Continental Bank Intends to Make Application to Federal Court of Appeal.

TORONTO--(BUSINESS WIRE)--June 13, 1996--Continental Bank of Canada announced today that it intends to make an application to the Federal Court of Appeal in connection with the reasons for judgment released last week in which the decision in favour of the Bank rendered by the Tax Court of Canada was reversed.

The application will be for determination of an issue which was not dealt with in the reasons of the Federal Court of Appeal.

The reasons for this application are explained in the following letter sent today to shareholders. The text of which follows:

Shareholders of Continental Bank of Canada Fellow Shareholder:

You will by now have heard that the Federal Court of Appeal reversed the decision of the Tax Court of Canada, restoring the original assessment for income tax that we have been disputing for so many years.

All of us are most disappointed by this development. After a full trial and extensive testimony, the trial judge concurred with our view that the procedure we followed for the 1986 transaction with Central Capital was appropriate and was properly characterized as the sale of a partnership interest.

You will recall that the transaction was put in place after it proved not feasible to effect a direct sale of shares of the Bank's leasing subsidiary. Instead, transactions were implemented in order to organize a partnership to take over the leasing business and for the Bank subsequently to sell its interest in the partnership to Central Capital on terms designed to replicate the tax result that would have followed the sale of shares of the leasing subsidiary. What the Federal Court of Appeal has done is to conclude that the transactions were, and should be taxed as, a sale of the underlying assets. One of the consequences of this approach is to require the inclusion in income for tax purposes of capital cost allowance that had previously been claimed.

The decision of the Federal Court of Appeal would result in this income being taxed in the hands of the Bank's leasing subsidiary. Our view is that, even if the transaction is to be taxed as a sale of assets rather than the sale of a partnership interest, the assets were sold by the Bank and the recaptured capital cost allowance should be taxed in the hands of the Bank, if at all.

Your Board of Directors has instructed legal counsel to seek a motion before the Federal Court of Appeal to have this aspect of the matter considered; it was not addressed at all in the reasons for judgment of the Federal Court of Appeal, although it had been argued. We cannot at this time precisely determine what the result would be in terms of the income tax position if our motion is successful, but it would improve the position of the Bank.

After this motion is dealt with by the Federal Court of Appeal, your Board will consider whether to make an application to the Supreme Court of Canada for leave to appeal. This preliminary application for leave to appeal would be necessary if the Bank wishes to appeal to that Court, since the Court will consider an appeal only if satisfied that the issues involved are of wide public importance. You will be kept informed as this matter proceeds. There will be a discussion of the situation during the Shareholders Meeting to be held on June 27, 1996 in order to consider the continuance of the Bank under the Canada Business Corporations Act.

A copy of a press release that was issued today and the one that was issued on June 6 when the decision of the Federal Court of Appeal was released are attached for your information.

Your Directors have not lost hope for a successful resolution of this long-standing income tax dispute.

CONTACT: Continental Bank of Canada

George Begic, 416/864-1019