30 November 1996 Ruling 9727693 - BUTTERFLY REORGANIZATION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX							5-972769
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letters of XXXXXXXXXX in which you provided additional information regarding the Proposed Transactions described in our letter of XXXXXXXXXX, 1996 on our file No. 3-961032, as amended by our letter of XXXXXXXXXX, 1997 on our file No. 5-971437, and our letter of XXXXXXXXXX, 1997 extending the time within which to complete the Proposed Transactions on our file No. 5-970675, and as further extended by file No. 5-971437 (collectively, the "Amended Ruling"). Terms defined in the Ruling to have a certain meaning have the same meaning when used in this letter.

You advised that:

(a)XXXXXXXXXX will receive from certain third parties various consents to:

(i)the transfer of XXXXXXXXXX properties to XXXXXXXXXX, and

(ii)the assumption of XXXXXXXXXX liabilities on a several basis by XXXXXXXXXX.

(b)XXXXXXXXXX will be a party to a document relating to a debt instrument held by the public. The document will provide that after the Proposed Transactions, XXXXXXXXXX would each be severally liable for XXXXXXXXXX% of the obligations under the debt instrument. XXXXXXXXXX will continue to jointly guarantee XXXXXXXXXX% of such obligations.

(c)Upon XXXXXXXXXX Opco becoming the lessee of XXXXXXXXXX as described in paragraphs 26 and 28 of the Ruling, XXXXXXXXXX will assign to XXXXXXXXXX Opco the property management agreements which XXXXXXXXXX have with XXXXXXXXXX. These agreements will be replaced by a new agreement between XXXXXXXXXX Opco and XXXXXXXXXX. The terms of the new agreement will be substantially the same as those in the current property management agreements.

(d)The insurance contracts that XXXXXXXXXX have with their insurers will be amended to have XXXXXXXXXX Opco named as the insured, at such time as XXXXXXXXXX Opco becomes the lessee of XXXXXXXXXX and the owner of the XXXXXXXXXX operating assets as described in paragraphs 26 to 29 of the Ruling.

(e)There will be amendments to certain leases, to which XXXXXXXXXX is a party, described as follows:

(i)to permit transfers among co-owners and their affiliates and subsidiaries;

(ii)bankruptcy and insolvency provisions will be amended to reflect the co-ownership, and provide one co-owner with the right to keep the lease alive notwithstanding the insolvency of the other co-owner provided that the co-owner that is not insolvent assumes all obligations of the insolvent co-owner under the ground lease and cures all curable defaults under the ground lease;

(iii)similar provisions to that referred to in (ii) will be added to protect a leasehold mortgagee of the co-owners, who hold a ground lease for XXXXXXXXXX years but do not own certain of the land on which the XXXXXXXXXX are built, or either of them,;

(iv)a provision which prohibited space leases in excess of XXXXXXXXXX of the term of a ground lease will be replaced by a more conventional provision restricting any leases having a term greater than the term of the ground lease. Further provision will be added requiring that all leases be on fair market terms or otherwise on terms that a prudent owner of a similar building would enter into;

(v)a provision regarding leasehold mortgages will be amended to contemplate more than one leasehold mortgagee;

(vi)certain right of first refusal provisions will be amended to be more consistent with those in other leases; and

(vii)certain rights of first refusal in favour of XXXXXXXXXX will be deleted from both ground leases.

The amendments described in subparagraphs (i) to (iii) above are necessitated by the Proposed Transactions.

The amendments described in subparagraphs (iv) to (vii) above have been negotiated over a number of years and are not connected with the Proposed Transactions.

(f)XXXXXXXXXX filed an amended and restated preliminary prospectus dated XXXXXXXXXX for an initial public offering of its shares with regulatory authorities. The intention to make this public offering of XXXXXXXXXX shares was described in paragraph 10 of the Ruling.

(h)The amalgamation described in paragraph 41 will take place on the third day following the day the proposed transactions described in paragraphs 30, 32, 33, 34, 35, 37, 38 and 39 take place instead of on the day after as described in paragraph 42 of the Ruling.

(i)Following the Proposed Transactions, XXXXXXXXXX will restructure the financing of their liabilities, which were described in paragraph 14 and 16 of the Ruling. Part of the debt will be replaced with equity (on account of restrictions in the terms of the debt) and the balance of the debt will be replaced with further debt.

(j)XXXXXXXXXX have a shareholders' agreement under which XXXXXXXXXX (and its assigns) have a right to purchase the shares of XXXXXXXXXX from XXXXXXXXXX upon XXXXXXXXXX defaulting on its obligations under the agreement. As a result of reciprocal rights under the shareholders' agreement, XXXXXXXXXX has a right to purchase the shares of XXXXXXXXXX owned by XXXXXXXXXX upon XXXXXXXXXX defaulting on its obligations under the agreement.

XXXXXXXXXX confirm that these rights are not relevant for purposes of the Ruling other than for the changes made to the Ruling as described herein.

As a result of your submission in paragraph (j) above, the following changes will be made to the Ruling:

1.In paragraph 6, second line, delete the sentence beginning "XXXXXXXXXX" and replace with the following:

"XXXXXXXXXX"

2.In paragraph 20, the first subparagraph will be deleted.

3.Ruling C, delete subparagraph (iv) and replace with the following:

"(iv)to the extent that a dividend described in (ii) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4)."

Confirmation

Provided that the Proposed Transactions, as described in the Amended Ruling, and our understanding of the additional information described in this letter constitute a complete and accurate disclosure of all the relevant Facts, Proposed Transactions and Additional Information, and provided that the proposed transactions are completed by XXXXXXXXXX, we confirm that the rulings given in the Amended Ruling and amended herein, will continue to be binding in the manner described therein.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and Interpretations
Directorate
Policy and Legislation Branch