and the Sft-rj44 is nc@ free to recast what was obviously an arm's lanqu amui ti, simply because it reduoes income taxes and LACt"T etruir will produce zero Umov. 34 C) C) ..... .. ... BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 09-?. IM502 568 8143 B41 TOBACCO --- !AT WIND= Z035/044 F" 1.4 'W -1:37PM X@ff 5-Y rMOVI I CJITIN P. 36/40 The reduction in the Withholding rate under Article X 2 (a) of the now U.S./C@Mda tax treaty was a else.- non-U.S. tax business reason fbr mmerellip by Investments. That treaty had been signed batwi*n the tva ccunt=iss an September 26, 1980, but instrUZents of ratification Were not exchanqed until August I$, 1984. For tax yield at sourc* cm dividends, the new treaty applied with rest at to payments made an cm af tar October 1, 1914. rhe new tasty provisions were thus the principal reason f or livestmants I P%rchase of additional Xnaacc shares from Wastoloy and XMIss in 19$6. we ac)MaVl go that there war* U.S. tax motivations for structtur-llnq the Icguisition througAh, investments. No doubt, the Presence of tax dauxiderations is true of virtually all business invastme2ts, and, indeed, corporate executives have a clear duty to the p4blic shlraholders to minimize taxes through proper planning of &=Mjsition transactions. Q%dowt paid by ;.zvw.t- J- OGR40-40 the fen 'Mrticalaz sequisdo-delk --as 17- -d*d=t' .3111 !-1 i 9%6 =an i:j 665-, VootmrA*r' -4 -h" mad XUM given the presence of7clear business motivations, the tax motivations in no way undermine the i Igm Lida and lidity of the transaction. b. 13he general group business purpose of assuring Maintenance of tie miniw- 404 ownership in Xuasca could also have been achieved throuqh owmrsllip of the shar" @by Ishato DOWAMAOIND NJ (7N CD C:) U4 BAT Industries document for Province of British Columbia 13 April 1999 02/17/32 Oe: 23 =51)z 2.64 r'1z;1. B47i TOBACCO --- BAr WINDSOR 2-036-1044 FZ3 La 19Z 11:3eAm5LNT FY 9-C-rA14 PC@-, & C;z-:.,i P. Westanley or N.A.T Industries, althauqh we have not conducted a thareuqh analysis to so* if there would love been legal, structural, or "llness, impediments to those hypothetical altarnative str.=Zurss. Indeed, the same purposes could probably have-bom served ft-rough ownership by any mmbsr of Group affiliates, inalading the U.S. affiliate* such as Ircim & Williaman Tobac:*, Saks, RUJ Howaver, in order to take advantmp of the: then nsw U.S./Canada tax treaty Withholding rats rodudtics, 4ip by a U.S, company woo required. 21. The th--se dealers refereed to in the response to nM 0371, item 4.b, PhAir tit.'so V%d addresses are an follows: W. Tom Kc.Cro&ry ,*actor at x#nay Market Pra" *--il-1 LynchiXonoy MarkA&s, Inc. 0 V684y etr$at 4W YorX, Ifew'York 10281-1323 V. Zeff Palermo Va President 4*=n Srothe*s, Inc. Mrican ZXpr4ss Tower 4&ld ftzaaci4l Center M Ve"y Str4ot ow York, xav'york insa-loca @r. Tred Bras" '** Provident im First sas"a corporation J!Zast 52nd West, 10th Floor dt York, #*V!Yorx L0055 it ha bean realia4d that them wore certain dimad antaqaa to BATUS Xnc. itself purchasing the shatra @, and state tax considevations &Vparantly ruled a= a Turship by NATUN, operatLn subsiUariss,, as G=pa ed w.4th havinq Uvestunts-pa#g" the shares, DIM1111841= 36 C) C) co BAT Industries document for Province of British Columbia 13 April 1999 02/17/92 t1g, "M LTS02 US SIZ3 80 TOBACCO --- :1^7 ZINDSOR Z 037/044 P. 3V40 FM 4 '052 II: MAM 604T BY 9--onv4 mEV-94 & CLATIN 22. The Iti=26 T&x Rvpj&ti=s are not clear as to whether B.A.T Capital Coiporation (NATCAP) or the dealers vauld be responsible for yiUbolding foreign tax and form 1042 in the event such wLU%holdinq and filing were c::=ixs required.. Trust. Mg. j i.j441-7(a)(1) definen a withholding agent as many person who pays or causes to be paid* income subjec% to withhold- ing. Under thisidefinitica, either the dealer (a person who pays) or MATCAP @a person who causes to be paid) could be the withholdingaigG4. In any caso, we believe the symecific questions posed in itad 22 Siss thal zark regarding ths ba,neftts of 080/20" qualification. Zt is clear that, given RATCAV's qualification an an 10/20 corporilon, which qualification has not been ques- tioned, the questions are essentially hypothetical and therefore not zs&Uy rulat* here. It appmrsi trom the questions raised that there is sms, I doubt in the Be Lcals mind as to whether maintaining 80/20 rr status was actually important to BATW. An evidence that this i status was, in fjot, considered important and was monitored during this perik, see Zxhibit -, whictz indicates that the SAT09 Law DepartMent, was reviewing DATCAP's 80/20 ktatu-s in early As a furthor clarification of why H&TCAP did not lend the funds for the Z"scc purchase directly to Investments, during the i period In quewts&n Cznrauqu isaa, after Which tine 80120 was no N) 37 CD 111i C7% BAT Industries document for Province of British Columbia 13 April 1999 Q?/ 17/9Z 09:29 Z502 S68 $183 130' TORACrO --- BAT 71NDSOR Z038/04-' FEB 14 'SZ M4T BY SCRRMAN M=- -Pi & C.R-:.4 P.-M/42 longer an Issue due to the total exemption of portfolio interest fr= withholding DATCAY did not land fulsts directly to any entity other than NATTY. UTCAF was, and remains, the issuing company for all U.S.-dall'ar denominated commercial paper for the. R.A.13 'IrAustriespGroup. The proceeds frm the sale of this comadrelall paper, were loaned to wir for financing at Group activities wcr!dHdde. As evidence of this standard practice, miss 3xhibit _,.Zhe first page at the Notes to Financial Stato- Z&ntll of BATCAP @W years 1994 through 1947. a. Under these circumstances, BATCAP could not be liable for vithh@14inq tax an interest paid to non-U.S. recipistfts beca4e, as long as its qualification as an 80/20 corporation was gaintainedo NATCAP was totally exempt CT= with- holding. b. BATCAP could comply vith the withholding require- lunts without knowing the identities and countries of incorpora- tion, Of the irrv4t=s because, as long as Its qualification as an 80/20 cacparation was maintainad, IMCAP was oxampt from with- holding. C. Again, DA--C"#& 80/20 status made It unnecessary for the dealer at withholding agent to Withhold. d. tt in apparent that no one was responsible for filing forms 104@ du* to BATC&P's 80/20 emempt status. Accovdingly, no 1042 were In fact filed, rQ all. C) C@ C:) Xb- BAT Industries document for Province of British Columbia 13 April 1999 QZZ/ 17-,92 09-29 C502 568 818Z 50 TOBACCO BAT IINDSOR Q039/044 FEB 14 'S2 11:9914' MM BY 99EWP4 PC--@ & QjRT:N P. 4/92 33. Mr. Tony B=ka B.A.T Industries p.l.c. Windsor Now* 30 Vi&.cr,-a Street London# MIX QXLj England 24. Kr. David Boa 96 Round Kill Road Greenwich, CT 06931 Mr. Richard D"Mand B,A.T Industries P ,I.e. Windsor Rouse 50 Victoria Street London, SWIR OKL, England 39 r1i C:1 NJ C1% BAT Industries document for Province of British Columbia 13 April 1999