jk
BAT
--tsm PICK-. lzi@- e
OSLERI LQWkTZU AND SOUCTORS AMU A.-jp
%-J10
HOSKIN
MWCOURT
January 4, lose
mr. Purdy Crawford
Chairman, President and
Chi4f U60utive officer
Zusca Limited
4 westmount square
suits 260
14ontr*&lj P.C.
131 2BI
Aar Pucdyi
shortly after the federal government released the draft Trust and Loan
Companies Act, you asked me to considtr the application of certain
provisions of the draft Act to transactions by IfAT Industries 'ple in
shares of Imasco Ltd. I &M writing to confirm my pr :iminary advice
th&tr if the hot is adopted as drafted, BAT would- require the consent
of the Minister of Plinancis before purchasing or otherwise acquiring
shares of Imasco. As will be evident from the discussions be an
!Vpllc&tL*n for the Minister's permission to increase BAT's interest
n image would involve a number of considerations from Imascols
point of view.
The Requirement for Rinisterial Approval
a aph 321-.3(l)(b) of the draft Act provides that no person E19AT1
shall.- without the approval of the Minister of Finance purchase or
otherwise acquire any share of a body corporate (Umscol that controls
a trust or loan company Icanada Trustcol if the poison [BAT) already
owns more than ton p*resnt of the issued and outstanding shares of
any class of shares 6f the body corporate tZmascol and the acquisition
of the share would increase the 'interest" of the person CSAITJ in the
company [Canada Trustao). Kinisterial approval would also be required
under subsection 331.3(1) for the acquisiz:Qn from BAT of imasco
shares which resulted in a purchaser holding in excess of 101 of any
clast of Imasco, shares.
The draft Act does not specify what is meant by the "interest" of a
person in a compan in paragraph 311.3(l)(b) the term "significant
interest- (A oupan In in section 105.8) is used in relation to
the body corporate I imasco) and not the company Manada Trustcol as
in the term *interest". In view of the fact that any purchase of a
TbAXM Dumb
Clods MIX to Vzo-Walmn"
CD
le: 20 NO. US Oe4
c5N
BAT Industries document for Province of British Columbia 13 April 1999

T CO
::1.45M f114't,TREPL NC. za?
-OSLER,
HOSKIN
HARCOURT
ME 2
share in a body corporate Which controls a company would imply an
increase in Indirect beneficial ownership of the company and the rule
of statutory construction that a Provision of a Statute must be
presumed to have been inserted for & purpose, it may well be that the
reference to an increase in *interest' refers to an inc:tass ir
btnef icial ownership of fully voting and participating equity of a
company. 'Thus int* prated, the pare, raph would permit SAT to acquire
shares of Imasco to maintain its Gravel of ownership, but not to
increase it without the Minister's consent 11owever-' other
interpretations which would be less favour&bl* are possible.
4F
We a ha @, 1. seek clarification of the policy intention behind the
reference to an 'increase the Interest of the person In the company"
in paragraph 331.3(l)(b). The same question of int t- Station &rise@
o rz
in connection with the commercial lift issue in paragraph 332. 11 (2) (a)
which talks about an increase in 'the Interest of a commercial
enterprise in the company" where a commercial link exists, fc:
example, by the commardal- enterprise having a significant Interest
in the controlling shareholder of the company. WI' would suggest that
this question be raised In the latter context so as to &avoid casting
thl spotlight on Division C of Part III of the draft Act# As will be
*v dent from the discussion belowt the nonresident ownership pro-
visions of the draft Act modify existing legislation in a manner
which is as favourable as is likely to be achieved from tht point of
view ji Imasco and BAT. Accardingly, focusing attention an these
provisions involves a risk that they will be rsconsidered.
Under subsection 10E.3(1) of the draft Act, for the Purposes of
section W. 3 "control* includes de facto control. Accordingly, the
requirement for ministerial approval would technically apply to the
acquisition of more than 10% of any class of shafts ol BAT I! It
could be said that SAT is in de facto control of imasco. This is
unlikely to present a practical problem except in unusual aircun-
Stances*
The requirait*nt for Ministerial approval in Section 3BI.@ will affect
all shareholders holding more than 10t of any class of.-' shares 'of a
corporation which controls a trust or loan company. Accordingly,
some significant Canadian financial and industrial groups such as the
Pow@r and Edper groups will be affected and vigorous debate on this
requirement can be expected during the comment period.
non-Resident Ownership Constraints
Division C of Part III of the draft Act would constrain the ownership
of trust companies by non-residents on a virtually identical basis to
the *lov/25V rule found in sections 44 to 48, inclusive, of the
r111j
Z
NO. 0eq
BAT Industries document for Province of British Columbia 13 April 1999

CO LTD
46 CAM =2--
!MIN
MRCOMT
PA4Z 3
existing Loan companies Act. undo this rule no single non-resident
La permitted to acquire more than 10% of the issued and outstanding
shares at ; trust or loan company and non-residents are not permitted,
in the aggregate, to acquire more than 25% of such shares. The draft
,Act contains only one material amendment to these provisions, the
addition of the definition a! "control" in 0 bs*c The
proposed rroo TradsmAgreament with the United States will Tender
these provisions inapplicable to U.S. nonresidents. since the non-
resident ownership rules must bt borne in mind by SAT when it deals
in IMASco that** it may be useful to briefly summarize those rules,
Par the purposes of these rules a "non-resident" includes a
corporation incorporated outside Canada and one controlled directly
or indirectly by such a corporation. Accordingly, BAT is# for these
purposes, a non-rosidtnt and, If it was to *control" Imascol so would
be Imasco. As a non-:esident, Imasco (through Lts wbollY-owted
ohe .1 Tights
subsidiaries) would be prohibited from exercising .
attached to all shares of Canada Trustoo hold by 4t, thereby
disenfranchising CT Plinancial Services Inc. Bee sections X1.11 and
3C2. 4 of the draft Act and subsections 46(2) and 48(4) of the existing
Loan companies Mt.
The concept of *controls is defined for the purposes of Division C of
Part III of the draft Act (in subsection X17.2(2)) as being legal
center, that ist the ownership of shares to which are attached more
than 501 of the voting rights and such voting rights being sufficient,
if exercised, to elect a majority of the directors. The same concept
is also defined, in this case to include "do facto" control, `!Or the
purposes of this Act' in subsection 102.3(i). On the -Vasis of the
usual rules of statutory interpretation, our view is that a court
would apply the more narrow definition of *control' In determining
the statues of an entity as a *rosidont* or *ncn-resident'. on this
basis Imas co and its subsidiaries (including CT Financial' Services
Inc.) would be 'residents" for the purposes of the draft ACt.
conclusion
The amendment to the existing nonresident rules contained in section
3CI. 2 (2) of the draft Act Is most helpful In that It clarifies that
the basis for determining status under the non-resident rules is legal
rather than de facto control. Nevertheless, depending on the meaning
ascribed to the concept of an "increase in interest' in paragraph
321.3il)(b), any increase in BAT's level of ownership of Imasco Will
require the consent of the kinister of Finance once the draft Act has
been proclaimed. @hs enforcement provisions (specifical subsection&
334.1(2) and (3)) suggest that the draft Act will, lln effect, be
BAT Industries document for Province of British Columbia 13 April 1999

P07
NO. ee-
LF.P.,
)SIGN E-
ACOURT
PACE 4
to transactions after DOCOMbsr l$r 1986 And bsf*r* first
applied Asactions resulted in the
reading of the Bill only if such tra
acquisition of de fact* at legal control of Imasco.
The nonresident question is to- be borne in mind in connection with
an dealings with government or, because of the enforcement mechanism
relating to & change of status in sections 3C1.0 and 3C2.4 of the
draft ACt and the corresponding provisions of the existing Loan
companies Act,, the board of Canida Motgo.- The current situation
.ostween SAT and Imasco, has been accepted by both government and the
4C&n&da Truotca board of directors insoiir as neither have raised
objections an this basis in the eighteen months since Imasca acquired
Genstar. Any increase in the share ownership of Imasco by SAT from
Lts present level would provide a basis for reconsideration of this
view, particularly it such increase occurred prior to the enactment
of the draft Act. Any pr@pontd Increase to in excess of Sot of the
voting shares would require such reconsideration, even under the
exlatizq Loan Coapanies U-S.
Your$ very trulyr
Brian X. Lovitt
M/Ob
Oclosures
10, Z2 W9
BAT Industries document for Province of British Columbia 13 April 1999