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: Whether the proposed butterfly reorganization meets the requirements of paragraph 55(3)(b)?
Position: Yes.
Reasons: Meets the requirements of the law.
XXXXXXXXXX 2009-033873
XXXXXXXXXX , 2009
Dear XXXXXXXXXX :
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested amendments and additions to advance income tax ruling 2008-027606 on behalf of the above-noted taxpayer. In your subsequent letters and emails you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX ). Due to the extent of the requested amendments and additions, advance income tax ruling 2008-027606 is hereby withdrawn and cancelled and replaced by this advance income tax ruling.
To the best of your knowledge, and that of the taxpayer involved, none of the issues involved in this ruling request is
(i) in an earlier return of the taxpayer or a related person;
(ii) being considered by a tax services office or 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; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.
Except as otherwise stated, a reference in this letter to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act.
Definitions
In this letter, the following terms have the meanings specified and, where the circumstances so require, the singular should be read as plural and vice versa:
"acquiror" has the meaning assigned in the definition of specified corporation in subsection 55(1);
"Acquisition Sub" means XXXXXXXXXX ;
"Act" means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended;
"adjusted cost base" has the meaning assigned by section 54;
"agreed amount" in respect of an eligible property means the amount that the transferor and transferee of the property have agreed upon in an election under subsection 85(1) or subsection 85(2), as applicable;
"Amalco Common Shares" has the meaning assigned in Paragraph 91(g);
"Amalco DSUs" has the meaning assigned in Paragraph 91(g);
"Amalco DSU Plans" has the meaning assigned in Paragraph 91(g);
"Amalco SARs" has the meaning assigned in Paragraph 91(g);
"Amalco SAR Plan" has the meaning assigned in Paragraph 91(g);
"Amalco Stock Options" has the meaning assigned in Paragraph 91(g);
"Amalco Stock Option Plan" has the meaning assigned in Paragraph 91(g);
"Amalco" means the corporation resulting from the Amalgamation;
"Amalgamation" means the amalgamation of Spinco and Bankco described in Paragraph 91(g);
"approximate that proportion" means, in the context of a distribution, the discrepancy from the proportion, if any, does not exceed 1%, determined as a percentage of the fair
market value of the property which is transferred to a transferee corporation or retained by a distributing corporation had it received (or retained) its pro rata share of the fair market value of the property;
"arm's length" has the meaning assigned by section 251;
"Arrangement Resolution" means the special resolution of the DC Shareholders approving the Arrangement;
"Arrangement Transactions" means the transactions in the Plan of Arrangement, other than the Dissent Transactions, and which are described in Paragraphs 90 and 91;
"Arrangement" means the arrangement under the BCA1 on the terms and conditions set forth in the Plan of Arrangement;
"Articles" means, in relation to a particular corporation, the constating documents of the corporation;
"Bankco" means XXXXXXXXXX ., a Subsidiary that exists under the BCA1 all the shares of which are owned by DC and which previously was named XXXXXXXXXX and which previously existed under the BCA2;
"Bankco Canadian Note" has the meaning assigned in Paragraph 52(b);
"Bankco Common Shares" means the common shares of Bankco;
"Bankco-DC Note" means the debt obligations to be issued by Bankco as described in Paragraph 80(g);
"Bankco Debt" means the debt obligations owing by Bankco to DC before the transactions described in Paragraph 52(b) that were denominated in Canadian currency, bore interest at a reasonable market rate and, as at XXXXXXXXXX , had a principal amount in excess of XXXXXXXXXX ;
"Bankco External Debt" means the debt obligations issued by Bankco as described in Paragraph 52(t);
"Bankco XXXXXXXXXX Note" has the meaning assigned in Paragraph 52(b);
"BCA1" means the XXXXXXXXXX
"BCA2" means the XXXXXXXXXX ;
"BCA3" means the XXXXXXXXXX ;
"business" has the meaning assigned by subsection 248(1);
"Business 2" means the XXXXXXXXXX business that was carried on by Partnership D (other than as a partner of Partnership E) before the cessation of Partnership D;
"Business 2 Liabilities" means, at any particular time, the liabilities owing by the owner of the Business 2 Properties at that time that relate to Business 2;
"Business 2 Properties" means the XXXXXXXXXX and other property owned by Partnership D before the cessation of Partnership D that related to Business 2, but excludes XXXXXXXXXX ;
"Business Day" means any day on which commercial banks are open for business in XXXXXXXXXX other than a Saturday, a Sunday or a day observed as a holiday in XXXXXXXXXX under the laws of the Province of XXXXXXXXXX or the federal laws of Canada;
"Butterfly Proportion" means the fraction A/B where:
A is the net fair market value of the Distribution Property to be transferred by DC to Spinco as described in Paragraph 90(m) determined immediately before such transfer; and
B is the net fair market value of all property owned by DC immediately before the transfer of the Distribution Property by DC to Spinco as described in Paragraph 90(m);
"Canadian partnership" has the meaning assigned by subsection 102(1);
"Canadian resource property" has the meaning assigned by subsection 66(15);
"capital property" has the meaning assigned by section 54;
"CDE" means Canadian development expense and has the meaning assigned by subsection 66.2(5);
"CEE" means Canadian exploration expense and has the meaning assigned by subsection 66.1(6);
"COGPE" means Canadian oil and gas property expense and has the meaning assigned by subsection 66.4(5);
"Combination" has the meaning assigned in Paragraph 3;
"common share" has the meaning assigned by subsection 248(1);
"cost amount" has the meaning assigned by subsection 248(1);
"Court" means the XXXXXXXXXX ;
"CRA" means the Canada Revenue Agency;
"cumulative CDE" means cumulative Canadian development expense and has the meaning assigned by subsection 66.2(5);
"cumulative CEE" means cumulative Canadian exploration expense and has the meaning assigned by subsection 66.1(6);
"cumulative COGPE" means cumulative Canadian oil and gas property expense and has the meaning assigned by subsection 66.4(5);
"DC" means XXXXXXXXXX ;
"DC Common Shares" means the common shares of DC;
"DC DSU" means a deferred share unit credited to the account of a holder by DC under a DC DSU Plan;
"DC DSU Plans" means the deferred share unit plan for employees of and the deferred share unit plan for directors of DC;
"DC Group" means DC and all of those corporations, partnerships and entities over which DC has the ability to exercise Significant Influence;
"DC Redemption Note" means the promissory note to be issued by DC as described in Paragraph 91(b);
"DC Rights Plan" has the meaning assigned in Paragraph 15;
"DC SAR" means a stock appreciation right granted by DC under the DC SAR Plan;
"DC SAR Plan" means the employee stock appreciation rights plan of DC;
"DC Shareholder" means a holder of DC Common Shares and "DC Shareholders" means more than one DC Shareholder;
"DC Special Shares" means the new preferred shares that DC will be authorized to issue after the amendment to its Articles described in Paragraph 90(e);
"DC Special Share Redemption Amount" means the amount for which the DC Special Shares will be redeemed by DC as described in Paragraph 90(g);
"DC Stock Option" means a stock option (including any tandem share appreciation right as described in Paragraph 52.2(d)) granted by DC under the DC Stock Option Plan or similar plan;
"DC Stock Option Plan" means the current key employee stock option plan of DC;
"DC-FA4 Note" means the promissory note owing by DC to FA4 before the transactions described in Paragraph 52(b) that was denominated in XXXXXXXXXX , bore interest at a reasonable market rate and, at XXXXXXXXXX , had a principal amount of approximately XXXXXXXXXX ;
"depreciable property" has the meaning assigned by subsection 13(21);
"designated stock exchange" has the meaning assigned by subsection 248(1);
"Director" means the Director appointed under section 260 of the BCA1;
"disposition" has the meaning assigned by subsection 248(1);
"Dissent Rights" means the right of a DC Shareholder to dissent in respect of the Arrangement pursuant to the procedures set forth in Section 190 of the BCA1, as modified by the Plan of Arrangement, the interim Court order and any other order of the Court;
"Dissenting Shareholder" means a DC Shareholder who validly dissents from the Arrangement Resolution in compliance with the Dissent Rights and who has not withdrawn the exercise of such Dissent Rights and is ultimately determined to be paid fair value in respect of the DC Common Shares held by such DC Shareholder;
"Dissent Transactions" means the transactions in the Plan of Arrangement, other than the Arrangement Transactions, and which are described in Paragraphs 92 and 93;
"distributing corporation" has the meaning assigned in the definition of distribution;
"Distribution Property" means the Bankco Common Shares owned by DC following the transfer of property described in Paragraph 80;
"distribution" has the meaning assigned by subsection 55(1);
"dividend rental arrangement" has the meaning assigned by subsection 248(1);
"Division 1 Liabilities" means, at any particular time, the liabilities owing by the owner of the Division 1 Properties at that time that relate to Division 1;
"Division 1 Properties" means the XXXXXXXXXX and other property owned by Partnership D before the cessation of Partnership D that related to Division 1, but excludes XXXXXXXXXX ;
"Division 1" means the XXXXXXXXXX Division of DC Group that is the XXXXXXXXXX carried on in XXXXXXXXXX by Partnership D before the cessation of Partnership D as a separate division;
"Division 2" means the XXXXXXXXXX Division of the DC Group that consists of the operations carried on directly and indirectly by Partnership E and Partnership C, as well as Business 2 carried on by Partnership D before the cessation of Partnership D;
"Division 3" means the XXXXXXXXXX Division of the DC Group that is the XXXXXXXXXX currently carried on in the XXXXXXXXXX as a separate division;
"Division 4" means the XXXXXXXXXX Division of the DC Group that is the XXXXXXXXXX currently carried on in XXXXXXXXXX as a separate division;
"DSU Exchange" has the meaning assigned in Paragraph 90(c.2);
"Effective Date" means the effective date of the Plan of Arrangement;
"Effective Time" means XXXXXXXXXX on the Effective Date;
"eligible capital property" has the meaning assigned by section 54;
"eligible dividend" has the meaning assigned by subsection 89(1);
"Eligible Holder" means a Participant:
(a) who is resident in Canada for the purposes of the Act and not exempt from tax under Part I of the Act;
(b) who is a non-resident and whose DC Common Shares constitute taxable Canadian property to the holder provided that any gain realized by the holder upon a disposition at fair market value of such shares would not be exempt from tax under the Act by virtue of any applicable Tax Convention; or
(c) which is a partnership that owns DC Common Shares if one or more partners thereof would be described in any of the above descriptions if such partner directly held such DC Common Shares;
"eligible property" has the meaning assigned by subsection 85(1.1) as modified by subsection 85(1.11);
"Encumbrances" means mortgages, charges, pledges, liens, hypothecs, security interests, encumbrances, adverse claims and rights of third parties to acquire or restrict the use of property;
"entities" means any person or partnership or combination thereof;
"Escrow Agent" has the meaning assigned in Paragraph 52(t);
"FA1" is XXXXXXXXXX , a non-resident XXXXXXXXXX that is resident in the XXXXXXXXXX , all of the XXXXXXXXXX in which are owned by Partnership C;
"FA2" is XXXXXXXXXX , a non-resident XXXXXXXXXX that is resident in the XXXXXXXXXX in which are owned by FA1 and by a non-resident corporation that is controlled by Other Pubco;
"FA3" is XXXXXXXXXX ., a non-resident corporation that is resident in the XXXXXXXXXX all the shares of which are owned by Partnership C;
"FA4" is XXXXXXXXXX ., a non-resident corporation that is resident in the XXXXXXXXXX all the shares of which are owned by Partnership G;
"fair market value" means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale, expressed in terms of cash;
"final Court order" means the final order of the Court approving the Arrangement, as such order may be amended or varied at any time prior to the Effective Time or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or amended, with or without variation, on appeal;
"financial intermediary corporation" has the meaning assigned by subsection 191(1);
"foreign affiliate" has the meaning assigned by subsection 95(1);
"forgiven amount" has the meaning assigned by subsection 80(1) or 80.01(1);
"guarantee agreement" has the meaning assigned by subsection 112(2.2);
"Holdco" means XXXXXXXXXX ., a Subsidiary that, before the winding-up of Holdco, existed under the BCA2, XXXXXXXXXX % of the shares of which were owned by Partnership B (before the cessation of Partnership B) and XXXXXXXXXX % of the shares of which were owned by DC;
"In the Money Amount" means, in relation to a particular stock option in respect of which the fair market value of the shares that are the subject of the option exceeds the exercise price of the option, the amount of such excess;
"Initial DC Share Exchange" means the share exchange described in Paragraph 90(h);
"Initial Spinco Share Exchange" means the share exchange described in Paragraph 90(j);
"interim Court order" means the interim order of the Court concerning the Arrangement containing declarations and directions with respect to the Arrangement and the holding of the Meeting, as such order may be amended or varied by the Court;
"inventory" has the meaning assigned by subsection 248(1);
"ITARS" means the Income Tax Application Rules, R.S.C. 1985 c. 2 (5th Supp.), as amended;
"Lessor Partnership" means XXXXXXXXXX , a limited partnership in the DC Group that has entered into a lease with XXXXXXXXXX that is being constructed in XXXXXXXXXX ;
"limited partner" has the meaning assigned by subsection 66.8(3);
"Listing Time" means the time, immediately after the completion of the Proposed Transactions described in Paragraph 90, when both the New DC Common Shares and the Spinco Common Shares are listed on the Stock Exchange;
"Meeting" means the special meeting of DC Shareholders (including any adjournment or postponement thereof) to be called and held in accordance with the interim Court order to consider and, if deemed advisable, to approve, among other things, the Arrangement Resolution;
"XXXXXXXXXX " means property of Partnership D (before the cessation of Partnership D) that is used in Division 1, the cost of which, XXXXXXXXXX was deductible under XXXXXXXXXX and inventory of such partnership under XXXXXXXXXX
"New DC Common Shares" means the new common shares that DC will be authorized to issue after the amendment to its Articles described in Paragraph 90(e);
"New DC SAR" has the meaning assigned in Paragraph 90(g.2);
"New DC Stock Options" has the meaning assigned in Paragraph 90(g.1);
"non-resident" has the meaning assigned by subsection 248(1);
"Operations" means all of the activities of the DC Group;
"Option Exchange" has the meaning assigned in Paragraph 90(g.1);
"Other Pubco Group" means Other Pubco and all of those corporations, partnerships and entities over which Other Pubco has the ability to exercise Significant Influence;
"Other Pubco" means XXXXXXXXXX , a public corporation that exists under XXXXXXXXXX law, the shares of which are listed on the XXXXXXXXXX ;
"PA1" means the XXXXXXXXXX ;
"PA2" means the XXXXXXXXXX ;
"paid-up capital" has the meaning assigned by subsection 89(1);
"Paragraph" means a numbered paragraph in this letter;
"Participant" means a DC Shareholder, other than a Dissenting Shareholder;
"Partnerco" means XXXXXXXXXX ., a Subsidiary that, before the winding-up of Partnerco, existed under the BCA1 all the shares of which were owned by DC; and which previously was named XXXXXXXXXX . and which previously existed under the BCA2;
"Partnership A" means XXXXXXXXXX , a general and Canadian partnership formed under the PA1 having DC and Subco A as its partners before the cessation of Partnership A;
"Partnership B" means XXXXXXXXXX , a general and Canadian partnership formed under the PA1 having DC and Subco B as its partners before the cessation of Partnership B;
"Partnership C" means XXXXXXXXXX , a general and Canadian partnership formed under the PA2 having DC and Subco B as its partners before the commencement of the Subject Transactions;
"Partnership D" means XXXXXXXXXX , a general and Canadian partnership formed under the PA1 having DC and Subco D as its partners before the commencement of the Subject Transactions;
"Partnership E" means XXXXXXXXXX , a general and Canadian partnership formed under the PA1 having Partnership D, Subco E and a taxable Canadian corporation in the
Other Pubco Group as its partners before the commencement of the Subject Transactions;
"Partnership F" means XXXXXXXXXX , a general and Canadian partnership formed under the PA2 having DC and Subco B as its partners before the commencement of the Subject Transactions;
"Partnership G" means XXXXXXXXXX , a general partnership formed under the PA2 having Partnership C and FA3 as its partners;
"permitted exchange" has the meaning assigned by subsection 55(1);
"person" has the meaning assigned by subsection 248(1);
"Plan of Arrangement" means the proposed plan of arrangement under the BCA1 to effect the divisive reorganization and consists of the Arrangement Transactions and the Dissent Transactions as described in Paragraphs 90 through and including 93;
"Predecessor 1" means XXXXXXXXXX ., a predecessor corporation by amalgamation to DC;
"Predecessor 2" means XXXXXXXXXX , a predecessor corporation by amalgamation to DC;
"preferred share" has the meaning assigned by subsection 248(1);
"prepaid expenses" means rights arising from the prepayment of expenses;
"Prime Rate" means the floating rate of interest established from time to time by a particular Canadian Chartered Bank (and reported to the Bank of Canada) as the reference rate of interest such Chartered Bank will use to determine rates of interest payable by its borrowers on Canadian dollar commercial loans made by such Chartered Bank to such borrowers in Canada and designated by such Chartered Bank as its "prime rate";
"principal amount" has the meaning assigned by subsection 248(1);
"principal-business corporation" has the meaning assigned by subsection 66(15);
"proceeds of disposition" has the meaning assigned by section 54;
"Proposed Transactions" means those transactions and events described in Paragraphs 79 through and including 95;
"public corporation" has the meaning assigned by subsection 89(1);
"XXXXXXXXXX co" means XXXXXXXXXX which previously was named XXXXXXXXXX
"Refinanced DC Debt" means approximately $XXXXXXXXXX of the external debt obligations of DC described in Paragraph 21;
"Regulations" means the Income Tax Regulations, C.R.C. 1978, c. 945, as amended;
"related person" means, in relation to a particular person, another person who is related to the particular person by virtue of subsection 251(2), as modified for the purposes of section 55 by paragraph 55(5)(e);
"resource expenses" has the meaning assigned by subsection 66.7(10);
"restricted financial institution" has the meaning assigned by subsection 248(1);
"Right" means a right to acquire a common share of a particular corporation issued pursuant to a shareholder rights plan adopted by that corporation issuing the rights where the shareholder rights plan is substantially similar to the DC Rights Plan;
"SAR Exchange" has the meaning assigned in Paragraph 90(g.2);
"XXXXXXXXXX " means XXXXXXXXXX that the DC Group has the ability to assign and that relates to Division 1 or to Division 2, the cost of which has been included as a XXXXXXXXXX that XXXXXXXXXX of a transferee thereof that is a XXXXXXXXXX for the purpose of XXXXXXXXXX in Canada;
"series of transactions or events" has the meaning assigned by subsection 248(10);
"short-term preferred share" has the meaning assigned by subsection 248(1);
"Significant Influence" has the meaning assigned by Section 3050 of the Canadian Institute of Chartered Accountants Handbook and, for the purposes of this letter, a corporation will be considered to have significant influence over another corporation if it has significant influence over that corporation or over any other corporation that has significant influence over that corporation. In addition, a corporation in the DC Group will be deemed to have significant influence over another corporation in the DC Group;
"specified corporation" has the meaning assigned by subsection 55(1);
"specified financial institution" has the meaning assigned by subsection 248(1);
"specified member" has the meaning assigned by subsection 248(1);
"specified shareholder" has the meaning assigned by subsection 248(1) as modified by subsections 55(3.2) and (3.3);
"Spinco" means XXXXXXXXXX .;
"Spinco Common Shares" means the common shares of Spinco described in Paragraph 52(k);
"Spinco DSU" has the meaning assigned in Paragraph 52(n);
"Spinco DSU Plans" has the meaning assigned in Paragraph 52(n);
"Spinco Redemption Note" means the promissory note to be issued by Spinco as described in Paragraph 91(a);
"Spinco Rights Plan" has the meaning assigned in Paragraph 52(n);
"Spinco SARs" has the meaning assigned in Paragraph 52(n);
"Spinco SAR Plan" has the meaning assigned in Paragraph 52(n);
"Spinco Special Shares" means the preferred shares of Spinco described in Paragraph 52(m);
"Spinco Special Share Redemption Amount" means the amount for which the Spinco Special Shares will be redeemed by Spinco as described in Paragraph 52(m);
"Spinco Stock Options" has the meaning assigned in Paragraph 52(n);
"Spinco Stock Option Plan" has the meaning assigned in Paragraph 52(n);
"Stated Capital" has, in relation to a corporation that exists under the BCA1, the meaning assigned by the BCA1 and, in relation to a corporation that exists under the BCA2, the meaning assigned by the BCA2;
"Stock Exchange" means the XXXXXXXXXX ;
"Subco A" means XXXXXXXXXX ., a Subsidiary that, before the winding-up of Subco A, existed under the BCA2 all the shares of which were owned by DC;
"Subco B" means XXXXXXXXXX , a Subsidiary that, before the winding-up of Subco B, existed under the BCA2 all the shares of which were owned by DC;
"Subco C" means XXXXXXXXXX ;
"Subco D" means XXXXXXXXXX ., a Subsidiary that, before the winding-up of Subco D, existed under the BCA2 all the shares of which were owned by Holdco;
"Subco E" means XXXXXXXXXX ., a Subsidiary that exists under the BCA2 all the shares of which were owned by Partnership A before the cessation of Partnership A;
"Subco F" means XXXXXXXXXX ;
"Subco G" means XXXXXXXXXX ;
"Subco H" means XXXXXXXXXX .;
"Subco I" means XXXXXXXXXX .;
"Subco I Holdco" means XXXXXXXXXX .;
"Subco J" means XXXXXXXXXX ;
"Subco K" means XXXXXXXXXX , a Subsidiary that exists under the BCA1 all the shares of which are owned by DC;
"Subco L" means XXXXXXXXXX ., a Subsidiary that exists under the BCA2 all the shares of which are owned by DC;
"Subco N" means XXXXXXXXXX ., a Subsidiary that exists under the BCA2 all the shares of which are owned by DC;
"subject corporation" has the meaning assigned by subsection 186(3);
"Subject Property" has the meaning assigned in Paragraph 51;
"Subject Transactions" means those transactions and events described in Paragraphs 53 through and including 78;
"Subsidiary" means a taxable Canadian corporation that is controlled directly or indirectly by DC;
"Tax Convention" means any bilateral tax convention to which Canada is a party that is in force as of the Effective Date;
"taxable Canadian corporation" has the meaning assigned by subsection 89(1);
"taxable Canadian property" has the meaning assigned by subsection 248(1);
"taxable dividend" has the meaning assigned by subsection 89(l);
"taxable preferred share" has the meaning assigned by subsection 248(1);
"taxation year" has the meaning assigned by subsection 249(1);
"term preferred share" has the meaning assigned by subsection 248(1);
"Transfer Agent" means XXXXXXXXXX , as registrar and transfer agent of DC, or such other person as may be designated by DC;
"transferee corporation" has the meaning assigned in the definition of distribution;
"undepreciated capital cost" has the meaning assigned by subsection 13(21);
XXXXXXXXXX
"XXXXXXXXXX Subco A" means XXXXXXXXXX ., a corporation that exists under the BCA3 all the shares of which are indirectly owned by Partnership F;
"XXXXXXXXXX Subco B" means XXXXXXXXXX ., a corporation that exists under the BCA3 all the shares of which are owned by XXXXXXXXXX Subco A; and
"XXXXXXXXXX Subsidiary" means a XXXXXXXXXX corporation that is controlled directly or indirectly by DC.
Our understanding of the Facts, Subject Transactions, Proposed Transactions and purposes of the Subject Transactions and Proposed Transactions are as follows:
Facts
DC
1. DC is a taxable Canadian corporation and a public corporation that exists under the BCA1. DC is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre. The head office of DC is located at XXXXXXXXXX
DC is the parent corporation of the DC Group which carries on diverse businesses relating to XXXXXXXXXX .
2. The Operations of the DC Group currently are organized into the following four Operations divisions: Division 1; Division2; Division 3; and Division 4.
3. DC was formed by the business combination on XXXXXXXXXX , of Predecessor 1 and Predecessor 2 (the "Combination"). At the time of the Combination, each of Predecessor 1 and Predecessor 2 was a large multinational XXXXXXXXXX conglomerate and both a taxable Canadian corporation and a public corporation.
Predecessor 2 was created in XXXXXXXXXX as a result of a divisive reorganization carried out by a public corporation, XXXXXXXXXX . Such divisive reorganization was the subject of an advance income tax ruling issued on XXXXXXXXXX , 2001 (ruling #2001-007749 as amended by ruling #2001-009894).
4. Upon the Combination, the majority of the DC Group's Operations were located in Canada, XXXXXXXXXX (onshore and offshore), XXXXXXXXXX . From the time of the Combination through early XXXXXXXXXX , the DC Group focused on the development and expansion of its highest growth, highest return assets in these key areas. Beginning in XXXXXXXXXX , the DC Group sharpened its strategic focus to concentrate on its inventory of XXXXXXXXXX assets.
As part of its ongoing strategic focus, the DC Group has completed a number of acquisitions while divesting itself of assets that were deemed non-core by virtue of the new strategy. All of these acquisitions and divestitures have occurred without regard to whether the Proposed Transactions are implemented.
5. XXXXXXXXXX
6. XXXXXXXXXX
7. XXXXXXXXXX
8. XXXXXXXXXX
9. None of the directors of Other Pubco are on the board of directors of DC.
10. XXXXXXXXXX
11. DC believes that the DC Group's assets are not fully valued by the equity markets and that the undervaluation exists in large part because of the diversity of the DC Group's Operations. This diversity has led to complexity when analysts and the market attempt to value the DC Common Shares, leading ultimately to a valuation discount. DC believes that the Proposed Transactions will reduce the degree of diversity of Operations, thus reducing any valuation complexity and resulting valuation discount, by separating the Operations of the DC Group between two separate public corporations: a new public corporation will operate Division 1 and Division 2 while DC will continue to operate the remaining divisions.
12. After the completion of the Proposed Transactions, each of DC and Amalco may from time to time raise capital to finance its ongoing activities through the issuance of equity. However, it is not expected that any person or group of persons will acquire control of either DC or Amalco as a consequence of any potential financing activities. The Arrangement is not being undertaken to facilitate any proposed or contemplated acquisition of control of DC or Amalco.
13. The intention of DC is that, after the completion of the Proposed Transactions, each of DC and Amalco will exist and operate as a viable and on-going separate public corporation having appropriate levels of debt and equity financing and all other commercial necessities. To the date of this letter, no discussions with other entities, including Other Pubco Group, as to the possibility of entering into alternative transactions have occurred. An unsolicited inquiry as to whether DC would dispose of an operating division was dismissed without discussion. This inquiry was not made by Other Pubco Group.
DC Shares
14. DC is authorized to issue an unlimited number of DC Common Shares. The authorized share capital of DC includes several classes of preferred shares, although none have been issued to the date of this letter.
15. DC has adopted a shareholder rights plan (the "DC Rights Plan") pursuant to which a Right is attached to each common share of DC. The DC Rights Plan is intended to ensure, to the extent possible, that all DC Shareholders will be treated fairly in connection with any takeover offer (as defined in the plan) for DC Common Shares. The Rights will enable the holders to purchase additional DC Common Shares, subject to certain conditions. The effective exercise price in respect of such rights initially will be an amount significantly in excess of the fair market value of the DC Common Shares to be acquired on the exercise of such rights, but will be reduced to an amount which will be significantly less than the fair market value of such DC Common Shares in the event that a person who does not comply with certain provisions of the plan acquires more than a specified percentage of the DC Common Shares.
The Rights under the plan will not trade separately from the DC Common Shares to which they are attached until such time (if ever) as a person either acquires or announces an intention to acquire the specified percentage of the DC Common Shares and, until such time, such Rights would not have any material fair market value. The Rights may be redeemed for nominal consideration by DC at any time and, unless extended by a vote of shareholders of DC, will expire on a date that is after the Effective Date.
16. DC has a normal course issuer bid program which is renewed periodically. On XXXXXXXXXX , DC announced plans to implement the Proposed Transactions, and in connection therewith, DC suspended the purchase of DC Common Shares under its normal course issuer bid program. DC has not purchased any DC Common Shares under its normal course issuer bid program since that date, and will not make any such purchases until after the completion of the Proposed Transactions. For greater certainty, DC has not made any purchases of DC Common Shares under its normal course issuer bid program after Spinco was incorporated in XXXXXXXXXX .
17. DC does not have a stated dividend policy in respect of the DC Common Shares. The declaration of dividends is at the discretion of the Board of Directors of DC and is approved XXXXXXXXXX . All dividends have been (and will be) paid without regard to whether the Proposed Transactions are implemented.
18. The DC Common Shares are listed on one designated stock exchange in Canada (being the Stock Exchange) and XXXXXXXXXX (being the XXXXXXXXXX ).
19. Based upon a review of DC's shareholders' register by, and to the best of the knowledge of, the senior officers of DC, as of the date of this letter, no person or related group of persons beneficially owns, directly or indirectly, 10% or more of the DC Common Shares. DC is not a subject corporation.
20. DC established a performance share unit plan for eligible employees in XXXXXXXXXX . In XXXXXXXXXX , DC entered into a trust agreement with an arm's length trust company under which the trustee acquired DC Common Shares on the open market with cash contributions made by DC and with the DC Common Shares held in the trust to be used to fund payments to employees under the performance share unit plan. The last payments under the performance share unit plan were made to employees in XXXXXXXXXX and there have not been any performance share units outstanding since that time. DC since has caused the trust to dispose of its DC Common Shares on the market for cash consideration and return such cash to DC in connection with the termination of the trust.
The disposition of DC Common Shares by the trust and the payment of cash to DC on the termination of the trust were not made in contemplation of any of the Proposed Transactions and were made irrespective of whether the Proposed Transactions are implemented. The Proposed Transactions will be undertaken irrespective of whether any acquisitions of DC Common Shares occurred upon the termination of the trust.
Financing
21. In order for DC and Amalco to have appropriate levels of external debt financing after the Arrangement, approximately $XXXXXXXXXX of the external debt currently owed by DC will need to become owing by Amalco (which portion of the external debt of DC is the "Refinanced DC Debt").
22. The DC Group will use either cash from operations or will draw upon existing bank credit facilities in order to finance the payment of existing liabilities resulting from administrative expenditures occasioned by the Subject Transactions and the Proposed Transactions. Except as otherwise described in this letter, the DC Group will not issue any external debt in contemplation of and before the distribution in the Proposed Transactions.
DC Group
23. DC is a specified corporation.
24. Each corporation in the DC Group is a specified financial institution by virtue of a corporation in the DC Group carrying on an insurance business.
25. To the best of the knowledge of the DC Group, none of the entities in the DC Group that is or was at any time during the Subject Transactions or Proposed Transactions a partner of Partnership A, Partnership B, Partnership C, Partnership D, Partnership E, Partnership F or Partnership G is or was a limited partner or a specified member of the applicable partnership.
26. Before the cessation of Partnership A, Partnership A owned an interest in a XXXXXXXXXX in addition to all of the issued and outstanding shares of Subco E.
27. Before the winding-up of Subco A, Subco A did not own material property other than its partnership interests in Partnership A.
28. Before the cessation of Partnership B, the business of Partnership B was to XXXXXXXXXX on behalf of Partnership D. Partnership B did not have material property other than shares of Holdco (approximately XXXXXXXXXX % of the issued and outstanding shares of Holdco), various inter-entity receivables owing by entities in the DC Group and an interest in XXXXXXXXXX .
Before the commencement of the Subject Transactions, DC owned the remaining issued and outstanding shares of Holdco.
29. In addition to its partnership interests in Partnership B and Partnership C, before the winding-up of Subco B, Subco B owned a XXXXXXXXXX partnership interest (approximately XXXXXXXXXX %) in Partnership F.
30. Before the winding-up of Holdco, Holdco owned all of the issued and outstanding shares of Subco D. Holdco's remaining assets (other than inter-DC Group receivables, cash and working capital items) had XXXXXXXXXX .
31. Before the cessation of Partnership D, Partnership D owned significant properties and engaged in significant other activities in addition to the ownership of, and activities related to, the Division 1 Properties, the Business 2 Properties and its partnership interest in Partnership E.
32. Before the winding-up of Subco D, Subco D owned a partnership interest in Partnership D. Subco D's remaining assets (other than inter-DC Group receivables, cash and working capital items) XXXXXXXXXX .
Before the commencement of the Subject Transactions, the remaining partnership interest in Partnership D was owned by DC.
33. XXXXXXXXXX
34. Subco E's remaining assets (other than inter-DC Group receivables, cash and working capital items) have XXXXXXXXXX .
35. The partnership agreement for Partnership E allocates the income or loss of that partnership for a fiscal period to the persons that were partners of Partnership E at any time in that fiscal period based upon the weighted average interest of each such person in Partnership E during that fiscal period.
36. Partnership F holds, indirectly, shares of XXXXXXXXXX corporations that own and operate the property of Division 3.
37. XXXXXXXXXX
38. Subco K owns and operates XXXXXXXXXX which is used by Division 1 to XXXXXXXXXX between XXXXXXXXXX.
39. Subco L acts as XXXXXXXXXX .
40. In addition to XXXXXXXXXX in FA1, Partnership C owns all of the shares of FA3. FA3 and Partnership C are the sole members of Partnership G. FA3's primary asset is its partnership interest in Partnership G. Partnership G's primary assets are an investment in a publicly-traded limited partnership and shares of FA4. Before the transactions described in Paragraph 52(b), FA4's primary asset was the DC-FA4 Note.
41. XXXXXXXXXX
42. Bankco only has Bankco Common Shares issued and outstanding, all of which are owned by DC.
43. XXXXXXXXXX Subco A is the main operating entity in Division 3. XXXXXXXXXX Subco A also owns all of the shares of XXXXXXXXXX Subco B, which is a XXXXXXXXXX corporation.
44. Lessor Partnership was formed in XXXXXXXXXX and was not formed in contemplation of the distribution in the Proposed Transactions.
45. Before the commencement of the Subject Transactions, Partnerco was an XXXXXXXXXX corporation.
46. Before the transactions described in Paragraph 52 and the commencement of the Subject Transactions, the taxation year end of DC, Subco A, Subco B, Holdco, Subco D, Subco E, Partnership A, Partnership C, Partnership F and Partnership G was XXXXXXXXXX and the taxation year end of Partnership B and Partnership D was XXXXXXXXXX . The taxation year end of Partnership E is XXXXXXXXXX . The taxation year end of Bankco is XXXXXXXXXX .
47. Before the transactions described in Paragraph 52, legal title to certain of the Division 1 Properties and Business 2 Properties was held by DC and Subco D as bare trustees, nominees and agents for Partnership D.
48. Each share of, or partnership interest in, each entity described above is or was capital property to its current or former owner in the DC Group.
49. At all relevant times the aggregate of the cost amount of the Division 1 Properties will exceed the amount of the Division 1 Liabilities.
50. At all relevant times the aggregate of the cost amount of the Business 2 Properties will exceed the amount of the Business 2 Liabilities.
51. Before the transactions described in Paragraph 52(x), DC had significant amounts of XXXXXXXXXX . The DC Group has been in the process of attempting to dispose of significant properties to arm's length persons. One group of these properties (the "Subject Property") XXXXXXXXXX . After the end of the fiscal period of Partnership D in which the Subject Property was disposed of for fair market value proceeds of disposition as described in Paragraph 52(x), XXXXXXXXXX . The Subject Property has not yet been disposed of to arm's length persons and, after the transactions described in Paragraph 52(x), has been and will be treated as part of the Division 1 Properties.
52. The following transactions have been implemented, or will be implemented, before the completion of the Proposed Transactions. No rulings have been requested in respect of these transactions:
(a) XXXXXXXXXX Subco A caused XXXXXXXXXX co to be incorporated under the BCA3 and XXXXXXXXXX Subco A subscribed for 1 XXXXXXXXXX co common share upon the incorporation of XXXXXXXXXX co. XXXXXXXXXX co entered into contracts with Partnership D and XXXXXXXXXX Subco B relating to the XXXXXXXXXX . These transactions were not undertaken in contemplation of the distribution in the Proposed Transactions.
(b) The terms and conditions of the Bankco Debt were amended such that the Bankco Debt became represented by two separate notes. One note (the "Bankco XXXXXXXXXX Note") is denominated in XXXXXXXXXX currency and has terms and conditions and a principal amount corresponding to the DC-FA4 Note. The other note (the "Bankco Canadian Note") is denominated in Canadian currency and has terms and conditions corresponding to the Bankco Debt and a principal amount equal to the principal amount of the Bankco Debt less the principal amount of the Bankco XXXXXXXXXX Note, translated into Canadian currency at the rate prevailing at the time of the amendment.
Accrued but unpaid interest on the DC-FA4 Note was paid and DC repaid the DC-FA4 Note by transferring to FA4 the Bankco XXXXXXXXXX Note. The Bankco XXXXXXXXXX Note and the Bankco Canadian Note and interest thereon have been repaid to the extent required with repayment proceeds and interest amounts utilized by the applicable creditor. The repayments and utilization of funds were not undertaken in contemplation of the distribution in the Proposed Transactions.
(c) Subco B caused Subco C to be incorporated as XXXXXXXXXX corporation under the BCA2 and Subco B subscribed for XXXXXXXXXX Subco C common shares for $XXXXXXXXXX . DC caused Subco G to be incorporated as XXXXXXXXXX corporation under the BCA2 and subscribed for XXXXXXXXXX Subco G common shares for $XXXXXXXXXX .
(d) Subco B disposed of its partnership interest in Partnership C to Subco C in consideration for XXXXXXXXXX additional Subco C common shares. DC disposed of its partnership interest in Partnership C to Subco G in consideration for XXXXXXXXXX additional Subco G common shares. Subsection 85(1) elections were filed with respect to these transactions. The Partnership C partnership agreement was amended concurrently with the admission of Subco C and Subco G as partners of Partnership C such that the income and capital amounts for a particular fiscal period of Partnership C are allocated to partners based on their weighed average partnership interest during the applicable fiscal period.
(e) Bankco caused Subco H to be incorporated under the BCA2 and subscribed for XXXXXXXXXX Subco H common shares for $XXXXXXXXXX . Bankco caused
Subco I Holdco to be incorporated under the BCA2 and subscribed for XXXXXXXXXX Subco I Holdco common shares for $XXXXXXXXXX . Subco I Holdco caused Subco I to be incorporated under the BCA3 and subscribed for XXXXXXXXXX Subco I common shares for $XXXXXXXXXX .
Subco H and Subco I will operate the Canadian and XXXXXXXXXX businesses, respectively, for the Spinco/Amalco group after the completion of the Arrangement. Subco I Holdco will be a holding corporation for Subco I and will not conduct operations itself. XXXXXXXXXX agreements may be entered into by Bankco, Subco H and Subco I, each of which will be conditional upon the completion of the Arrangement and will be effective after the completion of the Arrangement. Subco H and Subco I also may arrange for appropriate credit and will satisfy other commercial requirements in order to be able to transact business after the completion of the Arrangement.
Bankco may subscribe for additional common shares of each of Subco H and Subco I Holdco (and Subco I Holdco will, in turn subscribe for additional common shares of Subco I) in order to satisfy credit requirements, such subscriptions to be funded by loans to Bankco from DC (with DC funding such loans from operational income).
(f) DC caused Subco J to be incorporated under the laws of XXXXXXXXXX and subscribed for XXXXXXXXXX Subco J common shares for cash consideration. Subco J will XXXXXXXXXX properties in the Spinco/Amalco group after the completion of the Arrangement. Subco J has been registered as an XXXXXXXXXX and DC initially capitalized Subco J with XXXXXXXXXX . DC subscribed for additional shares of Subco J for cash in amounts necessary to enable Subco J to commence operations after the completion of the Arrangement.
(g) [Reserved]
(h) Bankco registered for the purposes of Part IX of the Excise Tax Act (Canada), obtained payroll numbers, amended its Articles to change its name to XXXXXXXXXX ., was continued under the BCA1 and was registered extra-provincially.
(i) Steps were taken to commence the transfer of legal title to the Division 1 Properties and Business 2 Properties, which were, at the commencement of such steps, held by DC and Subco D as bare trustees, nominees and agents for Partnership D, to Bankco as the new bare trustee, nominee and agent for Partnership D. To the extent practicable, Bankco also may become the holder of the applicable XXXXXXXXXX again as bare trustee, nominee and agent for Partnership D.
(j) DC caused Spinco to be incorporated under the BCA1. No shares of Spinco will be issued and no property will be acquired by Spinco prior to the implementation of the transactions in the Plan of Arrangement, except as described herein. Spinco, acting through its successor, Amalco, will, on or before Spinco's filing due date for its first taxation year, pursuant to the post-amble of the definition of public corporation in subsection 89(1), elect in its federal return of income for that taxation year to be a public corporation from the beginning of the year until the time that the Spinco Common Shares are listed on a designated stock exchange.
(k) The authorized share capital of Spinco includes an unlimited number of common shares (the "Spinco Common Shares") and special shares (the "Spinco Special Shares").
(l) The attributes of the Spinco Common Shares are as follows:
(i) subject to applicable law, the holders of the Spinco Common Shares will be entitled to receive dividends if, as and when declared by the board, in such amounts and payable in such manner as the board may from time to time determine. Subject to the rights of the holders of any other class of shares of Spinco entitled to receive dividends in priority to or rateably with the holders of the Spinco Common Shares, the board may in its sole discretion declare dividends on the Spinco Common Shares to the exclusion of any other class of shares of Spinco;
(ii) in the event of the liquidation, dissolution or winding up of Spinco or other distribution of assets of Spinco among its shareholders for the purpose of winding up its affairs, the holders of the Spinco Common Shares will, subject to the rights of the holders of any other class of shares of Spinco entitled to receive the assets of Spinco upon such a distribution in priority to or rateably with the holders of the Spinco Common Shares, be entitled to participate rateably in any distribution of the assets of Spinco; and
(iii) subject to applicable law, the holders of the Spinco Common Shares will be entitled to receive notice of and to attend all meetings of the shareholders of Spinco and to one vote in respect of each Spinco Common Share held at all such meetings, except at separate meetings of or on separate votes by the holders of another class or series of shares of Spinco.
(m) Before any Spinco Special Shares are issued, the attributes of the Spinco Special Shares will be amended to be as follows:
(i) The holders of the Spinco Special Shares will be entitled to receive non-cumulative cash dividends, if, as and when declared by the board, in such amounts and payable in such manner and at such times as the board may from time to time determine. The board may, in its sole discretion, declare dividends on the Spinco Special Shares to the exclusion of any other class of shares of Spinco.
(ii) In the event of the liquidation, dissolution or winding up of Spinco or other distribution of assets of Spinco among its shareholders for the purpose of winding up its affairs, holders of the Spinco Special Shares will be entitled to receive, before any amount shall be paid by Spinco or any assets of Spinco shall be distributed to holders of Spinco Common Shares or holders of any other shares of any other class of Spinco, an amount equal to the Spinco Special Share Redemption Amount in respect of each Spinco Special Share held by them, respectively, to the extent of the amount or value of the assets of Spinco available under applicable law for payment to holders of shares of Spinco upon liquidation, dissolution or winding up of Spinco. After payment to the holders of the Spinco Special Shares of the amount provided in this Paragraph, such holders will not be entitled to share in any further distribution of assets of Spinco among its shareholders for the purpose of winding up its affairs.
(iii) Spinco may redeem at any time the whole, or from time to time any part, of the then outstanding Spinco Special Shares from the holders thereof on payment (which may, at the discretion of Spinco, be made through the issuance of a promissory note or promissory notes) at a redemption amount (the "Spinco Special Share Redemption Amount") equal to the aggregate fair market value of the Distribution Property at the time of its transfer to Spinco as described in Paragraph 90(m) less the fair market value of the non-share consideration to be provided by Spinco in exchange for the Distribution Property, divided by the number of Spinco Special Shares issued as consideration for such transfer, plus all declared but unpaid dividends thereon;
(iv) Subject to applicable law, a holder of Spinco Special Shares will be entitled to require Spinco to redeem, at any time, all or any of the Spinco Special Shares held by such holder, by tendering to Spinco at its registered office a share certificate or certificates representing the Spinco Special Shares that the holder wishes to have Spinco redeem together with a written request specifying the number of Spinco Special Shares to be redeemed and the business day (referred to in the description of share provisions as the "Retraction Date'') on which the holder wishes to have Spinco redeem the Spinco Special Shares. Following receipt of such share certificate or certificates and written request, Spinco will, on the Retraction Date (or as soon as practicable thereafter), redeem such Spinco Special Shares by paying to the holder the Spinco Special Share Redemption Amount for each Spinco Special Share so redeemed.
(v) Any Spinco Special Shares that are redeemed by Spinco as aforesaid will for all purposes be considered to have been redeemed on, and will be cancelled concurrently with, the payment of the Spinco Special Share Redemption Amount by Spinco to or for the benefit of the holder thereof.
(vi) For so long as any Spinco Special Shares are outstanding, Spinco will not: (I) declare or pay any dividend on the shares of any other class of Spinco; or (II) redeem, purchase for cancellation or otherwise acquire any shares of any other class of Spinco, if, in the opinion of the board, the payment of such dividend or the consideration payable in connection with such redemption, purchase or other acquisition, as the case may be, would reduce the net realizable value of the assets of Spinco (after taking into account all liabilities of Spinco) to an amount that is less than the product of the Spinco Special Share Redemption Amount of each Spinco Special Share multiplied by the number of Spinco Special Shares issued and outstanding immediately before the time of payment of such dividend or consideration, as the case may be.
(vii) Subject to applicable law, holders of the Spinco Special Shares will not be entitled to receive notice of or to attend any meeting of the shareholders of Spinco and will not be entitled to vote at any such meeting.
(viii) For the purposes of subsection 191(4), the amount specified in respect of each Spinco Special Share shall be the amount specified by a director or an officer of Spinco in a certificate that is made: (i) effective concurrently with the issuance of such Spinco Special Share; and (ii) pursuant to a resolution of the board duly passed and evidenced in writing authorizing the issuance of such Spinco Special Share, such amount to be expressed as a dollar amount (and not expressed as a formula) and shall be equal to the fair market value of the consideration for which such Spinco Special Share is issued.
(n) Spinco adopted a shareholder rights plan (the "Spinco Rights Plan"), a stock option plan (the "Spinco Stock Option Plan") that enables Spinco to grant stock options and attached tandem share appreciation rights ("Spinco Stock Options"), deferred share unit plans for directors and employees (the "Spinco DSU Plans") that enable Spinco to grant deferred share units ("Spinco DSUs") and a stock appreciation rights plan (the "Spinco SAR Plan") that enables Spinco to issue stock appreciation rights ("Spinco SARs"). The terms of each of these plans and instruments are similar to the corresponding DC plans and instruments. The adoption of some or all of these plans may be ratified at the Meeting.
(o) Pursuant to subsection 249.1(7) and in accordance with the policies of the CRA set forth in Interpretation Bulletin IT-179R - Change in Fiscal Period, dated May 28, 1993, each of Partnership A, Partnership B and Partnership D requested and subsequently received the concurrence of the Minister of National Revenue for permission to change its fiscal period from XXXXXXXXXX or XXXXXXXXXX , as applicable, to the time that is immediately before the time that is immediately before the time the applicable Partnership ceases to exist, such change in fiscal period being conditional upon: (i) the issuance by the CRA of a favourable advance income tax ruling on the Subject Transactions and the Proposed Transactions; (ii) the dissolutions of the Partnerships occurring in the manner described in such ruling; and (iii) such dissolutions occurring before the proposed amendments that were announced October 29, 2007, in former Bill C-10, to subsection 99(1) are effective.
(p) DC caused Acquisition Sub to be incorporated as XXXXXXXXXX corporation under the BCA2 and subscribed for XXXXXXXXXX Acquisition Sub common shares for $XXXXXXXXXX .
(q) DC, Spinco and Bankco entered into an arrangement agreement pursuant to which each of the parties, among other things, agreed to implement the transactions in the Plan of Arrangement (subject to applicable approvals). This agreement also provided that each party will indemnify each other party for losses occasioned by actions taken by the particular party that adversely affect the application of the applicable tax rulings.
(r) DC, Spinco and Bankco entered into an employee and benefits matter agreement that deals with such matters as transfers of employees and pension related matters. DC, Spinco and Bankco also entered into a transitional services agreement that deals with the transitional provision of administrative services between the DC Group and the Spinco/Amalco group after the completion of the Arrangement.
(s) Approvals were obtained for the listing of the New DC Common Shares and the Spinco Common Shares (and, after the Amalgamation, the Amalco Common Shares) on the Stock Exchange (and the XXXXXXXXXX ).
(t) Prior to finalizing and mailing the Information Circular to DC Shareholders, Bankco arranged for amounts from arm's length lenders to be made available under one or more unregistered debt obligations (the "Bankco External Debt") which include the following terms:
(i) the funds raised under the issuance of the Bankco External Debt were not paid to Bankco but rather deposited with an escrow agent (the "Escrow Agent");
(ii) the escrow funds will be provided to Amalco as a separate public corporation only and not to any subsidiary of DC, if and after the Arrangement occurs;
(iii) neither DC, Bankco, Amalco nor any subsidiary of DC shall at any time have any rights to, access to, control of, or dominion over, the escrow funds held by the Escrow Agent at any time before the completion of all of the transactions in the Plan of Arrangement;
(iv) if the Arrangement does not occur, the funds borrowed will be returned by the Escrow Agent to the applicable lender; and
(v) Bankco was obligated to deposit with the Escrow Agent, at the time of the issuance of the Bankco External Debt, a penalty amount that will be paid to the lenders in the event the Arrangement does not occur as well as an estimate of the fees associated with the financing (with Bankco borrowing the funds to make this deposit from DC).
(u) An Information Circular was mailed to all DC Shareholders in contemplation of the Meeting. This document also was filed with applicable securities regulators and contains prospectus-level disclosure regarding DC, the New DC Common Shares, Spinco/Amalco and the Amalco Common Shares. There is no legal requirement for this document to be accepted by any public authority in Canada. The Arrangement Agreement and Plan of Arrangement (in which certain eligible dividend designations are made as described below) were appended to the Information Circular and a copy of the Information Circular was physically provided to DC, Spinco and Acquisition Sub (and officers of each of these corporations) before the commencement of any Arrangement Transactions or Dissent Transactions.
(v) The partnership agreements for each of Partnership A, Partnership B and Partnership D were amended to facilitate the implementation of the Subject Transactions involving those partnerships.
(w) Steps were be taken to: (i) assign and/or sublet from DC to Bankco all or a portion of certain of DC's XXXXXXXXXX office leases; and (ii) assign and/or subcontract from DC to Bankco all or a portion of the contractual rights and obligations in contracts to which DC is a party and which will, after the completion of the Plan of Arrangement, relate to the Spinco/Amalco group's continued business operations.
(x) Partnership D transferred the Subject Property to Partnership A for fair market value consideration consisting of a demand promissory note that bore interest at a reasonable market rate and had a principal amount equal to the fair market value of the property transferred (and this promissory note was repaid in cash before the cessation of either Partnership A or Partnership D as described herein.) After the end of the fiscal period of Partnership D in which this transaction occurred, DC did not have any XXXXXXXXXX balance to which XXXXXXXXXX applied.
(y) Subco D and Partnerco were continued under the BCA1 and Partnerco changed its name at the time of continuance.
(z) The Employees of Partnership D became employees of DC or Subco E.
(aa) Bankco arranged bank financing facilities under which funds may be drawn by Amalco after the completion of the Arrangement. Amalco's entitlement to access the bank financing facilities is conditional upon conditions that correspond to those described in paragraph 52(t).
(bb) XXXXXXXXXX co was converted from being a regular corporation under the BCA3 to a XXXXXXXXXX .
(cc) Lessor Partnership entered into a sublease arrangement with Subco H. This sublease is conditional upon the completion of the Arrangement and will be effective after the completion of the Arrangement.
(dd) Prior to the Effective Date, DC and Spinco entered into an agreement whereby Spinco acquired a right to acquire the Distribution Property if and when the Plan of Arrangement takes effect.
(ee) DC loaned funds to Bankco, Bankco used the loaned funds to subscribe for XXXXXXXXXX additional common shares of Subco I Holdco for cash consideration and Subco I Holdco subscribed for XXXXXXXXXX additional common shares of Subco I for cash consideration. These funds will be used by Subco I to acquire the property described in Paragraph 87.
(ff) DC subscribed for an additional share of a Subsidiary that owns XXXXXXXXXX for cash consideration.
52.1 The holders of the DC Common Shares are entitled to receive dividends if, as and when declared by the Board of Directors of DC. The holders of the DC Common Shares are entitled to receive notice of and to attend all meetings of shareholders of DC and are entitled to one vote per DC Common Share held at all such meetings. In the event of the liquidation, dissolution or winding up of DC or other distribution of assets of DC among its shareholders for the purpose of winding up its affairs, the holders of the DC Common Shares are entitled to participate rateably in any distribution of the assets of DC.
52.2 As a form of compensation and incentive to certain officers and employees of the DC Group, DC has granted DC Stock Options with the following attributes.
(a) Each vested DC Stock Option entitles the holder to exercise a vested DC Stock Option and purchase one DC Common Share from treasury at the exercise price thereof.
(b) Each DC Stock Option has an exercise price that is not less than the market value of a DC Common Share at the time of the applicable grant.
(c) DC Stock Options granted under the DC Stock Option Plan generally are fully exercisable after XXXXXXXXXX years and expire XXXXXXXXXX years after the grant date. Certain DC Stock Options granted under the DC Stock Option Plan vest over a XXXXXXXXXX period, based both on the continuation of employment of the option holder with the DC Group during that period and, in respect of a XXXXXXXXXX proportion of DC Stock Options, on the satisfaction of certain performance criteria related to the DC Group. DC Stock Options granted under other plans expire up to XXXXXXXXXX years from the date those options were granted.
(d) Certain DC Stock Options include a tandem share appreciation right which allows a holder to surrender a vested DC Stock Option and to receive a cash payment (or, at the election of DC, that number of DC Common Shares having at that time a fair market value) equal to the appreciation in the fair market value of a DC Common Share from the date the DC Stock Option was granted to the date the related tandem share appreciation right is exercised. Exercise of a tandem share appreciation right results in the extinguishment of an equivalent stock purchase entitlement under the surrendered DC Stock Option.
(e) The DC Stock Option holders have always dealt with DC at arm's length and will continue to deal at arm's length with DC, Spinco and Amalco during and after the Proposed Transactions.
(f) Under the DC Stock Option Plan, in the event of any restructuring such as the Arrangement, equitable adjustments are to be made in the maximum number and kind of shares issuable under the DC Stock Option Plan and to the exercise price for shares issuable under outstanding DC Stock Options. In the absence of any amendments to the relevant agreements and documents, holders of DC Stock Options would be adversely affected when their employer ceases to be related to DC.
(g) Certain officers and employees of DC have previously exercised DC Stock Options relating to DC Common Shares in respect of which an election under subsection 7(8) has been made.
52.3 As a form of compensation and incentive to certain XXXXXXXXXX officers and employees of the DC Group, DC has granted DC SARs.
52.4 As a form of compensation and incentive to directors and certain officers and employees of the DC Group, DC has granted DC DSUs.
52.5 The longstanding corporate policy of the DC Group has been to regularly hedge against the commercial risk of price decreases in XXXXXXXXXX for the substances that the DC Group produces and price increases in XXXXXXXXXX
XXXXXXXXXX
Subject Transactions
The following transactions or events have, except where the tense expressly indicates otherwise, been implemented before the date of this letter.
53. Each of DC, Subco A, Subco B and Subco D repaid certain liabilities that were owing to Partnership A, Partnership B and Partnership D. Partnership A, Partnership B and Partnership D repaid certain liabilities that were owing to DC, Subco A, Subco B and Subco D and to each other. All liability repayments were made by cash transfers.
54. All steps necessary or desirable were taken to transition the XXXXXXXXXX that was performed by Bankco for the Canadian entities in the DC Group from Bankco to DC.
55. Each of Subco B, Holdco, Partnerco and Subco D, by written special resolution expressly stated to be effective on the date of that resolution, reduced the Stated Capital of each class of its issued and outstanding shares, without any payment, to $XXXXXXXXXX .
56. DC disposed of a small portion of its partnership interest in Partnership D to Partnerco and, as the sole consideration therefor, Partnerco issued to DC XXXXXXXXXX additional Partnerco common shares. Partnerco became a partner of Partnership D in respect of the partnership interest in Partnership D transferred to Partnerco.
57. DC and Partnerco will jointly elect under subsection 85(1) in prescribed form and manner and within the time referred to in subsection 85(6) with respect to the disposition of property to Partnerco in Paragraph 56 with the agreed amount in the election being equal to the lesser of the cost amount to DC of the property transferred at the time of the transfer and the fair market value of the property transferred at the time of the transfer.
58. In accordance with the BCA2, the amount added to the Stated Capital of Partnerco common shares issued by Partnerco to DC as described in Paragraph 56 was equal to the agreed amount for the transferred partnership interest as described in Paragraph 57.
59. Subco B incorporated Subco F as an XXXXXXXXXX corporation under the BCA2, and subscribed for XXXXXXXXXX Subco F common shares upon the incorporation of Subco F for $XXXXXXXXXX .
60. Subco B disposed of its partnership interest in Partnership F to Subco F and, as the sole consideration therefor, Subco F issued to Subco B XXXXXXXXXX additional Subco F common shares. Subco F became a partner of Partnership F in respect of the partnership interest in Partnership F transferred to Subco F.
61. Subco B and Subco F will jointly elect under subsection 85(1) in prescribed form and manner and within the time referred to in subsection 85(6) with respect to the disposition of property to Subco F in Paragraph 60 with the agreed amount in the election being equal to the lesser of the cost amount to Subco B of the partnership interest in Partnership F at the time of the transfer and the fair market value of the partnership interest in Partnership F at the time of the transfer.
62. In accordance with the BCA2, the amount added to the Stated Capital of Subco F common shares issued by Subco F to Subco B as described in Paragraph 60 was equal to the agreed amount for the transferred partnership interest as described in Paragraph 61.
63. DC assumed all liabilities that were owed by Partnership B as a contribution of capital to Partnership B and Subco B repaid all outstanding interest payable by it to non-arm's length persons by way of cash transfer and, immediately thereafter, Subco B, by written resolution expressly stated to be effective on the date of that resolution, commenced proceedings to wind-up, and its property (which included its partnership interest in Partnership B, shares of Subco C and shares of Subco F) was transferred to DC and DC assumed its liabilities (except for any liabilities owing between DC and Subco B which were extinguished without any payment).
Subco B ceased to be a partner in Partnership B upon the transfer of its partnership interest in Partnership B to DC. As soon as practicable following the transfer of its properties but after any outstanding tax elections or designations pertaining to Subco B have been filed, Subco B will be formally dissolved.
64. As a result of the transfer by Subco B to DC of its partnership interest in Partnership B (and the filing of an amendment to the Declaration of Partnership of Partnership B, indicating that Subco B has ceased to be a partner of Partnership B), Partnership B thereupon ceased to exist as a matter of law and DC became the sole owner of all of the property of Partnership B (which included shares of Holdco). As well, as a result of the foregoing transfer, DC became solely responsible for all of the remaining liabilities of Partnership B. For greater certainty, there was not any time interval between the time of the cessation of Partnership B and the time that all property of Partnership B was distributed to the person entitled by law to receive such property.
65. Immediately after the particular time at which Partnership B ceased to exist, DC (for approximately XXXXXXXXXX ) carried on alone the business that was the business of Partnership B for the purpose of earning income and continued to use, in the course of the business, all the property that was, immediately before the particular time, property of Partnership B and that was received by DC upon the cessation of Partnership B.
For greater certainty, Subco B did not carry on any business after the transfer of its property in the course of its winding-up. For greater certainty, during the time (approximately XXXXXXXXXX ) that DC carried on alone the prior Partnership B business, DC: (a) received dividend income on all shares of corporations that became property of DC on the cessation of Partnership B (which consisted only of shares of Holdco), (b) earned interest income on all inter-entity receivables that became property of DC on the cessation of Partnership B, and (c) earned royalty income on the XXXXXXXXXX that became property of DC on the cessation of Partnership B.
66. DC may make designations under paragraph 98(5)(c) in respect of certain property transferred to it in connection with the cessation of Partnership B.
67. Holdco repaid all outstanding interest payable by it to non-arm's length persons by way of cash transfer and, immediately thereafter, Holdco, by written resolution expressly stated to be effective on the date of that resolution, commenced proceedings to wind-up, and its property (which included its shares of Subco D) was transferred to DC and DC assumed its liabilities (except for any liabilities owing between DC and Holdco which was extinguished without any payment).
As soon as practicable following the transfer of its properties but after any outstanding tax elections or designations pertaining to Holdco have been filed, Holdco will be formally dissolved.
68. Subco D repaid all outstanding interest payable by it to non-arm's length persons by way of cash transfer and, immediately thereafter, Subco D, by written resolution expressly stated to be effective on the date of that resolution, commenced proceedings to wind-up, and its property (which included its partnership interest in Partnership D) was transferred to DC and DC assumed its liabilities (except for any liabilities owing between DC and Subco D which were extinguished without any payment). Subco D ceased to be a partner in Partnership D upon the transfer of its partnership interest in Partnership D to DC.
As soon as practicable following the transfer of its properties but after any outstanding tax elections or designations pertaining to Subco D have been filed and after all applicable XXXXXXXXXX exemption time periods have passed (the latest of which is XXXXXXXXXX plus one day after the transfer of Subco D's properties for each of XXXXXXXXXX provincial sales tax), Subco D will be formally dissolved.
69. DC assumed all liabilities that were owed by Partnership D as a contribution of capital to Partnership D. Partnerco repaid all outstanding interest payable by it to non-arm's length persons by way of cash transfer. Immediately thereafter, Partnerco, by written resolution expressly stated to be effective on the date of that resolution, commenced proceedings to wind-up, and its property (which included its partnership interest in Partnership D) was transferred to DC and DC assumed its liabilities (except for any liabilities owing between DC and Partnerco which were extinguished without any payment). Partnerco ceased to be a partner in Partnership D upon the transfer of its partnership interest in Partnership D to DC.
As soon as practicable following the transfer of its properties but after any outstanding tax elections or designations pertaining to Partnerco have been filed and after all applicable XXXXXXXXXX exemption time periods have passed (the latest of which is XXXXXXXXXX plus one day after the transfer of Partnerco's properties for each of XXXXXXXXXX provincial sales tax), Partnerco will be formally dissolved.
70. As a result of the transfer by Partnerco to DC of its partnership interest in Partnership D (and the filing of an amendment to the Declaration of Partnership of Partnership D, indicating that Partnerco has ceased to be a partner of Partnership D), Partnership D thereupon ceased to exist as a matter of law and DC became the sole owner of all of the property of Partnership D (which included the Division 1 Properties, the Business 2 Properties and a partnership interest in Partnership E). At the same time, DC became a partner of Partnership E in respect of the partnership interest in Partnership E transferred to DC. As well, as a result of the foregoing transfer, DC became solely responsible for all of the remaining liabilities of Partnership D.
For greater certainty, there was not any time interval between the time of the cessation of Partnership D and the time that all property of Partnership D was distributed to the person entitled by law to receive such property.
71. Immediately after the particular time when Partnership D ceased to exist, DC (for approximately XXXXXXXXXX) carried on alone the business that was the business of Partnership D for the purpose of earning income and continued to use, in the course of the business, all the property that was, immediately before the particular time, property of Partnership D and that was received by DC upon the cessation of Partnership D. For greater certainty, Partnerco did not carry on any business after the transfer of its property in the course of its winding-up.
For greater certainty, during the time (approximately XXXXXXXXXX ) that DC carried on alone the prior Partnership D business, DC (a) received dividend income on all shares of corporations that became property of DC on the cessation of Partnership D, (b) was allocated income from Partnership E in respect of the period of time in which DC was a partner of Partnership E, and (c) earned income from all other former Partnership D property that became property of DC on the cessation of Partnership D.
72. DC may make designations under paragraph 98(5)(c) in respect of certain property transferred to it in connection with the cessation of Partnership D.
73. Each bare trustee, nominee and agent that, prior to the cessation of Partnership D, held legal title to property of Partnership D as bare trustee, nominee and agent for Partnership D, was notified that all such property became property of DC and the applicable bare trust agreements were amended accordingly to reflect DC as the beneficial owner of such property.
74. DC assumed all liabilities that were owed by Partnership A as a contribution of capital to Partnership A and Subco A repaid all outstanding interest payable by it to non-arm's length persons by way of cash transfer and, immediately thereafter, Subco A, by written resolution expressly stated to be effective on the date of that resolution, commenced proceedings to wind-up, and its property (which included its partnership interest in Partnership A) was transferred to DC and DC assumed its liabilities (except for any liabilities owing between DC and Subco A which were extinguished without any payment). Subco A ceased to be a partner in Partnership A upon the transfer of its partnership interest in Partnership A to DC. As soon as practicable following the transfer of its properties to DC but after any outstanding tax elections or designations pertaining to Subco A have been filed, Subco A will be formally dissolved.
75. As a result of the transfer by Subco A to DC of its partnership interest in Partnership A (and the filing of an amendment to the Declaration of Partnership of Partnership A, indicating that Subco A has ceased to be a partner of Partnership A), Partnership A thereupon ceased to exist as a matter of law and DC became the sole owner of all of the property of Partnership A (which included shares of Subco E). As well, as a result of the foregoing transfer, DC became solely responsible for all of the remaining liabilities of Partnership A.
For greater certainty, there was not any time interval between the time of the cessation of Partnership A and the time that all property of Partnership A was distributed to the person entitled by law to receive such property.
76. Immediately after the particular time when Partnership A ceased to exist, DC (for approximately XXXXXXXXXX) carried on alone the business that was the business of Partnership A for the purpose of earning income and continued to use, in the course of the business, all the property that was, immediately before the particular time, property of Partnership A and that was received by DC upon the cessation of Partnership A. For greater certainty, Subco A did not carry on any business after the transfer of its property in the course of its winding-up.
For greater certainty, during the time (approximately XXXXXXXXXX ) that DC carried on alone the prior Partnership A business, DC: (a) received dividend income on all shares of corporations that became property of DC on the cessation of Partnership A (which consisted only of shares of Subco E); and (b) earned income from all other former Partnership A property that became property of DC on the cessation of Partnership A.
77. DC may make designations under paragraph 98(5)(c) in respect of certain property transferred to it in connection with the cessation of Partnership A.
78. DC will elect under paragraph 80.01(4)(c) in prescribed form on or before the day on or before which DC is required to file a return of income pursuant to section 150 for the taxation year that includes the time that liabilities owing between DC and any of Subco A, Subco B, Holdco, Subco D and Partnerco are settled on the winding-ups of such subsidiary corporations in respect of the settlement of such liabilities on each such winding-up.
Proposed Transactions
The following transactions or events will be (except where the tense expressly indicates otherwise) implemented after the issuance of this letter.
79. DC will dispose of its partnership interest in Partnership E to Subco E and, as the sole consideration therefor, Subco E will issue to DC XXXXXXXXXX additional Subco E common shares. DC and Subco E will jointly elect under subsection 85(1) in prescribed form and manner and within the time referred to in subsection 85(6) with respect to the disposition of property to Subco E with the agreed amount in the election being equal to the lesser of the cost amount to DC of the partnership interest in Partnership E at the time of the transfer and the fair market value of the partnership interest in Partnership E at the time of the transfer. In accordance with the BCA2, the amount added to the Stated Capital of Subco E common shares to be issued by Subco E to DC will be equal to the agreed amount for the transferred partnership interest.
79.1 The DC Group will enter into the following arrangements with respect to inter-entity debt.
(a) each corporation in the DC Group that will remain in the DC Group after the completion of the Proposed Transactions will dispose of all debt receivable, owed by Bankco to such corporation, to DC in consideration for an equivalent debt obligation of DC; and
(b) DC will assume liability for all debt obligations owed to Bankco by other corporations in the DC Group that will remain in the DC Group after the completion of the Proposed Transactions in consideration for the issuance to DC by the applicable other corporations of an equivalent debt obligation.
As a result of the above transactions, all inter-entity debt between corporations that will remain in the DC Group after the completion of the Proposed Transactions, on the one hand, and Bankco, on the other hand, will now be consolidated as inter-entity debt between DC and Bankco. Any inter-entity debt between any other entities that will remain in the DC Group after the completion of the Proposed Transactions and entities that will not so remain will be settled in the manner described in Paragraph 85 or will be settled by cash payments either before or shortly after the completion of the Proposed Transactions.
79.2 DC and Bankco will enter into the following arrangements with respect to hedge contracts.
(a) XXXXXXXXXX
(b) XXXXXXXXXX
XXXXXXXXXX
80. DC will dispose of:
(a) all of the shares of Subco C; Subco E; Subco G; Subco J; Subco K; and Subco L;
(b) a portion of the corporate assets of DC, including office furniture and equipment, XXXXXXXXXX hardware, software and a share of a Subsidiary that owns certain head-office real estate;
(c) the Division 1 Properties, including related XXXXXXXXXX ; and
(d) the Business 2 Properties, including related XXXXXXXXXX
to Bankco and, as the consideration therefor, Bankco will:
(e) assume the Division 1 Liabilities that exist at that time;
(f) assume the Business 2 Liabilities that exist at that time;
(g) issue to DC two interest-bearing debt obligations with commercially reasonable terms and conditions (these terms and conditions will either be repayable upon demand or include a maximum term to maturity of not more than XXXXXXXXXX from the date of issuance), having an aggregate principal amount approximately equal to the principal amount of the Refinanced DC Debt (collectively, the "Bankco-DC Note");
(h) confer the benefit on DC, if any, as a consequence of the agreement referred to in paragraph 88; and
(i) issue to DC XXXXXXXXXX additional Bankco Common Shares.
Each bare trustee, nominee and agent that, prior to the transfer of property to Bankco, held legal title to such property as bare trustee, nominee and agent for DC, will be notified that all such property has become property of Bankco and the applicable bare trust agreements will be amended accordingly to reflect Bankco as the beneficial owner of such property.
For greater certainty, the property transferred by DC to Bankco in this Paragraph consists of capital property, eligible capital property, XXXXXXXXXX and inventory (other than real property, an interest in real property or an option in respect of real property) (each such property being eligible property) in addition to cash, accounts receivable, prepaid expenses and XXXXXXXXXX and will include the Subject Property.
XXXXXXXXXX
81. DC and Bankco will jointly elect under subsection 85(1) in prescribed form and manner and within the time referred to in subsection 85(6) with respect to the disposition of eligible property to Bankco in Paragraph 80. The agreed amount in respect of each eligible property so transferred will be as follows:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) (but at a minimum $XXXXXXXXXX ), in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii) (but at a minimum $XXXXXXXXXX ), in the case of depreciable property;
(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) (but at a minimum $XXXXXXXXXX ), in the case of inventory (XXXXXXXXXX ) and capital property (other than depreciable property);
(d) an amount (which may be approximately $XXXXXXXXXX , in the aggregate) for Canadian resource property, the cost of which to a principal-business corporation is COGPE; and
(e) an amount (which may be approximately $XXXXXXXXXX in the aggregate) for Canadian resource property, the cost of which to a principal-business corporation is CDE.
The relevant documents provide that any benefit received by DC as described in Paragraph 80(h) will be part of the non-share consideration for the acquisition of property by Bankco from DC described in Paragraph 80.
In each case, the agreed amount will not exceed the fair market value of the respective transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b) taking into account paragraph 85(1)(c). The amount of any non-share consideration to be allocated to a particular transferred property that is the subject of an election under subsection 85(1) will not exceed the agreed amount elected for that transferred property and the amount of non-share consideration to be allocated to a particular transferred property that is not the subject of an election under subsection 85(1) will not exceed the fair market value of such transferred property.
The subsection 85(1) election referred to in this Paragraph will exclude any cash, accounts receivable, prepaid expenses and XXXXXXXXXX .
82. DC and Bankco may elect, jointly and in prescribed form and manner, to have section 22 apply to the transfer of accounts receivable by DC to Bankco.
83. DC and Bankco may elect, jointly, to have the rules in subsection 20(24) apply to the assumption of applicable obligations (if any) by Bankco.
84. In accordance with the BCA1, the amount added to the Stated Capital of the Bankco Common Shares to be issued by Bankco to DC as described in Paragraph 80 will be equal to the amount that does not exceed the aggregate of the agreed amounts in the subsection 85(1) election less the aggregate non-share consideration (described in Paragraphs 80(e), (f), (g) and (h)) paid by Bankco for the transferred property (described in Paragraphs 80(a), (b), (c) and (d)), plus the aggregate fair market value of property transferred that is not included in the subsection 85(1) election.
85. Bankco and DC will enter into the following arrangements with respect to inter-entity debt (other than the Bankco-DC Note):
(a) first, the debt receivable to Bankco from DC and debt owing by Bankco to DC will be settled, set-off and consolidated into one or more net obligations;
(b) if the net obligations referred to in (a) are, in the aggregate, an amount owing by Bankco to DC, DC will contribute those net obligations in kind to Bankco as a capital contribution in respect of the Bankco Common Shares and such net obligations will thereupon be cancelled;
(c) Bankco will distribute all debts owing to Bankco by partnerships that will remain in the DC Group after the completion of the Proposed Transactions as a return of capital on the Bankco Common Shares;
(d) DC will assume responsibility for any debt owing by Bankco to partnerships that will remain in the DC Group after the completion of the Proposed Transactions as a contribution of capital in respect of the Bankco Common Shares;
(e) if the net obligations referred to in (a) are, in the aggregate, an amount receivable by Bankco from DC, Bankco will distribute most of those net obligations to DC and such net obligations will thereupon be cancelled:
(i) as a return of capital on the Bankco Common Shares; and
(ii) if necessary, then, as a series of dividends on the Bankco Common Shares.
86. Arrangements will be made so that DC's guarantee of the debt owed by Partnership C to FA2 will be replaced by a similar guarantee by Bankco (and, after the Amalgamation, Amalco).
87. XXXXXXXXXX Subco A will transfer all of its XXXXXXXXXX in XXXXXXXXXX co to Subco I for fair market value cash consideration. XXXXXXXXXX Subco B will transfer other property (consisting of XXXXXXXXXX Subco B's interest in certain marketing and other agreements and certain XXXXXXXXXX ) to Subco I for fair market value cash consideration and the assumption by Subco I of related liabilities.
88. Employees of the DC Group that are engaged in the portion of the Operations that have been transferred to Bankco will be transferred to appropriate entities. DC, Bankco and Spinco will enter into an agreement relating to employees whereby, among other things, Bankco will become obligated to reimburse DC for certain cash payments and the terms of certain employee plan agreements will be amended.
89. [Reserved]
90. Pursuant to the Plan of Arrangement, at the Effective Time, the events and transactions set out in Paragraph 90 will occur and be deemed to occur, unless otherwise indicated, in the order set out below, without any further act or formality, and with each event or transaction occurring and being deemed to occur immediately after the occurrence of the immediately preceding event or transaction.
(a) The terms of the DC Rights Plan will be modified in order to facilitate the completion of the Proposed Transactions contemplated by the Arrangement.
(b) The Rights attached to the DC Common Shares will be cancelled without any payment therefor.
(c) The issuance of Rights pursuant to the DC Rights Plan will be suspended until immediately following the issuance of the New DC Common Shares pursuant to the Initial DC Share Exchange.
(c.1) No DC Stock Options may be exercised or surrendered, and no DC SARs may be exercised, after the Effective Time.
(c.2) Certain DC DSUs will be exchanged by the holders thereof for Spinco DSUs in the applicable Spinco DSU Plans (the "DSU Exchange").
(d) The Articles of Spinco will be amended, to the extent necessary, such that the rights, privileges, restrictions and conditions attaching to the Spinco Special Shares is as described in Paragraph 52(m).
(e) The Articles of DC will be amended to increase the voting rights of the DC Common Shares from one vote to two votes per DC Common Share, to amend the attributes attaching to the first preferred shares and second preferred shares of DC to be subordinate to the DC Special Shares, and to create and authorize the issuance of (in addition to the shares that DC is authorized to issue immediately before the Effective Time) the following two new classes of shares: an unlimited number of New DC Common Shares; and an unlimited number of DC Special Shares.
(f) The attributes of the New DC Common Shares will be the same as the DC Common Shares before the amendment to the Articles of DC in Paragraph 90(e).
(g) The attributes of the DC Special Shares will be as follows:
(i) The holders of the DC Special Shares will be entitled to receive non-cumulative cash dividends, if, as and when declared by the board, in such amounts and payable in such manner and at such times as the board may from time to time determine. The board may, in its sole discretion, declare dividends on the DC Special Shares to the exclusion of any other class of shares of DC.
(ii) In the event of the liquidation, dissolution or winding up of DC or other distribution of assets of DC among its shareholders for the purpose of winding up its affairs, the holders of the DC Special Shares will be entitled to receive, before any amount shall be paid by DC or any assets of DC shall be distributed to the holders of DC Common Shares and New DC Common Shares or holders of any other shares of any other class of DC, an amount equal to the DC Special Share Redemption Amount in respect of each DC Special Share held by them, respectively, to the extent of the amount or value of the assets of DC available under applicable law for payment to holders of shares of DC upon liquidation,
(iii) dissolution or winding up of DC. After payment to the holders of the DC Special Shares of the amount provided in this Paragraph, such holders will not be entitled to share in any further distribution of assets of DC among its shareholders for the purpose of winding up its affairs.
(iv) DC may redeem at any time the whole, or from time to time any part, of the then issued and outstanding DC Special Shares from the holders thereof on payment (which may, at the discretion of DC, be made through the issuance of a promissory note or promissory notes) of a redemption amount (the "DC Special Share Redemption Amount") for each DC Special Share to be redeemed equal to the aggregate fair market value of all of the DC Common Shares issued and outstanding immediately before the Initial DC Share Exchange, multiplied by the Butterfly Proportion and then divided by the number of DC Special Shares so issued, plus all declared but unpaid dividends thereon.
(v) Subject to applicable law, a holder of DC Special Shares will be entitled to require DC to redeem, at any time, all or any of the DC Special Shares held by such holder, by tendering to DC at its registered office a share certificate or certificates representing the DC Special Shares that the holder wishes to have DC redeem together with a written request specifying the number of DC Special Shares to be redeemed and the business day (referred to in the description of share provisions as the "Retraction Date'') on which the holder wishes to have DC redeem the DC Special Shares. Following receipt of such share certificate or certificates and written request, DC will, on the Retraction Date (or as soon as practicable thereafter), redeem such DC Special Shares by paying to the holder the DC Special Share Redemption Amount for each DC Special Share so redeemed.
(vi) Any DC Special Shares that are redeemed by DC as aforesaid will for all purposes be considered to have been redeemed on, and will be cancelled concurrently with, the payment of the DC Special Share Redemption Amount by DC to or for the benefit of the holder thereof.
(vii) For so long as any DC Special Shares are outstanding, DC will not: (I) declare or pay any dividend on the shares of any other class of DC; or (II) redeem, purchase for cancellation or otherwise acquire any shares of any other class of DC, if, in the opinion of the board, the payment of such dividend or the consideration payable in
connection with such redemption, purchase or other acquisition, as the case may be, would reduce the net realizable value of the assets of DC (after taking into account all liabilities of DC) to an amount that is less than the product of the DC Special Share Redemption Amount of each DC Special Share multiplied by the number of DC Special Shares issued and outstanding immediately before the time of payment of such dividend or consideration, as the case may be.
(viii) Subject to applicable law, holders of the DC Special Shares will not be entitled to receive notice of or to attend any meeting of the shareholders of DC and will not be entitled to vote at any such meeting.
(ix) For the purposes of subsection 191(4), the amount specified in respect of each DC Special Share shall be the amount specified by a director or an officer of DC in a certificate that is made (i) effective concurrently with the issuance of such DC Special Share; and (ii) pursuant to a resolution of the board duly passed and evidenced in writing authorizing the issuance of such DC Special Share, such amount to be expressed as a dollar amount (and not expressed as a formula) and shall be equal to the fair market value of the consideration for which such DC Special Share is issued.
(g.1) Each holder of a DC Stock Option will dispose of such holder's DC Options to Spinco and to DC, and as the sole consideration therefor: (i) Spinco will grant Spinco Stock Options to the holder under the Spinco Stock Option Plan; and (ii) DC will grant new DC stock options (the "New DC Stock Options") to the holder under the DC Stock Option Plan (collectively, the "Option Exchange"), such that, for each DC Common Share that the holder would have been entitled to acquire pursuant to a DC Stock Option(and the terms of the DC Stock Option Plan), the holder will instead be entitled to acquire one New DC Common Share pursuant to the corresponding New DC Stock Option and one Spinco Common Share pursuant to the corresponding Spinco Stock Option. For greater certainty, a holder of DC Stock Options will receive no consideration for the exchange of such DC Stock Options other than New DC Stock Options and Spinco Stock Options, and the DC Stock Options so exchanged will be cancelled and terminated concurrently with the Option Exchange.
The original exercise price of a holder's DC Stock Options will be allocated to the New DC Stock Options and the Spinco Stock Options acquired by the holder pursuant to the Option Exchange using a weighted average trading price formula that is acceptable to the Stock Exchange.
The other material terms and conditions of the New DC Stock Options and the Spinco Stock Options issued on the Option Exchange will be similar to the DC Stock Options, including as to vesting conditions, except, if necessary, for appropriate adjustments to any performance-based vesting conditions attached to any DC Stock Options.
Certain reimbursement arrangements will be made relating to stock options.
(g.2) The DC SARs will be exchanged by the holders thereof for Spinco SARs and New DC SARs (collectively, the "SAR Exchange").
(h) Every Participant will simultaneously transfer to DC, with good and marketable title thereto and free from any Encumbrances, all of the DC Common Shares held by such Participants, and as the sole consideration for each DC Common Share so transferred, DC will issue to each Participant one New DC Common Share and one DC Special Share (the "Initial DC Share Exchange"). In connection with the Initial DC Share Exchange:
(i) DC will not make a joint election under the provisions of subsection 85(1) or subsection 85(2) with any Participant;
(ii) subject to Paragraph 90(h)(iii), the amount in the Stated Capital account maintained by DC for the DC Common Shares will be deducted from such account and a portion thereof will be added to the Stated Capital account maintained by DC for each of the New DC Common Shares and the DC Special Shares based on the proportion thereof that the fair market value of each of such two classes of shares is of the fair market value of the DC Common Shares so exchanged, with all such fair market values determined at the time of the Initial DC Share Exchange; and
(iii) the amounts to be added to the Stated Capital accounts maintained by DC for the New DC Common Shares and DC Special Shares pursuant to Paragraph 90(h)(ii) will not, in the aggregate, be greater than the paid-up capital of the DC Common Shares so exchanged at the time of the Initial DC Share Exchange.
(i) concurrently with the issuance of the New DC Common Shares pursuant to the Initial DC Share Exchange: (i) all of the DC Common Shares acquired by DC pursuant to the Initial DC Share Exchange will be cancelled; and (ii) the New DC Common Shares will, outside of and not as a part of the Plan of Arrangement, be listed for trading on the Stock Exchange and the New York Stock Exchange. For greater certainty, such listing on the Stock Exchange will occur before the redemption of the DC Special Shares below and the redemption of the Spinco Special Shares below.
(i.1) immediately following the issuance of the New DC Common Shares pursuant to the Initial DC Share Exchange, a Right will be issued by DC in respect of each New DC Common Share pursuant to the DC Rights Plan, and the terms of the DC Rights Plan relating to exercise price will be amended to take the Arrangement into account;
(j) Every Participant will simultaneously transfer to Spinco, with good and marketable title thereto and free from any Encumbrances, all of the DC Special Shares held by such Participants, and, as the sole consideration for each DC Special Share so transferred, Spinco will issue to each Participant one Spinco Common Share (the "Initial Spinco Share Exchange"). In connection with the Initial Spinco Share Exchange:
(i) if requested by an Eligible Holder within XXXXXXXXXX after the Effective Date, Spinco, through its successor, Amalco, will jointly elect with such Eligible Holder to have the provisions of subsection 85(1) (or, in the case of an Eligible Holder that is a partnership, subsection 85(2)) apply to the Initial Spinco Share Exchange with the agreed amount to be specified by such Eligible Holder (subject to the limitations set out in subsection 85(1)); and
(ii) in accordance with the BCA1, the addition to the Stated Capital of the Spinco Common Shares in respect of the issuance of the Spinco Common Shares will not exceed the aggregate paid-up
capital of the DC Special Shares so transferred to Spinco less the amount, if any, by which the aggregate paid-up capital of the DC Special Shares that are the subject of elections under subsection 85(1) or 85(2) exceeds the aggregate agreed amounts specified in such elections.
(k) Concurrently with the issuance of the Spinco Common Shares pursuant to the Initial Spinco Share Exchange, the Spinco Common Shares will, outside of and not as a part of the Plan of Arrangement, be listed for trading on the Stock Exchange (and the XXXXXXXXXX ) (subject to standard post-closing listing conditions imposed by the Stock Exchange and the XXXXXXXXXX in similar circumstances). For greater certainty, such listing on the Stock Exchange will occur before the redemption of the DC Special Shares below and the redemption of the Spinco Special Shares below.
(k.1) Immediately following the issuance of the Spinco Common Shares pursuant to the Initial Spinco Share Exchange, a Right will be issued by Spinco in respect of each Spinco Common Share outstanding pursuant to the Spinco Rights Plan.
The fair market value, immediately before the transfer of Distribution Property by DC to Spinco in Paragraph 90(m), of each Participant's Spinco Common Shares, will be equal to the amount determined by the formula: (A x B/C) + D in respect of such Participant, as set out in subparagraph (b)(iii) of the definition of permitted exchange.
(l) Immediately before the transfer of the Distribution Property in Paragraph 90(m), the fair market value of the property of DC will be determined as though there was only one type of property, as contemplated by subsection 55(3.02), on a net fair market value basis.
For greater certainty,
(i) any tax-related accounts in any corporation (such as deferred income taxes, the balance of non-capital losses and the balance of net capital losses) will not be considered to be property of DC;
(ii) the amount of any liability will be its principal amount;
(iii) no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification
(iv) [Reserved]
(v) the liabilities of any corporation in the DC Group will include its respective partnership share of each liability of any partnership of which such entity is a partner.
(m) DC will transfer the Distribution Property to Spinco, with good and marketable title thereto and free from any Encumbrances. As consideration for the Distribution Property so transferred by DC to Spinco, Spinco will issue to DC XXXXXXXXXX Spinco Special Shares having an aggregate Spinco Special Share Redemption Amount equal to the fair market value of the Distribution Property at the time of the transfer, less the fair market value of any non-share consideration paid by Spinco in consideration for the Distribution Property.
Spinco (through its successor, Amalco) and DC will jointly elect to have the provisions of subsection 85(1) apply to the transfer of the Distribution Property. The agreed amount will not exceed the fair market value of the Distribution Property, nor will it be less than the amount permitted under paragraph 85(1)(b) taking into account paragraph 85(1)(c). The amount of any non-share consideration paid by Spinco in consideration for the Distribution Property will not exceed the fair market value of the Distribution Property.
In accordance with the BCA1, the amount added to the Stated Capital of Spinco Special Shares to be issued by Spinco to DC as described herein, will be equal to the agreed amount for the Distribution Property less the fair market value of any non-share consideration paid by Spinco in consideration for the Distribution Property.
As a result of the transfer of the Distribution Property to Spinco, the net fair market value of the property received by Spinco will be equal to or approximate that proportion of the net fair market value of all property owned by DC immediately before the transfer that:
(i) the aggregate fair market value of the DC Special Shares owned by Spinco immediately before the transfer, is of
(ii) the aggregate fair market value of all the issued and outstanding shares of DC immediately before the transfer.
91. Pursuant to the Plan of Arrangement, immediately after the Listing Time, the events and transactions set out in Paragraph 91 will occur and be deemed to occur in the order set out below, without any further act or formality, and with each event or transaction occurring and being deemed to occur immediately after the occurrence of the immediately preceding event or transaction.
(a) Spinco will redeem for cancellation all the issued and outstanding Spinco Special Shares held by DC for an amount equal to the aggregate Spinco Special Share Redemption Amount for such Spinco Special Shares and will issue to DC as the sole consideration therefor a demand promissory note (the "Spinco Redemption Note") in a principal amount equal to such aggregate Spinco Special Share Redemption Amount and bearing interest at a rate equal to the Prime Rate from the date of demand for payment to the date of payment in full and absolute payment, satisfaction and discharge of such aggregate Spinco Special Share Redemption Amount, with the risk of the Spinco Redemption Note being dishonoured. The amount of any deemed dividend resulting from the application of subsection 84(3) to the redemption of all of the outstanding Spinco Special Shares will have been designated by Spinco in the Plan of Arrangement as an eligible dividend.
(b) DC will redeem for cancellation all the issued and outstanding DC Special Shares held by Spinco for an amount equal to the aggregate DC Special Share Redemption Amount for such DC Special Shares and will issue to Spinco as the sole consideration therefor a demand promissory note (the "DC Redemption Note") in a principal amount equal to such aggregate DC Special Share Redemption Amount and bearing interest at a rate equal to the Prime Rate from the date of demand for payment to the date of payment in full and absolute payment, satisfaction and discharge of such aggregate DC Special Share Redemption Amount, with the risk of the DC Redemption Note being dishonoured. The amount of any deemed dividend resulting from the application of subsection 84(3) to the redemption of all of the outstanding DC Special Shares will have been designated by DC in the Plan of Arrangement as an eligible dividend.
(c) DC will pay the principal amount of the DC Redemption Note by transferring to Spinco the Spinco Redemption Note, and the Spinco Redemption Note will be accepted by Spinco in full and absolute payment, satisfaction and discharge of DC's obligations under the DC Redemption Note. Simultaneously, Spinco will pay the principal amount of the Spinco Redemption Note by transferring to DC the DC Redemption Note, and the DC Redemption Note will be accepted by DC in full and absolute payment, satisfaction and discharge of Spinco's obligations under the Spinco Redemption Note. The DC Redemption Note and the Spinco Redemption Note will thereupon be cancelled.
(d) The Articles of DC will be amended to remove all of the DC Special Shares and DC Common Shares from the authorized capital of DC (and to remove all references to the DC Special Shares and DC Common Shares), such that, following such amendment, DC will be authorized to issue an unlimited number of New DC Common Shares, an unlimited number of first preferred shares and an unlimited number of second preferred shares.
(e) The Articles of Spinco will be amended to remove all of the Spinco Special Shares from the authorized capital of Spinco (and to remove all references to the Spinco Special Shares), such that, following such amendment, Spinco will be authorized to issue an unlimited number of Spinco Common Shares, an unlimited number of first preferred shares and an unlimited number of second preferred shares.
(f) The Plan of Arrangement will address the appointment of directors of Spinco, the by-laws of Spinco and the appointment of the initial auditors of Spinco.
(g) Spinco and Bankco (sometimes referred to in this Paragraph as the "amalgamating corporations") will be amalgamated to form Amalco as if the Amalgamation were carried out pursuant to subsection 184(1) of the BCA1, and:
(i) all the property (except any amount receivable from any amalgamating corporation or any shares of any amalgamating corporation) of the amalgamating corporations held immediately before the Amalgamation will become the property of Amalco;
(ii) all the liabilities and obligations (excluding any amount payable to any amalgamating corporation) of the amalgamating corporations immediately before the Amalgamation will become liabilities and obligations of Amalco;
(iii) Amalco will have the same name that Bankco had immediately before the Amalgamation and Amalco will use Bankco's GST registration number;
(iv) all the issued and outstanding Bankco Common Shares will be cancelled without any repayment of capital in respect thereof;
(v) no securities will be issued by Amalco in connection with the Amalgamation. The Stated Capital of the Amalco Common Shares immediately after the Amalgamation will be equal to the aggregate paid-up capital of all of the issued and outstanding Spinco Common Shares;
(vi) for greater certainty, the issued and outstanding Spinco Common Shares will become the issued and outstanding common shares of Amalco (the "Amalco Common Shares"). The Amalco Common Shares will be listed on the Stock Exchange;
(vii) for greater certainty, the Spinco Rights Plan will become the shareholders' rights plan of Amalco (the "Amalco Rights Plan") and the Rights attached to the Spinco Common Shares will become Rights attached to the Amalco Common Shares;
(viii) for greater certainty, each outstanding Spinco Stock Option will become a stock option of Amalco (an "Amalco Stock Option") entitling the holder thereof to acquire the same number of Amalco Common Shares, and the Spinco Stock Option Plan will become the stock option plan of Amalco (the "Amalco Stock Option Plan"), with all of the other terms and conditions of the Amalco Stock Options, including exercise price and vesting conditions, being the same as the Spinco Stock Options;
(ix) for greater certainty, each outstanding Spinco SAR will become a share appreciation right of Amalco (an "Amalco SAR") with the appreciation value of each Amalco SAR being referable to the appreciation in value of an Amalco Common Share and the Spinco SAR Plan will become the share appreciations right plan of Amalco (the "Amalco SAR Plan"), with all of the terms and conditions of the Amalco SARs, including base value and vesting conditions, being the same as the Spinco SARs; and
(x) for greater certainty, each outstanding Spinco DSU will become a deferred share unit of Amalco (an "Amalco DSU"), on the same terms and conditions, and the Spinco DSU Plans will become the deferred share unit plans of Amalco (the "Amalco DSU Plans").
(h) Outside and not as part of the Plan of Arrangement, the Articles of Amalco will be restated and the restated Articles of Amalco will be filed with the Director pursuant to section 180 of the BCA1.
(i) Outside and not as part of the Plan of Arrangement, the Articles of DC will be restated and the restated Articles of DC will be filed with the Director pursuant to section 180 of the BCA1.
(j) The Plan of Arrangement provides that any benefit received by DC as a result of the issuance by Spinco of Spinco Stock Options and other employee plan rights will be considered to be non-share consideration paid by Spinco in consideration for the Distribution Property.
92. DC Shareholders may exercise Dissent Rights in connection with the Arrangement with respect to their DC Common Shares pursuant to and in the manner set forth in the interim Court order, section 190 of the BCA1 and the Plan of Arrangement, as the same may be modified by the interim Court order or the final Court order. DC Shareholders who duly exercise such Dissent Rights and who:
(a) are ultimately entitled to be paid fair value for their DC Common Shares shall be deemed not to have participated in the Arrangement Transactions and shall be deemed to have transferred such DC Common Shares to Acquisition Sub immediately after the completion of the Arrangement Transactions without any further act or formality, and free and clear of all Encumbrances, in consideration for a debt-claim against Acquisition Sub to be paid the fair value of such DC Common Shares (and DC shall by operation of law guarantee the obligations of Acquisition Sub under such debt claim), which fair value shall be determined as of the close of business on the Business Day before the day on which the final Court order was made, and will not be entitled to any other payment or consideration, and the name of each such Dissenting Shareholder will thereupon be removed from the register of holders of DC Common Shares (and Acquisition Sub will be added to the register of holders of DC Common Shares in respect of the DC Common Shares transferred to Acquisition Sub);
(b) are ultimately not entitled, for any reason, to be paid fair value for their DC Common Shares shall be deemed to have participated in the arrangement on the same basis as any Participant as at and from the Effective Time and will be treated in the same manner as such a holder, on the basis set out in the Plan of Arrangement.
The Court also may award the payment of interest to Dissenting Shareholders in respect of their entitlement to be paid fair value for their DC Common Shares.
93. Immediately after Acquisition Sub is deemed to have acquired DC Common Shares upon the exercise of dissent rights as described in Paragraph 92, as part of the Plan of Arrangement, Acquisition Sub shall be deemed to have transferred all DC Common Shares transferred to it as described in Paragraph 92 to DC without any further act or formality, and free and clear of all Encumbrances, in consideration for a debt-claim against DC in the aggregate amount equal to the amount of the debt-claims against Acquisition Sub that arise as described in Paragraph 92 and such debt-claims against DC shall be paid and satisfied by DC providing to Acquisition Sub the funds necessary to satisfy the debt-claims against Acquisition Sub that arise as described in Paragraph 92 and Acquisition Sub will use such funds to satisfy the debt-claims arising as described in Paragraph 92. The amount of any deemed dividend resulting from application of subsection 84(3) to the purchase of the DC Common Shares held by Acquisition Sub will have been designated by DC in the Plan of Arrangement as an eligible dividend.
The name of Acquisition Sub will thereupon be removed from the register of holders of DC Common Shares and such DC Common Shares so transferred to DC shall thereupon be cancelled.
For greater certainty, the Proposed Transactions in Paragraphs 92 and 93 (including each acquisition of DC Common Shares described therein) will occur pursuant to the exercise of a statutory right of dissent by a Dissenting Shareholder, since such Proposed Transactions and Dissent Rights will be included in the Arrangement pursuant to the power of the Court under paragraph 192(4)(d) of the BCA1.
94. The funds held by the Escrow Agent will be released to Amalco. Amalco will use all of such funds to repay all or a portion of the Bankco-DC Note. Amalco also may repay a portion of the Bankco-DC Note by assuming obligations of DC owing under the Refinanced DC Debt.
95. The New DC Common Shares and the Amalco Common Shares may be listed on other designated stock exchanges in addition to the Stock Exchange. Such listing may occur concurrently with, or subsequent to, the listings on the Stock Exchange.
Following the Proposed Transactions DC and Amalco will each conduct its activities as a separate public corporation.
96.
(a) The acquisition, by Acquisition Sub, of the DC Common Shares described
in Paragraph 92(a), is legally permissible and does not violate the "corporate incest" provisions of the BCA1.
(b) The fair market value of the Subject Property, at the time of the acquisition thereof in Paragraph 52(x), will be less than 10% of the fair market value at the time of the distribution in Paragraph 90(m), of all the property (other than money and indebtedness that is not convertible into other property) received by Spinco on the distribution in Paragraph 90(m).
(c) Acquisition Sub will not cease to be related to DC as part of any series of transactions or events that includes the Proposed Transactions.
(d) Acquisition Sub will not realize any gain or loss on the purchase by DC of the DC Common Shares from Acquisition Sub.
97. The implementation of the Plan of Arrangement is conditional upon the receipt of certain approvals, including the approval of the DC Shareholders and the approval of the XXXXXXXXXX .
98. Except as described herein, no debts have been or will be incurred or paid and no property has been or will be acquired by DC, or any corporation controlled by DC, in contemplation of the Proposed Transactions, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).
99. 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 in respect of any shares which are redeemed, acquired or cancelled in the course of the Proposed Transactions.
100. None of the entities in the DC Group or Spinco or Amalco has, or will have entered into, a dividend rental arrangement in respect of any of the shares which are redeemed, acquired or cancelled in the course of the Proposed Transactions.
101. None of the shares issued by any corporation in the DC Group or Spinco or Amalco in the course of the Proposed Transactions, or the DC Common Shares acquired by Acquisition Sub in the Proposed Transactions, will be issued or acquired as part of a series of transactions or events of the type described in subsection 112(2.5).
102. None of the corporations in the DC Group or Spinco or Amalco is, or will be before the completion of the Proposed Transactions, a corporation described in any of paragraphs (a) to (f) of the definition of financial intermediary corporation or a restricted financial institution.
103. The DC Common Shares and the Bankco Common Shares are not taxable preferred shares.
104. Each corporation that issues a promissory note in the Proposed Transactions will have the financial capacity to honour, upon presentation for payment, the amount payable under such promissory note.
105. The Spinco Special Shares and the DC Special Shares that will be acquired in the Proposed Transactions by DC and Spinco, respectively, will not be acquired in the ordinary course of the business carried on by either DC or Spinco.
106. The XXXXXXXXXX of DC has sworn a statutory declaration that declares that: he has examined a statement of facts that is identical to the facts in this letter; by virtue of his position at DC and after making due inquiry, he has personal knowledge of the facts that are described in that statement of facts, including (but not limited to) the fact in Paragraph 13, the subject-matter of which fact is within the purview of his responsibilities at DC; and to the best of his knowledge and belief, that statement of facts contains all relevant facts, and such facts are true, correct and complete.
106.1 The DC Group and, after the completion of the Proposed Transactions, Amalco and its controlled entities, will each carefully monitor transactions that could, on a cumulative basis, result in the application of paragraphs 55(3.1)(d) and (c), respectively to the deemed dividends resulting from the Proposed Transactions to ensure that result does not occur. For greater certainty, the dispositions announced in XXXXXXXXXX that are expected to be undertaken in the next several years by Amalco and its controlled entities and not exempt from the application of paragraph 55(3.1)(c) will not, on a cumulative basis, exceed the 10% threshold referred to in that provision (determined on a net asset basis).
106.2 Spinco was incorporated by DC (through one of DC's employees) and at all times since incorporated until the issuance of Spinco Common Shares in the Proposed Transactions has been, and will be, controlled, directly or indirectly in any manner whatever (within the meaning of subsection 256(5.1)), by DC and, accordingly, Spinco has never been a Canadian-controlled private corporation, as defined in subsection 125(7).
106.3 The DC Group acknowledges that the Initial Spinco Share Exchange will result in an acquisition of control of Spinco as a result of the application of paragraph 256(7)(c) and that, pursuant to subsection 249(4), the taxation year of Spinco will be deemed to end immediately before such time. The DC Group further acknowledges that the taxation year of Spinco, that follows that taxation year deemed to end by subsection 249(4) as described above, also will end immediately before the Amalgamation as a result of the application of paragraph 87(2)(a).
106.4 The aggregate fair market value of the property transferred in each transfer referred to in Ruling K below will equal the fair market value of the consideration received for such transfer.
106.5 Each of DC and Spinco are not, and each of DC, Spinco and Amalco will not be, a mortgage investment corporation (as defined in subsection 130.1(6)).
Purposes of the Transactions
107. The main purpose underlying the transaction or transactions described in
(a) Paragraph 52(b) is to ensure that the separation of the Bankco Debt between DC and a XXXXXXXXXX Subsidiary (i.e. FA4) that will become controlled by Spinco in the Arrangement does not result in adverse XXXXXXXXXX tax consequences;
(b) Paragraphs 52(c) and (d) is to ensure that the interests in Partnership C could be subsequently transferred to Bankco indirectly without adverse XXXXXXXXXX tax consequences;
(c) Paragraphs 52(e) to (f) is to ensure that arrangements exist for Spinco and Amalco to begin XXXXXXXXXX operations with proper XXXXXXXXXX immediately upon completion of the Arrangement;
(d) Paragraph 52(n) is to ensure that Spinco has a similar shareholder rights plan, stock option plan, stock appreciation rights plan and deferred share unit plans as DC;
(e) Paragraph 52(o) is to ensure that double-taxation does not result as a consequence of the dissolution of various partnerships before relieving amendments to the Act are enacted;
(f) Paragraph 52(t) is to ensure that appropriate financing arrangements for Amalco are arranged before the information circular relating to the Arrangement is issued;
(g) Paragraph 52(x) is to utilize XXXXXXXXXX before the dissolution of various partnerships to minimize the risk that subsection XXXXXXXXXX would apply as a consequence of the transfers of Canadian XXXXXXXXXX upon the dissolution of such partnerships;
(h) Paragraph 52(bb) is to simplify the XXXXXXXXXX analysis and reporting requirements relating to the subsequent transfer of XXXXXXXXXX co described in Paragraph 87;
(i) Paragraph 52(dd) is to ensure that Spinco will have a paragraph 251(5)(b) right to acquire Bankco Common Shares before the Arrangement and so ensure compliance with the requirements of subsection 7(1.5);
(j) Paragraph 56 (the transfer by DC of a XXXXXXXXXX portion of its partnership interest in Partnership D to Partnerco) was originally to allow Subco D and DC to be amalgamated without also causing the cessation of Partnership D. An amalgamation of Subco D and DC would have resulted in less property registration work than the winding-up of Subco D into DC. However, subsequent to the development and consideration of the Subject Transactions involving Partnerco, it was determined that a winding-up of Subco D into DC rather than an amalgamation of those corporations is advisable in order to simplify the XXXXXXXXXX tax analysis of the Subject Transactions. The main purpose of retaining the transfer of property to Partnerco in the Subject Transactions is to minimize the extent of the revisions to the Subject Transactions in the Canadian tax rulings and reorganization plans;
(k) Paragraphs 59 and 60 ( the incorporation of Subco F and the transfer by Subco B of its partnership interest in Partnership F to Subco F) is to prevent the cessation of Partnership F that otherwise would occur as a consequence of the subsequent winding-up of Subco B;
(l) Paragraphs 63, 64, 70 and 75 (the winding-up of Subco B, the dissolutions of Partnership B, Partnership D and Partnership A, respectively) is to transfer
(i) Partnership D's Division 1 Properties, Business 2 Properties (part of the Division 2 properties) and partnership interest in Partnership E (part of the Division 2 properties);
(ii) Partnership A's indirect (through Subco E) partnership interest in Partnership E (part of the Division 2 properties); and
(iii) Subco B's indirect (through Subco C) partnership interest in Partnership C (part of the Division 2 properties),
to DC so that such properties may become owned by Bankco before the distribution of the Distribution Property (i.e. the Bankco Common Shares) by DC to Spinco as described in Paragraph 90(m);
(m) Paragraph 79 is to simplify the organizational structure of the Amalco group by consolidating the ownership of Partnership E interests in Subco E;
(n) Paragraph 79.1 is to consolidate relevant inter-entity debts so that the only relevant debts remaining after the consolidation are those debts owed between DC and Bankco in order to simplify the settlement of such debts as described in Paragraph 85;
(o) Paragraph 79.2 is to divide the economic consequences of the hedging activities and existing hedges between DC and Bankco in a manner that reflects the anticipated future production of the enterprises;
(o.1) the issuance of two promissory notes in Paragraph 80 is to provide financial flexibility as one note is to be repaid immediately with the other not for up to several weeks after the completion of the Arrangement Transactions;
(p) Paragraph 87 is to transfer the property currently owned by XXXXXXXXXX entities in the DC Group that relate to the businesses that will be carried on by Amalco and its subsidiaries after the completion of the Proposed Transactions to a XXXXXXXXXX entity that will be controlled by Amalco;
(q) Paragraph 88 is to ensure that the economic costs associated with various employee compensation and incentive plans for the transferred employees are borne by the corporate group and businesses that employ the transferred employees and also to ensure that all reimbursement payments for such costs are paid by the applicable payor for an income earning purpose, and not as a benefit or non-share consideration conferred on or paid to the applicable payee;
(r) Paragraph 90(b) (the cancellation of the Rights attached to the DC Common Shares) and Paragraphs 90(i)(i) and 90(k)(i) (the issuance of new Rights attached to the New DC Common Shares and Spinco Common Shares, respectively) is to reduce the possibility of administrative and tax complexity that otherwise potentially could arise when shares are disposed of with accompanying Rights;
(s) Paragraph 90(c.1) is to reduce possible administrative complexity by ensuring that DC Stock Options and DC SARs (each of which are cancelled during the Plan of Arrangement) may not be exercised or surrendered once the Plan of Arrangement commences;
(t) Paragraph 90(e) (the increase in the voting rights of the DC Common Shares from XXXXXXXXXX vote to XXXXXXXXXX votes per DC Common Share) is to create a distinction between the DC Common Shares and the New DC Common Shares in order to support their being treated as separate classes of shares under the BCA1;
(u) Paragraph 91(g) is to clarify that each of the Spinco Stock Options, Spinco Stock Option Plan, Spinco SARs, Spinco SAR Plan, Spinco DSUs and Spinco DSU Plans become the corresponding instruments or plans of Amalco as a result of the Amalgamation;
(v) Paragraph 90(g.1) is to ensure that holders of DC Stock Options participate in the Option Exchange in which they exchange their DC Stock Options for New DC Stock Options and Spinco Stock Options in a manner that complies with subsection 7(1.4) and also to ensure that all New DC
Stock Options and Spinco Stock Options are granted by the respective corporation for an income earning purpose and not on account of capital;
(w) Paragraph 91 (the timing of the Proposed Transactions described in Paragraph 91) is to ensure that the Spinco Common Shares will not be taxable Canadian property at the time of the Amalgamation such that the Amalco Common Shares will not be deemed to be taxable Canadian property pursuant to subsection 87(4). This is accomplished by having the Amalgamation occur several steps after the Listing Time so that, at the relevant time, the Spinco Common Shares are not taxable Canadian property. Although the listing of the New DC Common Shares is not required for this purpose, it is expected that the Listing of the New DC Common Shares and Spinco Common Shares on the Stock Exchange will occur concurrently and so the time of the listing of the New DC Common Shares also is included at the definition of Listing Time; and
(x) Paragraphs 92 and 93 (the use of Acquisition Sub and the Proposed Transactions relating to Dissent Rights) is to ensure that Dissenting Shareholders receive proceeds of disposition rather than a deemed dividend as a consequences of exercising their Dissent Rights in order to reduce the degree of tax-incentive that certain financial institutions have to dissent from the Arrangement.
108. The main purposes underlying the other pre-Plan of Arrangement transactions described in Paragraphs 53 to 89 are:
(a) to separate the common operating and financial structures between and among the appropriate Operations and establish separate replacement structures where necessary;
(b) to ensure that the transactions occur in a manner which is tax-efficient with respect to the Canadian income tax consequences to the DC Group and the DC Shareholders; and
(c) to ensure that the contemplated reorganization of DC occurs in a manner which is tax-efficient with respect to the XXXXXXXXXX tax consequences to the DC Group and those DC Shareholders who are resident in the XXXXXXXXXX .
109. With respect to the remainder of the Proposed Transactions described in Paragraphs 90 to 95, DC believes that it is in the best interests of the DC Shareholders that DC separate into separate public corporations, as the separation of the Operations into two separate public corporations will:
(a) enhance the ability of each corporation to pursue its independent objectives and strategies, including operating relationships with third parties and financing arrangements (equity and debt) with its own public shareholders and lenders;
(b) address the management difficulties that arise from having all of the Operations within a single corporate group;
(c) increase overall shareholder value because each corporation should achieve a higher valuation as a stand-alone entity; and
(d) give shareholders a choice to make an independent investment decision in respect of each of the separate corporations.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, transactions and the purposes of the Subject Transactions and the Proposed Transactions, and provided that the Subject Transactions (that have not been completed on the date of this letter) and the Proposed Transactions are undertaken in the manner described above, our rulings are set forth below:
Initial Rulings
A. To the extent that each of the following partnerships is a Canadian partnership that will cease to exist by operation of law, in the case of
- Partnership A, upon the wind-up of Subco A into DC, described in Paragraphs 74 through and including 77;
- Partnership B, upon the wind-up of Subco B into DC, described in Paragraphs 63 through and including 66; and
- Partnership D, upon the wind-up of Partnerco into DC, described in Paragraphs 69 through and including 72,
(a) each such partnership will have a fiscal period end at the point in time when that partnership ceases to exist (the "final tax year"). Pursuant to paragraphs 96(1)(f) and (g), and subject to section 103, each partner's share of the amount of income or loss from their respective partnership, for that partnership's final tax year, will be included in the computation of the income or loss of such partner for the taxation year of the partner in which that partnership's final tax year ends;
(b) Pursuant to and in accordance with subparagraph 53(1)(e)(iv),
(i) the amount of Partnership A's liabilities assumed by DC, as referred to in Paragraph 74, will be added to the adjusted cost base of the interest that DC has in Partnership A immediately before the cessation of Partnership A,
(ii) the amount of Partnership B's liabilities assumed by DC, as referred to in Paragraph 63, will be added to the adjusted cost base of the interest that DC has in Partnership B immediately before the cessation of Partnership B, and
(iii) the amount of Partnership D's liabilities assumed by DC, as referred to in Paragraph 69, will be added to the adjusted cost base of the interest that DC has in Partnership D immediately before the cessation of Partnership D;
(c) provided, as described in Paragraphs 65, 71 and 76, that DC continues to carry on the business of each such partnership for profit using all of the property of each such partnership subsequent to each cessation, within 3 months after the time of such cessation and until the time, if any, of the transfer of any such property as contemplated in the Subject Transactions or the Proposed Transactions [e.g., see Paragraph 80], the provisions of subsection 98(5) will apply in respect of the cessation of each such partnership such that
(i) pursuant to paragraph 98(5)(a), DC's proceeds of disposition of its interest in each such partnership will be deemed to be an amount equal to the greater of:
(A) the total of
(a) the adjusted cost base to DC of its interest in the respective partnership immediately before the cessation of that partnership, and
(b) the adjusted cost base to DC of the interest in the respective partnership deemed by paragraph 98(5)(g) to have been acquired by DC at the time the relevant partnership ceased to exist, and
(B) the total of
(a) the cost amount to the respective partnership, immediately before its cessation, of each of its properties received by DC as proceeds of disposition for its interest in the partnership, and
(b) the amount of any other proceeds of the disposition of DC's interest in the respective partnership received by DC,
(ii) pursuant to paragraph 98(5)(b), the cost to DC of each property received by it upon the cessation of each such partnership will be deemed to be an amount equal to the total of:
(A) the cost amount to the respective partnership of the property immediately before the cessation of that partnership;
(B) where the property is eligible capital property, 4/3 of the amount, if any, determined for F in the definition "cumulative eligible capital" in subsection 14(5) in respect of the respective partnership's business immediately before the cessation of that partnership; and
(C) where the amount determined under subparagraph 98(5)(a)(i), in respect of a particular partnership, exceeds the amount determined under subparagraph 98(5)(a)(ii), in respect of that same partnership, the amount determined under paragraph 98(5)(c) in respect of the property, and
(iii) pursuant to paragraph 98(5)(f), the respective partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to that partnership of the property immediately before that partnership ceased to exist;
(D) where the amount determined under subparagraph 98(5)(a)(i), in respect of a particular partnership, exceeds the amount determined under subparagraph 98(5)(a)(ii), in respect of that same partnership, DC may make a designation pursuant to and in accordance with paragraph 98(5)(c) with respect to certain capital property (other than depreciable property) received on the cessation of that partnership by filing a statement that contains all relevant information with either the taxation centre or district tax office applicable to DC; and for greater certainty, XXXXXXXXXX (the cost of which has been deducted under paragraph 20(1)(mm)), each have a cost amount of nil.
B. As a result of the redemption by Spinco of the Spinco Special Shares held by DC described in Paragraph 91(a):
(a) Spinco will be deemed by paragraph 84(3)(a) to have paid, and DC will be deemed by paragraph 84(3)(b) to have received, a dividend equal to the amount by which the amount paid on such redemption exceeds the paid-up capital of the Spinco Special Shares;
(b) the amount of such deemed dividend will be included in DC's income pursuant to subsection 82(1) and paragraph 12(1)(j);
(c) the amount of such deemed dividend will be excluded, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, in determining DC's proceeds of disposition for the Spinco Special Shares;
(d) DC will be entitled, pursuant to subsection 112(1), to deduct the amount of such deemed dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received and, for greater certainty, the provisions of subsection 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the deduction of such deemed dividend;
(e) the deemed dividend referred to in (a) will not be subject to tax under Part IV;
(f) to the extent that the amount paid by Spinco to DC on the redemption of the Spinco Special Shares does not exceed the amount specified in respect of those shares for the purposes of subsection 191(4), the deemed dividend referred to in (a) will not be subject to tax under Part IV.1 or Part VI.1; and
(g) the provisions of subsection 112(3) will apply to reduce any loss that would otherwise be incurred by DC as a result of the redemption of the Spinco Special Shares.
C. As a result of the redemption by DC of the DC Special Shares held by Spinco described in Paragraph 91(b):
(a) DC will be deemed by paragraph 84(3)(a) to have paid, and Spinco will be deemed by paragraph 84(3)(b) to have received, a dividend equal to the amount by which the amount paid on such redemption exceeds the paid-up capital of the DC Special Shares;
(b) the amount of such deemed dividend will be included in Spinco's income pursuant to subsection 82(1) and paragraph 12(1)(j);
(c) the amount of such deemed dividend will be excluded, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, in determining Spinco's proceeds of disposition for the DC Special Shares;
(d) Spinco will be entitled, pursuant to subsection 112(1), to deduct the amount of such deemed dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received and. for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the deduction of such deemed dividend;
(e) provided the election referred to in Paragraph 52(j) is made as described in that Paragraph, the deemed dividend referred to in (a) will not be subject to tax under Part IV;
(f) to the extent that the amount paid by DC to Spinco on the redemption of the DC Special Shares does not exceed the amount specified in respect of those shares for the purposes of subsection 191(4), the deemed dividend referred to in (a) will not be subject to tax under Part IV.1 or Part VI.1; and
(g) the provisions of subsection 112(3) will apply to reduce any loss that would otherwise be incurred by Spinco as a result of the redemption of the DC Special Shares.
D. Provided that:
(a) there is not a distribution by DC to a corporation that is not an acquiror before the day that is three years after the Effective Date; and
(b) there is not a distribution by Spinco or Amalco before the day that is three years after the Effective Date; and as part of a series of transactions or events that includes the taxable dividends referred to in Rulings B and C above, 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 DC in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii); or
(f) 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 Rulings B and C above. For greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
E. The cost to DC of the Spinco Redemption Note issued to DC as described in Paragraph 91(a) and the cost to Spinco of the DC Redemption Note issued to Spinco as described in Paragraph 91(b) will in each case, upon the issuance thereof, be equal to its principal amount and, as such, neither DC nor Spinco will realize any gain or incur any loss therefrom, as a result of the set-off and repayment described in Paragraph 91(c).
F. The set-off and repayment of the Spinco Redemption Note and the DC Redemption Note described in Paragraph 91(c) will not, in either case, give rise to a "forgiven amount" within the meaning thereof in subsection 80(1) or 80.01(1).
G. [Reserved]
H. [Reserved]
Reorganization Rulings
I With respect to the reduction in the Stated Capital of the outstanding classes of shares of each of Subco B, Holdco, Subco D and Partnerco as described in Paragraph 55, such corporations will not be deemed to have paid, and the applicable shareholders will not be deemed to have received, a dividend pursuant to either of subsections 84(4) or (4.1) as no amount will be paid on such reduction of Stated Capital.
J. For the purposes of subparagraph (b)(iii) of the definition of paid-up capital in subsection 89(1), the paid-up capital of:
(a) the New DC Common Shares and DC Special Shares issued to the Participants as described in Paragraph 90(h);
(b) the Spinco Common Shares issued to holders of DC Special Shares exchanged therefor as described in Paragraph 90(j);
(c) the Spinco Special Shares issued to DC as described in Paragraph 90(m); and
(d) the Amalco Common Shares deemed to be received by the shareholders of Amalco under subsection 87(1.1) on the Amalgamation as described in Paragraph 91(g);
computed without reference to the Act will be equal to their Stated Capital as determined for purposes of the BCA1.
K. Subject to the application of subsection 69(11) and the applicable provisions in the ITARS, and provided that the transferor and transferee jointly elect in prescribed form and within the time determined under subsection 85(6), the provisions of subsection 85(1) (and, where the transferor is a partnership, subsection 85(2)) will apply to the transfer of eligible property by:
(a) DC to Partnerco as described in Paragraph 56;
(b) Subco B to Subco F as described in Paragraph 60;
(c) DC to Bankco as described in Paragraph 80;
(d) Participants who are Eligible Holders of DC Special Shares, to Spinco described in Paragraph 90(j); and
(e) DC of Distribution Property to Spinco described in Paragraph 90(m),
such that:
(f) the agreed amount in respect of each property will be deemed to be the proceeds of disposition to the transferor for the particular transferred property and the cost to the transferee for the particular transferred property;
(g) the cost to the transferor of the non-share consideration shall be the fair market value thereof;
(h) the cost to the transferor of any preferred shares of the capital stock of the transferee corporation received as consideration will be deemed to be the lesser of the fair market value of such shares immediately after the disposition and the amount by which the agreed amount exceeds any non-share consideration;
(i) the cost to the transferor of any common shares of the capital stock of the transferee corporation received as consideration will be deemed to be the amount by which the agreed amount exceeds the amount of any non-share consideration and the cost to the transferor of any preferred shares received as consideration.
In respect of depreciable property, each transferee's capital cost of such property will be determined taking into account subsection 85(5) and paragraph 13(7)(e).
For greater certainty,
(j) paragraph 85(1)(e.2) will not apply to the transfers described above; and
(k) subsection 85(2.1) will not apply to reduce the paid-up capital of any class of shares issued by each of Partnerco, Subco F, Bankco and Spinco as described in Paragraphs 56, 60, 80, 90(j) and 90(m).
L. Provided that a Participant who:
(a) holds DC Special Shares as capital property;
(b) does not receive any consideration other than the Spinco Common Shares in exchange for the DC Special Shares;
(c) deals at arm's length with Spinco immediately before the Initial Spinco Share Exchange;
(d) does not, jointly with Spinco, file an election under subsection 85(1) or subsection 85(2) with respect to the exchange;
(e) does not include any portion of the gain or loss otherwise determined in computing his income for that year; and
(f) is not a person described in paragraph 85.1(2)(e) who has included any portion of the gain or loss in computing its foreign accrual property income (as defined in subsection 95(1)) for that year,
and further provided that immediately after such exchange;
(g) the Participant or persons with whom such Participant does not deal at arm's length, or the Participant together with any other person or persons with whom such Participant does not deal at arm's length, will not control Spinco or beneficially own shares of Spinco having an aggregate fair market value representing more than 50% of the aggregate fair market value of all of the outstanding shares of Spinco,
then, pursuant to paragraph 85.1(1)(a):
(h) such Participant will be deemed to have disposed of such DC Special Shares for proceeds of disposition equal to the aggregate adjusted cost base of such DC Special Shares to the Participant immediately before the exchange; and
(i) such Participant will be deemed to have acquired such Spinco Common Shares at an aggregate cost equal to the aggregate adjusted cost base of such Participant's DC Special Shares immediately before the exchange;
and, pursuant to paragraph 85.1(1)(b):
(j) the cost to Spinco of each DC Special Share acquired from each such Participant will be deemed to be the lesser of its fair market value immediately before the exchange and the paid-up capital of such DC Special Share immediately before the exchange
M. On the exchange of DC Common Shares by a Participant, in the Initial DC Share Exchange, the provisions of subsection 86(1) will apply, and the provisions of subsections 86(2) and (2.1) will not apply, to the disposition of each DC Common Share by a Participant for one New DC Common Share and one DC Special Share provided that:
(a) the Participant holds the DC Common Shares as capital property; and
(b) the Participant and DC do not file an election under subsection 85(1) or (2) in respect of the exchange, such that
(c) the Participant will be deemed by paragraph 86(1)(b) to have acquired the New DC Common Shares and DC Special Shares at a cost equal to the proportion of the adjusted cost base to the Participant of such DC Common Shares immediately before the exchange that:
(i) the fair market value, immediately after the exchange, of the New DC Common Shares or of the DC Special Shares, as the case may be, received by the particular Participant;
is of
(ii) the fair market value, immediately after the exchange, of all the shares of DC acquired by the Participant on the exchange;
(d) pursuant to paragraph 86(1)(c), such Participant will be deemed to have disposed of the Participant's DC Common Shares for aggregate proceeds of disposition equal to the aggregate cost to the Participant of the New DC Common Shares and DC Special Shares received by the Participant as determined in (c) above; and
(e) for the purposes of section 116, the DC Common Shares owned by a Participant who is not resident in Canada at the time of the Initial DC Share Exchange will be excluded property (as defined in subsection 116(6)) by virtue of paragraph 116(6)(b).
N. Upon the Amalgamation described in Paragraph 91(g):
(a) the provisions of section 87, including subsection 87(1.1), will apply;
(b) provided that the Spinco Common Shares are held by a particular Participant as capital property, the provisions of subsections 87(4), other than paragraphs 87(4)(c) to (e), will apply to such Participant; and
(c) provided that Spinco is a public corporation immediately before the Amalgamation, Amalco will be deemed to be a public corporation at the commencement of its first taxation year pursuant to paragraph 87(2)(ii).
O. Subsection 88(1) will apply, subject to subsection 69(11), to the winding-up of:
(a) Subco A described in Paragraph 74;
(b) Subco B described in Paragraph 63;
(c) Subco B described in Paragraph 63;
(d) Holdco described in Paragraph 67;
(e) Subco D described in Paragraph 68; and
(f) Partnerco described in Paragraph 69.
P. With respect to the payment by Acquisition Sub in respect of DC Common Shares held by a Dissenting Shareholder as described in Paragraph 92:
(a) the amount paid to Dissenting Shareholders, (exclusive of any interest awarded by a court) will be the proceeds of disposition of the DC Common Shares recognized by the Dissenting Shareholder as a result of such purchase of the DC Common Shares by Acquisition Sub;
(b) the amount of any interest awarded by a court will be included in the income of a Dissenting Shareholder in accordance with paragraph 12(1)(c) and subsections 12(3) and (4);
(c) Neither DC nor Acquisition Sub will be required to withhold any amount on account of tax under Part XIII on the payment by DC or Acquisition Sub of any court awarded interest to any Dissenting Shareholder provided that the payee is a person with whom each of DC and Acquisition Sub is dealing at arm's length at the time of payment.
Q. As a result of the acquisition by DC of DC Common Shares from Acquisition Sub as described in Paragraph 93 (in this paragraph referred to as "Acquired Shares"):
(a) DC will be deemed by paragraph 84(3)(a) to have paid, and Acquisition Sub will be deemed by paragraph 84(3)(b) to have received, a dividend equal to the amount by which the amount paid on such repurchase exceeds the paid-up capital of the Acquired Shares;
(b) the amount of such deemed dividend: (i) will be included in Acquisition Sub's income pursuant to subsection 82(1) and paragraph 12(1)(j); (ii) will not be subject to tax under Parts IV, IV.1 or VI.1; and (iii) will not be deductible under subsection 112(1) by virtue of subsection 112(2.1); and
(c) subsection 55(2) will not apply to such deemed dividend.
R. On each transfer of depreciable property:
(a) to DC on the winding-up of Subco A as described in Paragraph 74;
(b) to DC on the winding-up of Subco D as described in Paragraph 68;
(c) [Reserved]
(d) [Reserved]
(e) to Bankco on the transfer or property as described in Paragraph 80; and
(f) to Amalco on the Amalgamation as described in Paragraph 91(g),
the provisions of:
(g) subsection 1102(14) of the Regulations will apply (and subsection 1102(20) of the Regulations will not apply) to deem each depreciable property transferred to the particular transferee, including property in paragraph XXXXXXXXXX of Class XXXXXXXXXX of Schedule II of the Regulations, to be property of the same prescribed class as that of the respective transferor immediately before the transfer; and
(h) provided that the condition specified in paragraph 1100(2.2)(f) or (g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included by any of the transferees under paragraph 1100(2)(a) of the Regulations in respect of each depreciable property of a prescribed class that is property acquired by a particular transferee from its respective transferor as described above.
S. Provided the elections under paragraph 80.01(4)(c) described in Paragraph 78 are made in prescribed form on or before the day on or before which the applicable elector is required to file a return of income pursuant to section 150 for the taxation year that includes the time of the settlement of the liabilities owing between the applicable elector and each subsidiary corporation described in Ruling O:
(a) the amount paid at that time in satisfaction of the principal amount of each subsidiary corporation's liability or the applicable elector's liability shall be deemed to be equal to the amount that would be the cost amount to the applicable elector or the subsidiary corporation, as the case may be, of the subsidiary corporation's liability or the applicable elector's liability immediately before the settlement time if:
(i) the definition of cost amount in subsection 248(1) were read without reference to paragraph (e) of that definition; and
(ii) that cost amount included amounts added in computing the applicable elector's income or the subsidiary corporation's income in respect of the portion of the indebtedness representing unpaid interest, to the extent that the applicable elector or the subsidiary corporation has not deducted any amounts as bad debts in respect of that unpaid interest; and
(b) for the purposes of applying section 80 to the subsidiary corporation's liability, the subsidiary corporation's liability shall be deemed to have been settled immediately before the time that is immediately before the time of the distribution of property by that subsidiary corporation and not at any later time.
T. The amendment to the terms of the DC Common Shares to increase the voting rights, as described in Paragraph 90(e), will not result in a disposition of the DC Common Shares, in and of itself.
U. Neither the Initial DC Share Exchange nor the Initial Spinco Share Exchange will result in an income inclusion to the transferor under paragraph 12(1)(j) or will result in taxation under subsection 212(2).
V. [Reserved]
W. The Initial DC Share Exchange and the Initial Spinco Share Exchange will not, in and of themselves, cause the shares that a Participant received in exchange for shares that were, immediately before such exchange, capital property to that
Participant, not to be capital property to that Participant immediately after such exchange.
X. The transfers of property as a result of:
(a) the cessation of Partnerships A, B and D described in Ruling A
(b) the windings-up of the corporations described in Ruling O; and
(c) the transactions described in Rulings K(a), (b), (c) and (e),
will not, in and of themselves, cause property that was capital property or inventory, as the case may be, to the particular transferor immediately before the particular transfer, not to be capital property or inventory, as the case may be, to the respective transferee, immediately after that transfer.
Y. [Reserved]
Z. Provided that:
(a) the Spinco Common Shares are listed on a designated stock exchange in Canada at any time prior to the filing-due date of Spinco's first taxation year; and
(b) Amalco files the election (as successor to Spinco) as described in Paragraph 52(j) at any time after Spinco has become a public corporation but before the filing-due date of Spinco's first taxation year,
Spinco will be deemed to be a public corporation from the beginning of its first taxation year until the time when it so became a public corporation.
AA. The requirements of subsection 89(14) will be satisfied by the designation in the Plan of Arrangement of each deemed dividend resulting from
(a) the redemption of the DC Special Shares and the Spinco Special Shares as described in Paragraph 91; and
(b) the purchase for cancellation of the DC Common Shares as described in Paragraph 93,
as an eligible dividend.
Partnership Rulings
BB. [Reserved]
Resource Rulings
CC. As a result of the Subject Transactions or the Proposed Transactions, in and by themselves, none of DC, Bankco or Spinco will be considered to be a trader or dealer in Canadian resource properties for the purposes of subsection 66(5).
DD. Subject to subsection 69(1), the fair market value of the consideration received by DC in exchange for XXXXXXXXXX as described in Paragraph 80 shall be included in the amount determined for the description of G in the definition of cumulative CEE in respect of DC and, provided that Bankco has acquired the XXXXXXXXXX
for the XXXXXXXXXX , an amount equal to that fair market value will be a XXXXXXXXXX of Bankco pursuant to paragraph (a) of the definition of that term.
EE. [Reserved]
Subsections 7(1.4) and 7(1.5) Rulings
FF. The provisions of subsection 7(1.4) will apply:
(a) with respect to the Option Exchange, provided that the aggregate In The Money Amount of the New DC Stock Options and Spinco Stock Options received by each holder immediately after the exchange does not exceed the aggregate In The Money Amount of the DC Stock Options exchanged by the holder immediately before the exchange, with the result that for the purposes of section 7:
(i) each DC Stock Option Holder will be deemed (other than for the purposes of subparagraph 7(9)(d)(ii)) not to have disposed of the DC Stock Options and not to have acquired the New DC Stock Options and the Spinco Stock Options;
(j) the New DC Stock Options and the Spinco Stock Options will be deemed to be the same options as, and a continuation of, the corresponding DC Stock Options; and
(iii) Spinco will be deemed, in respect of such stock options, to be the same person as, and a continuation of, DC; and
(b) with respect to the Amalgamation, provided that the aggregate In The Money Amount of the Amalco Stock Options received by each holder immediately after the Amalgamation does not exceed the aggregate In The Money Amount of the Spinco Stock Options exchanged by the holder immediately before the Amalgamation, with the result that for the purposes of section 7:
(i) each holder of Spinco Stock Options will be deemed (other than for the purposes of subparagraph 7(9)(d)(ii)) not to have disposed of the Spinco Stock Options and not to have acquired the Amalco Stock Options;
(ii) the Amalco Stock Options will be deemed to be the same options as, and a continuation of, the Spinco Stock Options and hence, by virtue of Ruling FF(a)(ii), a continuation of the corresponding DC Stock Options; and
(iii) Amalco will be deemed, in respect of such stock options, to be the same person as, and a continuation of, Spinco and, by virtue of Ruling FF(a)(iii), of DC.
GG. [Reserved]
HH. Provided that:
(a) a Participant is a holder of DC Common Shares that were acquired through the exercise of the Participant's stock options granted under the DC Stock Option Plan;
(b) the Participant made a valid election under subsection 7(8) with respect to such DC Common Shares in accordance with subsection 7(10) and the election was not revoked under subsection 7(13); and
(c) the conditions of paragraph 7(1.5)(c) are satisfied with respect to the share exchanges referred to in (d), (e) and (f) below,
the provisions of paragraphs 7(1.5)(d), (e), (f) and (g) will apply for the purposes of section 7 to the exchange of:
(d) the Participant's DC Common Shares for New DC Common Shares and DC Special Shares in the Initial DC Share Exchange;
(e) the Participant's DC Special Shares for Spinco Common Shares in the Initial Spinco Share Exchange; and
(f) the Participant's Spinco Common Shares for Amalco Common Shares on the Amalgamation.
II. [Reserved]
JJ. [Reserved]
KK. [Reserved]
LL. [Reserved]
MM. Provided that:
(a) DC is a public corporation at the time it issues the New DC Common Shares and DC Special Shares;
(b) Spinco is a public corporation at the time it issues the Spinco Common Shares; and
(c) Amalco is a public corporation at the time the Amalco Common Shares are deemed to be received on the Amalgamation,
then,
(d) the New DC Common Shares, DC Special Shares, Spinco Common Shares and Amalco Common Shares will, when issued or deemed to be received (in the case of Amalco), be "qualified investments" pursuant to paragraph 4900(1)(b) of the Regulations for a:
(i) deferred profit sharing plan by virtue of paragraph (h) of the definition "qualified investment" in section 204;
(ii) registered retirement savings plan by virtue of paragraph (d) of the definition "qualified investment" in subsection 146(1);
(iii) registered retirement income fund by virtue of paragraph (c) of the definition "qualified investment" in subsection 146.3(1);
(iv) registered education savings plan by virtue of paragraph (e) of the definition "qualified investment" in subsection 146.1(1); and
(iv) registered disability savings plan by virtue of paragraph (d) of the definition of "qualified investment" in subsection 205(1).
NN. Provided that:
(a) the New DC Common Shares, Spinco Common Shares and Amalco Common shares are qualified investments in accordance with Ruling MM; and
(b) the issuer of the Rights is not a "connected person" under the "governing plan" of a particular "plan trust" (within the meaning of those terms as defined in subsection 4901(2) of the Regulations),
the Rights attached to such shares will, when such Rights are issued, be "qualified investments" pursuant to paragraph 4900(1)(e) of the Regulations for a particular plan trust that is a:
(i) deferred profit sharing plan by virtue of paragraph (h) of the definition "qualified investment" in section 204;
(ii) registered retirement savings plan by virtue of paragraph (d) of the definition "qualified investment" in subsection 146(1);
(iii) registered retirement income fund by virtue of paragraph (c) of the definition "qualified investment" in subsection 146.3(1);
(iv) registered education savings plan by virtue of paragraph (e) of the definition "qualified investment" in subsection 146.1(1); and
(v) registered disability savings plan by virtue of paragraph (d) of the definition of "qualified investment" in subsection 205(1).
OO. [Reserved]
Interest Deduction Rulings
PP. With respect to the cessation of each of:
(a) Partnership A described in Paragraphs 75 through and including 77;
(b) Partnership B described in Paragraphs 64 through and including 66; and
(c) Partnership D described in Paragraphs 70 through and including 72,
interest paid or payable by the applicable surviving partner corporation in respect of any debt obligation of each such partnership assumed by the applicable surviving partner corporation as a consequence of the cessation will be deductible by the applicable surviving partner corporation under paragraph 20(1)(c) to the same extent that such interest would have been deductible by the partnership if the cessation had not occurred and provided that the applicable surviving partner corporation uses the assets acquired from the partnership for the purpose of earning income from a business or property (other than income which is exempt or property that is a life insurance property),
QQ. With respect to the winding-up of the corporations described in Ruling O, interest paid or payable by the applicable parent corporation in respect of any debt obligation of a subsidiary corporation assumed by the applicable parent corporation as a consequence of the winding up will be deductible by the applicable parent corporation under paragraph 20(1)(c) to the same extent that such interest would have been deductible by the subsidiary corporation if the applicable winding-up had not occurred and provided that the applicable parent corporation uses the assets acquired from the subsidiary for the purpose of earning income from a business or property (other than income which is exempt or property that is a life insurance property).
RR. Following the Amalgamation, interest paid or payable (depending on the method regularly followed by the particular amalgamated corporation in computing its income for the purposes of the Act) on debt of Amalco will be deductible to the same extent that such interest would have been deductible by a predecessor corporation provided that Amalco uses the assets acquired on the Amalgamation for the purpose of earning income from a business or property (other than income which is exempt or property which is a life insurance policy).
SS. Provided Bankco uses the property transferred to it by DC as described in Paragraph 80 for the purpose of gaining or producing income from the property or for the purpose of gaining or producing income from a business, interest paid or payable by Bankco (depending on the method regularly followed by Bankco in computing its income for the purposes of the Act) on the Bankco-DC Note in respect of a particular taxation year will be deductible by Bankco under subparagraph 20(1)(c)(ii) to the extent such amount does not exceed a reasonable amount.
TT. Provided Bankco uses the property transferred to it by DC as described in Paragraph 80 for the purpose of gaining or producing income from the property or for the purpose of gaining or producing income from a business, interest paid or payable by Bankco (depending on the method regularly followed by Bankco in computing its income for the purposes of the Act) on the Bankco External Debt and on any Refinanced DC Debt assumed by Bankco in respect of a particular taxation year will be deductible by Bankco under paragraph 20(1)(c) to the extent such amount does not exceed a reasonable amount.
Other Rulings
UU. Persons who are not resident in Canada and who dispose of shares of the capital stock of Spinco as a consequence of the Amalgamation will not be required to comply with the requirements of section 116 in respect of the disposition and subsection 116(5) will not apply to impose any liability on any person as a result of the Amalgamation.
VV. Tax under Part II.1 will not apply as a consequence of the Initial Spinco Share Exchange as described in Paragraph 90(j) or as a consequence of the acquisition by DC of DC Common Shares from Acquisition Sub as described in Paragraph 93.
WW. The provisions of subsections 15(1), 55(4), 56(2), 56(4), 69(1), 69(4), and 246(1) will not be applied as a result of the Subject Transactions or the Proposed Transactions, in and by themselves.
XX. The provisions of subsection 245(2) will not be applied as a result of the Subject Transactions or the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed before 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 and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
Opinions
A. Pursuant to subsection 55(6), the DC Special Shares will be deemed, for the purposes of subsection 116(6) and the definition "taxable Canadian property" in subsection 248(1), to be listed on a designated stock exchange if:
(a) legislation that corresponds to former Bill C-10 (which was passed by the House of Commons and was given second reading in the Senate and referred to Committee on December 4, 2007) is enacted;
(b) the dividends received by DC and Spinco in the course of the reorganization described in Paragraphs 90 to 91 are not subject to subsection 55(2) because of paragraph 55(3)(b); and
(c) immediately before the Initial DC Share Exchange, a DC Common Share is not taxable Canadian property to its holder.
B. Pursuant to clause 256(7)(a)(i)(E), control of Bankco and each corporation controlled by Bankco will be deemed not to have been acquired solely because of the transfer by DC of the Distribution Property to Spinco described in Paragraph 90(m), provided that legislation that corresponds to former Bill C-10 (which was passed by the House of Commons and was given second reading in the Senate and referred to Committee on December 4, 2007) is enacted.
The foregoing opinions are not rulings and, as noted in Information Circular 70-6R5, are not binding on CRA.
1. We make no comment as to whether subsection 1102(14) of the Regulations and paragraph 1100(2.2)(h) of the Regulations will apply to property acquired by DC on the dissolutions of Partnership A and Partnership D.
2. Unless otherwise confirmed, nothing in this letter should be construed as implying that CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:
(a) the paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein; or
(b) any other tax consequence relating to the facts, Subject Transactions, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.
For greater certainty, we are not commenting on
(i) any tax consequences relating to the payment of any dividends described in Paragraphs 52(g), 65, 71, 76 and 85;
(ii) whether the designation of any dividends described in Ruling AA as eligible dividends will result in an "excessive eligible dividend designation" (as defined in subsection 89(1)); or
(iii) the computation of the amount of, or the characterization of, any consideration, including that described in Paragraphs 80(h) and 81, described as "non-share consideration".
Yours truly,
XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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