Maxar -- summary under New Non-Resident Holdco

Overview

In connection with regulatory approval of its acquisition of DigitalGlobe, Maxar Technologies Ltd. (“Maxar Canada”) committed that the Maxar group would restructure so that, by the end of 2019, the ultimate parent would be a U.S.-incorporated corporation. This was accomplished on January 1, 2019 pursuant to a B.C. Plan of Arrangement. There was a three-party exchange under which

1. the Maxar Canada shareholders transferred their shares to a newly-formed B.C. unlimited liability company subsidiary of Maxar Canada (“AcquisitionCo”);
2. a newly-formed Delaware subsidiary of Maxar Canada (“Maxar U.S.”) issued shares to the former Maxar Canada shareholders in consideration for the transfer to it of Maxar Canada in 1 ; and,
3. AcquisitionCo issued common shares to Maxar U.S. in consideration for the issuance by Maxar U.S. in 2.

The incorporator’s share of Maxar U.S. held by Maxar Canada then was cancelled; and AcquisitionCo and Maxar Canada amalgamated so that Amalco was now a wholly-owned subsidiary of Maxar U.S.

The exchange by the Maxar Canada shareholders occurred on a taxable basis for ITA purposes. Although for Code purposes, the reorganization was expected to qualify as an “F” reorg, Code s. 367 resulted in most taxable U.S. residents, who owned Maxar Canada shares with a fair market value of U.S.$50,000 or more, recognizing a gain (if any), but not a loss, for Code purposes.

Maxar Canada

Maxar Canada is a leading global provider of advanced space technology solutions for commercial and government markets, including satellites, Earth imagery, geospatial data and analytics. It is a public company incorporated under the laws of B.C. whose shares are listed on the TSX and NYSE.

Maxar U.S.

A wholly-owned subsidiary of the Company to be incorporated as a corporation under the Delaware General Corporation Law prior to the “Effective Time” of the Arrangement (January 1, 2019).

AcquisitionCo

1182060 B.C. Unlimited Liability Company, a B.C. unlimited liability company and, immediately before the Effective Time, an indirect wholly-owned subsidiary of the Company.

Reasons for Domestication

In connection with regulatory approval of its acquisition of DigitalGlobe, the U.S.-based global leader in Earth imagery, the Company committed to the further reorganization of the combined Company’s structure to ensure that the ultimate parent of DigitalGlobe is incorporated in the U.S. by the end of 2019, subject to customary approvals. Maxar Canada’s ability to win new U.S. government contracts to provide space systems, imagery and services under classified space and defense programs at the U.S. Department of Defense, NASA and various U.S. intelligence agencies will be enhanced by the U.S. Domestication….

Plan of Arrangement

1. Maxar Canada Shares held by dissenting holders shall be transferred to the Company.
2. Each Maxar Canada Share shall be transferred by the holder thereof to AcqusitionCo in exchange for the “Consideration,” being one share of Maxar U.S. Common Stock per Company Share.
3. Simultaneously with 2, Maxar U.S. will issue the Consideration to the transferring holders in 2;
4. Simultaneously with 2, AcquisitionCo will issue common shares to Maxar U.S. in consideration for the issuance of the Consideration.
5. All Maxar U.S. Shares held by the Company shall be redeemed in consideration for U.S.$1.00 in cash.
6. Each outstanding LTIP Unit shall be exchanged for a Maxar U.S. share appreciation right. In particular, in respect of each LTIP Unit governed by s. 7 of the ITA or s. 409A of the Code, each LTIP Unit outstanding shall be exchanged for a Replacement LTIP Unit (i) to purchase one Maxar U.S. Share (or, in the case of a U.S. taxpayer, to purchase one Maxar U.S. Share or receive its cash equivalent, as applicable), and (ii) at a strike price or base price, as applicable, per Maxar U.S. Share in U.S. dollars equal to the greater of (i) the exercise price (in Canadian dollars converted into U.S. dollars using the rate of exchange quoted by the Bank of Canada for the closest preceding Business Day prior to the Effective Date) per Maxar Canada Share subject to such LTIP Unit immediately prior to the Effective Time, and (ii) such minimum amount that meets the requirements of paragraph 7(1.4)(c) of the Canadian Tax Act or U.S. Treasury Regulations Section 1.409A-1(b)(5)(v)(D), as applicable.
7. The Company and AcquisitionCo shall be amalgamated to form one unlimited liability company (“Amalco”) with the same effect as if they had amalgamated under s. 273 of the BCBCA. Maxar U.S. will receive one common share of Amalco for each common share it held of AcquisitionCo.

The TSX and the NYSE have each conditionally approved the listing of the Maxar U.S. Shares.

Canadian tax consequences

The Company expects that the U.S. Domestication will be a taxable transaction for Canadian tax purposes.

U.S. tax consequences

F Reorg

It is intended that the exchange of Maxar Canada Shares for Maxar U.S. Shares, taken together with the Amalgamation, qualify as a “reorganization” within the meaning of s. 368(a)(1)(F) of the Code. Assuming that (i) the exchange of Maxar Canada Shares for Maxar U.S. Shares, taken together with the Amalgamation, qualifies as an F Reorganization, and (ii) Maxar Canada is not and has not been a passive foreign investment company (“PFIC”) during the applicable holding period a U.S. Holder that exchanges Maxar Canada Shares for Maxar U.S. Shares pursuant to the Arrangement generally will not recognize taxable gain or loss upon such exchange for U.S. federal income tax purposes except as described below in relation to s. 367 of the Code.

Whether gain under s. 367

Code s. 367 applies to certain non-recognition transactions involving foreign corporations and has the effect of imposing income tax on certain U.S. persons in connection with transactions that would otherwise be tax-free. S. 367 would apply to the Arrangement if it otherwise qualified as an F Reorganization. A U.S. Holder who, at the time of the Arrangement, beneficially owns Maxar Canada Shares with a fair market value of less than $50,000 should not be required to recognize any gain or loss under s. 367(b) or include any part of the “all earnings and profits amount” in income. Other U.S. Holders (other than a 10% U.S. Holder, as described below) must either recognize a gain (if any), but not a loss, with respect to the Arrangement or, in the alternative, may elect to recognize the “all earnings and profits amount” attributable to such holder.

10% Holders

A U.S. Holder who, at the time of the Arrangement, beneficially owns (directly, indirectly or constructively) 10% or more of the total combined voting power of all classes of Maxar Canada Shares entitled to vote or 10% or more of the total value of Maxar Canada Shares (a “10% U.S. Holder”) is subject to special rules that generally require such 10% U.S. Holder to include in income as a dividend the “all earnings and profits amount” (within the meaning of Treasury Regulations Section 1.367(b)-2(d)) attributable to the Maxar Canada Shares owned directly by such U.S. Holder unless an exclusion applies.

PFIC status

Maxar Canada believes that it was not a PFIC (generally, a foreign corporation that has a specified percentage of “passive” income or assets in a taxable year, after the application of certain “look-through” rules) for U.S. federal income tax purposes for its 2017 taxable year or any prior taxable year and does not expect to be a PFIC for its 2018 taxable year….

Non-U.S. Holders

Non-U.S. Holders generally should not recognize a gain or loss for Code purposes as a result of the Arrangement.