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Subject: -801.10 Question

Dear Mike

(Redacted) and I are hoping you have time for a short call today concerningthe following questions.

Background. Our clients A and B are negotiating a merger agreementwhereby a subsidiary of Co. A will merger with and into Co. B, with Co. Bsurviving as a wholly-owned subsidiary of Co. A. Co. A is a public company, andCo. B is private. The merger consideration will consist of newly-issued sharesof Co. A. These shares will be issued in a fixed-ratio exchange as follows:

Commonshares -to be issued at closing directly to Co. B shareholders, andconstituting approximately 30% of the outstanding shares of Co. A following themerger.

Holdbackshares:

o These shares will constituteapproximately 20% of the outstanding shares of Co. A following the merger, andwill be issued at the time of the merger to and registered in the name of, andheld by, an Escrow Agent pending achievement of certain milestones by specifieddates;

o Each Co. B shareholder will beentitled to direct the Escrow Agent to vote the Holdback shares held in escrowon account of such shareholder;

o Each Co. B shareholder can transferall or a portion of the Holdback shares held in escrow on its account, subjectto the requirement that the transferee must agree in writing to be bound by theEscrow Agreement.

Milestoneshares:

o These shares will constituteapproximately 20% of the Co. A shares following the merger, and will also beissued at the time of the merger to and registered in the name of, and held by,an Escrow Agent pending achievement of certain milestones by specified dates;

o No Co. B shareholder will be entitledto vote the Milestone shares held in escrow on account of such shareholder-instead, the Escrow Agent will vote such shares on any item in the samepercentage as the other Common shares are voted (e.g., 35% yes, 65% no);

o No Co. B shareholder can transfer theMilestone shares held in escrow on its account, except as required by law oraccording to the applicable law of descent and distribution upon theshareholder's death.

In addition, the following provisions are applicable to both theHoldback and Milestone shares:

o Any dividends and distributions willbe issued in the name of the Escrow Agent and deposited into the EscrowAccount;

o Such dividends and distributions willbe released from escrow to the Co. A shareholders if the milestones areachieved by the specified dates; if the milestones are not met within thespecified periods, then such dividends and distributions would be returned to Co. A and the shares would be forfeited or cancelled.

o For Canadian and U.S. tax purposes:

The Holdback and Milestone shares shall be treated as issued andoutstanding to the Co. B shareholders;

The Co. B shareholders shall be treated as receiving the shares on theClosing Date;

The Co. B shareholders shall be responsible for any taxes related to theHoldback and Milestone shares, any dividends/distributions on such shares, andany interest and earnings from the investment and reinvestment of any suchdividends/distributions;

Each Co. B shareholder shall report on its respective tax returns and beliable for payment of all taxes upon any Escrow Earnings;

The Escrow Agent shall report Escrow Earnings on a Form 1099 withrespect to each Co. B shareholder;

Questions. We understand that the general rule is that the market priceis the value of the transaction where the acquiring person uses its publiclytraded shares in a fixed-ratio exchange to acquire a private entity. Ourquestions concerning the application of this general rule to our facts are:

1.We have a fixed-ratio exchange in this transaction, but the shares to beused as consideration are to be newly issued (i.e., not previously traded atany price). Does this fact require us to conclude that the acquisition price isnot determined, and therefore Co. A must conduct a fair market valuation of theCo. B shares it intends to acquire?

2.In addition, two tranches of shares may be cancelled and returned to Co. A if the milestones are not reached within the specified periods. Are we therefore ableto conclude that the acquisition price is not determined, and Co. A mustconduct a fair market valuation of the Co. B shares it will acquire? Or, do anyof the terms of the Escrow Agreement require us to treat the Holdback sharesand/or Milestone shares as being issued to Co. B shareholders at time ofclosing, and therefore part of a determined acquisition price?

3.Must the Co. B shareholders include the Holdback shares and/or Milestoneshares in their fair market valuation of the Co. A stock they will receive asconsideration for the merger, or do we exclude these shares from the fairmarket value determination because they may be cancelled and returned to Co. A if the milestones are not met within the specified periods?