Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. In determining the net fair market value of property of the distributing corporation is the amount of a liability its principal amount or its fair market value?
2. The terms of a debt require payments to a sinking fund. How should the sinking fund assets be classified for the purposes of determining the "types of property" of the distributing corporation?
Position:
1. The amount should be the principal amount.
2. The liability arising from the debt should first be allocated to the sinking fund assets. The amount by which the liablility exceeds the sinking fund assets should then be allocated in accordance with our standard practice - to the property or type of property to which that excess relates or, if not related to either a particular property or type of property, to all types of property based on the relative fair market value of each type.
Reasons:
1. Practically, to conclude otherwise would considerably increase the complexity of "net" butterflies.
2. It is clear that the debt, which by its terms requires payments to the sinking fund, relates to the sinking fund assets
XXXXXXXXXX
XXXXXXXXXX 3-980180
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings on behalf of the above-noted taxpayer. We also acknowledge the additional information in your letters of XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings is being considered by a taxation services office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.
I DEFINITIONS
I.1 In this letter, unless otherwise expressly stated:
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"ACB" means adjusted cost base as defined in section 54 and subsection 248(1);
XXXXXXXXXX;
“Acquisition Agreement” means an agreement which will provide, among other things, for the purchase by XXXXXXXXXX, and the execution of the Definitive Agreements, XXXXXXXXXX, in the forms attached to such agreement, XXXXXXXXXX and the issuance of the XXXXXXXXXX Class C Shares referred to in Paragraph III.65;
"Act" means the Income Tax Act (Canada), and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
"agreed amount" has the meaning assigned by subsection 85(1);
XXXXXXXXXX;
XXXXXXXXXX;
“approximate that proportion” means, for the purposes of Paragraph III.44, a discrepancy from that proportion, if any, that would not exceed 1%, determined as a percentage of the FMV of each type of property which NEWCO has received (or XXXXXXXXXX has retained) as compared to what NEWCO would have received (or XXXXXXXXXX would have retained) if it had received (or retained) its appropriate pro rata share of the FMV of that type of property;
"Amalgamation" means the amalgamation of XXXXXXXXXX, as described in Paragraph III.20;
"arm’s-length" has the meaning assigned by section 251;
"Assumed Liabilities" means all of the current and non-current liabilities of XXXXXXXXXX, which will be assumed by NEWCO on the transfer of the Transferred Property, including the Restructured XXXXXXXXXX Bank Debt;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"CBCA" means the Canada Business Corporations Act;
XXXXXXXXXX;
"Canadian partnership" has the meaning assigned by subsection 102(1);
XXXXXXXXXX;
"capital property" has the meaning assigned by section 54;
XXXXXXXXXX;
"cost amount" has the meaning assigned by subsection 248(1);
“Definitive Agreements” means the Acquisition Agreement, XXXXXXXXXX;
“depreciable property” has the meaning assigned by subsection 248(1);
“Dissenting Shareholder” means any holder of XXXXXXXXXX Common Shares who exercises his rights of dissent under the XXXXXXXXXX, as described in Paragraph III.13;
XXXXXXXXXX;
“Distribution” means the transactions described in Paragraphs III.42 and III.43 herein, whereby the Transferred Property is transferred to NEWCO and the XXXXXXXXXX Issue Note is acquired by NEWCO in exchange for the assumption of the Assumed Liabilities by NEWCO and the issuance of the NEWCO Preferred Shares to XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"eligible capital property" has the meaning assigned by section 54;
"eligible property" has the meaning assigned by subsection 85(1.1);
“employee” has the meaning assigned by subsection 248(1);
XXXXXXXXXX;
"FMV" means fair market value, being that amount at which property would be transferred by a willing buyer to a willing seller, in an open and unrestricted market, between informed parties under no compulsion to act, as would be determined in accordance with the basic principles of valuation endorsed by the Canadian Institute of Chartered Business Valuators;
“future income taxes” means, as the context requires, either “future income tax assets” or “future income tax liabilities” within the meaning of section 3465 of the CICA Handbook”;
XXXXXXXXXX;
XXXXXXXXXX;
"investment tax credit" has the meaning assigned by subsection 127(9);
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"XXXXXXXXXX Non-Voting Common Shares" means the XXXXXXXXXX outstanding non-voting, fully participating common shares of XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX
XXXXXXXXXX;
"LFL Co” means the corporation, the outstanding shares of which will be acquired by NEWCO on the basis described in Paragraph III.59, which corporation will, at the time of such purchase, be a private corporation and a taxable Canadian corporation and will have “legal for life” status, that is to say its securities will, at the time of such purchase, be eligible for investment for certain regulated institutional and pension fund investors without reference to the so-called “basket clauses” in the relevant legislation which applies to such investors;
"Look-Through Corporation" means a corporation over which XXXXXXXXXX has significant influence (directly or indirectly), within the meaning of section 3050 of the CICA Handbook;
"XXXXXXXXXX Business" means the business carried on by XXXXXXXXXX immediately before the transfer described in Paragraphs III.14 and III.16 and, after the Amalgamation, includes XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"New XXXXXXXXXX Stock Options" means the XXXXXXXXXX Stock Options after the implementation of the amendments to the agreements which relate to the XXXXXXXXXX Stock Options are made on the basis described in Paragraph III.37A;
"NEWCO" means a corporation to be incorporated under the XXXXXXXXXX, as described in Paragraph III.4;
"NEWCO Common Shares" means fully participating and voting common shares of NEWCO;
"NEWCO Issue Note" means the demand promissory note to be issued by NEWCO to NEWCO SUB, with a principal amount and FMV equal to the difference between the amount of the Assumed Liabilities and the aggregate of the cost amounts to NEWCO of the Transferred Property, with interest payable only from the date of demand for payment by the holder thereof to the date of payment of the amount owing thereunder at a rate equal to the average monthly prime rate of a Canadian chartered bank;
"NEWCO Preferred Shares" means preferred shares of NEWCO, which shall have the following terms and conditions:
(1) each NEWCO Preferred Share will be redeemable, subject to applicable law, at any time at the option of NEWCO at the NEWCO Redemption Amount, plus any declared but unpaid dividends on such share;
(2) each NEWCO Preferred Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the NEWCO Redemption Amount, plus any declared but unpaid dividends on such share;
(3) the holder of each NEWCO Preferred Share will be entitled to a non- cumulative cash dividend as and when declared by the Board of Directors from time to time, which dividend need not also be declared on any other class of shares of NEWCO;
(4) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of NEWCO if the resulting realizable value of the net assets of NEWCO after payment of the dividends would be less than the aggregate of the NEWCO Redemption Amounts of all of the NEWCO Preferred Shares then outstanding;
(5) to the extent of the amount or value of property available under applicable law for payment to shareholders, upon the liquidation, dissolution or winding-up of NEWCO, in respect of each NEWCO Preferred Share, a holder will be entitled to a payment in priority to all holders of other classes of shares of NEWCO of an amount up to the NEWCO Redemption Amount, plus any declared but unpaid dividends on such share, but will be entitled to no more than the amount of that payment;
(6) the holder of each NEWCO Preferred Share will be entitled to one vote per share at meetings of shareholders of NEWCO; and
(7) for the purpose of subsection 191(4), the terms and conditions of the NEWCO Preferred Shares will, at the time of their issue, specify an amount in respect of each NEWCO Preferred Share. The amount to be specified in respect of each NEWCO Preferred Share will (i) be pursuant to a resolution of the board of directors of NEWCO, (ii) be expressed as a dollar amount, (iii) not be determined by a formula, and (iv) not exceed the FMV of the property received by NEWCO in consideration for its issuance;
"NEWCO Redemption Amount" means an amount equal to the aggregate FMV of the Transferred Property and the XXXXXXXXXX Issue Note less the amount of the Assumed Liabilities, all determined at the time of the issuance of the NEWCO Preferred Shares, divided by the number of NEWCO Preferred Shares then outstanding;
"NEWCO Redemption Note" means the demand promissory note to be issued by NEWCO in satisfaction of the redemption of the NEWCO Preferred Shares, as described in Paragraph III.48, with a principal amount and FMV equal to the aggregate of the NEWCO Redemption Amounts for all such redeemed NEWCO Preferred Shares, with interest payable only from the date of demand for payment by the holder thereof to the date of payment of the amount owing thereunder at a rate equal to the average monthly prime rate of a Canadian chartered bank;
"NEWCO Stock Options" means options to purchase NEWCO Common Shares which are to be granted on the basis described in Paragraph III.46;
"NEWCO SUB" means a corporation to be incorporated under the XXXXXXXXXX, as described in Paragraph III.50;
"NEWCO SUB Common Shares" means fully participating and voting common shares of NEWCO SUB;
“Non-Binding Term Sheet” means the document XXXXXXXXXX which provides the basis upon which certain of the Proposed Transactions will be agreed to be undertaken and implemented;
“Non-Disclosure Agreement” means an agreement among XXXXXXXXXX which provides that each of the parties will keep confidential certain information received from other parties as a result of discussions among them with respect to anything pertaining to the Proposed Transactions;
"non-capital losses" has the meaning assigned by subsection 111(8);
"Paragraph” refers to a numbered paragraph in this letter;
"Participant" means each holder of XXXXXXXXXX Common Shares, other than a Dissenting Shareholder;
"permitted acquisition" has the meaning assigned by subsection 55(1);
"permitted exchange" has the meaning assigned by subsection 55(1);
“permitted redemption” has the meaning assigned by subsection 55(1);
“Personnel Supply Business” means the business of providing personnel to provide services to an unrelated corporation which carries on a XXXXXXXXXX business XXXXXXXXXX;
"Plan of Arrangement" means a plan of arrangement under the XXXXXXXXXX to effect certain of the Proposed Transactions;
“Post-Closing Standstill Agreement” means an agreement which will impose certain standstill obligations on XXXXXXXXXX with respect to their shareholdings in XXXXXXXXXX and will provide certain anti-dilution rights to XXXXXXXXXX, after closing under the Acquisition Agreement;
"prescribed stock exchange" has the meaning assigned by section 3200 of the Regulations;
"private corporation" has the meaning assigned in subsection 89(1);
"proceeds of disposition" has the meaning assigned by section 54;
"Proposed Transactions" means the transactions described in Paragraphs III.1 to III.71;
“Public Announcement Date” means the date upon which a public announcement of the Proposed Transactions is made;
"public corporation" has the meaning assigned in subsection 89(1);
"PUC" means paid-up capital as defined in subsection 89(1);
"Regulations" means the Income Tax Regulations (Canada);
"Restructured XXXXXXXXXX Bank Debt" means the indebtedness of XXXXXXXXXX to one or more Canadian chartered banks and/or foreign banks after the restructuring of the XXXXXXXXXX Bank Debt has occurred on the basis described in Paragraph III.7;
"RFI" means restricted financial institution, as defined in subsection 248(1);
"series of transactions" includes related transactions or events as provided for in subsection 248(10);
"SFI" means specified financial institution, as defined in subsection 248(1);
"Share Exchange" means the reorganization of the capital of XXXXXXXXXX, as described in Paragraph III.37;
“Share-for-Share Exchange” means the exchange of XXXXXXXXXX Preferred Shares for NEWCO Common Shares, as described in Paragraph III.39;
“specified investment business” has the meaning assigned by subsection 125(7);
"Standstill Agreement" means an agreement among XXXXXXXXXX which, as extended from time to time, sets out the basis upon which the parties have agreed to govern themselves, in certain respects, during the period prior to the implementation of certain Proposed Transactions;
"Stated Capital" means stated capital as that expression is used in the XXXXXXXXXX or the CBCA, as the case may be;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
“XXXXXXXXXX Retained Assets” means all of the outstanding shares of XXXXXXXXXX
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
“tax shield amounts” means any tax attribute (such as undepreciated capital cost, non-capital losses, cumulative eligible capital and resource pools) that would affect the FMV of the share of a corporation or the FMV of the assets of a corporation;
"taxable Canadian corporation" has the meaning assigned by subsection 89(1);
"taxable dividend" has the meaning assigned by subsection 89(1);
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"XXXXXXXXXX" means XXXXXXXXXX Corporation, both before and after the Amalgamation, as the context requires;
"XXXXXXXXXX Bank Debt" means the indebtedness of XXXXXXXXXX to the XXXXXXXXXX Bank Debt Syndicate, which is expected to be approximately $XXXXXXXXXX at the time of the Distribution;
"XXXXXXXXXX Bank Debt Syndicate" means XXXXXXXXXX
"XXXXXXXXXX Class C Shares" means shares of XXXXXXXXXX which shall have the following terms and conditions:
(1) except as described hereinafter, each XXXXXXXXXX Class C Share shall rank equally with each XXXXXXXXXX Voting Common Share and each XXXXXXXXXX Non-Voting Common Share;
(2) the holder of a XXXXXXXXXX Class C Share shall be entitled to vote on the basis of one vote per share at all meetings of shareholders, except meetings at which only holders of shares of another specified class or series of shares are entitled to vote;
(3) the holder of a XXXXXXXXXX Class C Share shall be entitled to dividends and other distributions equal to twice the amount of dividends and other distributions declared on any XXXXXXXXXX Voting Common Share or XXXXXXXXXX Non-Voting Common Share, payment of such entitlement being in equal priority with the entitlement of the holders of XXXXXXXXXX Non-Voting Common Shares and XXXXXXXXXX Voting Common Shares;
(4) upon the liquidation, dissolution or winding-up of XXXXXXXXXX the holder of a XXXXXXXXXX Class C Share shall be entitled to receive an amount of the remaining property of XXXXXXXXXX equal to twice the amount of property that a holder of a XXXXXXXXXX Voting Common Share or a XXXXXXXXXX Non-Voting Common Share would be entitled to receive upon such event, payment of such entitlement being in equal priority with the entitlement of the holders of XXXXXXXXXX Non-Voting Common Shares and XXXXXXXXXX Voting Common Shares; and
(5) each XXXXXXXXXX Class C Share shall be convertible into two XXXXXXXXXX Voting Common Shares in the event that XXXXXXXXXX;
"XXXXXXXXXX Common Shares" means the outstanding, fully participating and voting common shares of XXXXXXXXXX immediately prior to the implementation of the Plan of Arrangement;
"XXXXXXXXXX Consolidated Financial Statements" means the financial statements of XXXXXXXXXX;
"XXXXXXXXXX Group" means XXXXXXXXXX and any Look-Through Corporation, XXXXXXXXXX;
"XXXXXXXXXX Issue Note" means the demand promissory note to be issued by XXXXXXXXXX to NEWCO, with a principal amount and FMV equal to the difference between the amount of the Assumed Liabilities and the aggregate of the cost amounts to XXXXXXXXXX of the Transferred Property, as described in Paragraph III.42, with interest payable only from the date of demand for payment by the holder thereof to the date of payment of the amount owing thereunder at a rate equal to the average monthly prime rate of a Canadian chartered bank;
"XXXXXXXXXX Non-Voting Common Shares" means fully participating and non-voting common shares of XXXXXXXXXX immediately after the amendment of the Articles of XXXXXXXXXX, as described in Paragraph III.22;
"XXXXXXXXXX Preferred Shares" means preferred shares of XXXXXXXXXX which shall have the following terms and conditions:
(1) each XXXXXXXXXX Preferred Share will be redeemable, subject to applicable law, at any time at the option of XXXXXXXXXX at the XXXXXXXXXX Redemption Amount, plus any declared but unpaid dividends on such share;
(2) each XXXXXXXXXX Preferred Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the XXXXXXXXXX Redemption Amount, plus any declared but unpaid dividends on such share;
(3) the holder of each XXXXXXXXXX Preferred Share will be entitled to a non-cumulative cash dividend as and when declared by the Board of Directors from time to time, which dividend need not also be declared on any other class of shares of XXXXXXXXXX;
(4) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of XXXXXXXXXX if the resulting realizable value of the net assets of XXXXXXXXXX after payment of the dividends would be less than the aggregate of the XXXXXXXXXX Redemption Amounts of all of the XXXXXXXXXX Preferred Shares then outstanding;
(5) to the extent of the amount or value of property available under applicable law for payment to shareholders, upon the liquidation, dissolution or winding-up of XXXXXXXXXX, in respect of each XXXXXXXXXX Preferred Share, a holder will be entitled to a payment in priority to the holders of all other classes of shares of XXXXXXXXXX of an amount up to the XXXXXXXXXX Redemption Amount, plus any declared but unpaid dividends on such share, but will be entitled to no more than the amount of that payment;
(6) the holder of each XXXXXXXXXX Preferred Share will not be entitled to vote, at meetings of shareholders of XXXXXXXXXX, other than as provided under the XXXXXXXXXX; and
(7) for the purpose of subsection 191(4), the terms and conditions of the XXXXXXXXXX Preferred Shares will, at the time of their issue, specify an amount in respect of each XXXXXXXXXX Preferred Share. The amount to be specified in respect of each XXXXXXXXXX Preferred Share will (i) be pursuant to a resolution of the board of directors of XXXXXXXXXX, (ii) be expressed as a dollar amount, (iii) not be determined by a formula, and (iv) not exceed the FMV of the property received by XXXXXXXXXX in consideration for its issuance;
"XXXXXXXXXX Redemption Amount" means an amount equal to the aggregate FMV of all issued and outstanding XXXXXXXX Common Shares immediately prior to the Share Exchange, multiplied by the proportion that the net FMV of the Transferred Property immediately before the Distribution is of the net FMV of all property of XXXXXXXXX immediately before the Distribution (in both cases determined using the rules and principles described in Paragraphs III.23 to Paragraph III.35), divided by the number of XXXXXXXXX Preferred Shares then outstanding;
"XXXXXXXXXX Redemption Note" means the demand promissory note to be issued by XXXXXXXXXX in satisfaction of the redemption of the XXXXXXXXXX Preferred Shares, as described in Paragraph III.47, with a principal amount and FMV equal to the aggregate of the XXXXXXXXXX Redemption Amounts for all such redeemed XXXXXXXXXX Preferred Shares, with interest payable only from the date of demand for payment by the holder thereof to the date of payment of the amount owing thereunder at a rate equal to the average monthly prime rate of a Canadian chartered bank;
“XXXXXXXXXX Shareholder Rights Plan” means a plan which is intended to ensure, to the extent possible, that all shareholders of XXXXXXXXXX will be treated fairly in connection with any take-over offer for XXXXXXXXXX and pursuant to which:
(1) XXXXXXXXXX will distribute certain rights to its shareholders enabling them to purchase certain shares of XXXXXXXXXX; and
(2) the exercise price in respect of such rights will initially be an amount which will be significantly in excess of the FMV of the shares to be acquired upon the exercise of such rights but will be reduced to an amount which will be significantly less than the FMV of such shares in the event that a take-over offer is made for XXXXXXXXXX by a person who does not comply with certain provisions of the plan in relation to such take-over offer;
and includes the plan as amended, from time to time, and any other similar plan which may be substituted for this plan;
"XXXXXXXXXX Stock Options" means stock options which constitute rights under agreements referred to under either of subsections 7(1) or (1.1) to acquire XXXXXXXXXX Common Shares and which have been granted to persons who were, at the time of the grant, employees of XXXXXXXXXX or any corporation which did not deal at arm’s-length with XXXXXXXXXX at such time, as described in Schedule B;
“XXXXXXXXXX SUB1" means a corporation to be incorporated under the XXXXXXXXXX, as described in Paragraph III.10;
“XXXXXXXXXX SUB2" means a corporation to be incorporated under the XXXXXXXXXX, as described in Paragraph III.11;
"XXXXXXXXXX Voting Common Shares" means fully participating and voting common shares of XXXXXXXXXX immediately after the amendment of the Articles of XXXXXXXXXX, as described in Paragraph III.22;
XXXXXXXXXX;
"Transaction Date" means the date referred to in Paragraph III.12;
"transferee corporation" has the meaning assigned by subsection 55(1);
"Transferred Property" means the property which is to be transferred by XXXXXXXXXX to NEWCO on the Distribution in exchange for the assumption by NEWCO of a portion of the Assumed Liabilities and the issuance by NEWCO of the NEWCO Preferred Shares, as described in Paragraphs III.42 and III.43;
"Treaty" means XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"XXXXXXXXXX Non-Voting Common Shares" means the XXXXXXXXXX outstanding non-voting, fully participating non-voting common shares in XXXXXXXXXX;
XXXXXXXXXX;
"XXXXXXXXXX Preferred Shares" means the XXXXXXXXXX outstanding non-dividend-paying shares in XXXXXXXXXX which entitle the holders thereof to one vote per share and to receive on the liquidation, dissolution or winding-up of XXXXXXXXXX one dollar per share, rateably with the holders of the XXXXXXXXXX Non-Voting Common Shares; and
XXXXXXXXXX.
II FACTS
The XXXXXXXXXX Group of Companies
II.1 XXXXXXXXXX is a taxable Canadian corporation and a public corporation which is subject to the XXXXXXXXXX and which has its head office in XXXXXXXXXX. As of the date hereof, the authorized and issued capital of XXXXXXXXXX consists of approximately XXXXXXXXXX common shares with an aggregate Stated Capital and PUC, in each case, of approximately $XXXXXXXXXX. XXXXXXXXXX has other authorized classes of shares but none of such shares has been issued.
XXXXXXXXXX
XXXXXXXXXX files its income tax returns at the XXXXXXXXXX.Tax Services Office.under account number XXXXXXXXXX
II.2 XXXXXXXXXX carries on business primarily as a holding company. Its operating businesses are primarily carried on indirectly through the corporations in the XXXXXXXXXX Group. Schedule A hereto contains a corporate chart which depicts the direct and indirect ownership of XXXXXXXXXX in its various subsidiaries as of the date hereof.
II.3 The XXXXXXXXXX Consolidated Financial Statements have been provided to us.
II.4 To the best of the knowledge of XXXXXXXXXX, as of the date hereof, no person or related group of persons beneficially owns, directly or indirectly, 10% or more of the issued and outstanding XXXXXXXXXX Common Shares.
II.5 As of the date hereof, there are a number of unexercised XXXXXXXXXX Stock Options, particulars of which are contained in Schedule B hereto.
II.6 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX.
XXXXXXXXXX
II.7
XXXXXXXXXX
II.8 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX carries on business primarily as XXXXXXXXXX and is the owner of all of the issued shares in XXXXXXXXXX.
II.9 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX.
XXXXXXXXXX
II.10 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX . XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
II.11 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX carries on business primarily as a XXXXXXXXXX and is the owner of all of the issued shares of XXXXXXXXXX.
II.12 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of providing XXXXXXXXXX.
II.13 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of providing XXXXXXXXXX
II.14 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX formerly carried on a business of XXXXXXXXXX. This business was sold in XXXXXXXXXX.
II.15 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
II.16 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
II.17 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. All of the outstanding common shares of XXXXXXXXXX are owned by XXXXXXXXXX. XXXXXXXXXX has one outstanding preferred share which is owned by XXXXXXXXXX. XXXXXXXXXX is engaged in XXXXXXXXXX and the Personnel Supply Business and, until XXXXXXXXXX, was engaged in the XXXXXXXXXX.
II.18 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
II.19 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. Prior to XXXXXXXXXX, XXXXXXXXXX carried on, XXXXXXXXXX, the business of XXXXXXXXXX. Both of those businesses were sold in XXXXXXXXXX. XXXXXXXXXX also functions as XXXXXXXXXX which owns all of the shares of XXXXXXXXXX.
II.20 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
II.21 XXXXXXXXXX is a Canadian partnership, the general partner of which is XXXXXXXXXX and the limited partner of which is XXXXXXXXXX. XXXXXXXXXX sold its business operations in XXXXXXXXXX and its sole material asset is a loan receivable from XXXXXXXXXX.
II.22 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is in the business of XXXXXXXXXX.
II.23 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX owns all of the common shares of XXXXXXXXXX. All of the preferred shares of XXXXXXXXXX are owned by XXXXXXXXXX. XXXXXXXXXX carries on business primarily as XXXXXXXXXX and is the owner of an inter-company account receivable.
II.24 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business XXXXXXXXXX. XXXXXXXXXX also owns one preferred share in XXXXXXXXXX.
II.25 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
II.26
XXXXXXXXXX
II.27
XXXXXXXXXX
The XXXXXXXXXX Group of Companies
II.28
XXXXXXXXXX
II.29 XXXXXXXXXX is a corporation which is not resident in Canada, for the purposes of the Act, and which is a resident of XXXXXXXXXX for the purposes of the Treaty. It is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX carries on business as a holding company and is the owner of XXXXXXXXXX.
II.30 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which has its head office in XXXXXXXXXX. It is, indirectly, a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX principal businesses are XXXXXXXXXX. XXXXXXXXXX Preferred Shares. XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.
II.31 XXXXXXXXXX is a taxable Canadian corporation XXXXXXXXXX and which has its head office in XXXXXXXXXX. As of the date hereof, the issued share capital of XXXXXXXXXX consists of XXXXXXXXXX
XXXXXXXXXX is engaged in the business of XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.
II.32 XXXXXXXXXX is indebted
XXXXXXXXXX
II.33 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which has its head office in XXXXXXXXXX. The issued share capital of XXXXXXXXXX consists of XXXXXXXXXX XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.
II.34 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which has its head office in XXXXXXXXXX. The issued share capital of XXXXXXXXXX consists of XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.
II.35 XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which has its head office in XXXXXXXXXX. As of the date hereof, the issued share capital of XXXXXXXXXX consists of XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.
Significant Transactions
II.36 The transactions described in Paragraphs II.36(1) to (10) and in Paragraphs II.37 and II.38 constitute all significant transactions involving the XXXXXXXXXX Group which have been completed or which are intended to be completed prior to the completion of the Proposed Transactions:
XXXXXXXXXX
None of the foregoing transactions occurred in contemplation of the Proposed Transactions and the terms and timing of each of them was not affected by the Proposed Transactions. Each of such transactions occurred in the ordinary course of business or as a part of the general business plans of the XXXXXXXXXX Group and would have been completed whether or not the Proposed Transactions are undertaken.
II.37
XXXXXXXXXX
II.38 The Non-Binding Term Sheet was produced as a result of discussions and negotiations among XXXXXXXXXX. It sets out the basis upon which they anticipate that certain of the Proposed Transactions will be undertaken. The Non-Binding Term Sheet contemplates the negotiation and execution of the Definitive Agreements.
III PROPOSED TRANSACTIONS
Subject to the receipt of the rulings which are requested in this correspondence, the following transactions will be undertaken:
Pre-Distribution Transactions
III.1 In keeping with a timetable which will enable certain of the Proposed Transactions, including the Plan of Arrangement, to be voted upon by the holders of XXXXXXXXXX Common Shares at the XXXXXXXXXX, a XXXXXXXXXX and an information circular and proxy solicitation materials, which will provide detailed information with respect to the Proposed Transactions, will be required to be mailed to XXXXXXXXXX shareholders no later than XXXXXXXXXX.
XXXXXXXXXX
III.2 On the Public Announcement Date, the Acquisition Agreement will be executed. Closing under the Acquisition Agreement, and the coming into force of the Definitive Agreements other than the Acquisition Agreement, will be subject to a number of conditions precedent, including the prior receipt of all requisite approvals in relation to the Plan of Arrangement and the prior completion of the Distribution. If closing under the Acquisition Agreement does not occur, XXXXXXXXXX will, in certain circumstances, be obliged to pay certain “break fees”.
III.3
XXXXXXXXXX
III.4 NEWCO will be incorporated under the XXXXXXXXXX at some time prior to the Public Announcement Date and will be a taxable Canadian corporation. The authorized capital of NEWCO will consist of an unlimited number of NEWCO Common Shares and NEWCO Preferred Shares. NEWCO will be organized with officers and directors but will not have any assets, liabilities or issued shares prior to the completion of the transaction described in Paragraph III.39;
III.5 XXXXXXXXXX will transfer the preferred share of XXXXXXXXXX which it owns to XXXXXXXXXX in exchange for consideration having a FMV equal to the FMV of the transferred preferred share.
III.6 The XXXXXXXXXX Shareholder Rights Plan will be presented for approval to the directors of XXXXXXXXXX on or before the Public Announcement Date. If such approval is obtained, the rights contemplated thereunder will be distributed to the shareholders of XXXXXXXXXX on a record date to be established by the directors, which date would typically be on, or shortly after, the date of their approval of the XXXXXXXXXX Shareholder Rights Plan. Shareholder ratification of the XXXXXXXXXX Shareholder Rights Plan will be requested at the meeting at which the Plan of Arrangement will be voted upon.
III.7 XXXXXXXXXX will enter into one or more agreements with one or more Canadian chartered banks and/or foreign banks for the purpose of restructuring the XXXXXXXXXX Bank Debt. Such restructuring will be necessary because the agreements which pertain to the XXXXXXXXXX Bank Debt will not permit the direct assumption of the XXXXXXXXXX Bank Debt by NEWCO. The Restructured XXXXXXXXXX Bank Debt will have the same principal amount, interest rate and repayment terms as the XXXXXXXXXX Bank Debt at the time of the restructuring and the agreement or agreements which relate thereto will permit the direct assumption of the Restructured XXXXXXXXXX Bank Debt by NEWCO. It is possible that the lenders of the Restructured XXXXXXXXXX Bank Debt will not be the same lenders of the XXXXXXXXXX Bank Debt.
III.8 XXXXXXXXXX will transfer an indebtedness receivable by it from XXXXXXXXXX to XXXXXXXXXX for consideration having a FMV equal to the FMV of the transferred indebtedness receivable.
III.9 Certain amounts owing by XXXXXXXXXX to XXXXXXXXXX will be set off against corresponding amounts owing by XXXXXXXXXX to XXXXXXXXXX.
III.10 XXXXXXXXXX SUB1 will be either a newly incorporated corporation or a shelf corporation which, in either case, will have been incorporated in 1998 under the XXXXXXXXXX and will be a taxable Canadian corporation. The authorized capital of XXXXXXXXXX SUB1 will consist of an unlimited number of common and preferred shares. The terms and conditions of the preferred shares, other than their redemption amount, will be substantially the same as the XXXXXXXXXX Preferred Shares. XXXXXXXXXX will cause the organization of XXXXXXXXXX SUB1 and will acquire one common share of XXXXXXXXXX SUB1 for nominal consideration in the course of such organization.
III.11 XXXXXXXXXX SUB2 will be either a newly incorporated corporation or a shelf corporation which, in either case, will have been incorporated in 1998 under the XXXXXXXXXX and will be a taxable Canadian corporation. The authorized capital of XXXXXXXXXX SUB2 will consist of an unlimited number of common and preferred shares. The terms and conditions of the preferred shares, other than their redemption amount, will be substantially the same as the XXXXXXXXXX Preferred Shares. XXXXXXXXXX will cause the organization of XXXXXXXXXX SUB2 and will acquire one common share of XXXXXXXXXX SUB2 for nominal consideration in the course of such organization.
III.12 Subject to, among other things, the appropriate shareholder, court and regulatory approvals, certain of the transactions in the following Paragraphs will be undertaken pursuant to the Plan of Arrangement. The shareholder vote in relation to the Plan of Arrangement will take XXXXXXXXXX. Those transactions which will occur by virtue of the Plan of Arrangement will be designated in the Plan of Arrangement to occur on the date (the Transaction Date") on which the Plan of Arrangement is effective, which date is currently expected to be within seven days after the receipt of all requisite approvals in relation to the Plan of Arrangement, and in the order set out below.
III.13 Each shareholder of XXXXXXXXXX will be entitled to dissent from the Plan of Arrangement in accordance with the provisions of the XXXXXXXXXX . Each dissenting shareholder (a "Dissenting Shareholder") will cease to be a shareholder of XXXXXXXXXX on the Transaction Date and immediately prior to the transactions undertaken pursuant to the Plan of Arrangement, such that the XXXXXXXXXX Common Shares held by the Dissenting Shareholder will no longer be considered to be outstanding. After the completion of the Proposed Transactions which are included in the Plan of Arrangement, each Dissenting Shareholder will be entitled to be paid the fair value of his XXXXXXXXXX Common Shares, determined on the last business day before the day upon which the shareholder vote in relation to the Plan of Arrangement takes place.
III.14 XXXXXXXXXX will transfer all of its assets (XXXXXXXXXX) other than the XXXXXXXXXX Retained Assets to XXXXXXXXXX SUB1. As consideration for such transfer, XXXXXXXXXX SUB1 will assume exclusive liability for all of the liabilities of XXXXXXXXXX, other than liabilities which relate to the XXXXXXXXXX Retained Assets, and will issue preferred shares to XXXXXXXXXX having a redemption amount and FMV equal to the FMV of the transferred property net of the amount of the liabilities which are assumed by XXXXXXXXXX SUB1.
XXXXXXXXXX SUB1 and XXXXXXXXXX will jointly elect pursuant to subsection 85(1), in prescribed form and within the time permitted by the Act, with respect to the transfer to XXXXXXXXXX SUB1 of any eligible property of XXXXXXXXXX that has a FMV in excess of its cost amount. Specifically, the amount agreed upon in each joint election will not be less than the least of:
(1) he amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,
(2) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class, and
(3) the amounts specified in subparagraphs 85(1)(c.1)(i), or (ii) in respect of capital property or inventory.
In each case, the agreed amount will not exceed the FMV of the related property and will not be less than the amount permitted under paragraph 85(1)(b).
III.15 Upon the issuance of the preferred shares by XXXXXXXXXX SUB1 to XXXXXXXXXX, as provided for in Paragraph III.14, XXXXXXXXXX SUB1 will add one dollar to the Stated Capital of such shares.
III.16 XXXXXXXXXX will transfer the XXXXXXXXXX Retained Assets to XXXXXXXXXX SUB2. As consideration for such transfer, XXXXXXXXXX SUB2 will assume exclusive liability for all of the liabilities of XXXXXXXXXX which relate to the XXXXXXXXXX Retained Assets and will issue preferred shares to XXXXXXXXXX having a redemption amount and FMV equal to the FMV of the XXXXXXXXXX Retained Assets net of the amount of the liabilities which are assumed by XXXXXXXXXX SUB2.
XXXXXXXXXX SUB2 and XXXXXXXXXX will jointly elect pursuant to subsection 85(1), in prescribed form and within the time permitted by the Act, with respect to the transfer to XXXXXXXXXX SUB2 of any eligible property of XXXXXXXXXX that has a FMV in excess of its cost amount. Specifically, the amount agreed upon in each joint election will not be less than the least of:
(1) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property, and
(2) the amounts specified in subparagraphs 85(1)(c.1)(i), or (ii) in respect of capital property or inventory.
In each case, the amount will not exceed the FMV of the related property and will not be less than the amount permitted under paragraph 85(1)(b).
III.17 Upon the issuance of the preferred shares by XXXXXXXXXX SUB2 to XXXXXXXXXX, as provided for in Paragraph III.16, XXXXXXXXXX SUB2 will add one dollar to the Stated Capital of such shares.
III.18 XXXXXXXXXX, in its capacity as the sole shareholder of XXXXXXXXXX, will pass a special resolution to wind-up XXXXXXXXXX pursuant to section XXXXXXXXXX. In accordance with such resolution, all of the property of XXXXXXXXXX (which will consist only of the preferred shares of XXXXXXXXXX SUB1 and XXXXXXXXXX SUB2) will be distributed to XXXXXXXXXX and all of the liabilities of XXXXXXXXXX (of which there are expected to be none), will be discharged. Articles of Dissolution, as contemplated by the XXXXXXXXXX, will be filed in relation to such winding-up as soon as possible after the completion of all commercial matters (e.g. conveyancing and novations of agreements) which relate to the transfer of property by XXXXXXXXXX to XXXXXXXXXX SUB1, as described in Paragraph III.14, and the completion of all ancillary corporate actions and proceedings which are required by the XXXXXXXXXX.
III.19 XXXXXXXXXX will be continued under the XXXXXXXXXX.
III.20 XXXXXXXXXX will amalgamate in a short-form vertical amalgamation, pursuant to subsection XXXXXXXXXX of the XXXXXXXXXX, such that:
(1) all of the property (except any amounts receivable from any predecessor corporation or shares of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of the amalgamated corporation by virtue of the merger;
(2) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of the amalgamated corporation by virtue of the merger; and
(3) all of the shareholders (except any predecessor corporation) who own shares of any predecessor corporation immediately before the merger will receive, or will be deemed by subsection 87(1.1) to have received, shares of the amalgamated corporation because of the merger.
The name of the amalgamated corporation will be XXXXXXXXXX Corporation. It is possible that the Stated Capital of the outstanding shares of XXXXXXXXXX will be reduced, without any payment to shareholders, in accordance with the applicable provisions of the XXXXXXXXXX, before the Amalgamation is implemented.
III.21 XXXXXXXXXX will transfer the Personnel Supply Business to XXXXXXXXXX in exchange for one or more common shares of XXXXXXXXXX . Elections pursuant to subsections 22(1) and 85(1) may be made in relation to such transfer.
III.22 The Articles of XXXXXXXXXX will be amended in such a manner that, in addition to any other shares or classes of shares that may be authorized for issuance, the authorized share capital of XXXXXXXXXX will include an unlimited number of XXXXXXXXXX Voting Common Shares, an unlimited number of XXXXXXXXXX Non-Voting Common Shares, a fixed number of XXXXXXXXXX Class C Shares, and an unlimited number of XXXXXXXXXX Preferred Shares.
Determination of Types and Net FMV of Property
III.23 Immediately before the Distribution, the net FMV of the property of XXXXXXXXXX will be determined on a consolidated basis by including the appropriate pro-rata share of the net FMV of the property of each Look-Through Corporation. For this purpose, the property of each relevant corporation will be classified into three types of property for the purposes of the definition of "distribution" in subsection 55(1), as follows:
(1) cash or near cash property, comprising all of the current assets of that corporation, including any cash, certificates of deposit, marketable securities, term deposits, accounts receivable, inventories and rights arising from the prepayment of expenses (“prepaid expenses”);
(2) business property, comprising all of the assets of that corporation (other than cash or near cash property) any income from which would, for the purposes of the Act, be income from a business (other than a specified investment business); and
(3) investment property, comprising all of the assets of that corporation (other than cash or near cash property) any income from which would, for purposes of the Act, be income from property or a specified investment business.
In computing the consolidated net FMV of the cash or near cash, business and investment property of XXXXXXXXXX and any Look-Through Corporation, the amount included in respect of any other particular Look-Through Corporation will be the FMV of the shares of that other particular Look-Through Corporation and the FMV of any debt owing to XXXXXXXXXX or that first-mentioned Look-Through Corporation by such other particular Look-Through Corporation, in either case multiplied by the proportion that the net FMV (positive or negative, as the case may be) of each such type of that other particular Look-Through Corporation's property is of the net FMV of all of the property of that other particular Look-Through Corporation (in both cases determined under Paragraph III.24(1), below). For greater certainty, where a Look-Through Corporation has a “negative” net FMV of a particular type of property, the amount included in the consolidated FMV of that type of property of XXXXXXXXXX will reflect such “negative amount”. Thus for example, if after the allocation of its liabilities (as described in Paragraph III.24(1)) a Look-Through Corporation had a net FMV of cash or near cash property of -$200, a net FMV of business property of $1,200 and a net FMV of investment property of nil, and if the FMV of the shares and debt of that Look-Through Corporation owned by XXXXXXXXXX was $900, then the amount added to the consolidated net FMV of XXXXXXXXXX cash or near cash property and net business property would be (respectively) -$180 and $1,080.
III.24 In determining, on a consolidated basis, the net FMV of each type of property of XXXXXXXXXX immediately before the Distribution, the liabilities of XXXXXXXXXX and any Look-Through Corporation will be allocated to and deducted from the net FMV of each such type of property of such corporation in the following manner:
(1) the net FMV of each type of property of each Look-Through Corporation will be determined, by deducting the liabilities of that particular corporation (other than amounts owing to XXXXXXXXXX ) from the net FMV of each type of that corporation’s property in the following manner:
(i) current liabilities of such corporation (including the current portion of a long-term debt) will be allocated to each cash or near cash property of such corporation in the proportion that the FMV of each such property is of the FMV of all of that corporation’s cash or near cash property. To the extent that this allocation of current liabilities exceeds the aggregate FMV of the particular corporation’s cash or near cash property, such corporation will be considered to have a negative net FMV of cash or near cash property;
(ii) following the allocation of current liabilities to each cash or near cash property in (i) above, any remaining net FMV of any accounts receivable, inventories and prepaid expenses of such corporation will be reclassified as business property and excluded from cash or near cash property, to the extent that such property will be collected, sold or used by the XXXXXXXXXX Group or NEWCO SUB in the ordinary course of the business to which such property relates;
(iii) liabilities (other than current liabilities) of such corporation that relate to a particular property will then be allocated to that particular property (and effectively to the type of property to which the particular property belongs) to the extent of the property’s FMV. Any excess of such liabilities over the FMV of such particular property will be allocated to the type of property to which the particular property relates. Liabilities that pertain to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities to a particular type of property as described herein exceeds the aggregate FMV of all property of that particular type of the particular corporation, the particular corporation will be considered to have a negative net FMV for that type of property;
(iv) any liabilities (other than current liabilities) of such corporation which do not relate to a particular type of property will then be allocated to the cash or near cash property, investment property, and business property of such corporation based on the relative remaining net FMV of each type of property determined prior to the allocation of such liabilities, but after the allocation of the liabilities described in (1)(i) and (1)(iii) above and the reallocation of amounts described in (1)(ii) above.
(2) XXXXXXXXXX will then determine the gross consolidated FMV of its property of each type, which will include the FMV of the shares of each Look-Through Corporation and the FMV of any debt owing by such Look-Through Corporation to XXXXXXXXXX, in either case multiplied by the proportion that the net FMV (either positive or negative, as the case may be) of that type of that particular Look-Through Corporation's property is of the net FMV of all of that particular Look-Through Corporation’s property (in each case as determined in accordance with (1) above). Then, any liabilities of XXXXXXXXXX will be allocated to and be deducted from the net FMV of each type of property of XXXXXXXXXX in the following manner:
(i) current liabilities of XXXXXXXXXX (including the current portion of a long- term debt and any amounts payable to Dissenting Shareholders) will be allocated to each cash or near cash property of XXXXXXXXXX in the proportion that the FMV of each such property is of the FMV of all of XXXXXXXXXX cash or near cash property. The allocation of current liabilities as described herein will not exceed the aggregate FMV of all of XXXXXXXXXX cash or near cash property;
(ii) following the allocation of current liabilities to each cash or near cash property in (i) above, any remaining net FMV of any accounts receivable, inventories and prepaid expenses of XXXXXXXXXX will be reclassified as business property and excluded from the cash or near cash property, to the extent that such property will be collected, sold or used by the XXXXXXXXXX Group or NEWCO SUB in the ordinary course of the business to which such property relates;
(iii) liabilities of XXXXXXXXXX (other than current liabilities) that relate to a particular property will be allocated to that particular property (and effectively to the type to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of such particular property will be allocated to the type of property to which the particular property relates. The liabilities of XXXXXXXXXX that pertain to a type of property, but not to a particular property, then will be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and
(iv) if any liabilities remain after the allocations described in steps (2)(i) and (2)(iii) above are made ("excess unallocated liabilities"), such excess unallocated liabilities will then be allocated to the cash or near cash property, investment property and business property, if any, of XXXXXXXXXX, based on the relative remaining net FMV of each type of property determined prior to the allocation of such excess unallocated liabilities.
III.25 The XXXXXXXXXX Issue Note will be received by NEWCO from XXXXXXXXXX at the time of Distribution and such note will be eliminated on the basis described in Paragraph III.49. The XXXXXXXXXX Issue Note is intended to deal only with an “excess boot” situation. Accordingly, for the purpose of the definition of the term “distribution” in subsection 55(1), the XXXXXXXXXX Issue Note will not be included in the calculation of the amount and types of property to be received by NEWCO on the Distribution or in the calculation of the amount and types of property to be retained by XXXXXXXXXX immediately after the Distribution.
III.26 For greater certainty, in determining the consolidated net FMV of the property of XXXXXXXXXX, as described in Paragraphs III.23 and III.24, the following principles will apply:
(1) Any tax-related amounts (such as tax shield amounts, inherent tax liabilities pertaining to unrealized income or capital gains, and amounts described in the financial statements for each member of the XXXXXXXXXX Group as future income taxes) will be ignored.
(2) The amount of any liability that will be deducted is the principal amount, rather than the FMV of the indebtedness which constitutes such liability to the holder of such indebtedness.
(3) No amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification.
(4) Deferred revenue which represents revenue received in the ordinary course of business, the recognition of which has been deferred due to the legal obligation of the recipient to either provide services or deliver goods to the client or customer from which such revenue was received, will be treated as a liability for the purposes of the Proposed Transactions described herein, to the extent that the amount of such deferred revenue gives rise to a legal obligation to repay such amount should the services not be provided or the goods not be delivered.
The amount of any deferred revenue which does not represent such a legal obligation will not be considered a liability for the purposes of the Proposed Transactions described herein.
(5) The current portion of any amounts recorded as a liability by XXXXXXXXXX to a Look- Through Corporation or by one Look-Through Corporation to another will be classified as a current asset (for the creditor) or current liability (for the debtor), while the remaining portion of any such amounts will be classified as a non-current asset (for the creditor) or non-current liability (for the debtor).
Classification of Properties and Liabilities
III.27 A portion of the cash or near cash property of the XXXXXXXXXX Group, determined on a consolidated basis, will be used within the XXXXXXXXXX Group in order to fund the acquisition cost of business property, which will be acquired in the ordinary course of business regardless of whether the Distribution actually occurs, pursuant to unconditional purchase commitments. An amount of cash or near cash property equal to the amount of all such unconditional purchase commitments will be classified as business property.
III.28 The XXXXXXXXXX Group may also have unconditional commitments to sell business property in the ordinary course of business regardless of whether the Distribution occurs. An amount equal to the amount of the sale proceeds to be received within the XXXXXXXXXX Group as a result of all such unconditional sale commitments will be classified as cash or near cash property.
III.29
XXXXXXXXXX
III.30 The XXXXXXXXXX Group owns intellectual property (e.g., patents, technology, know-how and software) which has been developed or acquired for application and use in the course of the ongoing business activities within the XXXXXXXXXX Group. Occasionally, opportunities arise for the incidental exploitation of such property outside the scope of such business activities (e.g. licence fees or similar income). Intellectual property which has been primarily developed or acquired for application and use in the business activities within the XXXXXXXXXX Group will be classified as business property.
III.31 The XXXXXXXXXX Group owns a number of interests in real property which were acquired, and which are used, or held for use, in the course of the ongoing business activities of the corporations within the XXXXXXXXXX Group and, in certain cases, their predecessors. Because of XXXXXXXXXX the amount of real property interests which is required to be used in such business activities has become smaller. As a result, some of the real property interests in the XXXXXXXXXX Group have become redundant and when such real property interests are self-contained, such real property interests are expected be sold on a basis consistent with XXXXXXXXXX XXXXXXXXXX market considerations. Real property interests which comprise redundant space within an overall structure which is used in the business activities within the XXXXXXXXXX Group are typically offered for lease rather than being allowed to remain vacant. In addition, certain real property interests, consisting of residential properties, are, from time to time, acquired within the XXXXXXXXXX Group from employees who are required to relocate. Real property interests which are used, or held for use, in the business activities within the XXXXXXXXXX Group, real property interests consisting of redundant space within structures which are used, or held for use, in the business activities with the XXXXXXXXXX Group and real property interests which consist of residential properties acquired from relocated employees, will be classified as business property. Real property interests which have become redundant in relation to the ongoing business activities within the XXXXXXXXXX Group and which are expected to be sold as described above will be classified as cash or near cash property.
III.32
XXXXXXXXXX
III.33
III.34 The XXXXXXXXXX consolidated financial statements of XXXXXXXXXX classified certain assets, XXXXXXXXXX as “Other Investments”.
XXXXXXXXXX
III.35 XXXXXXXXXX
III.36 As a result of the classification of properties and allocation of liabilities of XXXXXXXXXX determined on a consolidated basis, and in accordance with Paragraphs III.23 to III.35, for the purposes of the Distribution, XXXXXXXXXX will have business property, may have cash or near cash property and will not have investment property.
Reorganization of XXXXXXXXXX Share Capital (Share Exchange)
III.37 Each XXXXXXXXXX Common Share held by a Participant will be exchanged for one-half of one XXXXXXXXXX Voting Common Share, one-half of one XXXXXXXXXX Non-Voting Common Share and one XXXXXXXXXX Preferred Share, and all share certificates in relation to XXXXXXXXXX Common Shares will be canceled. An application will be made to list the XXXXXXXXXX Voting Common Shares, the XXXXXXXXXX Non-Voting Common Shares and the XXXXXXXXXX Preferred Shares on one or more prescribed stock exchanges prior to their issuance.
III.37AThe agreements which relate to the XXXXXXXXXX Stock Options will be amended to take into account the Share Exchange and to reduce the exercise prices of the XXXXXXXXXX Stock Options in order to reflect the diminution in the value of all outstanding shares of XXXXXXXXXX which will occur as a result of the Distribution. Such amendments will be stipulated to be effective at the same time as the Share Exchange is effective. No consideration will be given to any holder of XXXXXXXXXX Stock Options in relation to such amendments.
III.38 The aggregate Stated Capital of the XXXXXXXXXX Voting Common Shares, the XXXXXXXXXX Non-Voting Common Shares and the XXXXXXXXXX Preferred Shares will equal the aggregate PUC of the XXXXXXXXXX Common Shares immediately before the Share Exchange, and will be apportioned among these three classes of shares as follows:
(1) the addition to the Stated Capital of the XXXXXXXXXX Preferred Shares will equal that proportion of the aggregate PUC of the XXXXXXXXXX Common Shares immediately before the Share Exchange that the FMV of theXXXXXXXXXX Preferred Shares is of the total FMV of the XXXXXXXXXX Preferred Shares, the XXXXXXXXXX Voting Common Shares and the XXXXXXXXXX Non-Voting Common Shares; and
(2) the addition to the Stated Capital of the XXXXXXXXXX Voting Common Shares and the XXXXXXXXXX Non-Voting Common Shares will, in each case, be an amount equal to one-half of the difference between the aggregate PUC of the XXXXXXXXXX Common Shares immediately before the Share Exchange and the amount added to the Stated Capital of the XXXXXXXXXX Preferred Shares.
Transfer ofXXXXXXXXXX Preferred Shares to NEWCO (Share-for-Share Exchange)
III.39 NEWCO will acquire all of the issued XXXXXXXXXX Preferred Shares of each Participant in exchange for one NEWCO Common Share for each XXXXXXXXXX Preferred Share which is acquired by NEWCO. Immediately after the Share-for-Share Exchange, the FMV of the shares of the capital stock of NEWCO acquired by each Participant will equal or approximate the amount determined by the formula
? A x B /C ? + D
as found in subparagraph (b)(iii) of the definition of "permitted exchange" in subsection 55(1). In addition, immediately after this Share-for-Share Exchange, no person who is not a shareholder of XXXXXXXXXX will own any shares of NEWCO.
III.40 If requested by a Participant, NEWCO will execute a joint election as permitted under subsection 85(1), in prescribed form and within the time permitted by the Act, in respect of the disposition by such Participant of XXXXXXXXXX Preferred Shares in exchange for NEWCO Common shares on the Share-for-Share Exchange. The agreed amount in respect of any such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the FMV of the XXXXXXXXXX Preferred Shares.
III.41 The aggregate Stated Capital of the NEWCO Common Shares will equal the aggregate PUC of the XXXXXXXXXX Preferred Shares immediately before the Share-for-Share Exchange.
Distribution
III.42 XXXXXXXXXX will transfer the Transferred Property (which will comprise all of the property which will be acquired by XXXXXXXXXX as a result of the Amalgamation, other than the property comprised in the Personnel Supply Business, which is to be transferred to XXXXXXXXXX, as described in Paragraph III.21, and all of the shares of XXXXXXXXXX SUB2) to NEWCO. In addition, XXXXXXXXXX will issue the XXXXXXXXXX Issue Note to NEWCO, in payment for which NEWCO will assume exclusive liability for a portion of the Assumed Liabilities equal to the principal amount and the FMV of the XXXXXXXXXX Issue Note.
III.43 As consideration for the transfer of the Transferred Property, NEWCO will:
(1) assume exclusive liability for the remaining portion of the Assumed Liabilities not assumed by NEWCO in consideration for the issuance of the XXXXXXXXXX Issue Note; and
(2) issue NEWCO Preferred Shares toXXXXXXXXXX having an aggregate Stated Capital not exceeding the excess of the aggregate cost amounts to NEWCO of the Transferred Property over the remaining amount of the Assumed Liabilities described in (1), above.
As a result of the issuance of the NEWCO Preferred Shares by NEWCO to XXXXXXXXXX XXXXXXXXXX will acquire control of NEWCO, for the purposes of the Act, and NEWCO will make an election pursuant to subsection 256(9) with respect to the time at which such acquisition of control will occur in the overall sequence of the Proposed Transactions.
III.44 As a result of the transfer of the Transferred Property:
(1) the net FMV of each type of property, if any, received by NEWCO, determined on the basis described in Paragraphs III.23 to III.35, will be equal to or approximate that proportion of the net FMV of each such type of property of XXXXXXXXXX immediately before the transfer that
(i) the aggregate FMV, immediately before the transfer, of all of the outstanding shares of XXXXXXXXXX which are owned by NEWCO
is of
(ii) the aggregate FMV, immediately before the transfer, of all of the outstanding shares of XXXXXXXXXX ; and
(2) the net FMV of each type of property, if any, retained by XXXXXXXXXX, determined on the basis described in Paragraphs III.23 to III.35 will be equal to or approximate that proportion of the net FMV of each such type of property of XXXXXXXXXX immediately before the transfer that
(i) the aggregate FMV, immediately before the transfer, of all of the outstanding shares of XXXXXXXXXX, other than shares which are owned by NEWCO
is of
(ii) the aggregate FMV, immediately before the transfer, of all of the outstanding shares of XXXXXXXXXX.
III.45 XXXXXXXXXX and NEWCO will jointly elect pursuant to subsection 85(1), in prescribed form and within the time permitted by the Act, with respect to the transfer to NEWCO of any eligible property of XXXXXXXXXX that has a FMV in excess of its cost amount. Specifically, the amount agreed upon in each joint election will not be less than the least of:
(1) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,
(2) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class, and
(3) the amounts specified in subparagraphs 85(1)(c.1)(i), or (ii) in respect of capital property or inventory.
In each case, the agreed amount will not exceed the FMV of the related property and will not be less than the amount permitted under paragraph 85(1)(b).
III.46 Immediately following the issuance of the NEWCO Preferred Shares to XXXXXXXXXX and before NEWCO’s redemption of such shares, NEWCO will grant certain options (the “NEWCO Stock Options”) to purchase NEWCO Common Shares to certain persons who are, at the time of such grant, employees of XXXXXXXXXX , NEWCO or NEWCO SUB. The exercise price of the NEWCO Stock Options will be an amount equal to the fair market value of NEWCO Common Shares at the time of the grant.
III.47 XXXXXXXXXX will redeem all of its XXXXXXXXXX Preferred Shares and will issue to NEWCO in consideration therefor the XXXXXXXXXX Redemption Note. NEWCO will accept the XXXXXXXXXX Redemption Note as full and absolute payment of the XXXXXXXXXX Redemption Amount in respect of all redeemed XXXXXXXXXX Preferred Shares.
III.48 NEWCO will redeem all of its NEWCO Preferred Shares and will issue to XXXXXXXXXX in consideration therefor the NEWCO Redemption Note. XXXXXXXXXX will accept the NEWCO Redemption Note as full and absolute payment of the NEWCO Redemption Amount in respect of all redeemed NEWCO Preferred Shares.
III.49 XXXXXXXXXX will pay the principal amounts of the XXXXXXXXXX Redemption Note and the XXXXXXXXXX Issue Note by transferring to NEWCO the NEWCO Redemption Note which will be accepted by NEWCO in full payment of those obligations of XXXXXXXXXX . NEWCO will pay the principal amount of the NEWCO Redemption Note by transferring to XXXXXXXXXX the XXXXXXXXXX Redemption Note and the XXXXXXXXXX Issue Note which will be accepted by XXXXXXXXXX in full payment of that obligation of NEWCO.
Rolldown of Transferred Property from NEWCO to NEWCO SUB
III.50 NEWCO SUB will be either a newly incorporated corporation or a shelf corporation which, in either case, will have been incorporated in 1998 under theXXXXXXXXXX and will be a taxable Canadian corporation. The authorized capital of NEWCO SUB will consist of an unlimited number of NEWCO SUB Common Shares. NEWCO will cause the organization of NEWCO SUB and will acquire one NEWCO SUB Common Share for nominal consideration in the course of such organization.
III.51 NEWCO will transfer all of the Transferred Property to NEWCO SUB. In addition, NEWCO will issue the NEWCO Issue Note to NEWCO SUB, in payment for which NEWCO SUB will assume exclusive liability for a portion of the Assumed Liabilities equal to the principal amount and the FMV of the NEWCO Issue Note.
III.52 As consideration for the transfer of the Transferred Property, NEWCO SUB will:
(1) assume exclusive liability for the remaining portion of the Assumed Liabilities not assumed by NEWCO SUB in consideration for the issuance of the NEWCO Issue Note, as described in Paragraph III.51, above; and
(2) issue NEWCO SUB Common Shares to NEWCO.
III.53 NEWCO and NEWCO SUB will jointly elect pursuant to subsection 85(1), in prescribed form and within the time permitted by the Act, with respect to the transfer to NEWCO SUB of any eligible property of NEWCO that has a FMV in excess of its cost amount. Specifically, the amount agreed upon in each joint election will not be less than the least of:
(1) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,
(2) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class, and
(3) the amounts specified in subparagraphs 85(1)(c.1)(i), or (ii) in respect of capital property or inventory.
In each case, the agreed amount will not exceed the FMV of the related property and will not be less than the amount permitted under paragraph 85(1)(b).
III.54 Upon the issuance of the NEWCO SUB Common Shares to NEWCO, NEWCO SUB will add to the Stated Capital of such shares an amount not exceeding the excess of the aggregate cost amount to NEWCO SUB of the Transferred Property over the FMV of that portion of the Assumed Liabilities assumed by NEWCO SUB in partial consideration for the Transferred Property.
III.55 XXXXXXXXXX.
III.56 XXXXXXXXXX.
III.57 NEWCO SUB and XXXXXXXXXX SUB2 will amalgamate in a short-form vertical amalgamation pursuant to subsection XXXXXXXXXX of the XXXXXXXXXX, such that:
(1) all of the property (except any amounts receivable from any predecessor corporation or shares of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of the amalgamated corporation by virtue of the merger;
(2) all of the liabilities (except any amount payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of the amalgamated corporation by virtue of the merger; and
(3) all of the shareholders (except any predecessor corporation) who own shares of any predecessor corporation immediately before the merger will receive, or will be deemed by subsection 87(1.1) to have received, shares of the amalgamated corporation because of the merger.
The name of the amalgamated corporation will be the same as the name of NEWCO SUB.
III.58 Upon completion of the foregoing transactions:
(1) each of XXXXXXXXXX, NEWCO and NEWCO SUB will operate as separate entities. In the course of such operations, NEWCO or NEWCO SUB may enter into one or more agreements with XXXXXXXXXX or one or more corporations in the XXXXXXXXXX Group for the purpose of providing or receiving goods or services in the ordinary course of business and upon arm’s-length terms and conditions; and
(2) NEWCO SUB may transfer certain items of the Transferred Property to corporations in the XXXXXXXXXX Group subject to the restrictions set forth in paragraphs 55(3.1)(c).
III.59 NEWCO will purchase all of the outstanding shares of LFL Co from one or more vendors each of whom will, at the time of such purchase, deal at arm’s length with NEWCO and XXXXXXXXXX. The net FMV of the assets of LFL Co will be a relatively nominal amount.
III.60 NEWCO and LFL Co will amalgamate in a short-form vertical amalgamation, pursuant to subsection XXXXXXXXXX of the XXXXXXXXXX , such that:
(1) all of the property (except any amounts receivable from any predecessor corporation or shares of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of the amalgamated corporation by virtue of the merger;
(2) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of the amalgamated corporation by virtue of the merger; and
(3) all of the shareholders (except any predecessor corporation) who own shares of any predecessor corporation immediately before the merger will receive, or will be deemed by subsection 87(1.1) to have received, shares of the amalgamated corporation because of the merger.
The name of the amalgamated corporation will be the same as the name of NEWCO.
Acquisition of XXXXXXXXXX
III.61 An application will be made to list the NEWCO Common Shares for trading on one or more prescribed stock exchanges, and upon such listing, which will be shortly after the Share-for-Share Exchange, NEWCO will become a public corporation. NEWCO will make an election, as contemplated in the last paragraph of the definition of public corporation in subsection 89(1), in its income tax return for its taxation year which will end immediately prior to the acquisition of control referred to in Paragraph III.43 to be deemed to have been a public corporation from the date of its incorporation until the day on which the NEWCO Common Shares are listed on a prescribed stock exchange.
III.62
XXXXXXXXXX
III.63 Closing under the Acquisition Agreement will occur on the Transaction Date at a time subsequent to the Distribution and, as a result:
(1) all of the outstanding shares of XXXXXXXXXX will be acquired by
XXXXXXXXXX
(2) XXXXXXXXXX will acquire from XXXXXXXXXX all of the XXXXXXXXXX Common Shares currently owned by XXXXXXXXXX
(3) in relation to the acquisitions of XXXXXXXXXX Shares, described in Paragraphs III.63(1) and (2), XXXXXXXXXX and each vendor may make an election pursuant to subsection 85(1).
As a result of the Proposed Transactions, XXXXXXXXXX will collectively own more than 10% but less than 20% of the outstanding fully participating equity shares of XXXXXXXXXX on a fully diluted basis.
III.64 Execution and the coming into force of the Definitive Agreements other than the Acquisition Agreement, will occur on the Transaction Date at a time subsequent to the Distribution.
III.65 XXXXXXXXXX , will subscribe for, and XXXXXXXXXX will issue from its treasury, a number of XXXXXXXXXX Class C Shares, for cash consideration.
XXXXXXXXXX
Subsequent Transactions
III.66
XXXXXXXXXX
III.67
XXXXXXXXXX
III.68 Subject to the provisions of all applicable XXXXXXXXXX legislation, XXXXXXXXXX and to the prevailing market conditions, XXXXXXXXXX will undertake a “Dutch Auction” issuer bid whereunder it will agree to purchase for cancellation, XXXXXXXXXX Voting Common Shares and XXXXXXXXXX Non-Voting Common Shares at prices, within a specified range, which will be specified in an information circular which will be provided to the holders of the outstanding shares of XXXXXXXXXX in relation to the issuer bid. Neither XXXXXXXXXX, nor XXXXXXXXXX will sell any of their shares in XXXXXXXXXX pursuant to the issuer bid. XXXXXXXXXX may borrow funds for the purpose of purchasing shares pursuant to the issuer bid.
III.69 It is currently contemplated that the following transactions will be implemented:
XXXXXXXXXX
III.70 XXXXXXXXXX andXXXXXXXXXX expect to amalgamate, on XXXXXXXXXX. XXXXXXXXXX may be included in that amalgamation if XXXXXXXXXX contractual impediments to such inclusion are determined not to exist and if the transactions described in Paragraph III.69 (or transactions which produce a similar result) are first implemented.
III.71 Either as part of the Arrangement or subsequent thereto, NEWCO will likely effect a share consolidation for the purpose of reducing the number of outstanding NEWCO Common Shares to a number which will result in the trading price of such shares being within a range desired by NEWCO management. The probable terms of any such consolidation would reduce the number of outstanding NEWCO Common Shares by approximately one-half.
IV.1 There are a number of pension and employee benefit plans which apply to most, if not all, of the employees within the XXXXXXXXXX Group. Because a number of such employees will become employees of NEWCO or NEWCO SUB as a result of the Distribution, such pension and employee benefit plans will be changed or replaced with similar plans. In addition, similar types of plans are expected to be put into place in NEWCO or NEWCO SUB.
IV.2 XXXXXXXXXX may require additional funding to pay any amounts which become payable to Dissenting Shareholders, the cash consideration component under the Acquisition Agreement and the purchase price of any of its shares which are purchased under the "Dutch Auction" issuer bid. Any borrowing which will occur in order to provide any such funding will be made after the Distribution, although the availability of such funding may be arranged prior to the Distribution and in that regard, term sheets, commitment letters and loan agreements may be negotiated or entered into with the prospective lender or lenders prior to the Distribution.
IV.3 In addition to the proposed acquisition contemplated by the Acquisition Agreement, XXXXXXXXXX is considering possible future direct or indirect acquisitions of businesses which are similar to or compatible with the businesses which it presently conducts. However, at the date hereof, no commitments or agreements have been entered into in respect of any such acquisitions and no such commitments or agreements will be entered into prior to the Distribution.
IV.4 No property has or will become property of the XXXXXXXXXX Group or any predecessor of any such corporation and no liabilities have been or will be incurred by the XXXXXXXXXX Group or any predecessor of any such corporation in contemplation of and before the Distribution, except as described herein.
IV.5 Except as described herein, none of NEWCO, NEWCO SUB or any member of the XXXXXXXXXX Group has any specific intention to dispose of any assets which it presently owns to an unrelated person following the Proposed Transactions or will dispose of any of its assets as part of a series of transactions which includes the Proposed Transactions, otherwise than on a basis which is consistent with the provisions of paragraph 55(3.1)(c) and (d).
IV.6 Except as described herein, no shares in the capital stock of XXXXXXXXXX acquired by XXXXXXXXXX will be disposed of as part of the series of transactions or events in which the dividends resulting from the transactions referred to in Paragraphs III.47 and III.48 are received.
IV.7 There are not, and will not be at any time prior to the completion of the Proposed Transactions, any agreements or undertakings which constitute or include a "guarantee agreement", as defined in subsection 112(2.2), in respect of any of the XXXXXXXXXX Preferred Shares or NEWCO Preferred Shares.
IV.8 None of NEWCO, NEWCO SUB or any member of the XXXXXXXXXX Group has, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the shares to be redeemed as part of the Proposed Transactions.
IV.9 None of the XXXXXXXXXX Preferred Shares, the NEWCO Preferred Shares or the NEWCO SUB Common Shares will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5).
IV.10 Neither of XXXXXXXXXX or NEWCO will be a corporation described in any of paragraphs (a) to (f) of the definition of “financial intermediary corporation” in subsection 191(1). Neither of XXXXXXXXXX or NEWCO is, or will be, an RFI or an SFI prior to completion of the Proposed Transactions.
IV.11 Each of XXXXXXXXXX , NEWCO and NEWCO SUB will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note or notes issued by it as part of the Proposed Transactions.
V PURPOSE OF THE PROPOSED TRANSACTIONS
The purpose of the Proposed Transactions can be summarized as follows:
Overview
V.1
XXXXXXXXXX
V.2
XXXXXXXXXX
V.3 The spin-off will also allow the XXXXXXXXXX Business to function as a free-standing entity and enable the financial markets to evaluate its prospects and results independently,
XXXXXXXXXX
Pre-Distribution Transactions
V.4
XXXXXXXXXX
V.5 The purpose of the transfer of the preferred share of XXXXXXXXXX by XXXXXXXXXX to XXXXXXXXXX, as described in Paragraph III.5, is to ensure that immediately before the Amalgamation, XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX so that the short-form vertical amalgamation provisions of the XXXXXXXXXX will be applicable in respect of the Amalgamation.
V.6 The purpose of the XXXXXXXXXX Shareholder Rights Plan is to ensure, to the extent possible, that all shareholders of XXXXXXXXXX will be treated fairly in connection with any take-over offer for XXXXXXXXXX
V.7 The purpose of the restructuring of the XXXXXXXXXX Bank Debt is to facilitate the assumption of that component of the Assumed Liabilities by NEWCO, and thereafter by NEWCO SUB, having regard to presently existing contractual limitations which would prevent such assumption.
V.8 The purpose of the transactions described in Paragraphs III.8 and III.9 is to settle, by means of repayment, certain inter-corporate indebtedness.
V.9
XXXXXXXXXX
V.10 The purpose of the winding-up of XXXXXXXXXX is to make XXXXXXXXXX SUB1 a wholly-owned subsidiary of XXXXXXXXXX so that the short-form vertical amalgamation provisions of the XXXXXXXXXX will be applicable in respect of the Amalgamation.
XXXXXXXXXX
V.11 The purpose of the continuance of XXXXXXXXXX from the XXXXXXXXXX to the XXXXXXXXXX, which is described in Paragraph III.19, is to enable XXXXXXXXXX to participate in the Amalgamation.
V.12 The purpose of the Amalgamation, which is described in Paragraph III.20, is to enable XXXXXXXXXX to be in a position to transfer the Transferred Property to NEWCO.
V.13 As a result of the Amalgamation, XXXXXXXXXX will acquire the Personnel Supply Business which is not to be included in the Transferred Property. The purpose of the transfer of the Personnel Supply Business by XXXXXXXXXX to XXXXXXXXXX, as described in Paragraph III.21, is to enable XXXXXXXXXX to carry on such business.
Plan of Arrangement
V.14 The purpose of the Plan of Arrangement is to facilitate the implementation of certain of the Proposed Transactions from a corporate law perspective.
Determination of Types and Net FMV of Property, Classification of Properties and Liabilities, Reorganization of Share Capital (Share Exchange), Transfer of XXXXXXXXXX Preferred Shares to NEWCO (Share-For-Share Exchange), Distribution
V.15 (1) The purpose of the transactions described in Paragraphs III.37 to III.49, is to implement the spin-off reorganization on a basis consistent with paragraph 55(3)(b), having regard to our understanding of your administrative practices in relation to this type of a spin-off.
(2) The purpose of the effective substitution of XXXXXXXXXX Voting Common Shares and XXXXXXXXXX Non-Voting Common Shares forXXXXXXXXXX Common Shares, as contemplated by Paragraph III.37, is to enable XXXXXXXXXX to have a class of publicly traded non-voting common shares
XXXXXXXXXX
V.16 The purpose of the issuance of the XXXXXXXXXX Issue Note by XXXXXXXXXX to NEWCO, as described in Paragraph III.42, is to enable the amount of the Assumed Liabilities (which may exceed the aggregate of the cost amounts of the Transferred Property) to be assumed by NEWCO on a basis which will not result in a taxable disposition of the Transferred Property by XXXXXXXXXX.
V.16A The purpose of the election which is to be made by NEWCO pursuant to subsection 256(9), on the basis described in Paragraph III.43(3), is to ensure that the acquisition of control of NEWCO which will result from the acquisition of the NEWCO Preferred Shares, on the basis described in Paragraph III.43(2), will occur at the actual time of the issuance of such shares so that any confusion as to the appropriate sequencing of the Proposed Transactions can be avoided.
V.17 The purpose of the amendment to the agreements which relate to the XXXXXXXXXX Stock Options, which is described in Paragraph III.37A, is to adjust the exercise prices of XXXXXXXXXX Stock Options so that the holders thereof are effectively left in the same financial position (i.e. neither better nor worse) after the Distribution as they were in immediately before the Distribution in respect of such XXXXXXXXXX Stock Options. The purpose of the granting of NEWCO Stock Options, as described in Paragraph III.46, is to enable the grantees to participate in future appreciation in NEWCO Common Shares.
Rolldown of Transferred Property from NEWCO to NEWCO SUB
V.18
XXXXXXXXXX
V.19 The purpose of the issuance of the NEWCO Issue Note by NEWCO to NEWCO SUB, as described in Paragraph III.51, is to enable the amount of the Assumed Liabilities (which may exceed the aggregate of the cost amounts of the Transferred Property) to be assumed by NEWCO SUB on a basis which will not result in a taxable disposition of the Transferred Property by NEWCO.
V.20 XXXXXXXXXX
V.21 The purpose of the amalgamation of NEWCO SUB and XXXXXXXXXX SUB2, as described in Paragraph III.57, is to enable them to consolidate their respective assets and operations into a single corporation.
V.22 The purpose of the acquisition of the shares of LFL Co by NEWCO, as described in Paragraph III.59, and the amalgamation of NEWCO and LFL Co., as described in Paragraph III.60, is to enable the resulting amalgamated corporation to have “legal for life” status.
Subsequent Transactions
V.23 The purpose of the election described in Paragraph III.61 is to ensure that NEWCO will have public corporation status from and after the date upon which it is incorporated.
V.23A
XXXXXXXXXX
V.24
XXXXXXXXXX
V.24A
XXXXXXXXXX
V.25
XXXXXXXXXX
V.26 The purpose of a possible “Dutch Auction” issuer bid, as described in Paragraph III.68, is to provide stability in the stock market in relation to the trading of shares ofXXXXXXXXXX after the completion of the spin-off and the acquisition of XXXXXXXXXX
V.27
XXXXXXXXXX
V.28
XXXXXXXXXX
VI RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and purposes of the Proposed Transactions, we confirm the following:
Pre-Distribution Transactions
VI.1 Provided that the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of eligible property by XXXXXXXXXX to XXXXXXXXXX SUB1, as described in Paragraph III.14, the provisions of subsection 85(1) will apply to such transfer with the result that the agreed amount in respect of each such property will be deemed to be the proceeds of disposition thereof to XXXXXXXXXX and the cost amount thereof to XXXXXXXXXX SUB1.
VI.2 Provided that the condition specified in paragraph 1100(2.2)(f) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of depreciable property that is acquired by XXXXXXXXXX SUB1 fromXXXXXXXXXX , as described in Paragraph III.14.
VI.3 Provided that the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of eligible property which is comprised in theXXXXXXXXXX Retained Assets, by XXXXXXXXXX to XXXXXXXXXX SUB2, as described in Paragraph III.16, the provisions of subsection 85(1) will apply to such transfer with the result that the agreed amount in respect of each such property will be deemed to be the proceeds of disposition thereof to XXXXXXXXXX and the cost amount thereof to XXXXXXXXXX SUB2.
VI.4 The provisions of subsection 88(1) will apply with respect to the winding-up of XXXXXXXXXX as described in Paragraph III.18.
VI.5 By virtue of subsection 87(1.1), the provisions of section 87 will apply with respect to the Amalgamation.
Reorganization of XXXXXXXXXX Share Capital (Share Exchange)
VI.6 Where a Participant holds XXXXXXXXXX Common Shares as capital property, the provisions of section 86, other than subsection 86(2), will apply to the Share Exchange, such that each such Participant will be deemed:
(1) to have disposed of all of the XXXXXXXXXX Common Shares of such Participant for proceeds of disposition equal to the aggregate ACB of such shares to such Participant immediately before the Share Exchange; and
(2) to have acquired the XXXXXXXXXX Voting Common Shares, XXXXXXXXXX Non-Voting Common Shares and XXXXXXXXXX Preferred Shares which are received by such Participant on the Share Exchange at a cost, in each case, equal to the aggregate ACB of all of the XXXXXXXXXX Common Shares of such Participant multiplied by the proportion that the FMV, in each case, of the XXXXXXXXXX Voting Common Shares, the XXXXXXXXXX Non-Voting Common Shares and the XXXXXXXXXX Preferred Shares of such Participant immediately after the Share Exchange, is of the aggregate FMV of all of the XXXXXXXXXX Voting Common Shares, the XXXXXXXXXX Non-Voting Common Shares and XXXXXXXXXX Preferred Shares of such Participant, immediately after the Share Exchange.
VI.7 No dividend will be deemed to arise, by virtue of either of subsections 84(1) or (3), as a result, or in respect of, the Share Exchange.
VI.8 The PUC of the XXXXXXXXXX Voting Common Shares, the XXXXXXXXXX Non-Voting Common Shares and the XXXXXXXXXX Preferred Shares, which are issued on the Share Exchange, will be equal to the Stated Capital of each such class of shares, respectively.
VI.9 Where a Participant holds XXXXXXXXXX Common Shares otherwise than as capital property, such Participant will, as a result of the Share Exchange, be considered to have disposed all of such XXXXXXXXXX Common Shares for an amount equal to the aggregate FMV of the XXXXXXXXXX Voting Common Shares, XXXXXXXXXX Non-Voting Common Shares and XXXXXXXXXX Preferred Shares which are received by such Participant on the Share Exchange and to have acquired such XXXXXXXXXX Voting Common Shares, XXXXXXXXXX Non-Voting Common Shares and XXXXXXXXXX Preferred Shares at a cost equal to the respective FMV of each such class of shares.
Transfer ofXXXXXXXXXX Preferred Shares to NEWCO (Share-for-Share Exchange)
VI.10 Where a Participant holds XXXXXXXXXX Preferred Shares as capital property, and none of paragraphs 85.1(2)(a) to (d) apply, the provisions of subsection 85.1(1) will apply to the Share-for-Share Exchange, such that:
(1) each such Participant will be deemed, except where such Participant has, in such Participant’s return of income for the year in which the Share-for-Share Exchange occurs, included in computing such Participant’s income for that year any portion of the gain or loss otherwise determined from the disposition of the XXXXXXXXXX Preferred Shares,
(i) to have disposed of all of the XXXXXXXXXX Preferred Shares of such Participant for proceeds of disposition equal to the aggregate ACB of such shares immediately before the Share-for-Share Exchange; and
(ii) to have acquired the NEWCO Common Shares which are received by such Participant on the Share-for-Share Exchange at a cost equal to the aggregate ACB of all of the XXXXXXXXXX Preferred Shares of such Participant immediately before the Share-for-Share Exchange; and
(2) the cost to NEWCO of each XXXXXXXXXX Preferred Share acquired on the Share- for-Share Exchange will be deemed to be the lesser of the FMV and the PUC of each such XXXXXXXXXX Preferred Share.
VI.11 Provided that the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of XXXXXXXXXX Preferred Shares by a Participant to NEWCO on the Share-for-Share Exchange, the provisions of subsection 85(1), other than paragraph 85(1)(e.2), will apply to such transfer with the result that the agreed amount in respect of each such property will be deemed to be the proceeds of disposition thereof to such Participant and the cost amount thereof to NEWCO.
VI.12 The PUC of the NEWCO Common Shares which are issued on the Share-for-Share Exchange will be an amount equal to the Stated Capital of such NEWCO Common Shares, subject to the adjustments, if any, which may be required by either of subsections 85.1(2.1) or 85(2.1).
Distribution
VI.13 On the issuance of the XXXXXXXXXX Issue Note by XXXXXXXXXX to NEWCO in exchange for the assumption of a portion of the Assumed Liabilities by NEWCO, as described in Paragraph III.42, no income, gain or loss will arise, for the purposes of the Act, to either of NEWCO or XXXXXXXXXX, and the cost amount of the XXXXXXXXXX Issue Note to NEWCO will be equal to its principal amount.
VI.14 Provided that the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of eligible property, which is comprised in the Transferred Property, by XXXXXXXXXX to NEWCO, as described in Paragraph III.42, the provisions of subsection 85(1) will apply to such transfer with the result that the agreed amount in respect of each such property will be deemed to be the proceeds of disposition thereof to XXXXXXXXXX and the cost amount thereof to NEWCO.
VI.15 The PUC of the NEWCO Preferred Shares issued on the transfer of the Transferred Property by XXXXXXXXXX to NEWCO, as described in Paragraph III.43, will be an amount equal to the amount, if any, by which the aggregate cost amounts to NEWCO of the Transferred Property exceeds that portion of the Assumed Liabilities assumed by NEWCO as partial consideration for the Transferred Property.
VI.16 (1) Provided that the condition specified in paragraph 1100(2.2)(f) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of XXXXXXXXXX that is acquired by XXXXXXXXXX on the Amalgamation and that is transferred by XXXXXXXXXX to NEWCO, as described in Paragraph III.42; and
(2) Provided that the condition specified in paragraph 1100(2.2)(g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included in paragraph 1100(2)(a) of the Regulations in respect of depreciable property ofXXXXXXXXXX SUB1 that is acquired by XXXXXXXXXX on the Amalgamation and that is transferred by XXXXXXXXXX to NEWCO, as described in Paragraph III.42.
VI.17 Provided that NEWCO makes the election referred to in subsection 256(9) in respect of the acquisition by XXXXXXXXXX of the NEWCO Preferred Shares, as described in Paragraph III.43 , there will be an acquisition of control of NEWCO, for purposes of the Act, at the actual time on the day on which such acquisition occurs and not at the commencement of that day. Pursuant to subsection 249(4), NEWCO will be deemed to have a taxation year-end immediately before such actual time and a new taxation year of NEWCO will commence at such actual time.
VI.18 The amendment to the agreements relating to XXXXXXXXXX Stock Options, as described in Paragraph III.37A, will constitute a disposition by each option holder of his rights under the XXXXXXXXXX Stock Options in exchange for rights under the New XXXXXXXXXX Stock Options. Provided that:
(1) the amount, if any, by which
(i) the total value of the shares issuable upon the exercise, by an option holder, of the New XXXXXXXXXX Stock Options immediately after such exchange
exceeds
(ii) the total amount payable by such option holder to acquire such shares upon the exercise of the New XXXXXXXXXX Stock Options
does not exceed the amount, if any by which
(iii) the total value of the XXXXXXXXXX Common Shares that would have been issuable upon the exercise by such option holder of the XXXXXXXXXX Stock Options immediately before such exchange
exceeds
(iv) the total amount payable by such option holder to acquire such XXXXXXXXXX Common Shares upon the exercise of XXXXXXXXXX Stock Options,
then, for the purposes of subsection 7(1) and paragraph 110(1)(d), the provisions of subsection 7(1.4) will apply in respect of such exchange such that
(2) such option holder will be deemed not to have disposed of his XXXXXXXXXX Stock Options and not to have acquired his New XXXXXXXXXX Stock Options, and
(3) his New XXXXXXXXXX Stock Options will be deemed to be the same as, and a continuation of, his XXXXXXXXXX Stock Options
and paragraph 7(1)(b) will not apply in respect of such exchange.
VI.19 The provisions of subsections 7(1) and (3) will apply in respect of the issuance of the
NEWCO Stock Options, as described in Paragraph III.46.
VI.20 On the redemption by XXXXXXXXXX of theXXXXXXXXXX Preferred Shares held by NEWCO, as described in Paragraph III.47:
(1) paragraphs 84(3)(a) and (b) will apply to deem XXXXXXXXXX to have paid and NEWCO to have received, on a separate class of shares comprising the redeemed XXXXXXXXXX Preferred Shares, a dividend equal to the amount by which the principal amount of theXXXXXXXXXX Redemption Note issued in payment of the redemption price of the redeemed XXXXXXXXXX Preferred Shares exceeds the PUC of such shares immediately prior to their redemption; and
(2) in computing the capital gain or loss realized by NEWCO on the disposition of the XXXXXXXXXX Preferred Shares which will occur as a result of the redemption of such shares by XXXXXXXXXX, paragraph (j) of the definition of proceeds of disposition will apply to exclude the amount of such deemed dividend from the proceeds of disposition which NEWCO would otherwise be considered to have received as a result of such redemption.
VI.21 On the redemption by NEWCO of the NEWCO Preferred Shares held by XXXXXXXXXX as described in Paragraph III.48:
(1) paragraphs 84(3)(a) and (b) will apply to deem NEWCO to have paid and XXXXXXXXXX to have received, on a separate class of shares comprising the redeemed NEWCO Preferred Shares, a dividend equal to the amount by which the principal amount of the NEWCO Redemption Note issued in payment of the redemption price of the redeemed NEWCO Preferred Shares exceeds the PUC of such shares immediately prior to their redemption; and
(2) in computing the capital gain or loss realized by XXXXXXXXXX on the disposition of the NEWCO Preferred Shares which will occur as a result of the redemption of such shares by NEWCO, paragraph (j) of the definition of proceeds of disposition will apply to exclude the amount of such deemed dividend from the proceeds of disposition which XXXXXXXXXX would otherwise be considered to have received as a result of such redemption.
VI.22 The cost amount to XXXXXXXXXX of the NEWCO Redemption Note described in Paragraph III.48, and the cost amount to NEWCO of the XXXXXXXXXX Redemption Note described in Paragraph III.47 will, in each case, be equal to the principal amount of each such note.
VI.23 Provided that as part of the series of transactions or events that include the Proposed Transactions, there is not:
(1) a disposition of property in circumstances described in subparagraph 55(3.1)(b)(i);
(2) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(3) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii);
(4) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(5) an acquisition of property in the circumstances described in paragraph 55(3.1)(d),
which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not be applicable with respect to the deemed dividends referred to in Paragraphs VI.20 and VI.21, and for greater certainty, subsection 55(3.1) will not be applicable to deny the exemption under paragraph 55(3)(b).
VI.24 The payment of the amount owing under the NEWCO Redemption Note by the transfer of the XXXXXXXXXX Issue Note and theXXXXXXXXXX Redemption Note by NEWCO to XXXXXXXXXX, and the payment of the amounts owing under the XXXXXXXXXX Issue Note and the XXXXXXXXXX Redemption Note by the transfer of the NEWCO Redemption Note by XXXXXXXXXX to NEWCO, as described in Paragraph III.49, will not result in the application of either of section 80 or 15.
VI.25 The dispositions of the NEWCO Redemption Note, the XXXXXXXXXX Issue Note and the XXXXXXXXXX Redemption Note which will occur on the payment of each such note, as described in Paragraph III.49, will not result in any income, gain or loss, for the purposes of the Act, to either of XXXXXXXXXX or NEWCO.
Parts IV, IV.1 and VI.1 and Section 112
VI.26 The full amount of each of the deemed dividends which arise out of the redemptions of the NEWCO Preferred Shares and the XXXXXXXXXX Preferred Shares, as described in Paragraph III.48 and Paragraph III.47:
(1) will be a taxable dividend that will, by virtue of subparagraph 82(1)(a)(ii) and paragraph 12(1)(j), be included in computing the income of the recipient for the year in which it is received;
(2) will, by virtue of subsection 112(1), be deductible in computing the income of the recipient in the year in which it is received and, for greater certainty, such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4);
(3) will not be subject to tax under Part IV.I or Part VI.1 by virtue of being deemed by paragraph 191(4)(d) to be “excluded dividends” as defined in subsection 191(1) and “excluded dividends” as defined in section 187.1, except to the extent that the amount paid on the redemption of the NEWCO Preferred Shares and the XXXXXXXXXX Preferred Shares (as the case may be) exceeds the amount specified in respect of such shares, as described in the definition of such shares in Paragraph I.1 hereof; and
(4) will not be subject to tax under Part IV.
Rolldown of Transferred Property from NEWCO to NEWCO SUB
VI.27 On the issuance of the NEWCO Issue Note by NEWCO to NEWCO SUB in exchange for the assumption of a portion of the Assumed Liabilities by NEWCO SUB, as described in Paragraph III.51, no income, gain or loss, for the purposes of the Act, will arise to either of NEWCO SUB or NEWCO and the cost amount of the NEWCO Issue Note to NEWCO SUB will be equal to its principal amount.
VI.28 Provided that the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of eligible property, which is comprised in the Transferred Property, by NEWCO to NEWCO SUB, as described in Paragraph III.51, the provisions of subsection 85(1) will apply to such transfer with the result that the agreed amount in respect of each such property will be deemed to be the proceeds of disposition thereof to NEWCO and the cost amount thereof to NEWCO SUB.
VI.29 The PUC of NEWCO SUB Common Shares issued on the transfer of the Transferred Property by NEWCO to NEWCO SUB will equal the amount, if any, by which the aggregate of the cost amounts to NEWCO SUB of the Transferred Property exceeds that portion of the Assumed Liabilities assumed by NEWCO SUB as partial consideration for the Transferred Property.
VI.30 Provided that the condition specified in paragraph 1100(2.2)(g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of depreciable property that is acquired by NEWCO SUB from NEWCO, as described in Paragraph III.51.
VI.31 Provided that NEWCO SUB continues to use the Transferred Property (other than the shares of XXXXXXXXXX SUB2), or any property substituted therefor, for the purpose of gaining or producing income from the XXXXXXXXXX Business and has a legal obligation to pay interest on any particular Assumed Liability (other than any Assumed Liability in respect of which none of XXXXXXXXXX SUB1 or XXXXXXXXXX would have been entitled to deduct interest pursuant to paragraph 20(1)(c)), an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by NEWCO SUB in computing its income) as interest, or a reasonable amount in respect thereof, on any such Assumed Liability will be deductible by NEWCO SUB, pursuant to paragraph 20(1)(c), in computing its income for each such year.
VI.32 XXXXXXXXXX
XXXXXXXXXX
VI.45 XXXXXXXXXX
VI.46 Subsections 15(1), 56(2), 56(4) and 246(1) will not be applied as a result of the implementation of the Proposed Transactions described herein.
VI.47 The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences described herein.
VI.48 Provided that NEWCO makes the election to be a public corporation, as described in Paragraph III.61, and such election is filed within the time permitted by the Act, NEWCO will be deemed to be a public corporation from and after the date of its incorporation.
VI.49 Provided that the XXXXXXXXXX Common Shares constitute capital property to a Participant immediately prior to the commencement of the Proposed Transactions, the Proposed Transactions will not, in and by themselves, cause the XXXXXXXXXX Voting Common Shares, the XXXXXXXXXX Non-Voting Common Shares, the XXXXXXXXXX Preferred Shares and the NEWCO Common Shares which are received by such Participant as a result of the Proposed Transactions, not to be capital property to such Participant. Furthermore, the Proposed Transactions will not, in and by themselves, cause the NEWCO Preferred Shares which are received by XXXXXXXXXX as a result of the Proposed Transactions, or the XXXXXXXXXX Preferred Shares which are to be received by NEWCO as a result of the Proposed Transactions, not to be capital property of XXXXXXXXXX or NEWCO.
We make no comment as to whether the XXXXXXXXXX Preferred Shares will be excluded property within the meaning of subsection 116(6), if the amendments to that provision contained in Bill C-28, which received first reading on December 10, 1997, are passed in their present form.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 provided that the Proposed Transactions are completed by XXXXXXXXXX
These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
Nothing in this letter should be construed as confirmation of the tax consequences of any of the transactions described in this letter other than as specifically described.
Yours truly,
Director
Reorganizations and International Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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