Securities Law & Instruments

Headnote

MutualReliance Review System for Exemptive Relief Applications - reliefgranted, subject to certain conditions, from the prospectus andregistration requirements in respect of trades in connection witha merger transaction pursuant to the Insurance Companies Act (Canada).

ApplicableOntario Statutory Provisions

SecuritiesAct, R.S.O. 1990, c.S.5, as am., ss. 25, 35(1)15.i, 53, 72(1)(i),72(5), 74(1).

ApplicableOntario Rules

OSCRule 45-501, s.2.8.

ApplicableMulti-Lateral Instrument

MI 45-102,s.2.6.

INTHE MATTER OF

THESECURITIES LEGISLATION OF ONTARIO, BRITISH COLUMBIA,

ALBERTA,SASKATCHEWAN, MANITOBA, QUEBEC, NEW BRUNSWICK,

PRINCEEDWARD ISLAND, NOVA SCOTIA, NEWFOUNDLAND AND LABRADOR,

THEYUKON TERRITORY, THE NORTHWEST TERRITORIES AND

THENUNAVUT TERRITORY

AND

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS

AND

INTHE MATTER OF

SUNLIFE FINANCIAL SERVICES OF CANADA INC. AND

CLARICALIFE INSURANCE COMPANY

MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator (the "DecisionMaker") in each of Ontario, British Columbia, Alberta, Saskatchewan,Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia,Newfoundland and Labrador, the Yukon Territory, the NorthwestTerritories and Nunavut (collectively, the "Jurisdictions") hasreceived an application from Sun Life Financial Services of CanadaInc. ("Sun Life") and Clarica Life Insurance Company ("Clarica")(collectively, the "Filer") for a decision pursuant to the securitieslegislation of the Jurisdictions (the "Legislation") that thetrades of securities contemplated by the proposed securities exchangetransaction (the "Transaction") involving Sun Life and Claricato be effected by way of a reorganization of Clarica's capitalstructure shall be exempt from the registration and prospectusrequirements of the Legislation;

ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System"), the OntarioSecurities Commission is the principal regulator for this application;

ANDWHEREAS the Filer has represented to the Decision Makersthat:

1.Sun Life and Clarica have entered into a transaction agreementdated December 17, 2001 (the "Transaction Agreement") providingfor the Transaction to be effected by way of a reorganizationof Clarica's capital structure involving the change of the commonshares of Clarica (the "Clarica Common Shares") into a new classof exchangeable shares of Clarica (the "Exchangeable Shares")and the automatic exchange of theExchangeable Shares for commonshares of Sun Life (the "Sun Life Common Shares") to be issuedby Sun Life to holders of Clarica Common Shares ("Clarica Shareholders")all as more particularly described in paragraphs 7 and 8 below.

2.Sun Life is a holding company incorporated under the InsuranceCompanies Act (Canada) (the "ICA") and is a "reporting issuer"under the Legislation. To its knowledge, Sun Life is not in defaultof any applicable requirement of the Legislation. Sun Life iseligible to use a short form prospectus pursuant to National Instrument44-101 in each Jurisdiction. Sun Life is a "qualifying issuer"as defined in Multi-Lateral Instrument 45-102 Resale of Securities("MI 45-102"). Sun Life's registered office is located at 150King Street West, Toronto, Ontario M5H 1J9.

3.The authorized share capital of Sun Life consists of an unlimitednumber of Sun Life Common Shares, an unlimited number of ClassA Shares, issuable in series and an unlimited number of ClassB Shares, issuable in series. Currently, the only shares outstandingare Sun Life Common Shares, of which, as at December 31, 2001,there were 431,708,091 outstanding. The Sun Life Common Sharesare currently listed and posted for trading on the Toronto, NewYork, London and Philippines stock exchanges.

4.Clarica is an insurance company incorporated under the ICA andis a "reporting issuer" under the Legislation. To its knowledge,Clarica is not in default of any applicable requirement of theLegislation. Clarica is eligible to use a short-form prospectuspursuant to National Instrument 44-101 in each Jurisdiction. Clarica'sregistered office is located at 227 King Street South, Waterloo,Ontario N2J 4C5.

5.The authorized share capital of Clarica consists of an unlimitednumber of Clarica Common Shares and an unlimited number of sevenclasses of Special Shares (Classes A through G) having three differentpriorities with respect to payment of dividends and distributionof assets in the event of liquidation, dissolution or winding-upof Clarica. As of December 13, 2001, 6,000,000 Non-cumulativeRedeemable Class A Preferred Shares, Series 1 (the "Class A Shares")and 134,268,867 Clarica Common Shares were issued and outstanding.The Clarica Common Shares are currently listed and posted fortrading on The Toronto Stock Exchange.

6.The reorganization of Clarica's capital structure will be comprisedof the following:

(a)an amendment to the by-laws of Clarica to create a new class ofnon-voting exchangeable shares of Clarica (the "Exchangeable Shares")ranking junior to the Class A Shares and junior or equal to theother classes of Special Shares of Clarica and having the followingprincipal conditions:

(i)each Exchangeable Share, other than those held by Clarica Shareholdersthat validly exercise their Dissent Right (defined below) ("DissentingShareholders") will be exchangeable automatically for 1.5135 SunLife Common Shares, subject to customary anti-dilution provisions(the "Exchange Ratio");

(ii)each Exchangeable Share held by a Dissenting Shareholder willbe exchangeable automatically for that number of Sun Life CommonShares as is to be determined in accordance with the dissent rightsagreement between Clarica, Sun Life and each Dissenting Shareholder(the "Dissent Rights Agreement");

(iii)the exchange of Exchangeable Shares for Sun Life Common Shareswill be effected automatically at the time of the closing of theTransaction (the "Closing Time"); and

(iv)following such automatic exchange, the Exchangeable Shares willbe convertible into Clarica Common Shares;

(b)an amendment to the by-laws of Clarica to change the Clarica CommonShares, other than any owned beneficially by Sun Life or its subsidiariesas general fund assets, into Exchangeable Shares at the ClosingTime on the basis of one Exchangeable Share for each Clarica CommonShare; and

(c)the entering into of the Dissent Rights Agreement to provide ClaricaShareholders with a dissent right (the "Dissent Right") substantiallysimilar to the dissent right in section 190 of the Canada BusinessCorporations Act, except that payment of fair value for the ClaricaCommon Shares would be made only in Sun Life Common Shares andthe notice of dissent will be required to be delivered not laterthan 2:00 p.m. (Toronto time) on the business day before the ClaricaMeeting (defined below).

7.At the Closing Time, the reorganization of Clarica's capital structurewill be implemented through the occurrence of the following stepsin the following order:

(a)all the Clarica Common Shares, except those beneficially ownedby Sun Life or any of its subsidiaries as general fund assets,will be changed into Exchangeable Shares;

(b)each Exchangeable Share, will be exchanged automatically withSun Life for:

(i)in the case of each Exchangeable Share other than those held byDissenting Shareholders, that number of Sun Life Shares as isequal to the Exchange Ratio; and

(ii)in the case of each Exchangeable Share held by a Dissenting Shareholder,that number of Sun Life Common Shares as is to be determined inaccordance with the Dissent Rights Agreement; and

(c)Sun Life will convert the Exchangeable Shares acquired by it ascontemplated above into Clarica Common Shares in accordance withthe share conditions of the Exchangeable Shares.

Thesesteps will occur automatically, without any further action beingtaken by holders of the Clarica Common Shares on the third businessday after all required approvals to the completion of the Transactionhave been obtained, and provided that all other conditions tothe completion of the Transaction are satisfied or waived.

8.No fractional Sun Life Common Shares will be issued pursuant tothe Transaction. In lieu of any such fractional shares, each holderof Clarica Common Shares who would otherwise be entitled to receivea fraction of a Sun Life Common Share will receive a cash paymentequal to such holder's pro rata portion of the net proceeds receivedfrom aggregating all such fractional interests and selling themin the open market.

9.Options to purchase Clarica Common Shares ("Clarica Options")have been granted pursuant to the Clarica Canadian and UnitedStates Management Stock Incentive Plans (the "Clarica Option Plans").As of December 31, 2001, there were Clarica Options outstandingwhich, when vested, would be exercisable to acquire a total of3,084,500 Clarica Common Shares. The terms of the Clarica OptionPlans provide that all unvested Clarica Options will vest immediatelyprior to a "change of control" of Clarica as defined in the ClaricaOption Plans. This definition would include the completion ofthe Transaction. The Clarica Option Plans further provide thatfollowing the completion of the Transaction, all outstanding ClaricaOptions will thereafter be exercisable to acquire the same pershare consideration as was received by holders of Clarica CommonShares pursuant to the Transaction.

10.The Transaction Agreement contemplates that, subject to the receiptof all required approvals, Clarica will amend the terms of theClarica Option Plans to provide that each unexercised ClaricaOption outstanding at the Closing Time will be exchanged for anoption under the Clarica Option Plans to acquire that number ofSun Life Common Shares as is equal to the product of the numberof Clarica Common Shares that were issuable on exercise of suchClarica Option immediately prior to the Closing Time multipliedby the Exchange Ratio and rounded down to the nearest whole numberof Sun Life Common Shares (a "New Clarica Option"). Sun Life hasagreed under the terms of the Transaction Agreement to issue theappropriate number of Sun Life Common Shares on the exercise ofthe New Clarica Options. The term to expiry, conditions to andmanner of exercising and all other terms and conditions of suchNew Clarica Option will otherwise be unchanged from those of therelevant Clarica Option. New Clarica Options will be non-transferableother than in certain limited circumstances.

11.The Transaction has been voted on and approved by holders of ClaricaCommon Shares and holders of Clarica participating policies andholders of Clarica non-participating policies issued by The MutualLife Assurance Company of Canada on or before March 31, 1995 ("ClaricaPolicyholders") at a meeting held on March 6, 2002 (the "ClaricaMeeting"). Under the ICA, the Transaction required the favourablevote of at least 66 2/3% of the votes cast by the holders of theClarica Common Shares voting separately as a class and the favourablevote of at least 66 2/3% of the votes cast by holders of the ClaricaCommon Shares and the Clarica Policyholders voting together atthe Clarica Meeting. The Clarica Meeting was held in accordancewith the ICA.

12.In connection with the Clarica Meeting, Clarica and Sun Life haveprepared and Clarica has delivered to the Clarica Shareholdersand the Clarica Policyholders entitled to delivery of policyholdermeeting materials, a management information circular dated January11, 2002 (the "Clarica Circular"). In addition to containing adetailed description of the Transaction, the Clarica Circularwas prepared in conformity with the provisions of the Act andcontains prospectus-level disclosure of the business and affairsof each of Clarica and Sun Life.

13.The steps under the Transaction, the exercises of the DissentRight, if any, the amendment to the Clarica Option Plans and theexercises of the New Clarica Options, if any, involve or may involvea number of trades of securities (collectively, the "Trades")and there may be no registration or prospectus exemption availableunder the Legislation for certain of the Trades.

14.A holder of Clarica Common Shares will make one fundamental investmentdecision at the time when such holder votes in respect of theTransaction and/or determines whether to dissent in respect thereof.As a result of this decision, a holder of Clarica Common Shareswill ultimately receive Sun Life Common Shares in exchange forthe Exchangeable Shares held by such holder or in payment of thefair value of the Clarica Common Shares formerly held by suchholder. The holders of Clarica Options are not being asked tomake any investment decision and, absent the amendment of theClarica Option Plans contemplated above, would receive ExchangeableShares upon the exercise of their Clarica Options following thecompletion of the Transaction which would then be immediatelyexchanged for Sun Life Common Shares. The contemplated changesin respect of the Clarica Options have been proposed in orderto achieve the same economic result on a basis that does not disadvantagethe holder of Clarica Options from a tax perspective.

15.Sun Life has applied to list the Sun Life Common Shares to beissued or made issuable pursuant to the Transaction, the exerciseof the Dissent Right and the amendment to the Clarica Option Planson the Toronto and New York stock exchanges.

ANDWHEREAS pursuant to the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the"Decision");

ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;

THEDECISION of the Decision Makers under the Legislationis that the Registration and Prospectus Requirements shall notapply to the Trades provided that the first trade in any securityacquired pursuant to this Decision in a Jurisdiction shall bedeemed to be a distribution or primary distribution to the publicunder the Legislation of such Jurisdiction (the "Applicable Legislation")unless in respect of a first trade of Sun Life Common Shares

(a)except in Quebec, the conditions in subsections (3) or (4) ofsection 2.6 of M.I. 45-102 Resale of Securities are satisfied;and

(b)in Quebec,

(i)the issuer or one of the parties to the Transaction is and hasbeen a reporting issuer in Quebec for the 12 months immediatelypreceding the trade,

(ii)no unusual effort is made to prepare the market or to create demandfor the securities that are the subject of the trade,

(iii)no extraordinary commission or consideration is paid to a personor company in respect of the trade, and

(iv)if the selling shareholder is an insider or officer of the issuer,the selling shareholder has no reasonable grounds to believe thatthe issuer is in default of securities legislation.

March20, 2002.

"PaulMoore"       "Theresa McLeod"