Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether a spin-off of a public company followed by a split-up butterfly of the controlling private company qualifies for the exemption under paragraph 55(3)(b)?
Position: Yes.
Reasons: See statement of principal issues for details.
XXXXXXXXXX 2000-004808
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX ("XXXXXXXXXX/Mr. X")
XXXXXXXXXX ("XXXXXXXXXX/Mr. Y")
XXXXXXXXXX ("XXXXXXXXXX/Mr. Z")
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers.
You have been advised by your clients that none of the issues contained herein is:
(i) in an earlier return of the taxpayers or related persons;
(ii) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the taxpayers or related persons;
(iii) under objection by the taxpayers or related persons;
(iv) before the courts; or
(v) the subject of a ruling previously issued by the Directorate.
Definitions
In this letter, the following terms have the meanings specified:
(a) unless otherwise indicated, all references to statute are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended to the date of this letter (the "Act"), and all monetary amounts are expressed in Canadian dollars;
(b) XXXXXXXXXX;
(c) "ACB" means adjusted cost base as that expression is defined in section 54 and subsection 248(1);
(d) "active business" has the meaning assigned by the definition in subsection 95(1);
(e) "agreed amount" in respect of an asset means the amount that the transferor and transferee of the asset agree upon in their election under subsection 85(1) in respect of that asset;
(f) "arm's length" has the meaning assigned by section 251;
(g) "Canadian-controlled private corporation" has the meaning assigned by the definition in subsection 125(7);
(h) "Canadian corporation" has the meaning assigned by the definition in subsections 89(1) and 248(1);
(i) "capital dividend" has the meaning assigned by the definition in subsections 248(1) and subsection 83(2);
(j) "capital dividend account" has the meaning assigned by the definition in subsection 89(1);
(k) "capital property" has the meaning assigned by the definition in section 54;
(l) "cost amount" has the meaning assigned by subsection 248(l);
(m) "depreciable property" has the meaning assigned by subsection 13(21) and subsection 248(1);
(n) "eligible capital property" has the meaning assigned by the definition in section 54 and subsection 248(1);
(o) "eligible property" has the meaning assigned by subsection 85(1.1);
(p) "exempt surplus" has the meaning assigned by the definition in paragraph 113(1)(a) and subsections 5907(1) and 5907(1.01)of the Income Tax Regulations;
(q) "FMV" means fair market value;
(r) "investment tax credit" has the meaning assigned by the definition in subsection 127(9) and subsection 248(1);
(s) "net capital loss" has the meaning assigned by subsection 111(8) and subsection 248(1);
(t) "PUC" means paid-up capital as that expression is defined in subsection 89(1) and subsection 248(1);
(u) "Plan of Arrangement" means the proposed plan of arrangement under the XXXXXXXXXX as described in paragraph 29;
(v) "pre-acquisition surplus" has the meaning assigned by the definition in paragraph 113(1)(d) and paragraphs 5900(1)(c) and 5901(1)(c)of the Income Tax Regulations;
(w) "prepaid expenses" means rights arising from the prepayment of expenses;
(x) "proceeds of disposition" has the meaning assigned by section 54;
(y) "Proposed Transactions" means the transactions described in paragraphs 16 to 66 below;
(z) "public corporation" has the meaning assigned in subsection 89(l) and subsection 248(1);
(aa) "refundable dividend tax on hand" has the meaning assigned by the definition in subsection 129(3);
(bb) "related persons" has the meaning assigned by section 251;
(cc) "SFI" means specified financial institution as defined in subsection 248(l);
(dd) "significant influence" has the meaning set out in section 3050 of the CICA Handbook;
(ee) "short-term preferred shares" has the meaning assigned by the definition in subsection 248(1);
(ff) "specified investment business" ("SIB") has the meaning assigned by the definition in subsection 125(7) and subsection 248(1);
(gg) "stated capital" means stated capital as that expression is used in the XXXXXXXXXX;
(hh) "subject corporation" has the meaning assigned in subsection 186(3);
(ii) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);
(jj) "taxable Canadian corporation" has the meaning assigned by subsection 89(l) and subsection 248(1);
(kk) "taxable dividend" has the meaning assigned by subsection 89(l) and subsection 248(1);
(ll) "taxable preferred share" has the meaning assigned by the definition in subsection 248(1);
(mm) "taxable surplus" has the meaning assigned by the definition in subsection 113(1) and subsections 5907(1) and 5907(1.01) of the Income Tax Regulations; and
(nn) "transaction date" means XXXXXXXXXX, the date on which the proposed transactions in paragraphs 20 to 64 will occur.
Our understanding of the facts, purposes of the proposed transactions and proposed transactions is as follows:
Facts
1. XXXXXXXXXX ("XXXXXXXXXX/PUBCO") is a public corporation, a subject corporation and a taxable Canadian corporation with its head office in XXXXXXXXXX/PUBCO was founded in XXXXXXXXXX and its shares have been listed on the XXXXXXXXXX Stock Exchange since XXXXXXXXXX. Beginning as a XXXXXXXXXX:
XXXXXXXXXX
XXXXXXXXXX/PUBCO as it presently exists was formed on XXXXXXXXXX as a result of the amalgamation of the predecessor to XXXXXXXXX /PUBCO and XXXXXXXXXX which was a subsidiary wholly-owned corporation.
2. XXXXXXXXXX/PUBCO's authorized capital stock includes an unlimited number XXXXXXXXXX shares ("XXXXXXXXXX/PUBCO XXXXXXXXXX shares"), an unlimited number of XXXXXXXXXX common shares ("XXXXXXXXXX/PUBCO XXXXXXXXXX shares") and an unlimited number of preferred shares. The XXXXXXXXXX/PUBCO XXXXXXXXXX shares are entitled to one vote per share. The XXXXXXXXXX/PUBCO XXXXXXXXXX shares are entitled to XXXXXXXXXX votes per share and the annual dividends on the XXXXXXXXXX/PUBCO XXXXXXXXXX shares may not exceed the annual dividends on the XXXXXXXXXX/PUBCO XXXXXXXXXX shares. As of XXXXXXXXXX/PUBCO had XXXXXXXXXX/PUBCO XXXXXXXXXX shares issued and outstanding and XXXXXXXXXX/PUBCO XXXXXXXXXX shares issued and outstanding. No preferred shares are issued and outstanding. The XXXXXXXXXX/PUBCO XXXXXXXXXX shares are listed for trading on the XXXXXXXXXX Stock Exchange.
3. XXXXXXXXXX ("Holdco/XXXXXXXXXX") is a XXXXXXXXXX holding corporation for shares of XXXXXXXXXX/PUBCO, as well as other investments. Holdco/XXXXXXXXXX is a Canadian-controlled private corporation and a taxable Canadian corporation. Holdco/XXXXXXXXXX has the following six classes of issued shares:
(a) Common shares ("Holdco/XXXXXXXXXX common shares") - 1 vote per share, participating;
(b) XXXXXXXXXX shares ("Holdco/XXXXXXXXXX shares") - XXXXXXXXXX votes per share, participating, corporation may purchase for cancellation with consent of holders at a price not exceeding adjusted net book value;
(c) XXXXXXXXXX shares ("Holdco/XXXXXXXXXX shares") - XXXXXXXXXX votes per share, participating, corporation may purchase for cancellation with consent of holders at a price not exceeding adjusted net book value;
(d) XXXXXXXXXX shares ("Holdco/XXXXXXXXXX shares") - 1 vote per share, participating, corporation may purchase for cancellation with consent of holders at a price not exceeding adjusted net book value;
(e) XXXXXXXXXX shares ("Holdco/XXXXXXXXXX shares") - non-voting, redeemable and retractable at stated capital, priority on liquidation up to the redemption amount; and
(f) XXXXXXXXXX shares ("Holdco/XXXXXXXXXX shares") - non-voting, participating.
The shareholders of Holdco/XXXXXXXXXX are XXXXXXXXXX/Mr. X, XXXXXXXXXX/Mr. Y, XXXXXXXXXX/Mr. Z and the XXXXXXXXXX ("XXXXXXXXXX Trust"). XXXXXXXXXX/Mr. X and XXXXXXXXXX/Mr. Y are brothers. XXXXXXXXXX/Mr. Z was married to the late XXXXXXXXXX, who was a sister to XXXXXXXXXX/Mr. X and XXXXXXXXXX/Mr. Y. The XXXXXXXXXX Trust is a discretionary inter-vivos trust whose trustees are XXXXXXXXXX/Mr. X and his spouse XXXXXXXXXX, XXXXXXXXXX/Mr. Y and his spouse XXXXXXXXXX and XXXXXXXXXX/Mr. Z. Decisions of the XXXXXXXXXX Trust are made by majority vote of XXXXXXXXXX trustees. The beneficiaries of the XXXXXXXXXX Trust are the XXXXXXXXXX (deceased father of XXXXXXXXXX/Mr. X and XXXXXXXXXX/Mr. Y), the XXXXXXXXXX and XXXXXXXXXX spouse and issue, XXXXXXXXXX/Mr. X and his spouse and issue, and XXXXXXXXXX/Mr. Y and his spouse and issue.
The issued and outstanding shares of Holdco/XXXXXXXXXX are owned as follows:
(g) XXXXXXXXXX/Mr. X XXXXXXXXX Holdco/XXXXXXXXXX common shares
XXXXXXXXXX Holdco/XXXXXXXXXX shares
XXXXXXXXXX Holdco/XXXXXXXXXX shares
(h) XXXXXXXXX/Mr. XXXXXXXXX Holdco/XXXXXXXXX common shares
XXXXXXXXXX Holdco/XXXXXXXXXX shares
XXXXXXXXXX Holdco/XXXXXXXXXX shares
(i) XXXXXXXXXX /Mr. Z XXXXXXXXXX Holdco/XXXXXXXXXX shares
(j) XXXXXXXXXX Trust XXXXXXXXXX Holdco/XXXXXXXXXX
4. Holdco/XXXXXXXXXX owns XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares. Based on the total outstanding shares of XXXXXXXXXX/PUBCO at XXXXXXXXXX, Holdco/XXXXXXXXXX controls XXXXXXXXXX% of the votes and is entitled to XXXXXXXXXX% of the equity of XXXXXXXXXX/PUBCO. In addition, the following shares of XXXXXXXXXX/PUBCO are owned directly by members of the XXXXXXXXXX :
XXXXXXXXXX/Mr. X XXXXXXXXXX/PUBCO XXXXXXXXXX shares
XXXXXXXXXX/Mr. Y XXXXXXXXXX PUBCO XXXXXXXXXX shares
XXXXXXXXXX/Mr. Z XXXXXXXXXX /PUBCO XXXXXXXXXX shares
XXXXXXXXXX Trust * XXXXXXXXXX/PUBCO XXXXXXXXXX shares
XXXXXXXXXX (XXXXXXXXXX /Mr. X's spouse) XXXXXXXXXX /PUBCO XXXXXXXXXX shares
XXXXXXXXXX (XXXXXXXXXX /Mr. Y's spouse) XXXXXXXXXX /PUBCO XXXXXXXXXX shares
XXXXXXXXXX (XXXXXXXXXX /Mr. X's son) XXXXXXXXXX /PUBCO XXXXXXXXXX shares
XXXXXXXXXX (XXXXXXXXXX /Mr. X's son) XXXXXXXXXX /PUBCO XXXXXXXXXX shares
XXXXXXXXXX (XXXXXXXXXX /Mr. X's daughter) XXXXXXXXXX /PUBCO XXXXXXXXXX shares
*XXXXXXXXXX Trust owns directly XXXXXXXXXX/PUBCO XXXXXXXXXX shares and is entitled to XXXXXXXXXX/PUBCO XXXXXXXXXX shares from the XXXXXXXXXX.
5. XXXXXXXXXX a manager of funds for various taxable and non-taxable entities, advised XXXXXXXXXX/PUBCO that it exercises control or direction over XXXXXXXXXX/PUBCO XXXXXXXXXX shares representing approximately XXXXXXXXXX% of the outstanding shares of that class. XXXXXXXXXX is not the beneficial owner of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares but, as investment manager, exercises investment control or direction over such shares for its client accounts.
6. To the best of the knowledge of the directors and senior officers of XXXXXXXXXX/PUBCO, as of the date hereof, there is no person or partnership other than:
(a) Holdco/XXXXXXXXXX/Mr. X, XXXXXXXXXX Mr. Y, XXXXXXXXXX/Mr. Z and the XXXXXXXXXX Trust who owns, alone or together with other non-arm's length persons, at least 10% of the issued shares of any class of the capital stock of XXXXXXXXXX/PUBCO or any other corporation related to XXXXXXXXXX/PUBCO that has a significant direct or indirect interest in any issued shares of the capital stock of XXXXXXXXXX/PUBCO; and
(b) XXXXXXXXXX, who exercises control or direction over at least 10% of the issued XXXXXXXXXX/PUBCO XXXXXXXXXX shares otherwise than as a beneficial owner.
7. To the best of the knowledge of the directors of Holdco/XXXXXXXXXX , as of the date hereof:
(a) there is no person or partnership other than XXXXXXXXXX/Mr. X, XXXXXXXXXX/ Mr. Y, XXXXXXXXXX/Mr. Z and the XXXXXXXXXX Trust who owns, alone or together with other non-arm's length persons, at least 10% of the issued shares of any class of the capital stock of Holdco/XXXXXXXXXX or any other corporation related to Holdco/XXXXXXXXXX that has a significant direct or indirect interest in any issued shares of the capital stock of Holdco/XXXXXXXXXX; and
(b) there is no person or partnership who exercises control or direction over at least 10% of the issued shares of any class of the capital stock of Holdco/XXXXXXXXXX otherwise than as a beneficial owner.
8. XXXXXXXXXX/PUBCO has granted certain rights under which certain directors of XXXXXXXXXX/PUBCO are entitled to acquire XXXXXXXXXX/PUBCO XXXXXXXXXX shares at specified exercise prices. As of the date of this letter, no XXXXXXXXXX/PUBCO XXXXXXXXXX shares have been issued under the stock option plan in XXXXXXXXXX.
9. XXXXXXXXXX/PUBCO's assets may be summarized as follows:
(a) certain cash or near-cash property, including accounts receivable, inventories and prepaid expenses;
(b) certain fixed assets (principally land, buildings, machinery and equipment) used in XXXXXXXXXX/PUBCO's business operations;
(c) a parcel of real property (the "XXXXXXXXXX"), XXXXXXXXXX;
(d) a note receivable from an employee ("Employee note receivable") who borrowed from XXXXXXXXXX/PUBCO to finance the acquisition of XXXXXXXXXX/PUBCO XXXXXXXXXX shares, which XXXXXXXXXX/PUBCO intends to collect or forgive prior to the Transaction Date;
(e) deferred charges relating to foreign exchange and refinancing;
(f) goodwill;
(g) shares of the following subsidiary wholly-owned corporations:
XXXXXXXXXX
XXXXXXXXXX/PUBCO's liabilities include bank advances, accounts payable and accrued liabilities, capital lease obligations, long-term debt and other liabilities. The other liabilities include reserves XXXXXXXXXX , none of which have been deducted for income tax purposes.
10. Holdco/XXXXXXXXXX assets may be summarized as follows:
(a) cash;
(b) shares of the following corporations:
XXXXXXXXXX
(c) loan receivable from XXXXXXXXXX ("XXXXXXXXXX loan") that is non-interest-bearing with no specific repayment terms.
Holdco/XXXXXXXXXX liabilities include accounts payable and accrued liabilities. Holdco/XXXXXXXXXX has also recorded an amount in respect of deferred income taxes on its balance sheet.
11. On XXXXXXXXXX/PUBCO acquired at FMV the XXXXXXXXXX The acquisition of XXXXXXXXXX was not undertaken in contemplation of the Proposed Transactions. Further, the Proposed Transactions would be undertaken regardless of these transactions, although the various steps may have differed.
12. XXXXXXXXXX. These transactions occurred pursuant to a XXXXXXXXXX shareholders' agreement and were not undertaken in contemplation of the Proposed Transactions described herein. Further, the Proposed Transactions would be undertaken regardless of these transactions, although the various steps may have differed.
13. On XXXXXXXXXX, pursuant to an agreement dated XXXXXXXXXX, Holdco/XXXXXXXXXX exercised its right to sell XXXXXXXXXX/PUBCO, XXXXXXXXXX. The transfer of these properties was not undertaken in contemplation of the Proposed Transactions described herein. Further, the Proposed Transactions would be undertaken regardless of these transactions, although the various steps may have differed.
14. On XXXXXXXXXX Holdco/XXXXXXXXXX sold at FMV its XXXXXXXXXX% interest in XXXXXXXXXX to the XXXXXXXXXX Trust for cash consideration of $XXXXXXXXXX. XXXXXXXXXX is a Canadian corporation which rents real property to a third party. XXXXXXXXXX owns no shares of XXXXXXXXXX/PUBCO.
15. Other than the transactions described in paragraphs 1 through 14, there have not been any acquisitions or dispositions of significance. While no other significant acquisitions or dispositions of property by XXXXXXXXXX/PUBCO or Holdco/XXXXXXXXXX are currently under negotiation, it is conceivable that in the ordinary course of business of either of these two corporations, such may occur at any time as circumstances change or as opportunities may arise. However, no such acquisition or disposition will occur in contemplation of the Proposed Transactions described herein.
Proposed Transactions
The following transactions will occur on the date and in the order listed below.
16. Prior to XXXXXXXXXX will enter into an agreement of purchase and sale under which XXXXXXXXXX will transfer to XXXXXXXXXX at FMV the assets used by the XXXXXXXXXX division of XXXXXXXXXX.
The property transferred by XXXXXXXXXX to XXXXXXXXXX is used or held by XXXXXXXXXX principally for the purpose of gaining or producing income from an active business.
As consideration for the assets transferred, XXXXXXXXXX will:
(a) assume some of the liabilities of XXXXXXXXXX; and
(b) issue shares.
17. Prior to XXXXXXXXXX, Holdco/XXXXXXXXXX will make a cash advance to XXXXXXXXXX in exchange for a non-interest-bearing demand promissory note.
18. Prior to XXXXXXXXXX , Holdco/XXXXXXXXXX and some or all of its shareholders will enter into an agreement of purchase and sale under which Holdco/XXXXXXXXXX will transfer to such shareholders at FMV, in a proportion to be determined, all of its shares of both XXXXXXXXXX. As consideration, the shareholders will issue non-interest-bearing promissory notes to Holdco/XXXXXXXXXX ("Holdco/XXXXXXXXXX shareholder loans").
19. In XXXXXXXXXX, Holdco/XXXXXXXXXX will pay both :
(a) a taxable dividend to the extent required to recover all its refundable dividend tax on hand; and
(b) a capital dividend to the extent of the balance in its capital dividend account.
These dividends will be paid in cash, by an increase to the stated capital of the shares of Holdco/XXXXXXXXXX or some combination thereof.
19A. XXXXXXXXXX/PUBCO has recently incorporated a corporation in XXXXXXXXXX Currently no share capital of XXXXXXXXXX has been issued. XXXXXXXXXX/PUBCO intends to subscribe for XXXXXXXXXX shares of XXXXXXXXXX on or before XXXXXXXXXX.
20. On or before XXXXXXXXXX/PUBCO and XXXXXXXXXX will enter into an agreement of purchase and sale under which XXXXXXXXXX/PUBCO will transfer XXXXXXXXXX (collectively referred to as the "XXXXXXXXXX Transferred Assets") for FMV consideration. As consideration, XXXXXXXXXX will assume the reserve XXXXXXXXXX in respect of property owned by XXXXXXXXXX (which has not been deducted for income tax purposes) and issue XXXXXXXXXX common shares. The aggregate FMV of the consideration will equal the FMV of the XXXXXXXXXX Transferred Assets.
21. XXXXXXXXXX/PUBCO and XXXXXXXXXX will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer of the XXXXXXXXXX Transferred Assets. The agreed amount in respect of each such election will not be less than the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii). In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted in paragraph 85(1)(b).
22. The addition to the stated capital of the XXXXXXXXXX common shares will equal the amount of the aggregate of the cost to XXXXXXXXXX (as determined pursuant to subsection 85(1)) of the XXXXXXXXXX Transferred Assets as described in paragraph 20.
23. On XXXXXXXXXX will transfer as a dividend in kind, the shares of XXXXXXXXXX , a subsidiary wholly-owned corporation, to XXXXXXXXXX/PUBCO. As a result, XXXXXXXXXX will become a direct subsidiary wholly-owned corporation of XXXXXXXXXX/PUBCO.
Substantially all of the property of XXXXXXXXXX is used for the purpose of gaining or producing income from an active business.
XXXXXXXXXX is expected to have exempt surplus at XXXXXXXXXX in excess of the amount of the resulting dividend to XXXXXXXXXX/PUBCO. XXXXXXXXXX is expected to have no taxable surplus at XXXXXXXXXX.
24. A newly created corporation will be incorporated under the XXXXXXXXXX ("Mco") by XXXXXXXXXX/PUBCO. Mco will be a taxable Canadian corporation. Prior to the transactions relating hereto, Mco will not have had any assets, liabilities or issued any outstanding shares. The articles of incorporation of Mco will provide that its authorized capital will include common shares ("Mco common shares"). The Mco common shares will be entitled to one vote per share and will be fully participating. The holder of a Mco common share will be entitled to a non-cumulative dividend as and when declared by the Board of Directors from time to time. Any shares issued prior to the transactions relating hereto will be owned by XXXXXXXXXX. Other than the assets obtained on any issuance of shares to XXXXXXXXXX prior to the transactions relating hereto, Mco will not have had any assets or liabilities.
25. On XXXXXXXXXX/PUBCO and Mco will enter into an agreement of purchase and sale under which XXXXXXXXXX/PUBCO will transfer to Mco the assets used by the M Group of XXXXXXXXXX/PUBCO ("M Transferred Assets") for FMV consideration. As consideration, Mco will:
(a) assume some of the liabilities of XXXXXXXXXX/PUBCO, subject to the following restrictions:
(i) the amount of liabilities to be allocated to such properties that will be subject to a joint election under subsection 85(1) described in paragraph 26 will not exceed the aggregate of the agreed amounts under the elections; and
(ii) the amount of liabilities to be allocated to each such property that is not the subject of an election under subsection 85(1) will not exceed the FMV of any such property;
(b) issue a promissory note to XXXXXXXXXX/PUBCO, but not exceeding in aggregate with the liabilities assumed in (a) above, the sum of both:
(i) the aggregate of the agreed amounts in the joint elections under subsection 85(1) described in paragraph 26; and
(ii) the FMV of any of the M Transferred Assets that are not subject to an election under subsection 85(1); and
(c) issue XXXXXXXXXX Mco common shares having an aggregate FMV equal to the FMV of the M Transferred Assets less the amount of:
(i) the liabilities of XXXXXXXXXX/PUBCO assumed by Mco as described in paragraph (a) above; and
(ii) the amount of the promissory note issued by Mco as described in paragraph
(iii) above.
26. XXXXXXXXXX/PUBCO and Mco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer of any eligible property of XXXXXXXXXX /PUBCO. The agreed amount in respect of each such election will not be less than:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii) in the case of depreciable property of a prescribed class; and
(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted in paragraph 85(1)(b).
27. The addition to the stated capital of the Mco common shares will equal the amount by which the aggregate of the cost to Mco (determined pursuant to subsection 85(1), where relevant) of the M Transferred Assets as described in paragraph 25 exceeds the aggregate of the amount of:
(a) the liabilities assumed by Mco as described in paragraph 25(a); and
(b) the amount of the promissory note issued by Mco as described in paragraph 25(b).
28. A newly created corporation will be incorporated under the XXXXXXXXXX ("Newco"). Newco will be a taxable Canadian corporation. Prior to the transactions relating hereto, Newco will not have had any assets, liabilities or issued any outstanding shares. Newco's articles of incorporation will provide that its authorized capital will include XXXXXXXXXX shares ("Newco XXXXXXXXXX shares"), XXXXXXXXXX common shares ("Newco XXXXXXXXXX shares"), and XXXXXXXXXX shares ("Newco XXXXXXXXXX shares"). The attributes of the Newco XXXXXXXXXX shares and the Newco XXXXXXXXXX shares will be the same as the attributes of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, respectively.
Newco XXXXXXXXXX Shares
The Newco XXXXXXXXXX shares will be entitled to one vote per share and will be fully participating. The Newco XXXXXXXXXX shares will be entitled to a non-cumulative dividend as and when declared by the Board of Directors. The Newco XXXXXXXXXX shares convert automatically into Newco XXXXXXXXXX shares on a one- for-one basis in the event that XXXXXXXXXX
XXXXXXXXXX
Newco XXXXXXXXXX Shares
The Newco XXXXXXXXXX shares will be entitled to XXXXXXXXXX votes per share and will be fully participating. The holders of the Newco XXXXXXXXXX shares will be entitled to a non-cumulative dividend as and when declared by the Board of Directors, but not exceeding the dividend declared or paid in respect of the Newco XXXXXXXXXX shares. The Newco XXXXXXXXXX shares will be convertible on a one-for-one basis into Newco XXXXXXXXXX shares at the option of the Newco XXXXXXXXXX shareholder.
Newco XXXXXXXXXX Shares
The Newco XXXXXXXXXX shares will have the following attributes:
(a) each Newco XXXXXXXXXX share will be redeemable, subject to applicable law, at any time at the option of Newco at an amount equal to the aggregate fair market value of property sold or transferred to, or exchanged with Newco on the date of first issuance of the Newco XXXXXXXXXX shares for consideration that includes such Newco special shares, less the amount of any non-share consideration, if any, paid, assumed or delivered by Newco for the purchase, acquisition or exchange of such property divided by the number of Newco XXXXXXXXXX shares issued as consideration for such property (the "Newco Redemption Amount") plus any declared but unpaid dividends;
(b) each Newco XXXXXXXXXX share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the Newco Redemption Amount plus any declared but unpaid dividends;
(c) the holder of each Newco XXXXXXXXXX share will be entitled to a non-cumulative dividend as and when declared by the Board of Directors;
(d) if Newco is liquidated, dissolved or wound-up or its assets are otherwise distributed among the shareholders by way of repayment of capital, whether voluntary or involuntary, the holders of the Newco XXXXXXXXXX shares shall be entitled to receive, before any distribution of any assets of Newco among the holders of the Newco XXXXXXXXXX shares and the Newco XXXXXXXXXX shares, an amount in respect of each XXXXXXXXXX share held, equal to the Newco Redemption Amount plus any declared but unpaid dividends;
(e) the holder of each Newco XXXXXXXXXX share will not be entitled to vote at meetings of shareholders of Newco, other than as provided under the XXXXXXXXXX;
(f) any amendment to the articles of Newco to delete or vary any preference, right, condition, restriction, limitation or prohibition attaching to the Newco XXXXXXXXXX shares, or to create XXXXXXXXXX shares ranking in priority to, or equal to the Newco XXXXXXXXXX shares, in addition to the authorization by special resolution, may be authorized by XXXXXXXXXX of votes cast at a meeting of the holders of the Newco XXXXXXXXXX shares; and
(g) no dividends or other distributions shall be made on any other classes of shares at any time when the corporation is not in the position legally to redeem all of the then outstanding Newco XXXXXXXXXX shares or when it would put the corporation into such a position.
29. Subject to, among other things, the appropriate shareholder, court and regulatory approvals, the transactions described in paragraphs 30 to 42 below will be undertaken pursuant to a Plan of Arrangement under the XXXXXXXXXX. With the exception of the filing of elections under the Act, these transactions will occur by virtue of the Plan of Arrangement and will be designated in the Plan of Arrangement to occur on the Transaction Date and in the order set out below.
Recapitalization of the Distributing Corporation for the XXXXXXXXXX /PUBCO Spin-Off
30. As part of the Plan of Arrangement, the corporate articles of XXXXXXXXXX/PUBCO will be amended in such a manner that, in addition to any other shares that may be authorized for issue, its share capital will be comprised of four additional classes of shares, being XXXXXXXXXX /PUBCO XXXXXXXXXX shares ("XXXXXXXXXX/PUBCO XXXXXXXXXX shares"), XXXXXXXXXX/PUBCO XXXXXXXXXX common shares ("XXXXXXXXXX/PUBCO XXXXXXXXXX shares"), XXXXXXXXXX/PUBCO XXXXXXXXXX shares ("XXXXXXXXXX/PUBCO XXXXXXXXXX shares") and XXXXXXXXXX/PUBCO XXXXXXXXXX common shares ("XXXXXXXXXX/PUBCO XXXXXXXXXX shares"). The attributes of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will be the same as the attributes of the XXXXXXXXXX /PUBCO XXXXXXXXXX shares. The attributes of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will be the same as the attributes of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares. The XXXXXXXXXX/PUBCO XXXXXXXXXX shares, the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, the XXXXXXXXXX /PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will have the following attributes:
XXXXXXXXXX/PUBCO XXXXXXXXXX Shares
(a) each XXXXXXXXXX/PUBCO XXXXXXXXXX share will be a fully participating, voting share with the holder thereof entitled to one vote at meetings of shareholders of XXXXXXXXXX/PUBCO;
(b) the holders of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will be entitled to non-cumulative dividends as and when declared by the Board of Directors;
(c) each XXXXXXXXXX/PUBCO XXXXXXXXXX share will be converted to one XXXXXXXXXX/PUBCO XXXXXXXXXX share in the event that XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX/PUBCO XXXXXXXXXX Shares
(a) each XXXXXXXXXX/PUBCO XXXXXXXXXX share will be a fully participating share with the holder thereof entitled to XXXXXXXXXX votes per share at meetings of shareholders of XXXXXXXXXX/PUBCO;
(b) the holders of the XXXXXXXXXX /PUBCO XXXXXXXXXX shares shall be entitled to a non-cumulative dividend as and when declared by the Board of Directors, but not exceeding the dividend declared or paid in respect of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
(c) each XXXXXXXXXX/PUBCO XXXXXXXXXX share shall be convertible on a one-for-one basis into XXXXXXXXXX/PUBCO XXXXXXXXXX shares at the option of the holder.
XXXXXXXXXX/PUBCO XXXXXXXXXX Shares and XXXXXXXXXX/PUBCO XXXXXXXXXX Shares
(a) the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares (collectively called the "XXXXXXXXXX/PUBCO XXXXXXXXXX shares") will have an aggregate redemption amount equal to that proportion of the FMV of all the issued and outstanding shares of XXXXXXXXXX /PUBCO immediately before its corporate articles are amended as part of the Plan of Arrangement that the FMV of the XXXXXXXXXX/PUBCO Transferred Assets to be transferred to Newco (as described in paragraph 35) net of the liabilities assumed by Newco (as described in paragraph 35(a)) is of the FMV of all the assets of XXXXXXXXXX/PUBCO less all the liabilities of XXXXXXXXXX/PUBCO before such amendment. Each XXXXXXXXXX /PUBCO XXXXXXXXXX share will be redeemable, subject to the applicable law, at any time at the option of XXXXXXXXXX/PUBCO at an amount equal to the foregoing aggregate redemption amount divided by the number of XXXXXXXXXX/PUBCO XXXXXXXXXX shares issued under the XXXXXXXXXX/PUBCO Share Exchange in paragraph 31 ("XXXXXXXXXX/PUBCO XXXXXXXXXX Share Redemption Amount") plus any declared but unpaid dividends;
(b) each XXXXXXXXXX/PUBCO XXXXXXXXXX share will be retractable, subject to the applicable law, at any time at the option of the holder at a retraction amount equal to the XXXXXXXXXX/PUBCO XXXXXXXXXX Share Redemption Amount, plus any declared but unpaid dividends;
(c) the holders of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares shall be entitled to non-cumulative dividends as and when declared by the Board of Directors. No dividends shall be declared or paid on the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or the XXXXXXXXXX/PUBCO XXXXXXXXXX shares unless simultaneously a dividend is declared and paid on both such classes of shares;
(d) if the corporation is liquidated, dissolved or wound-up or its assets are otherwise distributed among the shareholders by way of repayment of capital, whether voluntary or involuntary, the holders of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares shall be entitled to receive, before any distribution of any assets of the corporation among the holders of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, XXXXXXXXXX/PUBCO XXXXXXXXXX shares, XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares, an amount in respect of each XXXXXXXXXX/PUBCO XXXXXXXXXX share held, equal to the XXXXXXXXXX/PUBCO XXXXXXXXXX Share Redemption Amount plus any declared but unpaid dividends;
(e) the holder of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares shall not be entitled to vote at meetings of the shareholders of XXXXXXXXXX/PUBCO, other than as provided under the XXXXXXXXXX;
(f) any amendment to the articles of XXXXXXXXXX/PUBCO to delete or vary any preference, right, condition, restriction, limitation or prohibition attaching to the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, or to create XXXXXXXXXX shares ranking in priority to, or equal to the XXXXXXXXXX /PUBCO XXXXXXXXXX shares, in addition to the authorization by special resolution, may be authorized by XXXXXXXXXX of votes cast at a meeting of the holders of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares; and
(g) no dividends or other distributions shall be made on any other classes of shares at any time when the corporation is not in the position legally to redeem all the then outstanding XXXXXXXXX/PUBCO XXXXXXXXXX shares or when it would put the corporation into such a position.
31. In accordance with the Plan of Arrangement, each XXXXXXXXXX/PUBCO XXXXXXXXXX share held by an XXXXXXXXXX/PUBCO shareholder will be exchanged for one XXXXXXXXXX/PUBCO XXXXXXXXXX share and one XXXXXXXXXX/PUBCO XXXXXXXXXX share. Each XXXXXXXXXX/PUBCO XXXXXXXXXX share held by an XXXXXXXXXX/PUBCO shareholder will be exchanged for one XXXXXXXXXX/PUBCO XXXXXXXXXX share and one XXXXXXXXXX/PUBCO XXXXXXXXXX share. These two exchanges are collectively referred to as the "XXXXXXXXXX/PUBCO Share Exchange". No election will be filed under subsection 85(1) with respect to the exchange. As a result of the XXXXXXXXXX/PUBCO Share Exchange:
(a) the aggregate stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will not exceed the aggregate PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares; the aggregate stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will not exceed the aggregate PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
(i) the addition to the stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will equal that proportion of the aggregate PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares that the fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares is of the total fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
(ii) the addition to the stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will equal that proportion of the aggregate PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares that the fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares is of the total fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
(iii) the addition to the stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will equal that proportion of the aggregate PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares that the fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares is of the total fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX shares; and
(iv) the addition to the stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will equal that proportion of the aggregate PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares that the fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares is of the total fair market value of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
and
(b) each issued XXXXXXXXXX/PUBCO XXXXXXXXXX and XXXXXXXXXX/PUBCO XXXXXXXXXX share will be cancelled and the authorized XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO preferred shares will be deleted from the corporate articles.
Transfer of XXXXXXXXXX /PUBCO XXXXXXXXXX Shares to the Transferee Corporation (Newco)
32. In accordance with the Plan of Arrangement, Newco will acquire from the XXXXXXXXXX/PUBCO shareholders all of the issued XXXXXXXXXX/PUBCO XXXXXXXXXX shares (estimated to be XXXXXXXXXX as of the date of the Proposed Transaction) in exchange for an identical number of Newco XXXXXXXXXX shares and Newco will acquire from the XXXXXXXXXX/PUBCO shareholders all of the issued XXXXXXXXXX/PUBCO XXXXXXXXXX shares (which will total XXXXXXXXXX) in exchange for an identical number of Newco XXXXXXXXXX shares. The two exchanges are collectively referred to as "the Newco Share Exchange". The certificates for the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares which otherwise would be delivered to the XXXXXXXXXX/PUBCO shareholders on the XXXXXXXXXX/PUBCO Share Exchange instead will be delivered directly to Newco.
Immediately after the Newco Share Exchange , the fair market value of each XXXXXXXXXX/PUBCO shareholder's shares of the capital stock of Newco will be equal to or approximate the amount determined in the formula as found in subparagraph (b)(iii) of the definition "permitted exchange" in subsection 55(1). In addition, no person who is not a XXXXXXXXXX/PUBCO shareholder will own any shares of Newco.
33. If requested by a particular XXXXXXXXXX/PUBCO shareholder, Newco will execute a joint election under subsection 85(1) in respect of the disposition by that shareholder of XXXXXXXXXX/PUBCO XXXXXXXXXX shares for Newco XXXXXXXXXX shares or of XXXXXXXXXX/PUBCO XXXXXXXXXX shares for Newco XXXXXXXXXX shares. It is anticipated that Holdco/XXXXXXXXXX, the XXXXXXXXXX Trust, XXXXXXXXXX/Mr. X, XXXXXXXXXX/Mr. Y and persons related to them who own XXXXXXXXXX/PUBCO XXXXXXXXXX or XXXXXXXXXX shares will jointly elect with Newco pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), in respect of the disposition of XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX/PUBCO XXXXXXXXXX shares. The agreed amount in respect of each such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). In each case, the agreed amount will not exceed the FMV of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, nor will it be less than the amount permitted by paragraph 85(1)(b).
34. Pursuant to the Plan of Arrangement and the provisions of the XXXXXXXXXX, the addition to the stated capital of the Newco XXXXXXXXXX shares will equal the aggregate of:
(a) where subsection 84.1(1) applies to the Newco Share Exchange, the greater of the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged and the ACB, as modified by paragraphs 84.1(2)(a) and (a.1), of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged;
(b) where subsection 85(1) applies to the Newco Share Exchange and subsection 84.1(1) does not apply, the agreed amount on the transfer of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares determined pursuant to paragraph 85(1)(a); and
(c) in all other cases, the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged.
Pursuant to the Plan of Arrangement and the provisions of the XXXXXXXXXX, the addition to the stated capital of the Newco XXXXXXXXXX shares will equal the aggregate of:
(d) where subsection 84.1(1) applies to the Newco Share Exchange, the greater of the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged and the ACB, as modified by paragraphs 84.1(2)(a) and (a.1), of the XXXXXXXXXX shares exchanged;
(e) where subsection 85(1) applies to the Newco Share Exchange and subsection 84.1(1) does not apply, the agreed amount of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares determined pursuant to paragraph 85(1)(a); and
(f) in all other cases, the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged.
XXXXXXXXXX /PUBCO Distribution
35. In accordance with the Plan of Arrangement, XXXXXXXXXX/PUBCO will transfer to Newco, for FMV consideration, XXXXXXXXXX (collectively referred to as "the XXXXXXXXXX/PUBCO Transferred Assets") such that, immediately after the transfer, the FMV of the XXXXXXXXXX/PUBCO Transferred Assets net of liabilities assumed by Newco as described herein, will approximate that proportion of the FMV of all the property of XXXXXXXXXX /PUBCO net of all of the liabilities of XXXXXXXXXX/PUBCO determined immediately before the transfer, that:
(a) the aggregate FMV of the XXXXXXXXXX/PUBCO shares owned by Newco immediately before the transfer, is of
(b) the aggregate FMV of all the issued and outstanding shares of XXXXXXXXXX/PUBCO immediately before the transfer.
Any cash (including near-cash property) of XXXXXXXXXX/PUBCO that is transferred to Newco as part of the distribution will be transferred on a day that is no later than 45 days after the Transaction Date.
As consideration for the transfer of property described herein, Newco will:
(c) assume some of the liabilities of XXXXXXXXXX/PUBCO, subject to the following restrictions:
(i) the amount of liabilities to be allocated to such properties that will be the subject of a joint election under subsection 85(1) described in paragraph 36 will not exceed the aggregate of the agreed amounts under the elections; and
(ii) the amount of liabilities to be allocated to each such property that is not the subject of an election under 85(1) will not exceed the FMV of any such property; and
(d) issue XXXXXXXXXX Newco XXXXXXXXXX shares.
For purposes of this paragraph, "approximate that proportion" means the discrepancy from that proportion, if any, that would not exceed XXXXXXXXXX determined as a percentage of the net FMV of the property that Newco has received compared to what Newco would have received had it received its appropriate pro-rata share of the net FMV of XXXXXXXXXX/PUBCO's property.
36. XXXXXXXXXX/PUBCO and Newco will jointly elect, pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6) with respect to any eligible property of XXXXXXXXXX/PUBCO. Specifically, the agreed amount in each joint election will not be less than:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii) in the case of depreciable property of a prescribed class; and
(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).
37. Pursuant to the Plan of Arrangement and the provisions of the XXXXXXXXXX, the addition to the stated capital of the Newco XXXXXXXXXX shares will equal the amount by which the aggregate of the cost to Newco (determined pursuant to 85(1), where relevant) of the XXXXXXXXXX/PUBCO Transferred Assets as described in paragraph 35 exceeds the aggregate of the amount of liabilities assumed by Newco as described in paragraph 35(a).
Redemption of XXXXXXXXXX /PUBCO and Newco Intercompany Shareholdings
38. In accordance with the Plan of Arrangement, Newco will redeem from XXXXXXXXXX/PUBCO all of its Newco XXXXXXXXXX shares for an amount equal to their FMV, being the aggregate of the Newco Redemption Amount of all of the Newco XXXXXXXXXX shares so redeemed and will issue to XXXXXXXXXX/PUBCO in consideration therefor a demand promissory note (hereinafter referred to as the "Newco Redemption Note") with a principal amount and FMV equal to the aggregate of the Newco Redemption Amount of all the Newco special shares so redeemed. XXXXXXXXXX/PUBCO will accept such note as full and absolute payment of the aggregate of the Newco Redemption Amount in respect of the redeemed XXXXXXXXXX shares of Newco with the risk of the note being dishonoured.
39. In accordance with the Plan of Arrangement, XXXXXXXXXX/PUBCO will redeem from Newco all of its XXXXXXXXXX/PUBCO XXXXXXXXXX shares for an amount equal to their FMV, being the aggregate of the XXXXXXXXXX/PUBCO XXXXXXXXXX Share Redemption Amount of all of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares so redeemed and will issue to Newco in consideration therefor a demand promissory note (hereinafter referred to as the "XXXXXXXXXX/PUBCO Redemption Note") with a principal amount and FMV equal to the aggregate of the XXXXXXXXXX/PUBCO XXXXXXXXXX Share Redemption Amount of all the XXXXXXXXXX/PUBCO XXXXXXXXXX shares so redeemed. Newco will accept such XXXXXXXXXX/PUBCO Redemption Note as full payment of the aggregate of the XXXXXXXXXX/PUBCO XXXXXXXXXX Share Redemption Amount in respect of the redeemed XXXXXXXXXX/PUBCO XXXXXXXXXX shares with the risk of the note being dishonoured.
40. The Newco Redemption Note will be a demand promissory note with interest payable only from the date of demand for payment by the holder to the date of payment of the amount owing under the particular note at an annual rate equal to the prime interest charged by Newco's bank on XXXXXXXXXX.
The XXXXXXXXXX/PUBCO Redemption Note will be a demand promissory note with interest payable only from the date of demand for payment by the holder to the date of payment of the amount owing under the particular note at an annual rate equal to the prime interest charged by XXXXXXXXXX/PUBCO's bank on XXXXXXXXXX.
Set-off of XXXXXXXXXX/PUBCO and Newco Notes
41. In accordance with the Plan of Arrangement, the Newco Redemption Note issued by Newco and the XXXXXXXXXX/PUBCO Redemption Note issued by XXXXXXXXXX/PUBCO will be set-off by each holder and issuer of the particular demand note and accepted as full payment by each of them. The Newco Redemption Note and the XXXXXXXXXX /PUBCO Redemption Note will both thereupon be marked paid in full and cancelled.
42. In accordance with the Plan of Arrangement, the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares will be redesignated XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares respectively.
Wind-up of XXXXXXXXXX
43. XXXXXXXXXX/PUBCO and Newco will each enter into an agreement of purchase and sale with Holdco/XXXXXXXXXX, under which Holdco/XXXXXXXXXX will transfer to each of XXXXXXXXXX/PUBCO and Newco at FMV 50% of the shares of XXXXXXXXXX for cash consideration of $XXXXXXXXXX.
44. XXXXXXXXXX will be dissolved pursuant to the provisions of the XXXXXXXXXX, with all the property owned by XXXXXXXXXX being distributed to the shareholders, XXXXXXXXXX /PUBCO and Newco.
Recapitalization of Holdco/XXXXXXXXXX
45. Holdco/XXXXXXXXXX corporate articles will be amended in such a manner that, in addition to any other shares that may be authorized for issue, its share capital will be comprised of one additional class of shares, being Holdco/XXXXXXXXXX shares ("Holdco/XXXXXXXXXX"). The Holdco/XXXXXXXXXX shares will have the same attributes as Holdco/XXXXXXXXXX shares, except the Holdco/XXXXXXXXXX shares will have voting rights. The Holdco/XXXXXXXXXX shares will have the following attributes:
(a) the holders of the Holdco/XXXXXXXXXX shares will be entitled to non-cumulative dividends as and when declared by the Board of Directors;
(b) each Holdco/XXXXXXXXXX share will be a fully participating share with the holder thereof entitled to XXXXXXXXXX votes at meetings of shareholders of Holdco/XXXXXXXXXX;
(c) if the corporation is liquidated, dissolved or wound-up or its assets are otherwise distributed, the holders of the Holdco/XXXXXXXXXX shares shall share pro rata on a share for share basis with the holders of the Holdco/XXXXXXXXXX common shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares and Holdco/XXXXXXXXXX shares and Holdco/XXXXXXXXXX shares.
The Holdco/XXXXXXXXXX shares are not taxable preferred shares or short-term preferred shares.
46. Each Holdco/XXXXXXXXXX share held by an Holdco/XXXXXXXXXX shareholder will be exchanged for one Holdco/XXXXXXXXXX share. This exchange is referred to as the "Holdco/XXXXXXXXXX Share Exchange". No elections will be filed under subsection 85(1) with respect to the exchange. The addition to the stated capital of the Holdco/XXXXXXXXXX shares will be determined under the XXXXXXXXXX.
Immediately after the Holdco/XXXXXXXXXX Share Exchange, XXXXXXXXXX/Mr. Z will own shares entitling him to XXXXXXXXXX% of the votes of Holdco/XXXXXXXXXX and to at least XXXXXXXXXX% of the FMV of Holdco/XXXXXXXXXX.
47. A newly created corporation will be incorporated under the XXXXXXXXXX (XXXXXXXXXX/Yco"). XXXXXXXXXX/Yco will be a taxable Canadian corporation. Prior to the transactions relating hereto, XXXXXXXXXX/Yco will not have had any assets, liabilities or issued any outstanding shares. XXXXXXXXXX/Yco's articles of incorporation will provide that its authorized capital will include common shares ("XXXXXXXXXX/Yco common shares") and XXXXXXXXXX shares ("XXXXXXXXXX/Yco XXXXXXXXXX shares"). The XXXXXXXXXX/Yco common shares will be entitled to one vote per share and will be fully participating. The XXXXXXXXXX/Yco common shares will be entitled to non-cumulative dividends as and when declared by the Board of Directors. The XXXXXXXXXX/Yco XXXXXXXXXX shares will have the following attributes:
(a) each XXXXXXXXXX/Yco XXXXXXXXXX share will be redeemable, subject to applicable law, at any time at the option of XXXXXXXXXX/Yco at an amount equal to the aggregate FMV of property sold or transferred to, or exchanged with the corporation on the date of first issuance of the XXXXXXXXXX/Yco XXXXXXXXXX shares for consideration that includes such XXXXXXXXXX/Yco XXXXXXXXXX shares, less the amount of any non-share consideration, if any, paid, assumed or delivered by the corporation for the purchase, acquisition or exchange of such property divided by the number of XXXXXXXXXX/Yco XXXXXXXXXX shares issued as consideration for such property (the XXXXXXXXXX /Yco Redemption Amount"), plus any declared but unpaid dividends;
(b) each XXXXXXXXXX/Yco XXXXXXXXXX share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the XXXXXXXXXX/Yco Redemption Amount, plus any declared but unpaid dividends;
(c) the holder of each XXXXXXXXXX/Yco XXXXXXXXXX share will be entitled to a non-cumulative dividend as and when declared by the Board of Directors;
(d) if XXXXXXXXXX/Yco is liquidated, dissolved or wound-up or its assets are otherwise distributed among the shareholders by way of repayment of capital, whether voluntary or involuntary, the holders of the XXXXXXXXXX/Yco XXXXXXXXXX shares shall be entitled to receive, before any distribution of any assets of XXXXXXXXXX/Yco among the holders of the XXXXXXXXXX/Yco common shares, an amount in respect of each XXXXXXXXXX/Yco XXXXXXXXXX share held, equal to the XXXXXXXXXX/Yco Redemption Amount, plus any declared but unpaid dividends;
(e) the holder of each XXXXXXXXXX/Yco XXXXXXXXXX share shall be entitled to one vote per share at meetings of the shareholders of XXXXXXXXXX/Yco;
(f) any amendments to the articles of XXXXXXXXXX/Yco to delete or vary any preference, right, condition, restriction, limitation or prohibition attaching to the XXXXXXXXXX/Yco XXXXXXXXXX shares, or to create XXXXXXXXXX shares ranking in priority to, or equal to the XXXXXXXXXX/Yco XXXXXXXXXX shares, in addition to the authorization by special resolution, may be authorized by XXXXXXXXXX of the votes cast at a meeting of the holders of the XXXXXXXXXX/Yco XXXXXXXXXX shares;
and
(g) no dividends or other distributions shall be made on any other classes of shares at any time when the corporation is not in a position legally to redeem all of the then outstanding XXXXXXXXXX/Yco XXXXXXXXXX shares or when it would put the corporation into such a position.
48. A newly created corporation will be incorporated under the XXXXXXXXXX ("XXXXXXXXXX/Zco"). XXXXXXXXXX/Zco will be a taxable Canadian corporation. Prior to the transactions relating hereto, XXXXXXXXXX/Zco will not have had any assets, liabilities or issued any outstanding shares. XXXXXXXXXX /Zco's articles of incorporation will provide that its authorized share capital will include common shares ("XXXXXXXXXX/Zco common shares") and XXXXXXXXXX shares ("XXXXXXXXXX/Zco XXXXXXXXXX shares"). The attributes of the XXXXXXXXXX/Zco common shares and the XXXXXXXXXX/Zco XXXXXXXXXX shares will be identical to the attributes of the XXXXXXXXXX/Yco common shares and XXXXXXXXXX/Yco XXXXXXXXXX shares as outlined in paragraph 47. The redemption amount of a XXXXXXXXXX/Zco XXXXXXXXXX share will be referred to as the "XXXXXXXXXX/Zco Redemption Amount".
49. A newly created corporation will be incorporated under the XXXXXXXXXX ("XXXXXXXXXX/Tco"). XXXXXXXXXX/Tco will be a taxable Canadian corporation. Prior to the transactions relating hereto, XXXXXXXXXX/Tco will not have had any assets, liabilities or issued any outstanding shares. XXXXXXXXXX/Tco's articles of incorporation will provide that its authorized share capital will include common shares ("XXXXXXXXXX/Tco common shares") and ("XXXXXXXXXX/Tco XXXXXXXXXX shares"). The attributes of the XXXXXXXXXX/Tco common shares and the XXXXXXXXXX/Tco XXXXXXXXXX shares will be the same as the attributes of the XXXXXXXXXX/Yco common shares and the XXXXXXXXXX/Yco XXXXXXXXXX shares as outlined in paragraph 47 above. The redemption amount of a XXXXXXXXXX/Tco XXXXXXXXXX share will be referred to as the "XXXXXXXXXX/Tco Redemption Amount".
Transfer of Holdco/XXXXXXXXXX Shares Held by Individuals to the Transferee Corporations for the Holdco/XXXXXXXXXX Split-Up
50. XXXXXXXXXX/Yco will acquire from XXXXXXXXXX/Mr. Y all of his shareholdings in Holdco/XXXXXXXXXX, being XXXXXXXXXX Holdco/XXXXXXXXXX common shares, XXXXXXXXXX Holdco/XXXXXXXXXX shares and XXXXXXXXXX Holdco/XXXXXXXXXX shares. XXXXXXXXXX/Yco will issue XXXXXXXXXX/Yco common shares to XXXXXXXXXX/Mr. Y as consideration for the property transferred. This transaction will be referred to as the "XXXXXXXXXX/Yco Share Exchange". XXXXXXXXXX/Mr. Y and XXXXXXXXXX/Yco will execute a joint election as permitted under subsection 85(1) in respect of the disposition, in prescribed form and within the time referred to in subsection 85(6). The agreed amount in respect of the election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the FMV of the Holdco/XXXXXXXXXX shares transferred to XXXXXXXXXX/Yco by XXXXXXXXXX /Mr. Y, nor will it be less than the amount permitted by paragraph 85(1)(b).
51. XXXXXXXXXX/Zco will acquire from XXXXXXXXXX/Mr. Z all of his shares in Holdco/XXXXXXXXXX, being XXXXXXXXXX Holdco/XXXXXXXXXX shares. XXXXXXXXXX /Zco will issue XXXXXXXXXX /Zco common shares to XXXXXXXXXX /Mr. Z as consideration for the property transferred. This transaction will be referred to as the "XXXXXXXXXX/Zco Share Exchange". XXXXXXXXXX/Mr. Z and XXXXXXXXXX/Zco will execute a joint election as permitted under subsection 85(1) in respect of the disposition, in prescribed form and within the time referred to in subsection 85(6). The agreed amounts in respect of the election will not be less than the lesser of the amount specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the FMV of the Holdco/XXXXXXXXXX shares transferred to XXXXXXXXXX/Zco by XXXXXXXXXX/Mr. Z, nor will it be less than the amount permitted by paragraph 85(1)(b).
52. XXXXXXXXXX/Tco will acquire from the XXXXXXXXXX Trust all of its shares of Holdco/XXXXXXXXXX, being XXXXXXXXXX Holdco/XXXXXXXXXX shares. XXXXXXXXXX/Tco will issue XXXXXXXXXX/Tco common shares to the XXXXXXXXXX Trust as consideration for the property transferred. This transaction will be referred to as the "XXXXXXXXXX/Tco Share Exchange". XXXXXXXXXX Trust and XXXXXXXXXX/Tco will execute a joint election as permitted under subsection 85(1) in respect of the disposition, in prescribed form and within the time referred to in subsection 85(6). The agreed amount in respect of the election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the FMV of the Holdco/XXXXXXXXXX shares transferred to XXXXXXXXXX/Tco by the XXXXXXXXXX Trust, nor will it be less than the amount permitted by paragraph 85(1)(b).
53. Immediately after the XXXXXXXXXX/Yco Share Exchange, the XXXXXXXXXX/Zco Share Exchange and the XXXXXXXXXX/Tco Share Exchange described herein, XXXXXXXXXX /Yco, XXXXXXXXXX/Zco and XXXXXXXXXX/Tco will own all of the shares each of which is a share of the capital stock of Holdco/XXXXXXXXXX that was owned immediately before the exchange by XXXXXXXXXX/Mr. Y, XXXXXXXXXX/Mr. Z and the XXXXXXXXXX Trust respectively, as required by subparagraph (b)(ii) of the definition "permitted exchange" in subsection 55(1). Only XXXXXXXXXX/Mr. Y will own shares of XXXXXXXXXX/Yco, only XXXXXXXXXX/Mr. Z will own shares of XXXXXXXXXX Zco and only the XXXXXXXXXX Trust will own shares of XXXXXXXXXX /Tco, thus meeting the requirements of subparagraph (b)(i) of the definition of "permitted exchange" in subsection 55(1).
54. The addition to the stated capital of the XXXXXXXXXX/Yco common shares will equal the greater of the aggregate PUC and the ACB, as modified by paragraphs 84.1(2)(a) and (a.1), of the Holdco/XXXXXXXXXX shares transferred to XXXXXXXXXX/Yco from XXXXXXXXXX/Mr. Y as described in paragraph 50 above, being XXXXXXXXXX Holdco/XXXXXXXXXX common shares, XXXXXXXXXX Holdco/XXXXXXXXXX shares and XXXXXXXXXX Holdco/XXXXXXXXXX shares.
The addition to the stated capital of the XXXXXXXXXX/Zco common shares will equal the greater of the aggregate PUC and the ACB, as modified by paragraphs 84.1(2)(a) and (a.1), of the Holdco/XXXXXXXXXX shares transferred to XXXXXXXXXX/Zco from XXXXXXXXXX/Mr. Z as described in paragraph 51 above, being XXXXXXXXXX Holdco/XXXXXXXXXX shares.
The addition to the stated capital of the XXXXXXXXXX/Tco common shares will equal the greater of the aggregate PUC and the ACB, as modified by paragraphs 84.1(2)(a) and (a.1), of the Holdco/XXXXXXXXXX shares transferred to XXXXXXXXXX/Tco from the XXXXXXXXXX Trust as described in paragraph 52 above, being XXXXXXXXXX Holdco/XXXXXXXXXX shares.
Types of Property for the Holdco/XXXXXXXXXX Split-Up
55. Immediately before the transfers of property described in paragraphs 57, 58 and 59 below, the property of Holdco/XXXXXXXXXX will be determined on a consolidated basis by including the appropriate pro-rata share of the assets of any corporation over which Holdco/XXXXXXXXXX has the ability to exercise significant influence (Holdco/XXXXXXXXXX and such corporations will hereinafter be referred to as the "Holdco/XXXXXXXXXX Group"), which assets will be classified into three types of property for the purposes of the definition "distribution" in subsection 55(1), as follows:
(a) cash or near-cash property, comprising all of the current assets of the Holdco/XXXXXXXXXX Group, including any cash, accounts receivable, inventories and prepaid expenses;
(b) business property, comprising all of the assets of the Holdco/XXXXXXXXXX Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from a business (other than a SIB); and
(c) investment property, comprising all of the assets of the Holdco/XXXXXXXXXX Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from property or a SIB.
For greater certainty, any tax accounts, such as any undeducted scientific research and experimental development expenditures, any investment tax credits or any net capital loss of the Holdco/XXXXXXXXXX Group, will not be considered property for purposes of the Proposed Transactions described herein.
For greater certainty, for the purposes of the Proposed Transactions, the XXXXXXXXXX will be considered business property and the ICo note will be considered cash or near-cash property. The portion of the Employee note receivable (to the extent it is not collected or forgiven prior to the Transaction Date) that is not repayable within one year will be considered business property. The portion of the Employee note receivable (to the extent it is not collected or forgiven prior to the Transaction Date) that is repayable within one year will be considered cash or near-cash property.
For the purposes of this paragraph and paragraph 56 below, Holdco/XXXXXXXXXX will be considered to have significant influence over a corporation if it has significant influence over that corporation or over any other corporation that has significant influence over that corporation, or if Holdco/XXXXXXXXXX in combination with corporations over which it has significant influence, have significant influence over that corporation. Holdco/XXXXXXXXXX will have significant influence over XXXXXXXXXX/PUBCO and Newco.
For greater certainty, the FMV of the shares of any corporation over which Holdco/XXXXXXXXXX has the ability to exercise significance influence and of any indebtedness receivable by Holdco/XXXXXXXXXX from such a corporation will be allocated between the three types of property described above by multiplying the FMV of the shares of the particular corporation or amount of indebtedness receivable from the particular corporation, as the case may be, by the proportion that the net fair market value of each type of property owned by the particular corporation (as determined in this paragraph and paragraph 56 below) is of the aggregate net fair market value of all the property owned by such corporation.
56. In determining, on a consolidated basis, the net FMV of each type of property of Holdco/XXXXXXXXXX immediately before the transfer described in paragraphs 57, 58 and 59 below, the liabilities of Holdco/XXXXXXXXXX and any corporation over which Holdco/XXXXXXXXXX exercises significant influence will be allocated to and will be deducted in the calculation of the net FMV of each such type of property of such corporation in the following manner:
(a) in determining the net FMV of each type of property of a corporation over which Holdco/XXXXXXXXXX exercises significant influence, immediately before the transfer described in paragraphs 57, 58 and 59 below, the liabilities of that particular corporation (other than any amount owing by such corporation to Holdco/XXXXXXXXXX) will be allocated to, and will be deducted in the calculation of, the net FMV of each type of property of a particular corporation in the following manner:
(i) current liabilities of such corporation will be allocated to the cash or near-cash property (including any cash, accounts receivable, inventory and prepaid expenses) of such corporation in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property owned by the particular corporation. To the extent that the allocation of current liabilities as described herein exceeds the aggregate FMV of the cash or near-cash property of the particular corporation, such corporation will be considered to have a negative amount of cash or near-cash property;
(ii) following the allocation of current liabilities to each cash or near-cash property in (i) above, any remaining net FMV of any accounts receivable, inventories and prepaid expenses of such corporation will be reclassified as business property and excluded from cash or near-cash property, to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates;
(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property, will then be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its FMV. Liabilities that pertain to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities that pertains to a particular type of property, as described herein exceeds the aggregate FMV of all that particular type of property of the particular corporation, the particular corporation will be considered to have a negative amount of that type of property;
(iv) any liabilities, other than current liabilities, of such corporation which do not relate to a particular type of property will then be allocated to the cash or near-cash property, investment property and business property of such corporation based on the relative net FMV of each type of property prior to the allocation of such liabilities, but after the allocation of the liabilities described in subparagraphs (a)(i) and (a) (iii) above and the reallocation of amounts described in subparagraph (a)(ii) above;
(b) in determining, on a consolidated basis, the net FMV of each type of property of Holdco/XXXXXXXXXX immediately before the transfer of property described in paragraphs 57, 58 and 59 below, Holdco/XXXXXXXXXX will include the appropriate pro-rata share of the net FMV of each type of property of any corporation over which Holdco/XXXXXXXXXX exercises significant influence, as described in accordance with subparagraph (a) herein, and any liabilities of Holdco/XXXXXXXXXX will then be allocated to, and be deducted in the calculation of, the net FMV of each type property of Holdco/XXXXXXXXXX in the following manner:
(i) current liabilities of Holdco/XXXXXXXXXX will be allocated to the cash or near-cash property (including any cash, accounts receivable, inventory and prepaid expenses) of Holdco/XXXXXXXXXX in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property of Holdco/XXXXXXXXXX. The allocation of current liabilities as described herein will not exceed the aggregate FMV of the cash or near-cash property of Holdco/XXXXXXXXXX;
(ii) following the allocation of current liabilities to each cash or near-cash property in (i) above, any remaining net FMV of any accounts receivable, inventories and prepaid expenses of Holdco/XXXXXXXXXX will be reclassified as business property and excluded from the cash or near-cash property, to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates;
(iii) liabilities of Holdco/XXXXXXXXXX, other than current liabilities, that relate to a particular property will be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its FMV. The liabilities that pertain to a type of property but not to a particular property then will be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein;
(iv) if any liabilities remain after the allocations described in steps (b)(i) and (b) (iii) above are made ("excess unallocated liabilities") such excess unallocated liabilities will then be allocated to the cash or near-cash property, investment property and business property, if any, of Holdco/XXXXXXXXXX, based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities.
For the purposes of this paragraph and for the purposes of the Proposed Transactions described herein, no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification. The amount of any deferred income tax and any reserves for environmental remediation, warranty costs, non-specific inventory write-downs and severance costs in the financial statements will not be considered a liability for the purposes of the Proposed Transactions described herein because each such amount does not represent a legal obligation of the particular corporation.
Holdco/XXXXXXXXXX Distribution
57. Holdco/XXXXXXXXXX will transfer property to XXXXXXXXXX/Yco, for fair market value consideration, including all or a part thereof of the following ("XXXXXXXXXX/Yco Transferred Assets"):
(a) Newco XXXXXXXXXX shares and Newco XXXXXXXXXX shares;
(b) Holdco/XXXXXXXXXX shareholder loans;
(c) the ICo loan;
and to the extent necessary, in order to meet the pro-rata distribution test,
(d) XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
such that, immediately after the transfer, the net FMV of the cash or near-cash property, the business property and investment property, if any, of Holdco/XXXXXXXXXX, calculated as described in paragraphs 55 and 56, which is transferred to XXXXXXXXXX/Yco as described herein, will approximate that proportion of the net FMV of that type of property of Holdco/XXXXXXXXXX, determined immediately before the transfers described in paragraphs 57, 58 and 59, that:
(e) the aggregate FMV of the Holdco/XXXXXXXXXX shares owned by XXXXXXXXXX/Yco immediately before the transfers described in paragraphs 57, 58 and 59, is of
(f) the aggregate FMV of all the issued and outstanding shares of Holdco/XXXXXXXXXX immediately before the transfers described in paragraphs 57, 58 and 59.
The cash and near-cash property of Holdco/XXXXXXXXXX that is transferred to XXXXXXXXXX/Yco as part of the distribution will be transferred on a day that is no later than XXXXXXXXXX after the Transaction Date.
As consideration for the transfer of property described herein, XXXXXXXXXX/Yco will:
(g) assume some of the liabilities of Holdco/XXXXXXXXXX, subject to the following restrictions:
(i) the amount of liabilities to be allocated to such properties that will be the subject of a joint election under subsection 85(1) described below will not exceed the aggregate of the agreed amounts under the elections; and
(ii) the amount of liabilities to be allocated to each such property that is not the subject of an election under subsection 85(1) will not exceed the FMV of any such property; and
(h) issue XXXXXXXXXX/Yco XXXXXXXXXX shares each having a FMV and redemption amount equal to the XXXXXXXXXX/Yco Redemption Amount.
Holdco/XXXXXXXXXX and XXXXXXXXXX/Yco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer of any eligible property of Holdco/XXXXXXXXXX. Specifically, the agreed amount in each joint election will not be less than:
(i) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of eligible capital property;
(j) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(k) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).
The addition to the stated capital of the XXXXXXXXXX/Yco special shares will be equal to the amount by which the aggregate cost to XXXXXXXXXX/Yco (determined pursuant to subsection 85(1), where relevant) of the XXXXXXXXXX/Yco Transferred Assets exceeds the aggregate amount of liabilities assumed by XXXXXXXXXX/Yco as described above.
58. Holdco/XXXXXXXXXX will transfer property to XXXXXXXXXX/Zco, for FMV consideration, including all or a part thereof of the following ("XXXXXXXXXX/Zco Transferred Assets"):
(a) XXXXXXXXXX/PUBCO XXXXXXXXXX shares, XXXXXXXXXX/PUBCO XXXXXXXXXX shares, Newco XXXXXXXXXX shares and Newco XXXXXXXXXX shares;
(b) Holdco/XXXXXXXXXX shareholder loans;
(c) the ICo loan;
such that, immediately after the transfer, the net FMV of the cash or near-cash property, the business property and investment property, if any, of Holdco/XXXXXXXXXX calculated as described in paragraphs 55 and 56, which is transferred to XXXXXXXXXX/Zco as described herein, will approximate that proportion of the net FMV of that type of property of Holdco/XXXXXXXXXX, determined immediately before the transfers described in paragraphs 57, 58 and 59 that:
(d) the aggregate FMV of the shares of Holdco/XXXXXXXXXX owned by XXXXXXXXXX/Zco immediately before the transfers described in paragraphs 57, 58 and 59, is of
(e) the aggregate FMV of all the issued and outstanding shares of Holdco/XXXXXXXXXX immediately before the transfers described in paragraphs 57, 58 and 59.
The cash and near-cash property of Holdco/XXXXXXXXXX that is transferred to XXXXXXXXXX/Zco as part of the distribution will be transferred on a day that is no later than XXXXXXXXXX after the Transaction Date
As consideration for the transfer of property described herein, XXXXXXXXXX/Zco will:
(f) assume some of the liabilities of Holdco/XXXXXXXXXX, subject to the following restrictions:
(i) the amount of liabilities to be allocated to such properties that will be the subject of a joint election under subsection 85(1) will not exceed the aggregate of the agreed amounts under the elections; and
(ii) the amount of liabilities to be allocated to each such property that is not the subject of an election under subsection 85(1) will not exceed the FMV of any such property; and
(g) issue XXXXXXXXXX/Zco XXXXXXXXXX shares each having a FMV and redemption amount equal to the XXXXXXXXXX/Zco Redemption Amount. For the purposes of subsection 191(4), a dollar amount will be specified on the issue of each XXXXXXXXXX/Zco XXXXXXXXXX share. The amount to be specified will be equal to the FMV of the consideration for which the share was issued. The XXXXXXXXXX/Zco XXXXXXXXXX shares will have a FMV at least equal to 10% of the FMV of all the issued shares of the capital stock of XXXXXXXXXX/Zco.
Holdco/XXXXXXXXXX and XXXXXXXXXX/Zco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer of any eligible property of Holdco/XXXXXXXXXX . Specifically, the agreed amount in each joint election will not be less than :
(h) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of eligible capital property;
(i) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(j) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).
The addition to the stated capital of the XXXXXXXXXX/Zco XXXXXXXXXX shares will be equal to the FMV of the XXXXXXXXXX/Zco Transferred Assets less liabilities assumed as described in paragraph (h) above, as required by the XXXXXXXXXX.
59. Holdco/XXXXXXXXXX will transfer property to XXXXXXXXXX/Tco, for FMV consideration, including all or a part thereof of the following ("XXXXXXXXXX/Tco Transferred Assets"):
(a) XXXXXXXXXX/PUBCO XXXXXXXXXX shares, XXXXXXXXXX/PUBCO XXXXXXXXXX shares, Newco XXXXXXXXXX shares and Newco XXXXXXXXXX shares;
(b) Holdco/XXXXXXXXXX shareholder loans;
(c) the ICo loan;
such that, immediately after the transfer, the net FMV of the cash or near-cash property, the business property and investment property, if any, of Holdco/XXXXXXXXXX, calculated as described in paragraphs 55 and 56, which is transferred to XXXXXXXXXX/Tco as described herein, will approximate that proportion of the net FMV of that type of property of Holdco/XXXXXXXXXX, determined immediately before the transfers described in paragraphs 57, 58 and 59, that:
(d) the aggregate FMV of the shares of Holdco/XXXXXXXXXX owned by XXXXXXXXXX/Tco immediately before the transfers described in paragraphs 57, 58 and 59, is of
(e) the aggregate FMV of all the issued and outstanding shares of Holdco/XXXXXXXXXX immediately before the transfer.
The cash and near-cash property of Holdco/XXXXXXXXXX that is transferred to XXXXXXXXXX/Tco as part of the distribution will be transferred on a day that is no later than XXXXXXXXXX after the Transaction Date.
As consideration for the transfer of property described herein, XXXXXXXXXX/Tco will:
(f) assume some of the liabilities of Holdco/XXXXXXXXXX , subject to the following restrictions:
(i) the amount of liabilities to be allocated to such properties that will be the subject of a joint election under subsection 85(1) will not exceed the aggregate of the agreed amounts under the elections; and
(ii) the amount of liabilities to be allocated to each such property that is not the subject of an election under subsection 85(1) will not exceed the FMV of any such property; and
(g) issue XXXXXXXXXX/Tco XXXXXXXXXX shares each having a FMV and redemption amount equal to the XXXXXXXXXX/Tco Redemption Amount.
Holdco/XXXXXXXXXX and XXXXXXXXXX/Tco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer of any eligible property of Holdco/XXXXXXXXXX . Specifically, the agreed amount in each joint election will not be less than:
(h) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of eligible capital property;
(i) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(j) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).
The addition to the stated capital of the XXXXXXXXXX/Tco XXXXXXXXXX shares will be equal to the amount by which the aggregate cost to Holdco/XXXXXXXXXX (determined pursuant to subsection 85(1), where relevant) of the XXXXXXXXXX/Tco Transferred Assets as described above exceeds the aggregate amount of liabilities assumed by XXXXXXXXXX/Tco as described above.
For purposes of paragraphs 57, 58 and 59, the expression "approximate that proportion" means the discrepancy from that proportion, if any, that would not exceed one percent (1%) determined as a percentage of the net FMV of the property that XXXXXXXXXX/Yco, XXXXXXXXXX/Zco and XXXXXXXXXX/Tco respectively have received compared to what they would have received had they received their appropriate pro-rata share of Holdco/XXXXXXXXXX property.
Redemption of Holdco/XXXXXXXXXX and XXXXXXXXXX/Yco, Holdco/XXXXXXXXXX and XXXXXXXXXX/Zco and Holdco/XXXXXXXXXX and XXXXXXXXXX/Tco Intercompany Shareholdings
60. Holdco/XXXXXXXXXX will purchase for cancellation each of its shares held by XXXXXXXXXX/Yco, being XXXXXXXXXX Holdco/XXXXXXXXXX common shares, XXXXXXXXXX Holdco/XXXXXXXXXX shares and XXXXXXXXXX Holdco/XXXXXXXXXX shares, for an amount equal to the aggregate of their FMV, being the "XXXXXXXXXX/Yco Cancellation Amount" and will issue to XXXXXXXXXX/Yco in consideration therefor a demand promissory note (hereinafter referred to as the "Holdco/XXXXXXXXXX/Yco Redemption Note") with a principal amount and FMV equal to the foregoing XXXXXXXXXX/Yco Cancellation Amount. XXXXXXXXXX /Yco will accept such Holdco/XXXXXXXXXX/Yco Redemption Note as full payment of the XXXXXXXXXX/Yco Cancellation Amount in respect of the cancelled Holdco/XXXXXXXXXX common shares, Holdco/XXXXXXXXXX shares and Holdco/XXXXXXXXXX shares with the risk of the note being dishonoured.
Holdco/XXXXXXXXXX will purchase for cancellation each of its shares held by XXXXXXXXXX/Zco, being XXXXXXXXXX Holdco/XXXXXXXXXX shares, for an amount equal to the aggregate of their FMV, being the "XXXXXXXXXX/Zco Cancellation Amount" and will issue to XXXXXXXXXX/Zco in consideration therefor a demand promissory note (hereinafter referred to as the "Holdco/XXXXXXXXXX /Zco Redemption Note") with a principal amount and FMV equal to the foregoing XXXXXXXXXX/Zco Cancellation Amount. XXXXXXXXXX/Zco will accept such Holdco/XXXXXXXXXX/Zco Redemption Note as full payment of the XXXXXXXXXX/Zco Cancellation Amount in respect of the cancelled Holdco/XXXXXXXXXX shares with the risk of the note being dishonoured.
Holdco/XXXXXXXXXX will redeem from XXXXXXXXXX/Tco each of its shares held by XXXXXXXXXX/Tco, being XXXXXXXXXX Holdco/XXXXXXXXXX shares, for an amount equal to the aggregate of their FMV, being the "XXXXXXXXXX/Tco Cancellation Amount" and will issue to XXXXXXXXXX/Tco in consideration therefor a demand promissory note (hereinafter referred to as the "Holdco/XXXXXXXXXX/Tco Redemption Note") with a principal amount and FMV equal to the foregoing XXXXXXXXXX/Tco Cancellation Amount. XXXXXXXXXX/Tco will accept such Holdco/XXXXXXXXXX/Tco Redemption Note as full payment of the XXXXXXXXXX/Tco Cancellation Amount in respect of the cancelled Holdco/XXXXXXXXXX shares with the risk of the note being dishonoured.
61. XXXXXXXXXX/Yco will redeem from Holdco/XXXXXXXXXX all of its XXXXXXXXXX/Yco XXXXXXXXXX shares for an amount equal to their FMV, being the aggregate of the XXXXXXXXXX/Yco Redemption Amount of each XXXXXXXXXX/Yco XXXXXXXXXX share so redeemed and will issue to Holdco/XXXXXXXXXX in consideration therefor a demand promissory note (hereinafter referred to as the "XXXXXXXXXX/Yco Redemption Note") with a principal amount and FMV equal to the aggregate of the XXXXXXXXXX/Yco Redemption Amount of each XXXXXXXXXX/Yco XXXXXXXXXX share so redeemed. Holdco/XXXXXXXXXX will accept such note as full payment of the aggregate of the XXXXXXXXXX/Yco Redemption Amount in respect of each redeemed XXXXXXXXXX/Yco XXXXXXXXXX share with the risk of the note being dishonoured.
XXXXXXXXXX/Zco will redeem from Holdco/XXXXXXXXXX all of its XXXXXXXXXX/Zco XXXXXXXXXX shares for an amount equal to their FMV, being the aggregate of the XXXXXXXXXX/Zco Redemption Amount of each XXXXXXXXXX/Zco XXXXXXXXXX share so redeemed and will issue to Holdco/XXXXXXXXXX in consideration therefor a demand promissory note (hereinafter referred to as the "XXXXXXXXXX/Zco Redemption Note") with a principal amount and FMV equal to the aggregate of the XXXXXXXXXX/Zco Redemption Amount of each XXXXXXXXXX/Zco XXXXXXXXXX share so redeemed. Holdco/XXXXXXXXXX will accept such note as full payment of the aggregate of the XXXXXXXXXX/Zco Redemption Amount in respect of each redeemed XXXXXXXXXX/Zco XXXXXXXXXX share with the risk of the note being dishonoured.
XXXXXXXXXX/Tco will redeem from Holdco/XXXXXXXXXX all of its XXXXXXXXXX Tco XXXXXXXXXX shares for an amount equal to their FMV, being the aggregate of the XXXXXXXXXX/Tco Redemption Amount of each XXXXXXXXXX/Tco XXXXXXXXXX share so redeemed and will issue to Holdco/XXXXXXXXXX in consideration therefor a demand promissory note (hereinafter referred to as the "XXXXXXXXXX/Tco Redemption Note") with a principal amount and FMV equal to the aggregate of the XXXXXXXXXX/Tco Redemption Amount of each XXXXXXXXXX/Tco XXXXXXXXXX share so redeemed. Holdco/XXXXXXXXXX will accept such note as full payment of the aggregate of the XXXXXXXXXX/Tco Redemption Amount in respect of each redeemed XXXXXXXXXX/Tco XXXXXXXXXX share with the risk of the note being dishonoured.
62. Each of the Holdco/XXXXXXXXXX/Yco Redemption Note, Holdco/XXXXXXXXXX/Zco Redemption Note and the Holdco/XXXXXXXXXX/Tco Redemption Note will be a demand promissory note with interest payable only from the date of demand for payment by the holder to the date of payment of the amount owing under the note at an annual rate equal to the prime interest charged by Holdco/XXXXXXXXXX bank on the first day of each fiscal period.
The XXXXXXXXXX/Yco Redemption Note will be a demand promissory note with interest payable only from the date of demand for payment by the holder to the date of payment of the amount owing under the note at an annual rate equal to the prime interest charged by XXXXXXXXXX/Yco's bank on the first day of each fiscal period.
The XXXXXXXXXX/Zco Redemption Note will be a demand promissory note with interest payable only from the date of demand for payment by the holder to the date of payment of the amount owing under the note at an annual rate equal to the prime interest charged by XXXXXXXXXX/Zco's bank on the first day of each fiscal period.
The XXXXXXXXXX/Tco Redemption Note will be a demand promissory note with interest payable only from the date of demand for payment by the holder to the date of payment of the amount owing under the note at an annual rate equal to the prime interest charged by XXXXXXXXXX/Tco's bank on the first day of each fiscal period.
Set-off of Holdco/XXXXXXXXXX/Yco Notes, Holdco/XXXXXXXXXX and XXXXXXXXXX/Zco Notes and Holdco/XXXXXXXXXX/Tco Notes
63. The Holdco/XXXXXXXXXX /Yco Redemption Note issued by Holdco/XXXXXXXXXX and the XXXXXXXXXX/Yco Redemption Note issued by XXXXXXXXXX/Yco will be set off by each holder and issuer of the particular demand note and accepted as full payment by each of them. The Holdco/XXXXXXXXXX/Yco Redemption Note and the XXXXXXXXXX/Yco Redemption Note will both thereupon be marked paid in full and cancelled.
The Holdco/XXXXXXXXXX/Zco Redemption Note issued by Holdco/XXXXXXXXXX and the XXXXXXXXXX/Zco Redemption Note issued by XXXXXXXXXX/Zco will be set off by each holder and issuer of the particular demand note and accepted as full payment by each of them. The Holdco/XXXXXXXXXX/Zco Redemption Note and the XXXXXXXXXX /Zco Redemption Note will both thereupon be marked paid in full and cancelled.
The Holdco/XXXXXXXXXX/Tco Redemption Note issued by Holdco/XXXXXXXXXX and the XXXXXXXXXX/Tco Redemption Note issued by XXXXXXXXXX/Tco will be set off by each holder and issuer of the particular demand note and accepted as full payment by each of them. The Holdco/XXXXXXXXXX/Tco Redemption Note and the XXXXXXXXXX/Tco Redemption Note will both thereupon be marked paid in full and cancelled.
64. Immediately following the proposed transactions described in paragraphs 57 to 63 above, the property retained by Holdco/XXXXXXXXXX will include all or a part thereof of the following:
(a) XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXX/PUBCO XXXXXXXXXX shares;
(b) Holdco/XXXXXXXXXX shareholder loans;
(c) the ICo loan;
and to the extent necessary, in order to meet the pro-rata distribution test,
(d) Newco XXXXXXXXXX shares and Newco XXXXXXXXXX shares;
such that the net FMV of each of the cash or near-cash property, the business property and the investment property, if any, retained by Holdco/XXXXXXXXXX, determined in the manner described in paragraphs 55 and 56 above, will approximate that proportion of the aggregate FMV of that type of property of Holdco/XXXXXXXXXX immediately before the transfers described in paragraphs 57, 58 and 59, that:
(e) the aggregate FMV, immediately before the transfer of property described in paragraphs 57, 58 and 59, of the Holdco/XXXXXXXXXX shares owned by XXXXXXXXXX/Mr. X, being XXXXXXXXXX Holdco/XXXXXXXXXX common shares, XXXXXXXXXX Holdco/XXXXXXXXXX shares and XXXXXXXXXX Holdco/XXXXXXXXXX shares is of
(f) the aggregate FMV of all the issued and outstanding shares of Holdco/XXXXXXXXXX, immediately before the transfer of property described in paragraphs 57, 58 and 59.
65. The XXXXXXXXXX Trust will transfer its shares of XXXXXXXXXX/PUBCO and Newco (approximately XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX Newco XXXXXXXXXX shares) to XXXXXXXXXX/Tco. As sole consideration for such transfer, XXXXXXXXXX/Tco will issue to the XXXXXXXXXX Trust, XXXXXXXXXX/Tco common shares having a FMV equal to the aggregate FMV of the XXXXXXXXXX/PUBCO and Newco shares transferred.
The addition to the stated capital of the XXXXXXXXXX/Tco common shares will equal the greater of the aggregate PUC of the XXXXXXXXXX/PUBCO and Newco shares transferred and the ACB, as modified by paragraphs 84.1(2)(a) and (a.1), of the XXXXXXXXXX/PUBCO and Newco shares transferred.
The XXXXXXXXXX Trust and XXXXXXXXXX/Tco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6) in respect of the disposition of the shares of XXXXXXXXXX/PUBCO and Newco. The agreed amount in respect of such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the aggregate FMV of the shares of XXXXXXXXXX/PUBCO and Newco transferred to XXXXXXXXXX/Tco by the XXXXXXXXXX Trust herein, nor will it be less than the amount permitted by paragraph 85(1)(b).
66. In XXXXXXXXXX, senior management of Mco will subscribe for newly issued common shares of Mco at FMV. The senior management is expected to invest approximately $XXXXXXXXXX, representing a XXXXXXXXXX% interest in the corporation. The share subscriptions will be financed by employee loans from Mco.
67. XXXXXXXXXX/PUBCO will not make a distribution to a corporation before XXXXXXXXXX the Transaction Date, unless the distribution is to a corporation for which the shares of XXXXXXXXXX/PUBCO are exchanged in an exchange to which the definition "permitted exchange" in subsection 55(1) would apply if that definition were read without reference to paragraph (a) and subparagraph (b)(ii) of that definition. Newco will not make a distribution before XXXXXXXXXX the Transaction Date.
68. [Reserved].
69. Subsequent to the Transaction Date, XXXXXXXXXX/Mr. X, XXXXXXXXXX/Mr. Y, XXXXXXXXXX/Mr. Z and the XXXXXXXXXX Trust may sell shares of XXXXXXXXXX at FMV in the marketplace for cash consideration.
70. XXXXXXXXXX is a Canadian corporation wholly-owned by XXXXXXXXXX/Mr. X. Subsequent to the Transaction Date, XXXXXXXXXX/Mr. X may transfer to XXXXXXXXXX/PUBCO for FMV consideration, shares of XXXXXXXXXX or cause to be transferred to XXXXXXXXXX/PUBCO for FMV consideration, assets of XXXXXXXXXX. If the shares of XXXXXXXXXX are transferred by XXXXXXXXXX/Mr. X, as consideration for such transfer, XXXXXXXXXX/PUBCO will issue to XXXXXXXXXX/Mr. X, XXXXXXXXXX/PUBCO XXXXXXXXXX shares having a FMV equal to the FMV of the XXXXXXXXXX shares transferred. If the assets are transferred by XXXXXXXXXX, as consideration for such transfer, XXXXXXXXXX/PUBCO will:
(a) assume liabilities of XXXXXXXXXX subject to the following restrictions:
(i) the amount of liabilities to be allocated to such properties that will be the subject of a joint election under subsection 85(1) described below will not exceed the aggregate of the agreed amounts under the elections; and
(ii) the amount of liabilities to be allocated to each such property that is not the subject of an election under subsection 85(1) will not exceed the FMV of any such property; and
(b) issue XXXXXXXXXX/PUBCO XXXXXXXXXX shares having an aggregate FMV equal to the FMV of the property so transferred to XXXXXXXXXX/PUBCO as described herein less the amount of liabilities of XXXXXXXXXX assumed by XXXXXXXXXX/PUBCO as described in paragraph (a) above.
If shares of XXXXXXXXXX are transferred by XXXXXXXXXX/Mr. X, the addition to the stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will equal the greater of the aggregate PUC of the XXXXXXXXXX shares transferred and the ACB as modified by paragraphs 84.1(2)(a) and (a.1) of the XXXXXXXXXX shares transferred.
If assets of XXXXXXXXXX are transferred by XXXXXXXXXX, the addition to the stated capital of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares will equal the cost of the XXXXXXXXXX assets to XXXXXXXXXX/PUBCO less the amount of non-share consideration issued on the transfer.
XXXXXXXXXX/Mr. X or XXXXXXXXXX and XXXXXXXXXX/PUBCO will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), in respect of the transfer of any eligible property. The agreed amount in respect of such election will not be less than:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(1), (ii) and (iii) in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii) in the case of depreciable property of a prescribed class; and
(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted by paragraph 85(1)(b).
71. No property has or will become property of XXXXXXXXXX/PUBCO or any corporation controlled by XXXXXXXXXX/PUBCO and no liabilities have been or will be incurred by XXXXXXXXXX/PUBCO or any corporation controlled by XXXXXXXXXX/PUBCO in contemplation of and before the transfer described in paragraph 35, except as described herein. Except as outlined herein, XXXXXXXXXX/PUBCO does not have any specific intention of disposing of any assets currently owned to an unrelated person following the Proposed Transactions and neither XXXXXXXXXX/PUBCO nor Newco will dispose of any of its assets as part of a series of transactions which includes the Proposed Transactions, other than as a result of a disposition in the ordinary course of business.
72. No property has or will become property of Holdco/XXXXXXXXXX or any corporation controlled by Holdco/XXXXXXXXXX and no liabilities have been or will be incurred by Holdco/XXXXXXXXXX of any corporation controlled by Holdco/XXXXXXXXXX in contemplation of and before the transfer described in paragraph 57, 58 and 59, except as described herein. Except as outlined herein, Holdco/XXXXXXXXXX does not have any specific intention of disposing of any assets currently owned to an unrelated person following the Proposed Transactions and none of Holdco/XXXXXXXXXX, XXXXXXXXXX/Yco, XXXXXXXXXX/Zco or XXXXXXXXXX /Tco will dispose of any of its assets as part of a series of transactions which includes the Proposed Transactions.
73. There are not, and will not be at any time prior to the completion of the Proposed Transactions, any agreements or undertakings which constitute or include a "guarantee agreement", as defined in subsection 112(2.2), in respect of any of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, XXXXXXXXXX/PUBCO XXXXXXXXXX shares or Newco XXXXXXXXXX shares.
74. There are not, and will not be at any time prior to the completion of the Proposed Transactions, any agreements or undertakings which constitute or include a "guarantee agreement", as defined in subsection 112(2.2), in respect of any of the Holdco/XXXXXXXXXX common shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares, XXXXXXXXXX/Yco XXXXXXXXXX shares, XXXXXXXXXX/Zco XXXXXXXXXX shares, or XXXXXXXXXX/Tco XXXXXXXXXX shares.
75. Neither XXXXXXXXXX/PUBCO nor Newco has, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the shares to be redeemed as part of the Proposed Transactions.
76. None of Holdco/XXXXXXXXXX, XXXXXXXXXX/Yco, XXXXXXXXXX/Zco, or XXXXXXXXXX/Tco have, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the shares to be redeemed as part of the Proposed Transactions.
77. None of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, XXXXXXXXXX/PUBCO XXXXXXXXXX shares, or the Newco XXXXXXXXXX shares will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5).
78. None of the Holdco/XXXXXXXXXX common shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares, Holdco/XXXXXXXXXX shares, XXXXXXXXXX/Yco XXXXXXXXXX shares, XXXXXXXXXX/Zco XXXXXXXXXX shares, or XXXXXXXXXX/Tco XXXXXXXXXX shares will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5).
79. Neither XXXXXXXXXX/PUBCO nor Newco will be a corporation described in any of the paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1). Neither XXXXXXXXXX/PUBCO nor Newco is or will be an SFI prior to completion of the Proposed Transactions.
80. None of Holdco/XXXXXXXXXX, XXXXXXXXXX/Yco, XXXXXXXXXX/Zco or XXXXXXXXXX/Tco will be a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1). None of Holdco/XXXXXXXXXX, XXXXXXXXXX/Yco, XXXXXXXXXX/Zco or XXXXXXXXXX/Tco is or will be an SFI prior to completion of the Proposed Transactions.
81. Each of XXXXXXXXXX/PUBCO and Newco will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the Proposed Transactions.
82. Each of Holdco/XXXXXXXXXX, XXXXXXXXXX/Yco, XXXXXXXXXX/Zco and XXXXXXXXXX/Tco will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the Proposed Transactions.
Purpose of the proposed transactions
83. The purpose of the proposed transactions in paragraphs 16 and 20 to 44 is to transfer to Newco the business of the XXXXXXXXXX that is currently carried on by XXXXXXXXXX/PUBCO and its subsidiaries. Newco will also be a public corporation whose shares will be traded on the XXXXXXXXXX Stock Exchange. This reorganization will align each of the XXXXXXXXXX into its own publicly traded corporation, with each of these two public corporations owning a XXXXXXXXXX% interest in the M Group (after the M senior management subscribes for XXXXXXXXXX% of the shares of Mco), a XXXXXXXXXX% interest in XXXXXXXXXX, which is the corporation that owns the real estate used by the M Group and a XXXXXXXXXX% interest in the XXXXXXXXXX. This separation of these two Groups will permit each Group to focus on strategies that support its individual market and products. XXXXXXXXXX/PUBCO expects that this realignment will result in an increase in shareholder value.
84. The purpose of the proposed transactions in paragraphs 17 to 19 and 45 to 64 is to split up Holdco/XXXXXXXXXX among its shareholders. This will permit XXXXXXXXXX/Mr. X to own shares in (through Holdco/XXXXXXXXXX) and control XXXXXXXXXX/PUBCO, which will be a public corporation owning and operating the XXXXXXXXXX which XXXXXXXXXX/Mr. X has managed for the past several years. In addition, XXXXXXXXXX /Mr. Y will own shares in (through XXXXXXXXXX/Yco) and control Newco, which will be a public corporation owning and operating the XXXXXXXXXX which XXXXXXXXXX/Mr. Y has managed for the past several years.
XXXXXXXXXX/Mr. Z and the XXXXXXXXXX Trust will continue to own indirectly through their respective holding corporations an interest in both the XXXXXXXXXX through shareholdings in both of the resulting public companies.
Rulings
Provided that the above statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the proposed transactions, we rule as follows:
A. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer of property by XXXXXXXXXX/PUBCO to XXXXXXXXXX as described in paragraph 20 above, of each eligible property which is the subject of the election described in paragraph 21 above, such that the agreed amount in respect of each such transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.
B. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer of property by XXXXXXXXXX/PUBCO to Mco as described in paragraph 25 above, of each eligible property which is the subject of the election described in paragraph 26 above, such that the agreed amount in respect of each such transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.
C. For each XXXXXXXXXX/PUBCO shareholder who holds XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, as capital property, the provisions of subsection 86(1) will apply and the provisions of subsection 86(2) will not apply to the XXXXXXXXXX/PUBCO Share Exchange described in paragraph 31 above, such that:
(a) the cost of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, received on the XXXXXXXXXX/PUBCO Share Exchange will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB to the particular XXXXXXXXXX/PUBCO shareholder, immediately before the XXXXXXXXXX/PUBCO Share Exchange of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, that
(i) the FMV, immediately after the XXXXXXXXXX/PUBCO Share Exchange, of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, is of
(ii) the FMV, immediately after the XXXXXXXXXX/PUBCO Share Exchange, of all the shares of XXXXXXXXXX/PUBCO received by the particular XXXXXXXXXX/PUBCO shareholder for the XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
(b) the cost of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, received on the XXXXXXXXXX/PUBCO Share Exchange will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB to the particular XXXXXXXXXX/PUBCO shareholder, immediately before the XXXXXXXXXX/PUBCO Share Exchange of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, that
(i) the FMV, immediately after the XXXXXXXXXX/PUBCO Share Exchange, of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, is of
(ii) the FMV, immediately after the XXXXXXXXXX/PUBCO Share Exchange, of all of the shares of XXXXXXXXXX/PUBCO received by the particular XXXXXXXXXX/PUBCO shareholder for the XXXXXXXXXX/PUBCO XXXXXXXXXX shares;
(c) a particular XXXXXXXXXX/PUBCO shareholder will be deemed by paragraph 86(1)(c) to have disposed of XXXXXXXXXX/PUBCO XXXXXXXXXX shares for aggregate proceeds of disposition equal to the aggregate cost to the particular XXXXXXXXXX/PUBCO shareholder of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares determined in (a) above; and
(d) a particular XXXXXXXXXX/PUBCO shareholder will be deemed by paragraph 86(1)(c) to have disposed of XXXXXXXXXX/PUBCO XXXXXXXXXX shares for aggregate proceeds of disposition equal to the aggregate cost to the particular XXXXXXXXXX/PUBCO shareholder of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and the XXXXXXXXXX/PUBCO XXXXXXXXXX shares determined in (b) above.
D. Provided that an XXXXXXXXXX/PUBCO shareholder who, immediately before the Newco Share Exchange described in paragraph 32 above, holds XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX/PUBCO XXXXXXXXXX shares:
(a) holds those shares as capital property;
(b) deals at arm's length (otherwise than because of a right referred to in paragraph 251(5)(b)) with Newco immediately before such Newco Share Exchange;
(c) does not include any portion of the gain or loss otherwise determined, from the disposition of those shares, in computing his or her income for the taxation year in which the Newco Share Exchange takes place;
(d) does not file an election under subsection 85(1) or subsection 85(2) with Newco with respect to those shares; and
(e) does not receive any consideration other than Newco XXXXXXXXXX shares or Newco XXXXXXXXXX shares, as the case may be, in exchange for those shares;
and further provided that immediately after the Newco Share Exchange
(f) no such holder or such person or persons with whom the holder does not deal at arm's length, or no such holder together with any person or persons with whom the holder does not deal at arm's length, will
(i) control Newco, or
(ii) beneficially own shares of Newco having a FMV of more than 50% of the FMV of all the outstanding shares of Newco, then
pursuant to paragraph 85.1(1)(a), such holder will be deemed:
(g) to have disposed of his or her XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, for proceeds of disposition equal to the ACB to him or her of those shares immediately before the Newco Share Exchange; and
(h) to have acquired the Newco XXXXXXXXXX shares at a cost to him or her equal to the ACB to him or her of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares immediately before the Newco Share Exchange; and
(i) to have acquired the Newco XXXXXXXXXX shares at a cost to him or her equal to the ACB to him or her of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares immediately before the Newco Share Exchange.
E. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX/PUBCO XXXXXXXXXX shares, as the case may be, to Newco by any XXXXXXXXXX/PUBCO shareholder (including Holdco/XXXXXXXXXX, the XXXXXXXXXX Trust, XXXXXXXXXX/Mr. X, XXXXXXXXXX/Mr. Y and persons related to them) as described in paragraph 32 above, who jointly files an election with Newco pursuant to subsection 85(1) in respect of such transfer, as described in paragraph 33 above, such that the agreed amount in respect of each transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.
F. The PUC of the Newco XXXXXXXXXX shares issued on the Newco Share Exchange will be the aggregate of the following:
(i) where subsection 84.1(1) applies to the Newco Share Exchange, the greater of the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged and the ACB as modified by paragraphs 84.1(2)(a) and (a.1) of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged;
(ii) where subsection 85(1) applies to the Newco Share Exchange and subsection 84.1(1) does not apply, the agreed amount on the transfers of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares determined pursuant to paragraph 85(1)(a); and
(iii) in all other cases, the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged.
G. The PUC of the Newco XXXXXXXXXX shares issued on the Newco Share Exchange will be the aggregate of the following:
(i) where subsection 84.1(1) applies to the Newco Share Exchange, the greater of the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged and the ACB as modified by paragraphs 84.1(2)(a) and (a.1) of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged;
(ii) where subsection 85(1) applies to the Newco Share Exchange and subsection 84.1(1) does not apply, the agreed amount on the transfers of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares determined pursuant to paragraph 85(1)(a); and
(iii) in all other cases, the PUC of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares exchanged.
H. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by XXXXXXXXXX/PUBCO to Newco, as described in paragraph 35 above, of each eligible property which is the subject of an election described in paragraph 36 above, such that the agreed amount in respect of each such transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein. In addition, for the purposes of the joint election in respect of depreciable property of a prescribed class, as described in paragraph 36 above, the reference to "the undepreciated capital cost to the taxpayer of all the property of the class immediately before the disposition ..." in subparagraph 85(1)(e)(i) will be read to mean the proportion of the undepreciated capital cost to XXXXXXXXXX/PUBCO of all the property of that class that the capital cost of the property so transferred immediately before the disposition is of the capital cost of all property of that class immediately before the disposition.
I. Subsection 84(3) will apply on the redemption:
(a) as described in paragraph 38, of the Newco XXXXXXXXXX shares, to deem Newco to have paid and XXXXXXXXXX/PUBCO to have received; and
(b) as described in paragraph 39, of the XXXXXXXXXX/PUBCO XXXXXXXXXX shares and XXXXXXXXXX/PUBCO XXXXXXXXXX shares, to deem XXXXXXXXXX/PUBCO to have paid and Newco to have received
a dividend equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such shares immediately before such redemption, and any such dividend:
(c) will be included in computing the income pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;
(d) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);
(e) will be excluded in determining the proceeds of disposition to the recipient of the shares so redeemed or purchased pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;
(f) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b), as XXXXXXXXXX/PUBCO and Newco will be connected to each other by virtue of subsections 186(2) and 186(4); and
(g) will not be subject to tax under Parts IV.1 and VI.1 by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) because each of XXXXXXXXXX/PUBCO and Newco will have a substantial interest, within the meaning assigned by paragraph 191(2)(a), in the payer corporation immediately before the redemption of such shares.
J. The repayment, described in paragraph 41, of the Newco Redemption Note held by XXXXXXXXXX/PUBCO and the XXXXXXXXXX/PUBCO Redemption Note held by Newco will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).
K. Provided the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or XXXXXXXXXX /PUBCO XXXXXXXXXX shares, as the case may be, constitute capital property to a particular XXXXXXXXX /PUBCO shareholder immediately prior to the commencement of the Proposed Transactions, the Proposed Transactions will not, in and by themselves, cause the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, the XXXXXXXXXX/PUBCO XXXXXXXXXX shares, the XXXXXXXXXX/PUBCO XXXXXXXXXX shares or the XXXXXXXXXX/PUBCO XXXXXXXXXX shares to be received by that shareholder, as the case may be, as a result of the Proposed Transactions not to be capital property of that shareholder. Furthermore, the Proposed Transactions will not, in and by themselves, cause the Newco XXXXXXXXXX shares to be received by XXXXXXXXXX/PUBCO not to be capital property of XXXXXXXXXX/PUBCO.
L. Provided that the transfer by XXXXXXXXXX/PUBCO of the XXXXXXXXXX/PUBCO Transferred Assets to Newco, as described in paragraph 35, meets the type of property requirement in the definition "distribution" in subsection 55(1) and provided that, as part of the series of transactions or events that includes the Proposed Transactions, there is not:
(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);
(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(d) an acquisition of any shares of a distributing corporation in the circumstances described in subparagraph 55(3.1)(b)(iii); or
(e) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or (d);
which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in ruling I above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
M. For each Holdco/XXXXXXXXXX shareholder who holds Holdco/XXXXXXXXXX shares as capital property, the provisions of subsection 86(1) will apply and the provisions of subsection 86(2) will not apply to the Holdco/XXXXXXXXXX Share Exchange described in paragraph 46, such that:
(a) the cost of the Holdco/XXXXXXXXXX shares received on the Holdco/XXXXXXXXXX Share Exchange will be deemed by paragraph 86(1)(b) to be an amount equal to the aggregate ACB to the particular Holdco/XXXXXXXXXX shareholder of the Holdco/XXXXXXXXXX shares;
(b) pursuant to paragraph 86(1)(c), a particular Holdco/XXXXXXXXXX shareholder will be deemed to have disposed of Holdco/XXXXXXXXXX shares for aggregate proceeds of disposition equal to the aggregate cost to the particular Holdco/XXXXXXXXXX shareholder of the Holdco/XXXXXXXXXX shares determined in (a) above; and
(c) pursuant to subsection 86(2.1), in computing the PUC of the Holdco/XXXXXXXXXX shares, a deduction will be made to the extent the increase in the PUC of the Holdco/XXXXXXXXXX shares otherwise determined exceeds the PUC of the Holdco/XXXXXXXXXX shares.
N. Provided that the requisite elections are made within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by XXXXXXXXXX/Mr. Y to XXXXXXXXXX /Yco, as described in paragraph 50 above, of shares of Holdco/XXXXXXXXXX which are the subject of the election described in paragraph 50 above, such that the agreed amount in respect of the transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.
O. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by XXXXXXXXXX/Mr. Z to XXXXXXXXXX/Zco as described in paragraph 51 above, of shares of Holdco/XXXXXXXXXX which are the subject of the election described in paragraph 51 above, such that the agreed amount in respect of the transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.
P. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by the XXXXXXXXXX Trust to XXXXXXXXXX/Tco, as described in paragraph 52 above, of shares of Holdco/XXXXXXXXXX which are the subject of the election described in paragraph 52 above, such that the agreed amount in respect of the transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein
Q. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by Holdco/XXXXXXXXXX to XXXXXXXXXX/Yco, as described in paragraph 57 above, of each eligible property which is the subject of the election described in paragraph 57 above, such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.
R. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by Holdco/XXXXXXXXXX to XXXXXXXXXX/Zco, as described in paragraph 58 above, of each eligible property which is the subject of the election described in paragraph 58 above, such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.
Pursuant to subsection 85(2.1) the PUC of the XXXXXXXXXX/Zco XXXXXXXXXX shares issued on the transfer will be reduced to the amount by which the aggregate cost to XXXXXXXXXX/Zco of the XXXXXXXXXX/Zco Transferred Assets exceeds the aggregate amount of liabilities assumed by XXXXXXXXXX/Zco as described in paragraph 58 above.
S. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by Holdco/XXXXXXXXXX to XXXXXXXXXX/Tco as described in paragraph 59 above, of each eligible property which is the subject of the election described in paragraph 59 above, such that the agreed amount in respect of each such transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.
T. Subsection 84(3) will apply on the cancellation or redemption:
(a) as described in paragraph 60, of the Holdco/XXXXXXXXXX common shares, Holdco/XXXXXXXXXX shares and the Holdco/XXXXXXXXXX shares to deem Holdco/XXXXXXXXXX to have paid and XXXXXXXXXX/Yco to have received;
(b) as described in paragraph 60, of the Holdco/XXXXXXXXXX shares to deem Holdco/XXXXXXXXXX to have paid and XXXXXXXXXX/Zco to have received;
(c) as described in paragraph 60, of the Holdco/XXXXXXXXXX shares to deem Holdco/XXXXXXXXXX to have paid and XXXXXXXXXX/Tco to have received;
(d) as described in paragraph 61, of the XXXXXXXXXX/Yco XXXXXXXXXX shares to deem XXXXXXXXXX/Yco to have paid and Holdco/XXXXXXXXXX to have received;
(e) as described in paragraph 61, of the XXXXXXXXXX/Zco XXXXXXXXXX shares to deem XXXXXXXXXX/Zco to have paid and Holdco/XXXXXXXXXX to have received; and
(f) as described in paragraph 61, of the XXXXXXXXXX/Tco XXXXXXXXXX shares to deem XXXXXXXXXX/Tco to have paid and Holdco/XXXXXXXXXX to have received;
a dividend equal to the amount, if any, by which the aggregate amount paid upon such redemption or cancellation exceeds the aggregate paid-up capital in respect of such shares immediately before such cancellation or redemption, and any such dividend:
(g) will be included in computing the income pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;
(h) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);
(i) will be excluded in determining the proceeds of disposition to the recipient of the shares so redeemed or cancelled pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;
(j) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b), as:
(i) Holdco/XXXXXXXXXX and XXXXXXXXXX/Yco will be connected to each other by virtue of paragraph 186(4)(b);
(ii) Holdco/XXXXXXXXXX and XXXXXXXXXX/Zco will be connected to each other by virtue of paragraph 186(4)(b); and
(iii) Holdco/XXXXXXXXXX and XXXXXXXXXX/Tco will be connected to each other by virtue of paragraph 186(4)(b); and
(k) will not be subject to tax under Parts IV.1 and VI.1:
(i) with respect to the dividends deemed to be paid by Holdco/XXXXXXXXXX to XXXXXXXXXX/Yco and the dividends to be paid by XXXXXXXXXX/Yco to Holdco/XXXXXXXXXX, by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) because each of Holdco/XXXXXXXXXX and XXXXXXXXXX/Yco will have a substantial interest, within the meaning assigned by paragraph 191(2)(a), in the payer corporation immediately before the redemption of such shares;
(ii) with respect to the dividend deemed to be paid by Holdco/XXXXXXXXXX to XXXXXXXXXX/Zco;
(iii) with respect to the dividend deemed to be paid by XXXXXXXXXX/Zco to Holdco/XXXXXXXXXX, by virtue of subsection 191(4) which deems the dividend to be an "excepted dividend" and an "excluded dividend"; and
(iv) with respect to the dividends deemed to be paid by Holdco/XXXXXXXXXX to XXXXXXXXXX/Tco and the dividends deemed to be paid by XXXXXXXXXX/Tco to Holdco/XXXXXXXXXX, by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) because each of Holdco/XXXXXXXXXX and XXXXXXXXXX/Tco will have a substantial interest, within the meaning assigned by paragraph 191(2)(a), in the payer corporation immediately before the redemption of such shares.
U. The repayment described in paragraph 63 of the XXXXXXXXXX/Yco Redemption Note held by Holdco/XXXXXXXXXX and the Holdco/XXXXXXXXXX/Yco Redemption Note held by XXXXXXXXXX/Yco will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).
The repayment described in paragraph 63 of the XXXXXXXXXX/Zco Redemption Note held by Holdco/XXXXXXXXXX and the Holdco/XXXXXXXXXX/Zco Redemption Note held by XXXXXXXXXX/Zco will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).
The repayment described in paragraph 63 of the XXXXXXXXXX/Tco Redemption Note held by Holdco/XXXXXXXXXX and the Holdco/XXXXXXXXXX/Tco Redemption Note held by XXXXXXXXXX/Tco will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).
V. Provided the Holdco/XXXXXXXXXX common shares, the Holdco/XXXXXXXXXX shares, the Holdco/XXXXXXXXXX shares, the Holdco/XXXXXXXXXX shares and the Holdco/XXXXXXXXXX shares constitute capital property to a particular Holdco/XXXXXXXXXX shareholder immediately prior to the commencement of the Proposed Transactions, the Proposed Transactions will not, in and by themselves, cause the Holdco/XXXXXXXXXX common shares, the Holdco/XXXXXXXXXX shares, the Holdco/XXXXXXXXXX shares, the Holdco/XXXXXXXXXX shares and the Holdco/XXXXXXXXXX shares to be received by XXXXXXXXXX/Yco, XXXXXXXXXX/Zco and XXXXXXXXXX/Tco, as the case may be, as a result of the Proposed Transactions not to be capital property of that shareholder. Furthermore, the Proposed Transactions will not, in and by themselves, cause the XXXXXXXXXX/Yco XXXXXXXXXX shares, the XXXXXXXXXX/Zco XXXXXXXXXX shares and the XXXXXXXXXX/Tco XXXXXXXXXX shares to be received by Holdco/XXXXXXXXXX not to be capital property of Holdco/XXXXXXXXXX.
W. Provided that as part of the series of transactions or events that include the Proposed Transactions there is not:
(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);
(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(d) an acquisition of any shares of a distributing corporation in the circumstances described in subparagraph 55(3.1)(b)(iii);
(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(c);
or
(f) an acquisition of property in the circumstances described in paragraph 55(3.1)(d);
which has not been described herein, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling T above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
X. Provided that the requisite elections are made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by the XXXXXXXXXX Trust to XXXXXXXXXX/Tco, as described in paragraph 65 above, of each eligible property which is the subject of an election described in paragraph 65 above, such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.
Y. The provisions of subsections 15(1), 56(2), 56(4) and 246(1) will not apply to any of the Proposed Transactions, in and of themselves.
Z. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given above.
These rulings are given subject to the limitation and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996, and are binding provided that the proposed transactions, with the exception of the proposed transactions involving the filing of the articles of dissolution of XXXXXXXXXX, are completed before XXXXXXXXXX.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which if enacted could have an effect on the rulings provided herein.
Nothing in this ruling should be construed as implying that the Canada Customs and Revenue Agency has reviewed or accepted:
(a) that XXXXXXXXXX or any other investment manager or fund manager that holds shares of XXXXXXXXXX/PUBCO or Newco does not own such shares for purposes of determining whether it is a specified shareholder of any such corporation;
(b) the determination of the ACB, the FMV or the PUC of any shares referred to herein; or
(c) any tax consequences relating to the facts and proposed transactions other than those specifically described in the rulings given above.
OPINION
In the event that the proposed amendments to add subsection 55(3.02) and the definition "specified corporation" in subsection 55(1) are enacted substantially in the form proposed in Bill C-43, which received first reading in the House of Commons on September 20, 2000, but which was abolished by the dissolution of Parliament on October 22, 2000, and provided that:
(a) there is not a distribution by XXXXXXXXXX/PUBCO to a corporation that is not an "acquiror" within the meaning ascribed in the definition "specified corporation" before the day that is XXXXXXXXXX years after the date that the proposed transactions are implemented;
and
(b) there is not a distribution by Newco or any other acquror in relation to XXXXXXXXXX/PUBCO before the day that is XXXXXXXXXX years after the date that the proposed transactions are implemented;
and provided that as part of the series of transactions or events that includes the Proposed Transactions there is not:
(c) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(d) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(e) an acquisition of any shares of a distributing corporation in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii);
(f) an acquisition of property in circumstances described in paragraph 55(3.1)(c);
or
(g) an acquisition of property in circumstances described in paragraph 55(3.1)(d);
which has not been described herein, it is then our opinion that, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling I above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
The foregoing opinion is not a ruling, and, in accordance with the practice referred to in Information Circular 70-6R3, is not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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