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.
Principal Issues: In a recapitalization of a Pubco contemplated by a plan of arrangement where the debts forgiveness occurs immediately before the acquisition of control, 1) Whether the settlement of notes will result in a forgiven amount equal to the lesser of the amount for which the notes were issued and their principal amount, minus the fair market value of the Newpubco shares delivered; 2) Whether the amount of the excess described in paragraph 13(21.2)(b) in respect of depreciable properties transferred to an affiliated person will be deemed to be a property owned until the time that is immediately before the time that is immediately before the acquisition of control time; 3) Whether paragraph 111(4)(d) will apply to deem each amount required by paragraph 111(4)(c) to be deducted in computing the adjusted cost base to Debtor of a property to be a capital loss of Debtor for the acquisition of control taxation year from the disposition of property.
Position: 1) to 3) Yes.
Reasons: 1) The Newpubco shares will be delivered in satisfaction of the principal amount of the notes; 2) and 3) The ordering of the series of transactions respects the law.
XXXXXXXXXX 2008-026644
XXXXXXXXXX , 2008
Dear Sirs
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the above named taxpayer. We also acknowledge additional information you provided to us during various telephone conversations (XXXXXXXXXX ) in connection with your ruling request.
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in this ruling request is:
(i) dealt with in an earlier return of the taxpayer or a related person;
(ii) being considered by a tax services office or a taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
(iii) under objection by the taxpayer or a related person;
(iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired, and
(v) the subject of a previous ruling issued to the taxpayer or a related person by the Income Tax Rulings Directorate.
Our understanding of the facts, proposed transactions, other representations and the purpose of the proposed transactions are as follows:
DEFINITIONS:
In this letter, unless otherwise expressly stated, the following terms have the meanings specified hereunder:
(a) "ACO" means XXXXXXXXXX ., a company incorporated under the XXXXXXXXXX and a public corporation. ACO's offices are located at XXXXXXXXXX . ACO is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. ACO's business number is XXXXXXXXXX ;
(b) "Acquisition of Control Taxation Year" means the taxation year ending immediately before the acquisition of control of ACO and each of its controlled subsidiaries as per paragraph 249(4)(a);
(c) "Act" means the Income Tax Act, R.S.C. 1985, c. l (5th Supp.), as amended, and unless otherwise stated, every reference herein to a section, paragraph or subparagraph is a reference to the relevant provision of the Act, and the Income Tax Regulations thereunder are referred to as the "Regulations";
(d) "Additional Backstop Agreements" means the backstop commitment to the New Loan provided by the Additional Backstop Parties for the Additional Backstop Amount;
(e) "Additional Backstop Amount" means the amount of the New Loan agreed to be provided by the Additional Backstop Parties, up to a maximum aggregate amount of US$XXXXXXXXXX ;
(f) "Additional Backstop Parties" means those Noteholders (or their affiliates) who: (a) were designated by ACO and its affiliates (including NEW ACO and its affiliates) no later than XXXXXXXXXX , who entered into support agreements and entered into the Additional Backstop Agreements;
(g) "Adjusted cost base" ("ACB") has the meaning assigned by section 54;
(h) "Arrangement" means an arrangement under Section 192 of the CBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with the Plan of Arrangement or made at the direction of the Court in the Interim Order or the Final Order;
(i) "Arrangement Agreement" means the arrangement agreement dated XXXXXXXXXX between New ACO, ACO and Debtor, as amended or restated from time to time;
(j) "Backstop Parties" means, collectively, the Initial Backstop parties and the Additional Backstop Parties;
(k) "BANKS" means, collectively, XXXXXXXXXX ;
(l) "BCO" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of ACO. BCO's offices are located at XXXXXXXXXX . TCO is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. BCO's business number is XXXXXXXXXX ;
(m) "Board of Directors" or "Board" means the board of directors of ACO prior to the Effective Time and the board of directors of NEW ACO after the Effective Time;
(n) "Capital property" has the meaning assigned by section 54;
(o) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as now in effect and as it may be amended from time to time prior to the Effective Date;
(p) "CCAA" means the Companies Creditors Arrangement Act (Canada);
(q) "CDN$" or "$" means Canadian dollars;
(r) "Certificate" means the certificate of arrangement giving effect to the Arrangement;
(s) "Circular" means the management proxy circular regarding, inter alia, the Recapitalization, distributed to Securityholders in connection with the Meetings;
(t) "Commercial debt obligation" has the meaning assigned by subsection 80(1);
(u) "Commercial obligation" has the meaning assigned by subsection 80(1);
(v) "Court" means the XXXXXXXXXX ;
(w) "CRA" means the Canada Revenue Agency;
(x) "Debtor" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of BCO. Debtor's offices are located at XXXXXXXXXX . Debtor is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's business number is XXXXXXXXXX ;
(y) "Debtor's Interco Notes 1&2" means two subordinated non-interest-bearing promissory notes issued to ACO by Debtor totalling in aggregate $XXXXXXXXXX ;
(z) "Debtor's Interco Note 3" means a $XXXXXXXXXX subordinated interest-bearing promissory note issued by Debtor to Debtor's Sub #1's Sub;
(aa) "Debtor's Sub #1" means XXXXXXXXXX ., a corporation incorporated under the XXXXXXXXXX and a wholly-owned subsidiary of Debtor. Debtor's Sub #1's offices are located at XXXXXXXXXX . Debtor's Sub #1 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #1's business number is XXXXXXXXXX
(bb) "Debtor's Sub #1's Sub" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor's Sub #1. Debtor's Sub #1's Sub's offices are located at XXXXXXXXXX . Debtor's Sub #1's Sub is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #1's Sub's business number is XXXXXXXXXX ;
(cc) "Debtor's Sub #2" means XXXXXXXXXX ., a corporation incorporated under the laws of the State of XXXXXXXXXX and a wholly-owned subsidiary of Debtor;
(dd) "Debtor's Sub #2 Notes means note receivables from Debtor's Sub #2 in the aggregate amount of $XXXXXXXXXX ;
(ee) "Debtor's Sub #3" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor. Debtor's Sub #3's offices are located at XXXXXXXXXX . Debtor's Sub #3 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #3's business number is XXXXXXXXXX ;
(ff) "Debtor's Sub #3's Sub" means XXXXXXXXXX , a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor's Sub #3. Debtor's Sub #3's Sub's offices are located at XXXXXXXXXX . Debtor's Sub #3's Sub is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #3's Sub's business number is XXXXXXXXXX ;
(gg) "Debtor's Sub #3's Sub Note" means a $XXXXXXXXXX note receivable from Debtor's Sub #3's Sub. Note that $XXXXXXXXXX will be repaid out of the $XXXXXXXXXX prior to the Effective Date;
(hh) "Debtor's Sub #4" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor. Debtor's Sub #4's offices are located at XXXXXXXXXX . Debtor's Sub #4 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #4's business number is XXXXXXXXXX ;
(ii) "Debtor's Sub #5" means XXXXXXXXXX , a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor. Debtor's Sub #5's offices are located at XXXXXXXXXX . Debtor's Sub #5 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #5's business number is XXXXXXXXXX ;
(jj) "Debtor's Sub #6" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor. Debtor's Sub #6's offices are located at XXXXXXXXXX . Debtor's Sub #6 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #6's business number is XXXXXXXXXX ;
(kk) "Debtor's Sub #7" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor. Debtor's Sub #7's offices are located at XXXXXXXXXX . Debtor's Sub #7 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre;
(ll) "Debtor's Sub #8" means XXXXXXXXXX ., a corporation incorporated under the XXXXXXXXXX and a wholly-owned subsidiary of Debtor. Debtor's Sub #8's offices are located at XXXXXXXXXX . Debtor's Sub #8 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #8's business number is XXXXXXXXXX
(mm) "Debtor's Sub #9" means XXXXXXXXXX , a corporation incorporated under the XXXXXXXXXX and a XXXXXXXXXX % owned subsidiary of Debtor. Debtor's Sub #9's offices are located at XXXXXXXXXX . Debtor's Sub #9's business number is XXXXXXXXXX ;
(nn) "Debtor's Sub #9 Note" means a $XXXXXXXXXX interest-bearing note receivable from Debtor's Sub #9;
(oo) "Debtor's Sub #9's Sub" means XXXXXXXXXX ., a corporation incorporated under the XXXXXXXXXX and a wholly-owned subsidiary of Debtor's Sub #9. XXXXXXXXXX offices are located at XXXXXXXXXX is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. XXXXXXXXXX business number is XXXXXXXXXX ;
(pp) "Debtor's Sub #9's Sub Note" means a $XXXXXXXXXX interest-bearing note receivable from Debtor's Sub #9's Sub;
(qq) "Debtor's Sub #10" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a XXXXXXXXXX % owned subsidiary of Debtor. Debtor's Sub #10's offices are located at XXXXXXXXXX . Debtor's Sub #10 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #10's business number is XXXXXXXXXX ;
(rr) "Debtor's Sub #10's Sub" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of Debtor's Sub #10. XXXXXXXXXX offices are located at XXXXXXXXXX is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. XXXXXXXXXX business number is XXXXXXXXXX ;
(ss) "Debtor's Sub #11" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a XXXXXXXXXX % owned subsidiary of Debtor;
(tt) "Debtor's Sub #12" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a XXXXXXXXXX % owned subsidiary of Debtor;
(uu) "Debtor's Sub #13" means XXXXXXXXXX ., a corporation incorporated under the Business Corporations Act (XXXXXXXXXX ) and a XXXXXXXXXX % owned subsidiary of Debtor. Debtor's Sub #13's offices are located at XXXXXXXXXX . Debtor's Sub #13 is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. Debtor's Sub #13's business number is XXXXXXXXXX ;
(vv) "Debtor's Sub #13 Note" means a $XXXXXXXXXX interest-bearing note receivable from Debtor's Sub #13;
(ww) "Debtor's Sub #14" means XXXXXXXXXX ., a corporation incorporated under the CBCA;
(xx) "Debtor's Sub #15" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a XXXXXXXXXX % owned subsidiary of Debtor;
(yy) "Debtor's Sub #16" means XXXXXXXXXX ., a corporation incorporated under the XXXXXXXXXX Business Corporations Act and a XXXXXXXXXX % owned subsidiary of Debtor. Debtor's Sub #16's offices are located at XXXXXXXXXX . Debtor's Sub #16's business number is XXXXXXXXXX .
(zz) "Depreciable property" has the meaning assigned by subsection 13(21);
(aaa) "Disposition" has the meaning assigned by subsection 248(1);
(bbb) "ECO" means XXXXXXXXXX a company formed under the laws of XXXXXXXXXX ;
(ccc) "Effective Date" means the date shown on the Certificate;
(ddd) "Effective Time" means such time on the Effective Date as may be specified in writing by NEW ACO prior to the Effective Date;
(eee) "ENTITY" means XXXXXXXXXX ;
(fff) "Existing XXXXXXXXXX Senior Notes" means the XXXXXXXXXX % senior unsecured notes of Debtor due XXXXXXXXXX ;
(ggg) "Existing XXXXXXXXXX Senior Notes" means the XXXXXXXXXX % senior unsecured notes of Debtor due XXXXXXXXXX ;
(hhh) "Existing XXXXXXXXXX Senior Notes" means the XXXXXXXXXX % senior unsecured notes of Debtor due XXXXXXXXXX ;
(iii) "Existing XXXXXXXXXX Shares" means the XXXXXXXXXX shares and the existing XXXXXXXXXX shares in the capital of TI;
(jjj) "Existing Common Shareholders" means the holders of Existing Common Shares;
(kkk) "Existing Common Shares" means the voting common shares in the capital of TI;
(lll) "Existing Common Shares Redemption Time" means the time at which all Existing Common Shares (except for the one Existing Common Share owned by NEW ACO) are redeemed by ACO;
(mmm) "Existing Indentures" means, collectively, (a) the trust indenture dated XXXXXXXXXX and the First Supplemental Indenture thereto dated XXXXXXXXXX , (b) the trust indenture dated XXXXXXXXXX and the First Supplemental Indenture thereto dated XXXXXXXXXX , and (c) the trust indenture dated XXXXXXXXXX ;
(nnn) "Existing ICO Note" means the XXXXXXXXXX % unsecured note issued by ACO to ICO with an aggregate outstanding principal amount of $XXXXXXXXXX ;
(ooo) "Existing Notes" means, collectively, the Existing XXXXXXXXXX Senior Notes, the Existing XXXXXXXXXX Senior Notes and the Existing XXXXXXXXXX Senior Notes;
(ppp) "Existing Securityholders" means, collectively, holders of the Existing Common Shares and holders of the Existing Notes;
(qqq) "Facility 1" means the financing provided by XXXXXXXXXX pursuant to an amended and restated financing agreement between Debtor, Debtor Sub #1's Sub and XXXXXXXXXX . and others dated XXXXXXXXXX , as the same is amended or restated from time to time;
(rrr) "Final Order" means the final order of the Court approving the Arrangement as such order may be amended at any time prior to the Effective Date or, if appealed, then unless such appeal is withdrawn or denied, as granted or affirmed;
(sss) "Forgiven amount" has the meaning given to it in subsection 80(1);
(ttt) "FMV" means fair market value;
(uuu) "Gesco" means XXXXXXXXXX offices are located at XXXXXXXXXX ACO owns XXXXXXXXXX shares which represent XXXXXXXXXX % of the total voting shares of XXXXXXXXXX ;
(vvv) "HOLDCO" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a XXXXXXXXXX % owned subsidiary of ACO. HOLDCO's offices are located at XXXXXXXXXX . HOLDCO is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. HOLDCO's business number is XXXXXXXXXX ;
(www) "HOLDCO LP" means XXXXXXXXXX , a limited partnership governed by the laws of XXXXXXXXXX . HOLDCO LP operates XXXXXXXXXX . Debtor owns XXXXXXXXXX % of the outstanding units of HOLDCO LP;
(xxx) "Indentures" means, collectively, the trust indentures under which the Existing Notes were issued by Debtor, as amended, modified or supplemented from time to time;
(yyy) "Initial Backstop Agreements" means the backstop commitment to the New Loan provided by the Initial Backstop Parties for the New Loan Amount;
(zzz) "Initial Backstop Amount" means $XXXXXXXXXX minus the Additional Backstop Amount;
(aaaa) "Initial Backstop Parties" means those Noteholders (or their affiliates) that have executed the Initial Backstop Agreements;
(bbbb) "Interim Order" means the interim order of the Court dated XXXXXXXXXX , pursuant to Section 192 of the CBCA, as the same may be amended;
(cccc) "ICO" means XXXXXXXXXX ;
(dddd) "ICO/ENTITY Support Agreement" means the support agreement among ICO, ENTITY, ACO and Debtor pursuant to which ICO and ENTITY: (a) consent to (i) the restructuring of the existing unsecured promissory note issued by ACO to ICO and guaranteed by Debtor through the issuance of replacement XXXXXXXXXX % unsecured promissory notes to ICO and ENTITY in an aggregate principal amount of $XXXXXXXXXX each with a maturity date of XXXXXXXXXX and on terms set out in the support agreement (which shall be no less favourable to ACO than the existing promissory note held by ICO provided that interest shall be payable semi-annually on the principal amount of the replacement promissory notes at a rate of XXXXXXXXXX % per annum and the replacement notes shall not be convertible into equity), and (ii) the redemption of each Existing XXXXXXXXXX Share for $XXXXXXXXXX in the manner and on the terms set out in the support agreement; and (b) support this Plan of Arrangement and the transactions contemplated herein;
(eeee) "KCO" means XXXXXXXXXX ., a corporation incorporated under the CBCA and a wholly-owned subsidiary of ACO. KCO's offices are located at XXXXXXXXXX . KCO is served by the XXXXXXXXXX TSO and the XXXXXXXXXX Taxation Centre. KCO's business number is XXXXXXXXXX ;
(ffff) "Laws" means all statutes, codes, regulations, statutory rules, orders, decrees, published policies, published guidelines and terms and conditions of any grant of approval, permission, authority or license of any Governmental Authority (including the XXXXXXXXXX ), and the term "applicable" with respect to such Laws, and in the context that refers to one or more Persons, means that such Laws apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Governmental Authority having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities (all references herein to a specific statute being deemed to include all applicable rules, regulations, rulings, orders and forms made of promulgated under such statute and the published policies and published guidelines of the Governmental Authorities administering such statute);
(gggg) "Master Services Agreement" means the Master Services Agreement entered into by and between Debtor and Debtor Sub #1's Sub dated XXXXXXXXXX ;
(hhhh) "Meetings Date" means XXXXXXXXXX ;
(iiii) "Meetings" means, collectively, the Shareholders' Meeting and the Noteholders' Meeting;
(jjjj) "New Board" means the Board of Directors of NEW ACO;
(kkkk) "Newco" means a newly incorporated wholly-owned subsidiary of Debtor, incorporated under the CBCA;
(llll) "New Common Shareholders" means holders of New Common Shares;
(mmmm) "New Common Shares" means the new common shares in the capital of NEW ACO to be created and issued in connection with the Recapitalization;
(nnnn) "New GP" means a general partnership formed by Debtor and Debtor Sub #1's Sub under the Partnership Act (XXXXXXXXXX );
(oooo) "New Lenders" means those Qualifying Noteholders who participate in funding the New Loan;
(pppp) "New Loan" means the new term loan to Debtor or a successor company of Debtor maturing in XXXXXXXXXX in the aggregate principal amount of US$XXXXXXXXXX to be advanced by the New Lenders (or the Backstop Parties or BANKS, as applicable) and bearing interest at LIBOR +XXXXXXXXXX basis points. To secure repayment of amounts owing under the New Loan and the related guarantees, ACO and its affiliates (including NEW ACO and its affiliates) and its guarantors will provide a second lien security interest in their working capital assets and a first lien security interest in all other property, assets and undertakings. Based on an external valuation, the FMV of the New Loan to equal or approximate its principal amount;
(qqqq) "New Loan Agreement" means the agreement governing the New Loan;
(rrrr) "New Loan Amount" means US$XXXXXXXXXX ;
(ssss) "New Preferred Shares" means the new non-voting XXXXXXXXXX shares in the capital of ACO to be created in connection with the Recapitalization;
(tttt) "NEW ACO" means XXXXXXXXXX ., a corporation incorporated under the CBCA, the name of which is expected to be changed to XXXXXXXXXX . on the Effective Date;
(uuuu) "NEW ACO Preferred Shares" means the new preferred shares in the capital of NEW ACO to be created in connection with the Recapitalization;
(vvvv) "New BCO USA" means a newly incorporated, wholly-owned subsidiary of Debtor, incorporated under the laws of the State of XXXXXXXXXX ;
(wwww) "Noteholders" means holders of the Existing Notes;
(xxxx) "Noteholders' Meeting" means the meeting of Noteholders held pursuant to the Interim Order on XXXXXXXXXX to consider and, if advisable, to approve the Arrangement and to consider such other matters as may properly come before such meeting;
(yyyy) XXXXXXXXXX
(zzzz) "Order" means any order of the Court in these proceedings including, without limitation, the Interim Order and the Final Order;
(aaaaa) "Paid-up capital" has the meaning assigned by subsection 89(1);
(bbbbb) "Particular Time" means the time that is immediately before the time that is immediately before the Existing Common Shares Redemption Time;
(ccccc) "Person" means any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate (including a limited liability company and an unlimited liability company), corporation, unincorporated association or organization, governmental authority, syndicate or other entity, whether or not having legal status;
(ddddd) "Plan of Arrangement" means the plan of arrangement substantially in the form and content of Appendix "XXXXXXXXXX " to the Circular and any amendments or variations thereto made in accordance with the provisions of the Plan of Arrangement or made at the direction of the Court in the Interim Order or the Final Order;
(eeeee) "Proposed Transactions" means the proposed transactions described herein;
(fffff) "Public corporation" has the meaning assigned by subsection 89(1);
(ggggg) XXXXXXXXXX
(hhhhh) "Qualifying Noteholder" means a Noteholder as of the Record Date and (a) in the case of a Noteholder resident in the United States, such Noteholder would otherwise qualify as, or is a fund that is an affiliate of and managed by the same fund manager as, a "qualified institutional buyer" within the meaning of Rule 144A under the 1933 Act or, (b) in the case of a Noteholder resident in a province or territory of Canada, such Noteholder would otherwise qualify as an "accredited investor" as such term is defined in National Instrument 45-106 Prospectus and Registration Exemptions (the "National Instrument"), or (c) in the case of a Noteholder resident outside of Canada or the United States, such Noteholder would otherwise qualify as an "accredited investor" as such term is defined in the National Instrument as if such Noteholder was resident in Canada and can demonstrate to ACO that it is qualified to participate in the New Loan in accordance with the laws of its jurisdiction of residence;
(iiiii) "Recapitalization" means the transactions contemplated by the Plan of Arrangement;
(jjjjj) "Record Date" means XXXXXXXXXX as the date for determining those Existing Securityholders entitled to receive notice and to vote at the Meetings and for determining the entitlement of Noteholders to participate in the New Loan;
(kkkkk) "Securityholders" means the Noteholders and Existing Common Shareholders;
(lllll) "Shareholders' Meeting" means the meeting of the Shareholders held pursuant to the XXXXXXXXXX on XXXXXXXXXX to: (a) consider and, if deemed advisable, pass, with or without variation, a special resolution confirming the By-Law relating to an amendment to the articles of ACO to: (i) add a right to redeem the Existing Common Shares at the option of ACO by the issuance to each holder of Existing Common Shares (other than NEW ACO) of XXXXXXXXXX of a New Common Share for each Existing Common Share held by it and XXXXXXXXXX of a Warrant for each Existing Common Share held by it; (ii) add a right to redeem each Existing XXXXXXXXXX Share at the option of ACO for $XXXXXXXXXX ; and (iii) authorize the issuance of an unlimited number of New Preferred Shares; and (b) consider and, if deemed advisable, pass, with or without variation, a resolution approving the Plan of Arrangement; and (c) consider such other matters as may properly come before such meeting;
(mmmmm) "Stated capital" means stated capital within the meaning of section 26 of the CBCA;
(nnnnn) "Soc LP" means XXXXXXXXXX , a limited partnership governed by the laws of XXXXXXXXXX that carries on a XXXXXXXXXX business in the province of XXXXXXXXXX . Debtor owns XXXXXXXXXX % of the outstanding units of XXXXXXXXXX ;
(ooooo) "Taxable Canadian Corporation" ("TCC") has the meaning assigned by subsection 89(1);
(ppppp) "TSO" means a CRA tax services office;
(qqqqq) XXXXXXXXXX
(rrrrr) "Undepreciated capital cost" ("UCC") has the meaning assigned by subsection 13(21);
(sssss) "US$" or "U.S. dollars" means United States dollars.
(ttttt) "Warrant Indenture" means the warrant indenture between NEW ACO and XXXXXXXXXX to be dated the Effective Date providing for the issuance of the Warrants; and
(uuuuu) "Warrants" means the warrants to receive New Common Shares to be issued by NEW ACO to the Existing Common Shareholders pursuant to the Warrant Indenture.
FACTS
1. ACO is a public corporation governed by the XXXXXXXXXX and a TCC. The shares of ACO are listed and posted for trading on the XXXXXXXXXX under the symbol XXXXXXXXXX .
XXXXXXXXXX ACO's consolidated sales for the year XXXXXXXXXX totalled $XXXXXXXXXX with a consolidated net loss amounting to $XXXXXXXXXX .
ACO's taxation year-end is the XXXXXXXXXX . At the end of its fiscal period XXXXXXXXXX , ACO had no non-capital loss balance but a net capital loss balance of $XXXXXXXXXX .
2. ACO's authorized share capital consists of:
(i) an unlimited number of voting common shares without par value (otherwise referred to herein as the "Existing Common Shares");
(ii) an unlimited number of non-voting XXXXXXXXXX shares issuable in series without par value (otherwise referred to herein as the "Existing XXXXXXXXXX Shares"); and
(iii) XXXXXXXXXX non-voting redeemable shares with a par value of $XXXXXXXXXX each.
3. As of XXXXXXXXXX Existing Common Shares (on a fully diluted basis), XXXXXXXXXX shares and XXXXXXXXXX shares (for a total of XXXXXXXXXX Existing XXXXXXXXXX Shares) and no XXXXXXXXXX shares were issued and outstanding. The paid-up capital of each Existing Common Share is not less than approximately $XXXXXXXXXX . The paid-up capital of each Existing XXXXXXXXXX Share is $XXXXXXXXXX .
4. To the knowledge of the directors and executive officers of ACO, no person beneficially owns, directly or indirectly, or controls or directs 10% or more of the voting rights attached to all Existing Common Shares, with the exception of XXXXXXXXXX , who, together with entities controlled by him and related persons for whom he holds powers of attorney, beneficially owns or controls XXXXXXXXXX Existing Common Shares representing approximately XXXXXXXXXX % of ACO's issued and outstanding Existing Common Shares.
5. ICO and ENTITY currently own all the Existing XXXXXXXXXX Shares with an aggregate redemption value of $XXXXXXXXXX . ICO also holds the Existing ICO Note.
6. ACO owns several investments in wholly-owned and jointly-owned subsidiaries. The table below provides an overview of such investments as well as ACO's ACB, FMV and the amount of any dividends paid thereon (for purposes of subsections 112(3) and 93(2)). These investments are capital properties of ACO.
List of ACO's wholly-owned subsidiaries
Corporation
ACB
FMV
Dividends paid
BCO
XXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXX
XXXXXXXXXX
XXXXXXXX XXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXX
ECO
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXX
KCO
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXX
List of ACO's jointly-owned subsidiaries
Corporation
ACB
FMV
Dividends paid
XXXXXXXXXX XXXXXXXXXX
XXXXX
XXXXXXX
XXXXXXXXXX
Gesco
XXXXXXXXXX XXXXX XXXXXXX XXXXXXXXX
HOLDCO XXXXXXXXXX XXXXX XXXXXXX
XXXXXXXXXX
Loan
XXXXX
XXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXX
XXXXXXX
XXXXXXXXXX
7. ACO also owns the Debtor's Interco Notes 1 & 2 and the ACB of such notes is equal to their principal amount. The FMV of the Debtor's Interco Notes 1 & 2 does not exceed their principal amount. The Debtor's Interco Notes 1 & 2 are capital properties to ACO.
8. BCO is a wholly-owned subsidiary of ACO and a TCC. BCO is a holding corporation which owns all the issued and outstanding shares of Debtor. The authorized share capital of BCO consists of an unlimited number of XXXXXXXXXX shares, XXXXXXXXXX shares issuable in series, XXXXXXXXXX shares, XXXXXXXXXX shares and XXXXXXXXXX shares. Also authorized, XXXXXXXXXX . BCO's taxation year-end is the XXXXXXXXXX .
9. The ACB of the XXXXXXXXXX shares of Debtor owned by BCO is approximately $XXXXXXXXXX whereas their FMV is $XXXXXXXXXX . Dividends in the amount of $XXXXXXXXXX have been paid on the shares. The shares of Debtor are capital property to BCO. The ACB of the XXXXXXXXXX shares of Debtor owned by BCO is approximately $XXXXXXXXXX whereas their FMV is $XXXXXXXXXX . The ACB of the XXXXXXXXXX shares of Debtor owned by BCO is approximately $XXXXXXXXXX whereas their FMV is $XXXXXXXXXX .
10. Debtor is a wholly-owned subsidiary of BCO and a TCC governed by the CBCA. Debtor carries on the business of XXXXXXXXXX . The authorized share capital of Debtor consists of an unlimited number of XXXXXXXXXX voting shares without par value, an unlimited number of non-voting XXXXXXXXXX preferred shares issuable in series without par value, with other attributes to be determined at the time of issuance, an unlimited number of XXXXXXXXXX shares, non-voting, participating and redeemable at the issue price plus the increase in the book value per share since the issue date, an unlimited number of XXXXXXXXXX shares, redeemable at the option of the Debtor and the holders at the FMV of the consideration received by Debtor upon such issue of such shares; entitled to a preferential and non-cumulative annual dividend at the rate of XXXXXXXXXX % of the redemption price and an unlimited number of non-voting XXXXXXXXXX shares, redeemable at the option of the Debtor and the holders at the FMV of the consideration received by the Debtor upon issue of such shares; entitled to a preferential and non-cumulative annual dividend at the rate of XXXXXXXXXX % of the redemption price. Debtor has XXXXXXXXXX shares, XXXXXXXXXX shares and XXXXXXXXXX shares issued and outstanding.
11. At the beginning of the XXXXXXXXXX calendar year, Debtor and Debtor's Sub#1's Sub amended and restated the Facility 1 by increasing it to $XXXXXXXXXX and extending its committed period to XXXXXXXXXX . The Facility 1 is secured by account receivables and inventory. In order to enter into this amended and restated Facility 1, Debtor sold and transferred to Debtor's Sub #1's Sub, all of its rights, titles and interests in and to all of its assets forming its working capital which working capital was held for use or used exclusively in connection with Debtor's manufacturing and sales activities. Consequently, Debtor's Sub #1's Sub began carrying on, the procurement, manufacturing, scientific research and experimental development, and sales activities relating to the business of Debtor. In order to carry on such activities, Debtor entered into the Master Services Agreement pursuant to which it requested the assistance of Debtor, including the provision by Debtor of management and strategic planning services, as well as providing access to and use of Debtor's XXXXXXXXXX . Since the cash management purpose of this arrangement would not longer be relevant after the Proposed Transactions, the Master Services Agreement has, in accordance with its terms, been terminated prior to the Effective Date.
As of XXXXXXXXXX , Debtor's Sub #1's Sub had drawn on the Facility 1 an amount of approximately $XXXXXXXXXX .
12. Debtor entered into three trust indentures dated respectively XXXXXXXXXX with the note trustee which govern the Existing Notes issued by it in an aggregate amount of US$XXXXXXXXXX (otherwise referred to herein as the "Existing Notes"). The Existing Notes are guaranteed by ACO, are unsecured but require compliance with certain covenants that could in certain circumstances restrict the ability of Debtor or its subsidiaries to incur additional indebtedness, to encumber or dispose of their assets, or to make certain payments or distributions. As of XXXXXXXXXX , Debtor's Existing Notes are as follows:
Maturity Date
Face amount in US$
Interest Rate
Historical amount in CDN$
Current amount in CDN$
(XXXX )
Existing XXXXXX Senior Notes
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
Existing XXXXXX Senior Notes
XXXXXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
Existing Senior Notes XXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
(i) under the terms of the indentures, the Existing XXXXXXXXXX Senior Notes were issued at a discount to their face value. To the contrary, the Existing XXXXXXXXXX Senior Notes were issued at a premium;
(ii) the Existing Notes are not listed on any stock exchange although they may be publicly traded; (iii) the Existing Notes are not convertible in any manner whatsoever into equity of Debtor;
(iv) the proceeds of the Existing Notes were used by Debtor to fund business operations and business acquisitions; and
(v) based on information received from the management at ACO, a substantial number of Noteholders are non-resident of Canada.
13. On XXXXXXXXXX when Debtor completed its issuance of the Existing XXXXXXXXXX Senior Notes, Debtor on-lent CDN$XXXXXXXXXX to an affiliate at XXXXXXXXXX % per annum ("Note A"). On XXXXXXXXXX , Debtor granted a second loan to that same affiliate with a principal amount of CDN$XXXXXXXXXX also bearing interest at a rate of XXXXXXXXXX % ("Note B"). A dividend was further declared and paid by Debtor to BCO in an amount equals in aggregate to the principal amounts of Note A and Note B by transferring Note A and Note B. As part of a subsequent tax audit, the CRA has reassessed Debtor in respect of its XXXXXXXXXX and XXXXXXXXXX taxation year and denied any interest deduction on US$XXXXXXXXXX of the Existing XXXXXXXXXX Senior Notes on the grounds that such borrowed amount did not actually replace pre-existing capital (contributed/Stated capital or retained earnings) which was used for an eligible purpose under paragraph 20(1)(c) had the capital been borrowed. As result of the reassessment, US$XXXXXXXXXX of the Existing XXXXXXXXXX Senior Notes is not considered a commercial debt obligation for the purposes of section 80.
14. Debtor's taxation year-end is the XXXXXXXXXX . Debtor currently owns depreciable properties having in aggregate a FMV of $XXXXXXXXXX and a UCC of $XXXXXXXXXX . As of XXXXXXXXXX , Debtor had a net operating loss carry forward balance of $XXXXXXXXXX , a net capital loss balance of $XXXXXXXXXX , a cumulative eligible capital balance of $XXXXXXXXXX , and an R&D pool balance of $XXXXXXXXXX .
15. Debtor also owns several investments in wholly-owned and jointly-owned subsidiaries. The table below provides an overview of such investments as well as Debtor's ACB, FMV and the amount of any dividends paid thereon (for purposes of subsections 93(2) and 112(3)). Theses investments are capital properties of Debtor.
List of Debtor's wholly-owned subsidiaries
Corporation ACB FMV Dividends paid
Debtor's Sub #1
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #2
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #3
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #4
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #5
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #6
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #7
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #8
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
HOLDCO L.P.
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
List of Debtor's jointly-owned subsidiaries
Corporation
ACB
FMV
Dividends paid
Debtor's Sub #9
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #10
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #11
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #12
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #13
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #14
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #15
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
Debtor's Sub #16
XXXXXXXXXX
XXXXXXXX
XXXXXXX
XXXXXXXXXX
16. The tax attributes of Debtor's subsidiaries and affiliates prior to the Proposed Transactions should be as follows (approximates only):
Corporation Non- Capital CEC Balance UCC of FMV of ITC SR&ED
(wholly- capital losses Balance Depreciable Depreciable R&D Balance
owned and losses Balance (4/3) Properties Properties Sch. 31
jointly- Balance
owned)
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #1
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #1’s
Sub
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #3
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #3's
Sub
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #4
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #5
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #6
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #7
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #8
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #9
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #9's
Sub
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #10
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #11
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #12
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #13
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #14
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #15
Debtor's XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
Sub #16
KCO XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
BCO XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
17. In addition to the assets described in 15 above, Debtor holds the Debtor's Sub #3's Sub Note, Debtor's Sub #2 Notes, Debtor's Sub #9 Note, Debtor's Sub #9's Sub and the Debtor's Sub #13 Note. All these notes constitute capital properties of Debtor.
18. Debtor's Sub #1 is a TCC and a holding company that owns all the outstanding shares of Debtor Sub #1's Sub. Debtor's Sub #1's authorized share capital consists of an unlimited number of common shares. Debtor's Sub #1's issued and outstanding share capital is comprised of XXXXXXXXXX common shares all of which are owned by Debtor. Debtor's Sub #1's taxation year-end is the XXXXXXXXXX
19. Debtor's Sub #1's Sub is a TCC that carries on the business XXXXXXXXXX . Debtor's Sub #1's Sub's authorized share capital consists of an unlimited number of common shares. Debtor's Sub #1's Sub's issued and outstanding share capital is comprised of XXXXXXXXXX common shares all of which are owned by Debtor's Sub #1. Debtor's Sub #1's Sub's taxation year is the XXXXXXXXXX . On XXXXXXXXXX , as part of a reorganization, ACO through Debtor's Sub #1 together with the employees of Debtor's Sub #1's Sub and other parties, acquired all of the outstanding shares of Debtor's Sub #1's Sub. As part of the reorganization, an indemnity agreement was signed by and between XXXXXXXXXX whereby XXXXXXXXXX have agreed that in order for the proposed reorganization to proceed, it was necessary for them to indemnify and save harmless Debtor's Sub #1's Sub from and against specific potential environmental liabilities which agreement they signed the same date. Pursuant to the applicable termination clause of that agreement, it is expressly mentioned that the agreement shall terminate if, among others, Debtor's Sub #1 were to cease to be the beneficial owner of XXXXXXXXXX % of the shares of Debtor's Sub #1's Sub. In several instances, ACO has attempted to merge the business of Debtor with the business of Debtor's Sub #1's Sub without success due to this termination clause. In fact, proceeding with an amalgamation or a winding-up of Debtor's Sub #1 and Debtor's Sub #1's Sub would result in ACO losing the benefit of this important potential indemnification which consequence was unacceptable to ACO each time. It should be noted that in XXXXXXXXXX ACO obtained an opinion from its external legal counsels confirming such risk. ACO's intention is to merge these businesses as soon as possible and has decided to explore further alternatives as part of the Proposed Transactions.
Debtor's Sub #1's Sub owns the Debtor's Interco Note 2 and the ACB of such note is equal to the principal amount. The Debtor's Interco Note 2 is a capital property to Debtor's Sub #1's Sub, the FMV of which does not exceed its principal amount.
20. XXXXXXXXXX
21. Debtor's Sub #3 is a TCC that owns a building in XXXXXXXXXX and owns all the outstanding shares of Debtor's Sub #3's Sub. Debtor's Sub #3's authorized share capital consists of an unlimited number of XXXXXXXXXX shares. Debtor's Sub #3's issued and outstanding share capital is comprised of XXXXXXXXXX shares all of which are owned by Debtor. Debtor's Sub #3's taxation year-end is the XXXXXXXXXX .
22. Debtor's Sub #4 is a TCC that carries on a XXXXXXXXXX business for ACO's affiliates. Debtor's Sub #4's authorized share capital consists of an unlimited number of voting common shares, non-voting common shares and preferred shares. Debtor's Sub #4's issued and outstanding share capital is comprised of XXXXXXXXXX voting common shares all of which are owned by Debtor. Debtor's Sub #4's taxation year-end is the XXXXXXXXXX .
23. Debtor's Sub #5 is a TCC that XXXXXXXXXX . Debtor's Sub #5's authorized share capital consists of XXXXXXXXXX common shares. Debtor's Sub #5's issued and outstanding share capital is comprised of XXXXXXXXXX common shares all of which are owned by Debtor. Debtor's Sub #5's taxation year-end is the XXXXXXXXXX
24. Debtor's Sub #6 is a TCC that XXXXXXXXXX . Debtor's Sub #6's authorized share capital consists of XXXXXXXXXX common shares. Debtor's Sub #6's issued and outstanding share capital is comprised of XXXXXXXXXX common share which is owned by Debtor. Debtor's Sub #6's taxation year-end is the XXXXXXXXXX
25. Debtor's Sub #7 is a TCC that is inactive. Debtor's Sub #7's taxation year-end is the XXXXXXXXXX .
26. Debtor's Sub #8 is a TCC and a pure holding company that owns the shares of XXXXXXXXXX wholly-owned subsidiaries, XXXXXXXXXX of which are foreign corporations. Debtor's Sub #8's authorized share capital consists of an unlimited number of common shares. Debtor's Sub #8's issued and outstanding share capital is comprised of XXXXXXXXXX common shares all of which are owned by Debtor. Debtor's Sub #8's taxation year-end is the XXXXXXXXXX .
27. Debtor's Sub #9 is a TCC and a pure holding company that owns all the outstanding shares of Debtor Sub #9's Sub. Debtor's Sub #9's authorized share capital consists of an unlimited number of common shares, XXXXXXXXXX shares. Debtor's Sub #9's issued and outstanding share capital is comprised of XXXXXXXXXX common shares XXXXXXXXXX % of which are owned by Debtor. Debtor's Sub #9's taxation year-end is the XXXXXXXXXX .
28. Debtor's Sub #10 is a TCC that XXXXXXXXXX and owns all the shares of Debtor's Sub #10's Sub. Debtor's Sub #10's authorized share capital consists of an unlimited number of common shares, without par value and an unlimited number of preferred shares issuable in series without par value, with other attributes to be determined at time of issuance. Debtor's Sub #10's issued and outstanding share capital is comprised of XXXXXXXXXX common shares XXXXXXXXXX % of which are owned by Debtor. Debtor's Sub #10's taxation year-end is the XXXXXXXXXX .
29. Debtor's Sub #11 is a TCC that owns all the outstanding shares of Debtor Sub #11's Sub.
30. Debtor's Sub #12 is a TCC that is inactive.
31. Debtor's Sub #13 is a TCC that carries a XXXXXXXXXX business. Debtor's Sub #13's authorized share capital consists of an unlimited number of XXXXXXXXXX voting shares, without par value and XXXXXXXXXX non-voting shares, non-cumulative quarterly dividend of XXXXXXXXXX % when certain conditions are met, without par value, redeemable at the option of the holder after XXXXXXXXXX and at Debtor's Sub #13's option at any time, the redemption price being equal to $XXXXXXXXXX per share plus declared and unpaid dividends. Debtor's Sub #13's issued and outstanding share capital is comprised of XXXXXXXXXX shares XXXXXXXXXX % of which are owned by Debtor. Debtor's Sub #13's taxation year-end is the XXXXXXXXXX .
32. Debtor's Sub #14 is a TCC that is inactive.
33. Debtor's Sub #15 is a TCC that XXXXXXXXXX .
34. Debtor's Sub #16 is a TCC that XXXXXXXXXX % of the issued and outstanding equity of Debtor's Sub #16 is owned by Debtor. Debtor's Sub #16's taxation year-end is the XXXXXXXXXX .
Background of the Recapitalization & Financial difficulty of the Debtor
35. For the last several years, ACO has faced a significant deterioration in business conditions in XXXXXXXXXX
In light of all these factors, ACO focused its efforts on its previously announced recovery plan. The organization made significant progress by rationalizing capacity, reducing shifts and selling non-core assets. However, faced with deteriorating business conditions and a highly leveraged balance sheet, ACO was forced to consider a broad range of strategic alternatives to address its capital structure and enhance liquidity.
In XXXXXXXXXX , ACO announced that it was exploring strategic alternatives to improve its capital structure and enhance liquidity. Strategic alternatives considered included non-core asset sales, cost reduction initiatives, refinancing or repayment of debt and issuance of new debt or equity. The review of strategic alternatives was undertaken by ACO's management and was overseen by its special committee for strategic purposes and the Board of Directors. XXXXXXXXXX provided financial advice to ACO. ACO remained focused on improving its operations in the context of a relatively difficult environment for XXXXXXXXXX , while retaining a collaborative relationship with its customers, suppliers, and employees. The Recapitalization evolved from discussions with a variety of stakeholders as a means by which ACO could normalize its capital structure and enhance liquidity in a consensual process that was fair and reasonable to all stakeholders.
The Recapitalization would accomplish a significant de-leveraging of ACO's consolidated balance sheet. ACO's consolidated net debt would be reduced from $XXXXXXXXXX , as at XXXXXXXXXX , to approximately $XXXXXXXXXX ; significantly reducing debt service obligations. Under this proposal, the annual interest costs would be reduced by approximately $XXXXXXXXXX . The Recapitalization would provide ACO with substantial new liquidity in the form of a new US$XXXXXXXXXX term loan. The debt reduction would improve ACO's ability to access the capital markets in the future and to attract and retain employees, customers and suppliers. The successful implementation of the Recapitalization is expected to be a significant positive step in assisting ACO to execute its business plan.
36. In order to proceed with the Arrangement, NEW ACO was incorporated under the CBCA. NEW ACO was formed solely for the purpose of effecting the Arrangement and will not carry on any business prior to the Effective Time, other than in connection with the Arrangement, and has no material assets or liabilities.
37. The authorized share capital of NEW ACO will be comprised of:
(i) an unlimited number of New Common Shares;
(ii) an unlimited number of NEW ACO Preferred Shares; and
(iii) the Warrants.
38. XXXXXXXXXX will be the sole member of the initial board of directors of NEW ACO.
39. On the Noteholders' Meeting, the Noteholders (as of the Record Date) of Debtor passed a resolution, the full text of which is set out in Appendix "XXXXXXXXXX " to the Circular, approving the Arrangement.
40. The resolution referred to in 39 above received an affirmative vote of XXXXXXXXXX % of the votes cast by Noteholders present in person or by proxy at the Noteholders' Meeting and entitled to vote on the resolution.
41. On the Shareholders' Meeting, the Shareholders (as of the Record Date) passed the following resolutions:
(i) a resolution confirming By-Law relating to an amendment to the articles of ACO to, among other things, amend the terms of the Existing Common Shares to provide ACO with the option to redeem, without consent, all of the Existing Common Shares by delivering XXXXXXXXXX New Common Shares and the Warrants, the full text of which is set forth in Appendix "XXXXXXXXXX " accompanying the Circular;
(ii) a resolution approving the Plan of Arrangement, the full text of which resolution is set forth in Appendix "XXXXXXXXXX " accompanying the Circular;
(iii) a resolution in order to receive the consolidated financial statements of ACO for the fiscal year ended XXXXXXXXXX together with the auditors' report thereon;
(iv) a resolution in order to elect the directors of NEW ACO; and
(v) a resolution in order to appoint the auditors and authorize the board of directors to fix their remuneration.
42. The resolutions referred to in paragraph 41 above received an affirmative vote of XXXXXXXXXX % of the votes cast by Shareholders present in person or by proxy at the Shareholders' Meeting and entitled to vote on the resolutions;
PROPOSED TRANSACTIONS
43. It is proposed that the transactions described in 44 below take place prior to the Effective Date. As part of the Arrangement described in 45 below, preliminary steps shall be completed prior to the implementation of the Plan of Arrangement. These preliminary steps are described in 46 to 59 below, which steps shall occur in a sequential order. The main steps of the Arrangement are described in 60 to 63 below and will commence at the Effective Time on the Effective Date and will be performed in a sequential order. The transactions described in 64 to 66 below will take place in a sequential order after the Effective Date. The implementation of the Plan of Arrangement and the subsequent steps following the Arrangement are conditional upon the fulfilment or waiver of various conditions.
44. Prior to the Effective Date, the following transactions will take place:
(i) Debtor's Sub #8 will be continued under the CBCA;
(ii) Debtor and Debtor Sub #1's Sub will form New GP under the Partnerships Act (XXXXXXXXXX ) for the purposes of carrying on the business of Debtor and Debtor Sub #1's Sub;
(iii) Debtor will incorporate New BCO USA under the laws of the State of XXXXXXXXXX and will subscribe for common shares of New BCO USA for a nominal amount on incorporation. New BCO USA will be a non-resident of Canada for the purposes of the Act;
(iv) Debtor will incorporate Newco under the CBCA. The authorized capital of Newco will consist of unlimited number of common shares, XXXXXXXXXX preferred share and XXXXXXXXXX preferred share. Debtor will subscribe for common shares of Newco for a nominal amount on incorporation. Newco will be a TCC.
Description of the Arrangement
45. The Arrangement provides for the issuance of the New Common Shares in satisfaction of the principal of the Existing Notes held by the Noteholders and as payment for the redemption price of the Existing Common Shares held by the Existing Common Shareholders. Other than the obligations and indebtedness under the Existing Notes and the Indentures, the obligations and indebtedness of ACO, its subsidiaries and affiliated corporations are not affected by the Plan. Trade debt, obligations to employees generally and under pension plans will continue to be paid or satisfied in the ordinary course.
As per the terms and conditions of the Arrangement, interest accrued on the Existing Notes will be paid in cash on the Effective Date to the extent such interest has accrued up to and including XXXXXXXXXX . Interest accruing on the Existing Notes after XXXXXXXXXX will not be paid as the XXXXXXXXXX shares will first be allocated to the principal amount of the Existing Notes.
Preliminary Steps to the Arrangement
46. ICO, ENTITY, ACO and Debtor will execute the ICO/ENTITY support agreement.
47. ACO will transfer to Newco the Debtor's Interco Notes 1 & 2 having a FMV not exceeding their principal amount in consideration for the issuance by Newco of XXXXXXXXXX preferred share which is redeemable for an amount equal to the FMV of the Debtor's Interco Notes 1 & 2. Newco will add to the Stated capital account maintained for the XXXXXXXXXX preferred share, an amount equal to the FMV of the Debtor's Interco Notes 1 & 2.
ACO and Newco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Debtor's Interco Notes 1 & 2. The agreed amount in respect of the Debtor's Interco Notes 1 & 2 will be equal to the lesser of the FMV or the ACB of the Debtor's Interco Notes 1 & 2 to ACO immediately before the transfer. As result, ACO will obtain an ACB in the XXXXXXXXXX preferred share of Newco received equal to the FMV of the Debtor's Interco Notes 1 & 2 so transferred.
48. ACO will transfer, at FMV, to BCO its XXXXXXXXXX preferred share of Newco in consideration for additional common shares of BCO.
ACO and BCO will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX preferred share of Newco. The agreed amount in respect of the XXXXXXXXXX preferred share of Newco will be equal to the ACB of the XXXXXXXXXX preferred share of Newco to ACO immediately before the transfer. BCO will add to the Stated capital account maintained for its common shares an amount equal to the agreed amount in respect of the transfer.
49. BCO will transfer, at FMV, to Debtor its XXXXXXXXXX preferred share of Newco in consideration for additional common shares of Debtor.
BCO and Debtor will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX preferred share of Newco. The agreed amount in respect of the XXXXXXXXXX preferred share of Newco transferred will be equal to the ACB of the XXXXXXXXXX preferred share of Newco to BCO immediately before the transfer.
Debtor will add to the Stated capital account maintained for its common shares an amount equal to the agreed amount in respect of the transfer.
50. Debtor's Sub #1's Sub will transfer to Newco the Debtor's Interco Note 2 having a FMV not exceeding its principal amount in consideration for the issuance by Newco of XXXXXXXXXX preferred share which is redeemable for an amount equal to the FMV of the Debtor's Interco Note 2. Newco will add to the Stated capital account maintained for the XXXXXXXXXX preferred share, an amount equal to the FMV of the Debtor's Interco Note 2.
Debtor's Sub #1's Sub and Newco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Debtor's Interco Note 2. The agreed amount in respect of the Debtor's Interco Note 2 will be equal to the lesser of the FMV or the ACB of the Debtor's Interco Note 2 to Debtor's Sub #1's Sub immediately before the transfer. As result, Debtor Sub #1's Sub will obtain an ACB in the XXXXXXXXXX preferred shares of Newco received equal to the FMV of the Debtor's Interco Note 2 so transferred.
51. Debtor's Sub #1's Sub will reduce its Stated capital of the common shares by an amount equal to the FMV of the XXXXXXXXXX preferred share of Newco and will distribute to Debtor's Sub #1 as payment for such reduction its XXXXXXXXXX preferred shares of Newco. The reduction of the Stated capital of the common shares of Debtor's Sub #1's Sub will not exceed the PUC of the said common shares and the ACB to Debtor's Sub #1.
52. Debtor's Sub #1 will reduce its Stated capital of the common shares by an amount equal to the FMV of the XXXXXXXXXX preferred share of Newco and will distribute to Debtor as payment for such reduction its XXXXXXXXXX preferred shares of Newco. The reduction of the Stated capital of the common shares of Debtor's Sub #1 will not exceed the PUC of the said common shares and the ACB to Debtor.
53. The shareholder of Newco, Debtor, will pass a resolution authorizing the wind-up and the dissolution of Newco. Newco will then distribute all of its property (including Debtor's Interco Notes 1 & 2 and Debtor's Interco Note 2) to Debtor and Debtor will assume all of the liabilities of Newco, if any. The shares of Newco will be cancelled.
Debtor will elect, in prescribed form and within the time referred to in paragraph 80.01(4)(c), to have the rules in subsection 80.01(4) apply with respect to the settlement of the Debtor's Interco Notes 1 & 2 and Debtor's Interco Note 2 as a result of the wind-up of Newco.
54. Debtor will contribute all of its shares of Debtor's Sub #2 to the share capital of New BCO USA for no consideration.
55. New BCO USA will pass a resolution to authorize the wind-up and dissolution of Debtor's Sub #2. Debtor's Sub #2 will distribute all of its property to New BCO USA and New BCO USA will assume all of the liabilities, if any, of Debtor's Sub #2. The certificate of dissolution of Debtor's Sub #2 will be issued shortly and the shares of Debtor's Sub #2 will be cancelled.
56. The Articles of ACO will be amended to provide the following:
a) amend the rights, privileges, conditions and restrictions of the Existing Common Shares to provide for a redemption right, exercisable at the option of ACO, pursuant to which each such share will be redeemable in consideration for the delivery of New Common Shares and Warrants as described below;
b) amend the rights, privileges, conditions and restrictions of the Existing XXXXXXXXXX Shares to provide for a redemption right, exercisable at the option of ACO, pursuant to which each such share will be redeemable in consideration for a nominal redemption price; and
c) create the New Preferred Shares.
57. NEW ACO will subscribe for New Preferred Shares and XXXXXXXXXX Existing Common Share of ACO. The consideration for NEW ACO's subscription for the New Preferred Shares and XXXXXXXXXX Existing Common Share of ACO will be comprised of:
a) a nominal cash consideration;
b) the undertaking by NEW ACO to deliver XXXXXXXXXX New Common Shares and the Warrants to holders of Existing Common Shares upon the redemption by ACO of the Existing Common Shares as described in 63 below; and
c) the undertaking by NEW ACO to deliver XXXXXXXXXX New Common Shares to the Noteholders and the Backstop Parties as described in 62 and 63 below.
58. ACO will subscribe for additional common shares of BCO in consideration for nominal cash consideration and a transfer to BCO of the undertaking described in 57(c) above.
59. BCO will subscribe for additional common shares of Debtor in return of a nominal cash consideration and a transfer to Debtor of the undertaking described in 57(c) above.
Steps of the Arrangement
60. Debtor will dispose of all of its business assets, including depreciable properties, (with the exception of certain employee loans, all shares held in the capital of its subsidiaries and certain of its lands and buildings) to New GP in consideration of additional partnership units of New GP and the assumption of the liabilities relating to the business assets so transferred.
61. Debtor Sub #1's Sub will transfer all of its business assets (with the exception of an amount receivable of $XXXXXXXXXX and certain of its lands and buildings) to New GP in consideration of additional partnership units of New GP and the assumption of the liabilities relating to the business assets so transferred.
62. Claims (having a principal amount of approximately $XXXXXXXXXX , including principal but excluding interest described in paragraph 80(2)(b)) of any Noteholders will be satisfied immediately before the Existing Common shares Redemption Time by delivering XXXXXXXXXX New Common Shares to be allocated as follows:
(a) XXXXXXXXXX New Common Shares will be allocated pro rata to Noteholders on each Noteholder's respective share of the Existing Notes; and
(b) XXXXXXXXXX New Common Shares will be allocated pro rata to Noteholders who provide the New Loan based on the aggregate principal amount of the New Loan advanced by each Noteholder.
As result of the implementation of the transactions described in 57, 58 and 59, above, Debtor will deliver the XXXXXXXXXX New Common Shares to the Noteholders. This should result in a forgiven amount of Debtor of approximately $XXXXXXXXXX (excluding interest under paragraph 80(2)(b)) to be applied against Debtor's tax attributes in accordance with section 80. It should be noted that the $XXXXXXXXXX of the Existing XXXXXXXXXX Senior Notes referred to in 13 above is excluded from the calculation of the forgiven amount considering that it is not a commercial debt obligation.
The Backstop Parties, being a party to a backstop agreement in regard of the New Loan will receive from Debtor XXXXXXXXXX New Common Shares.
63. ACO will redeem all of the Existing Common Shares (other than the XXXXXXXXXX Existing Common Share held by NEW ACO) in consideration of a number of New Common Shares and Warrants of NEW ACO. Pursuant to its undertaking, NEW ACO will issue such New Common Shares and Warrants to the Existing Common Shareholders. Certain Existing Common Shareholders may decide not to receive Warrants from NEW ACO in exchange for their Existing Common Shares.
ACO will elect in its tax return for its Acquisition of Control Taxation Year not to have subsection 256(9) apply.
Subsequent Steps following the Arrangement
64. All actions required by ACO, Debtor, ICO and ENTITY under the ICO/ENTITY Support Agreement shall take place (including, without limitation, the issuance of the new XXXXXXXXXX % unsecured promissory notes to ICO in an aggregate principal amount of $XXXXXXXXXX , the proceeds of which will be used to repay and fully settle the Existing ICO Note; the redemption of each Existing XXXXXXXXXX Share for $XXXXXXXXXX , the cancellation and elimination of all legal, equitable, contractual and any other rights or entitlements with respect to the Existing XXXXXXXXXX Shares, and the release of ACO and its affiliates (including NEW ACO and its affiliates).
65. Debtor will enter into the New Loan (i.e. borrow US$XXXXXXXXXX ). The New Loan will be granted with same terms and conditions. The funds borrowed under the New Loan will be used for the repayment of working capital facilities, capital expenditures and general corporate purposes.
66. Because fractional New Common Shares and Warrants will not be issued, the depositary agent will be instructed to aggregate for sale on the market on behalf of the registered holders their fractional New Common Shares and Warrants and to remit to them the sale proceeds. All cost associated with such pooling and sale will be paid by Debtor.
Other
67. Immediately following the completion of the transactions described in 43 to 66 above, the issued and outstanding shares capital of NEW ACO will be as follows (without giving effect to the Warrants):
a) XXXXXXXXXX % by holders of the Existing Notes (including the Backstop Parties); and
b) XXXXXXXXXX % by holders of the Existing Common Shares.
68. Financial experts estimated that the total enterprise value of Debtor and its subsidiaries on a consolidated basis is approximately $XXXXXXXXXX and the Proposed Transactions were based on that amount. In addition, financial experts estimated the value of the New Loan to be equal or to approximate its principal amount.
69. On XXXXXXXXXX , ACO announced the completion of the Recapitalization. Commencing on XXXXXXXXXX , New Common Shares are listed on the XXXXXXXXXX under the stock symbol 'XXXXXXXXXX . Warrants are also listed and trade under the symbol 'XXXXXXXXXX ''.
PURPOSES OF THE PROPOSED TRANSACTIONS
70. ACO has been proactively exploring strategic alternatives to improve its capital structure and enhance liquidity for some time. During the XXXXXXXXXX , ACO participated in periodic discussions with a number of Noteholders with a view to structuring a recapitalization transaction. The Recapitalization has evolved from those discussions as a means by which ACO and its subsidiaries can substantially reduce their debt and associated interest costs while improving their available liquidity in a consensual process. ACO and its subsidiaries are thus proceeding with the Recapitalization which will result in a restructuring of their operations and a refinancing of their Existing Notes by issuing New Common Shares to Noteholders as well as exchanging New Common Shares and the Warrants for the Existing Common Shares.
RULINGS GIVEN
Provided that the preceding statements constitute complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we rule as follows:
A. Paragraph 40(2)(e.1) will apply on the disposition by:
(a) ACO to Newco of the Debtor's Interco Notes 1 & 2 as described in 47 above; and
(b) Debtor's Sub #1's Sub to Newco of the Debtor's Interco Note 2 as described in 50 above.
with the result that the amount of any capital loss realized on the disposition of the Debtor's Interco Notes 1 & 2 or Debtor's Interco Note 2 will be deemed to be nil.
B. Paragraph 53(1)(f.1) will apply with respect to any capital loss referred to in Ruling A above, such that Newco's ACB in respect of the Debtor's Interco Notes 1 & 2 and Debtor's Interco Note 2 will include the amount of the capital loss, if any, that would otherwise have been realized by Debtor or Debtor's Sub #1's Sub.
C. Provided that Debtor elects in a prescribed form and within the time referred to in paragraph 80.01(4)(c) to have the provisions of subsection 80.01(4) apply in respect of the winding-up of Newco as described in 53 above, subsection 80.01(4) will apply to deem the amount paid in satisfaction of the principal of the Debtor's Interco Notes 1 & 2 and Debtor's Interco Note 2 to be equal to the amount that would be the cost amount to Newco of the said notes immediately before the winding up.
D. Subsection 13(21.2) will apply to the disposition of any depreciable property by Debtor to New GP described in 60 above and the amount of the excess described in paragraph 13(21.2)(b) in respect of a property so transferred will be deemed to be a property owned by Debtor until the time that is the Particular time. Any such excess will be deductible under paragraph 20(16)(c) in computing the Debtor's income for its Acquisition of Control Taxation Year.
E. Paragraph 111(4)(d) will apply to deem each amount required by paragraph 111(4)(c) to be deducted in computing the ACB to Debtor of a property to be a capital loss of Debtor for the Acquisition of Control Taxation Year from the disposition of the property. In applying the forgiven amount following the ordering provided in paragraph 80(2)(c), these capital losses will form part of Debtor's capital losses for the Acquisition of Control Taxation Year for purposes of subsection 80(12).
F. The settlement of the Existing Notes described in 62 above will result in a forgiven amount as defined under subsection 80(1) equal to the lesser of the amount for which the Existing Notes were issued and the principal amount of the Existing Notes, minus the FMV of the 88 million New Common Shares delivered in satisfaction of the principal amount of the Existing Notes.
G. Subsection 245(2) will not apply to redetermine the tax consequences described in the rulings above.
The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on CRA provided that the Proposed Transactions described in 42 to 67 above are completed by XXXXXXXXXX . The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
Nothing in this ruling should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:
(a) the amount of any non-capital loss, net capital loss, undepreciated capital cost of depreciable property, adjusted cost base of any property or any other amount of any corporation referred to herein;
(b) the fair market value of any property referred to herein;
(c) the application or non-application of the general anti-avoidance provisions of any province; and
(d) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.
Yours truly,
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2008
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2008
Email this Content