Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether the proposed butterfly reorganization meets the requirements of paragraph 55(3)(b).
Position: Yes
Reasons: Meets the requirements of the law.
XXXXXXXXXX 2007-024122
XXXXXXXXXX , 2008
Dear Sir:
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letters of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayers referred to above. We also acknowledge our subsequent telephone conversations and correspondence concerning your request. The documents submitted with your request are part of this document only to the extent described herein.
We understand that to the best of your knowledge and that of the taxpayers on whose behalf this ruling is being requested, none of the issues involved in this ruling request is:
(a) in an earlier return of any of the taxpayers or a related person;
(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of any of the taxpayers or a related person;
(c) under objection by any of the taxpayers or a related person;
(d) the subject of a ruling previously issued by the Income Tax Rulings Directorate; or
(e) except as described herein, before the Courts.
Unless otherwise indicated, all statutory references are to the Income Tax Act R.S.C. 1985, c. 1 (5th Supp.), as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
DEFINITIONS
(a) "ACB" means "adjusted cost base" as that expression is defined in section 54 and subsection 248(1);
(b) "agreed amount" has the meaning assigned by subsection 85(1);
(c) "BCA" means the Business Corporations Act, XXXXXXXXXX ;
(d) "capital property" has the meaning assigned by section 54;
(d.1) "Capital Surplus on Hand" has the meaning assigned by subsection 88(2.1);
(e) "CCPC" means "Canadian-controlled Private Corporation" and has the meaning assigned by subsection 125(7);
(f) "CDA" means "capital dividend account" and has the meaning assigned by subsection 89(1);
(g) "cost amount" has the meaning assigned by subsection 248(1);
(h) "dividend refund" has the meaning assigned by subsection 129(1);
(i) "DC" refers to XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX ;
(j) "eligible property" has the meaning assigned by subsection 85(1.1);
(k) "guarantee agreement" has the meaning assigned by subsection 112 (2.2);
(l) "Indemnity Fund" means the fund described in paragraph 13.2 hereof;
(m) "Mr. A" refers to XXXXXXXXXX ;
(n) "Mr. G" refers to XXXXXXXXXX ;
(o) [Intentionally deleted]
(p) "Mr. H" refers to XXXXXXXXXX ;
(q) "Mr. H Shareholder Loan" means the loan made by DC to Mr. H in the principal amount of $XXXXXXXXXX plus interest thereon at the rate of XXXXXXXXXX % per annum. The principal and interest as at the date hereof is in the approximate amount of $XXXXXXXXXX . The loan is unsecured and has no fixed terms of repayment.
(r) "Mrs. I" refers to XXXXXXXXXX ;
(s) "Mr. J" refers to XXXXXXXXXX ;
(t) "Mr. K" refers to the estate of the late XXXXXXXXXX , as represented by his personal representative, XXXXXXXXXX , referred to herein as "Ms. K";
(u) "Mr. L" refers to XXXXXXXXXX ;
(v) "Mrs. M" refers to XXXXXXXXXX ;
(w) "paid-up capital" (also referred to as "PUC") has the meaning assigned by subsection 89(1);
(x) "private corporation" has the meaning assigned by subsection 89(1);
(y) "proceeds of disposition" has the meaning assigned by section 54;
(z) "RDTOH" means "refundable dividend tax on hand" as that expression is defined in subsection 129(3);
(z.1) "Regulations" means the Income Tax Regulations promulgated under the Act;
(aa) "restricted financial institution" has the meaning assigned by subsection 248(1);
(bb) "series of transactions or events" includes the transactions or events referred to in subsection 248(10);
(cc) "significant influence" has the meaning assigned by section 3050 of the CICA Handbook;
(dd) "specified financial institution" (also referred to as "SFI") has the meaning assigned by subsection 248(1);
(ee) "specified investment business" (also referred to as "SIB") has the meaning assigned by the definition in subsection 125(7) and subsection 248(1);
(ee.1) "specified shareholder" has the meaning assigned by paragraph 55(3.2)(a) and subsection 55(3.3) and the definition in subsection 248(1);
(ff) "stated capital" has the meaning assigned by the BCA;
(gg) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
(hh) "taxable dividend" has the meaning assigned by subsection 89(1); and
(ii) "V-Day Value" means the fair market value of the common shares of DC referred to in paragraph 6 below as at December 31, 1971.
FACTS
1. Mr. A is the controlling shareholder of DC, holding approximately XXXXXXXXXX % of its outstanding shares. At one point in time, DC's minute book reflected that Mr. A's four adult children each acquired approximately XXXXXXXXXX percent (XXXXXXXXXX %) of the shares of DC from Mr. A. It appears that such shares were never actually conveyed by Mr. A to his children and in XXXXXXXXXX , DC's minute book was corrected to reflect that such shares are held by Mr. A.
Mr. G, Mr. H, Mrs. I, Mr. J, Mr. L and Mrs. M are adult siblings and the nephews and nieces of Mr. A. Ms. K was the common law spouse of a former shareholder (one of the siblings) who passed away on XXXXXXXXXX . Each of the preceding shareholders holds approximately XXXXXXXXXX % of the outstanding shares of DC. Mr. G, Mr. H, Mrs. I, Mr. J, Mr. L, Mrs. M and Ms. K's spouse inherited their shares of DC on the death of their father in XXXXXXXXXX .
All shareholders of DC are residents of Canada.
The tax filing particulars of the above are as follows:
Name Address BIN
DC XXXXXXXXXX XXXXXXXXXX
Name Address SIN
Mr. A XXXXXXXXXX XXXXXXXXXX
Mr. G XXXXXXXXXX XXXXXXXXXX
Mr. H XXXXXXXXXX XXXXXXXXXX
Mrs. I XXXXXXXXXX XXXXXXXXXX
Mr. J XXXXXXXXXX XXXXXXXXXX
Ms. K XXXXXXXXXX XXXXXXXXXX
Mr. L XXXXXXXXXX XXXXXXXXXX
Mrs. M XXXXXXXXXX XXXXXXXXXX
2. DC is a CCPC and a taxable Canadian corporation. DC was incorporated under the laws of XXXXXXXXXX , on XXXXXXXXXX . Its taxation year, ends on XXXXXXXXXX of each year.
3. The authorized share capital of DC consists of XXXXXXXXXX preferred shares and an unlimited number of common shares. No preferred shares are issued and outstanding. There are XXXXXXXXXX common shares issued and outstanding, held as follows:
Shareholder Number ACB PUC
Mr. A XXXXXXXXXX
Mr. G XXXXXXXXXX
Mr. H XXXXXXXXXX
Mrs. I XXXXXXXXXX
Mr. J XXXXXXXXXX
Ms. K XXXXXXXXXX
Mr. L XXXXXXXXXX
Mrs. M XXXXXXXXXX
4. No shares in the capital of DC were acquired in contemplation of the Proposed Transactions set forth below.
5. On XXXXXXXXXX shares held by XXXXXXXXXX were purchased for cancellation by DC.
6 Certain of the shareholders of DC have filed an election under section 110.6 of the Act to increase the ACB of their common shares of DC. In addition, the shares have a V-Day Value of approximately $XXXXXXXXXX per share.
7. The assets of DC include cash, assets held in the course of carrying on business and investment assets. Other than cash, DC's assets consist of:
(i) XXXXXXXXXX publicly traded common shares of the XXXXXXXXXX (the "XXXXXXXXXX Shares"). DC does not have significant influence on the XXXXXXXXXX affairs;
(ii) a XXXXXXXXXX ("BTS"), including real property and inventory. The fair market value of the BTS real property is uncertain in view of contingent environmental liabilities associated with it. Other than short-term financing in respect of its inventory, BTS has nominal liabilities;
(iii) a XXXXXXXXXX business located in XXXXXXXXXX ("PB"), consisting of land, building, furniture, fixtures, equipment and inventory. PB has trade payables but no long-term debt; and
(iv) real estate properties, being XXXXXXXXXX vacant parcels of land, situated in and around XXXXXXXXXX (the "RPs"). XXXXXXXXXX .
8. The most significant assets of DC are portfolio securities, being the XXXXXXXXXX Shares, in respect of which little trading activity has taken place. Essentially, DC has accumulated XXXXXXXXXX Shares over the years, including as part of a dividend re-investment plan. At the date hereof, approximately XXXXXXXXXX % of the fair market value of all of DC's assets, on a gross basis, is attributable to the XXXXXXXXXX Shares. In XXXXXXXXXX , DC disposed of all of its portfolio shares other than the XXXXXXXXXX Shares for proceeds of approximately $XXXXXXXXXX . The shares were disposed of for cash, in the normal course of business through the facilities of the XXXXXXXXXX Stock Exchange. Over the years, DC has also held and disposed of shares in the capital of XXXXXXXXXX . Generally, DC's investment philosophy can be described as "buy and hold". However, investments have been disposed of, from time to time, as the need for cash funds arose, or to pay dividends to its shareholders.
9. As at XXXXXXXXXX , DC had an RDTOH balance of $XXXXXXXXXX .
At the date hereof, DC has a CDA balance of $XXXXXXXXXX .
As at the date hereof, DC has no non-capital loss carry forwards for Federal purposes. DC did incur non-capital losses but such losses were applied as a reduction of DC's Part IV tax liability. For XXXXXXXXXX purposes, being the only Province where DC has activity, DC has non-capital loss carry-forwards in the amount of $XXXXXXXXXX as at XXXXXXXXXX .
To the best of DC's knowledge, it has no Capital Surplus On Hand.
10. Some years ago, XXXXXXXXXX (a former shareholder of DC) began an action for damages against DC in the Province of XXXXXXXXXX . The action was dismissed. There remains a possibility of a new action being started in the Province of XXXXXXXXXX .
11. The shareholders of DC have been involved in a dispute. Mr. H, Mrs. I, Mr. J, Ms. K (by her then common law spouse), Mr. L and Mrs. M brought an Oppression Remedy Application to the Court of Justice, XXXXXXXXXX , asking for a winding up of DC or other alternative remedy as provided in the Application. On XXXXXXXXXX the shareholders of DC entered into an agreement (the "Settlement Agreement") pursuant to which they agreed to the following transactions:
(i) Mr. A, or a corporation incorporated by him, will purchase the assets used in PB at their fair market value. Such fair market value was agreed to in the settlement agreement. The purchased assets will be paid for by combination of Mr. A, or a corporation incorporated by him, assuming all liabilities pertaining to PB and cash consideration, paid at closing of the transaction of purchase and sale.
(ii) Mr. G, or a corporation incorporated by him, will purchase the assets used by BTS, exclusive of the BTS real property and XXXXXXXXXX inventory, at their fair market value. Such fair market value was agreed to in the settlement agreement. The purchased assets will be paid for by combination of Mr. G, or a corporation incorporated by him, assuming all liabilities pertaining to BTS and cash consideration, paid at closing of the transaction of purchase and sale. Mr. G will not acquire the real property in view of the contingent environmental liabilities associated with it. Mr. G, or a corporation incorporated by him, will lease the real property for an amount equal to its upkeep costs, until it is sold or the lease agreement is terminated.
(iii) The real property used in the BTS business will be listed for immediate sale. The XXXXXXXXXX inventory will continue to be sold by DC through an agreement with the purchaser of the BTS business.
(iv) The RPs will be listed for sale.
(v) Retiring allowances will be paid, in cash, to DC's key employees as follows:
Mr. A $XXXXXXXXXX
Mr. A's spouse $XXXXXXXXXX
An employee $XXXXXXXXXX
Mr. G $XXXXXXXXXX
(vi) The shareholders will seek a ruling from the CRA in respect of a split up butterfly transaction of the remaining assets of DC, being cash and near cash and portfolio investment assets.
(vii) An indemnity agreement (the "Indemnity Agreement") will be executed by the parties in order to deal with the contingent liabilities of DC, including a potential claim by XXXXXXXXXX and environmental liabilities in respect of the BTS real property and the XXXXXXXXXX RP to the extent such have not been settled or provided for prior to the implementation of the butterfly transaction.
The transactions provided for in the Settlement Agreement are conditional on receiving a favourable ruling in respect of the Proposed Transactions described herein from the CRA.
The retiring allowances described above have been paid.
12. Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M are acting as a group.
13. Mr. H is indebted to DC in the amount of the Mr. H shareholder loan. The Mr. H Shareholder Loan has been included in the XXXXXXXXXX taxable income of Mr. H pursuant to subsection 15(2) of the Act.
13.1 After entering into the Settlement Agreement the parties continued to negotiate the terms of its implementation. In particular, the parties agreed that the transactions will be implemented with a view to allowing those shareholders who are not specified shareholders to cash out their interests, in full or in part.
13.2 The parties could not agree to the quantum of the indemnity fund to be held under the terms of the Indemnity Agreement and proceeded to have the matter arbitrated. The arbitrator gave his decision on XXXXXXXXXX . The arbitrator decided that the sum of $XXXXXXXXXX be set aside (until XXXXXXXXXX ) on account of the potential XXXXXXXXXX claim and the sum of $XXXXXXXXXX be set aside (until the real properties are sold or upon further decision of the arbitrator) on account of the potential environmental liabilities (herein referred to as the "Indemnity Fund").
The arbitrator also ruled that Mr. A was entitled to a further sum of $XXXXXXXXXX as a retiring allowance, the original calculation having been done in error. The additional retiring allowance has been paid to Mr. A by DC.
PRE-BUTTERFLY TRANSACTIONS
14. Prior to the Proposed Transactions, DC will declare and pay a dividend, intended to be equal to the amount of its current capital dividend account, being $XXXXXXXXXX , to the holders of DC's common shares based on their proportional holdings. The payment of such a dividend will be paid in cash. DC will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. Any CDA remaining after the dividend contemplated herein, is referred to herein as the Pre-Transaction CDA.
PROPOSED TRANSACTIONS
15. The transactions described in subparagraphs 11 (i), (ii), (iii) and (iv) will be implemented as provided for in the Settlement Agreement except that the properties of DC to be acquired by Mr. A and Mr. G, as described in paragraphs 11(i) and 11(ii) above, will be acquired by them personally and not by a corporation which they control. After the acquisition of the properties of DC described in paragraphs 11(i) and 11(ii) above, each of Mr. A and Mr. G will transfer such assets to a corporation (other than Transferee A or Transferee G) wholly owned by him at their respective fair market values.
In the event some of XXXXXXXXXX described in 11(ii), and any of the assets described in 11(iii) and 11(iv) have not been sold by DC on the date the Proposed Transactions are implemented, DC will cause the incorporation of a corporation under the BCA ("DC Subco"). The directors of DC Subco will be the same as are currently the directors of DC. DC Subco will be a taxable Canadian corporation and a private corporation. The authorized share capital of DC Subco will consist of an unlimited number of common shares. DC will subscribe for XXXXXXXXXX common shares of DC Subco for consideration in the amount of $XXXXXXXXXX per share. DC will transfer to DC Subco the XXXXXXXXXX described in 11(ii), and any of the assets described in 11(iii) and 11(iv) that have not been sold by DC on the date the Proposed Transactions are implemented, at their fair market value for consideration consisting of XXXXXXXXXX common shares and a non-interest-bearing promissory note (the "DC Subco Promissory Note") having a principal amount equal to the fair market value of the assets transferred to DC Subco less the sum of $XXXXXXXXXX . It is anticipated that the principal amount of the DC Subco Promissory Note, if none of the real properties are sold, will be less than $XXXXXXXXXX , being less than XXXXXXXXXX % of the value of DC's assets. The DC Subco common shares and the DC Subco Promissory Note will be considered as cash for all purposes hereof and will be distributed to the parties as cash in the implementation of the transactions described herein. For greater certainty, if the transactions described herein are implemented, each shareholder of DC participating in the transactions described in paragraphs 17 to 23 will receive that proportion of the DC Subco common shares and the DC Subco Promissory Note that the particular shareholder's shares of DC purchased under paragraphs 17 to 23 is of all the outstanding DC shares and each transferee corporation described herein will similarly receive its proportion of the DC Subco common shares and the DC Subco Promissory Note. As required, the DC Subco Promissory Note may be used, in whole or in part, to pay the capital dividend described in paragraph 14 and in such event, the DC Subco Promissory Note would be distributed to each shareholder of DC in the proportion described herein.
The retiring allowances described in paragraph 11(v) and 13.2 have been paid.
16. After completion of the transactions contemplated in paragraph 15 and immediately before the transactions described in paragraphs 17 to 23 below, the property owned by DC will be classified into the following three different types of property:
(a) cash or near cash property, comprising all of the current assets of DC. This category will include cash, accounts receivable, the Mr. H Shareholder Loan and, if applicable, the DC Subco common shares and the DC Subco Promissory Note;
(b) investment property, comprising all of the assets of DC, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from property or from a SIB; and
(c) business property, comprising all of the assets of DC, 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 SIB). The business property of DC at that time will have a value of nil.
OPTIONAL CASHING OUT OF MINORITY SHAREHOLDERS
16.1 It is anticipated that certain shareholders of DC who are not specified shareholders will elect to cash out substantially all, or part, of the value of their interest in DC.
16.2 The shareholders of DC will pass a special resolution under the provisions of the BCA in order to authorize the filing of Articles of Amendment in respect of DC. The purpose of the Articles of Amendment will be to add to the authorized share capital of DC two new classes of shares (hereinafter referred to as the "Class A Freeze Shares" and the "Class B Freeze Shares").
The terms and conditions of the Class A Freeze Shares will be as follows:
(i) entitled to one vote per share;
(ii) issuable in exchange for common shares on a one-for-one basis;
(iii) entitled to dividends as declared by the board of directors, provided dividends may be declared on any class of shares to the exclusion of any other class or classes of shares;
(iv) redeemable/retractable at a redemption amount per share equal to the fair market value of one common share exchanged for a Class A Freeze Share immediately prior to the time of the exchange; and
(v) exchangeable for common shares on a one-for-one basis.
The terms and conditions of the Class B Freeze Shares will be as follows:
(i) entitled to one vote per share;
(ii) entitled to dividends as declared by the board of directors, provided dividends may be declared on any class of shares to the exclusion of any other class or classes of shares; and
(iii) redeemable/retractable at a redemption amount per share equal to the fair market value of one common share exchanged for a Class B Freeze Share immediately prior to the time of the exchange.
The Articles of Amendment will also amend the terms and conditions of the common shares to provide that they are exchangeable into Class A Freeze Shares or Class B Freeze Shares on a one-for-one basis.
For purposes of paragraphs 17 to 23 hereof, "Cash Call" shall mean a request by a shareholder, other than Mr. A, to receive all, or part of his or her share equity value as a dividend and "Cash Call Proportion" shall mean the proportion that the portion of a shareholders' share equity value to be received as a dividend is of the value of XXXXXXXXXX % of DC's share equity value.
16.3 Any dividend to be declared and paid by DC under paragraphs 17 to 23 hereof will be paid prior to the implementation of the transactions described below under the headings, FIRST BUTTERFLY and SECOND BUTTERFLY.
16.4 Following the filing the Articles of Amendment described in paragraph 16.2, those shareholders of DC who do not give a Cash Call notice, or who give a Cash Call notice for less than the value of their share equity, will exchange such of their common shares of DC as are not to be cashed out for Class A Freeze Shares, on a one-for-one basis. No section 85 election will be filed in connection with such exchanges, the parties relying instead on section 51.
17. At Mr. H's option, Mr. H shall give a Cash Call notice in writing to DC specifying the portion of his share equity interest to be received as a dividend, which, in any event, shall not exceed 99.99%. (Mr. H will give a Cash Call notice in an amount no less than the full amount of the Mr. H Shareholder Loan.)
If a Cash Call is made, Mr. H and DC will enter into an agreement (the "Mr. H Dividend Agreement") under which:
(i) DC and Mr. H will agree that DC will dispose of that number of XXXXXXXXXX Shares held by it as is equal to the Cash Call Proportion; and
(ii) DC will agree to pay the Cash Call dividend to Mr. H. The dividend will be comprised of two dividends, the first dividend being in respect of the addition to DC's CDA arising as a result of the disposition of XXXXXXXXXX Shares and the second in respect of the remaining value of Mr. H's interest.
The Mr. H Dividend Agreement will be dated on the day which is approximately XXXXXXXXXX business days preceding the transactions described below as the FIRST BUTTERFLY and such XXXXXXXXXX Shares will be sold on such day. As provided for under the terms of the Mr. H Dividend Agreement, DC will forthwith direct its agent to sell the required number of XXXXXXXXXX Shares through the facilities of the XXXXXXXXXX . The dividends contemplated under the Mr. H Dividend Agreement will be paid on the day immediately preceding the transactions described below as the FIRST BUTTERFLY, being the day on which the cash to be received from the sale of XXXXXXXXXX Shares contemplated hereunder will be received by DC.
The Cash Call dividend will be paid in two steps.
Under the first step, DC will declare a dividend in respect of the common shares in its capital outstanding at that particular time equal to the addition to DC's CDA as a result of the disposition by DC of XXXXXXXXXX Shares in order to meet the Cash Call. The dividend will be payable, as described below, forthwith upon DC filing the election described immediately hereafter. DC will file an election in respect of the full amount of the dividend in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or by fax.
Under the second step, DC will declare a dividend in respect of the common shares in its capital outstanding at that particular time equal to the remaining portion of the Cash Call dividend to be paid to Mr. H under the terms of the Mr. H Dividend Agreement.
The Cash Call dividend to be paid by DC for purposes of this paragraph 17 will be equal to the aggregate of:
(i) that portion of DC's cash on hand as determined under paragraph16(a), investment property, other than XXXXXXXXXX Shares, if any, as determined under paragraph 16(b) and business property, as determined under paragraph 16(c) as is equal to the Cash Call Proportion;
(ii) the net of tax amount received by DC in respect of the disposition of XXXXXXXXXX Shares in order to meet the Cash Call as is equal to the Cash Call Proportion;
(iii) the addition to DC's RDTOH arising as a result of the disposition of the XXXXXXXXXX Shares in order to meet the Cash Call; and
(iv) the Cash Call Proportion of DC's RDTOH prior to the sale of any XXXXXXXXXX Shares to satisfy the Cash Call.
The dividends so determined shall be paid
(v) in part by offsetting and cancelling any unpaid portion of the Mr. H Shareholder Loan,
(vi) in cash; and
(vii) by a non-interest-bearing promissory note, having a principal amount equal to the balance of the dividend payable to Mr. H under the Mr. H Dividend Agreement (the "Mr. H Note").
The terms of the Mr. H Note shall provide that the principal amount thereof shall be paid upon DC having the cash required to do so either from receiving a refund of RDTOH or otherwise.
After payment of the above dividend the common shares in the capital of DC held by Mr. H will have nominal value.
For the avoidance of doubt, if Mr. H wishes to cash out that proportion of his share equity which represents XXXXXXXXXX % of all the share equity of DC (i.e. the Cash Call Proportion), the consideration to be paid to Mr. H under the Mr. H Dividend Agreement will be equal to the aggregate of (i) the after tax proceeds received by DC on the disposition of XXXXXXXXXX % of DC's XXXXXXXXXX Shares (in calculating the tax liability arising on the disposition of such XXXXXXXXXX Shares, Mr. H shall be entitled to the benefit of the Cash Call Proportion of any capital or non-capital losses available to DC and in particular the XXXXXXXXXX loss carry forwards described in paragraph 9), (ii) the addition to DC's RDTOH arising as a result of the disposition of such XXXXXXXXXX Shares, (iii) XXXXXXXXXX % of the RDTOH prior to the disposition of XXXXXXXXXX Shares to satisfy the Cash Call and (iv) XXXXXXXXXX % of DC's other assets, less (v) XXXXXXXXXX % of DC's liabilities (other than the tax liabilities contemplated in (i) above).
It will be a condition of the Mr. H Dividend Agreement that the Cash Call Proportion of the contingent liabilities of DC as described in sub-paragraph 11(vii) be secured through the Indemnity Fund. The Indemnity Fund will be held in the form of cash and/or an irrevocable letter of credit. Mr. H will be required to contribute to the Indemnity Fund that portion of the Indemnity Fund as is equal to the Cash Call Proportion.
18. At Mr. G's option, Mr. G will enter into an agreement with DC (the "Mr. G Dividend Agreement") on terms and conditions identical to those described in paragraph 17, except as such relate to the Shareholder Loan.
19. At Mrs. I's option, Mrs. I will enter into an agreement with DC (the "Mrs. I Dividend Agreement") on terms and conditions identical to those described in paragraph 17, except as such relate to the Shareholder Loan.
20. At Mr. J's option, Mr. J will enter into an agreement with DC (the "Mr. J Dividend Agreement") on terms and conditions identical to those described in paragraph 17, except as such relate to the Shareholder Loan.
21. At Ms. K's option, Ms. K will enter into an agreement with DC (the "Ms. K Dividend Agreement") on terms and conditions identical to those described in paragraph 17, except as such relate to the Shareholder Loan.
22. At Mr. L's option, Mr. L will enter into an agreement with DC (the "Mr. L Dividend Agreement") on terms and conditions identical to those described in paragraph 17, except as such relate to the Shareholder Loan.
23. At Mrs. M's option, Mrs. M will enter into an agreement with DC (the "Mrs. M Dividend Agreement") on terms and conditions identical to those described in paragraph 17, except as such relate to the Shareholder Loan.
(Hereinafter, the Mr. G Note, the Mr. H Note, the Mrs. I Note, the Mr. J Note, the Ms. K Note, the Mr. L Note and the Mrs. M Note sometimes referred to as the Cash Call Notes.)
23.01. Forthwith after the declaration of the dividends contemplated in paragraphs 17 to 23 the holders of the Class A Freeze Shares will exchange all of their Class A Freeze Shares for common shares on a one-for-one basis and the holders of the common shares will exchange all of their common shares for Class B Freeze Shares, on a one-for-one basis. The exchanges of shares described herein will be done simultaneously. No section 85 election will be filed in connection with such exchanges, the parties relying instead on section 51.
FIRST BUTTERFLY
DETERMINATION OF VALUE
23.1. The value of the common shares of DC will be determined as of the close of business on the day preceding the Proposed Transactions described below, in part, based on the closing price of the XXXXXXXXXX Shares as reported by the XXXXXXXXXX (the "Determined Value"). The common shares of DC will be valued based on the gross values of DC's properties less the amount of all of DC's liabilities. The value of the Class B Freeze Shares will be nominal. (The Class B Freeze Shares will be referred to hereinafter as the "Freeze Shares") The value of DC's shares will not be discounted for fluctuations in the trading value of DC's portfolio securities during the period encompassing the implementation of the Proposed Transactions described below. It is anticipated that the Proposed Transactions will be substantially completed in one day, being the day after the Determined Value is established.
24. Mr. A will cause the incorporation of a corporation ("Transferee A") under the BCA. The sole director of Transferee A will be Mr. A. Transferee A will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee A will be:
(a) an unlimited number of Class B non-voting preferred shares, redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(b) an unlimited number of common shares.
25. Upon the incorporation of Transferee A the following shares will be issued:
Shareholder Class ACB PUC
Mr. A XXXXX Common XXXXXX XXXXXX
No other shares of Transferee A will be issued prior to the transactions described in paragraph 31 below.
26. Transferee A will cause the incorporation of a corporation ("Subco A") under the BCA. Subco A will be a taxable Canadian corporation and a private corporation. The authorized share capital of Subco A will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of common shares.
27. Upon the incorporation of Subco A the following shares will be issued:
Shareholder Class ACB PUC
Transferee A XXXX Common $XXXXX $XXXXX
No other shares of Subco A will be issued prior to the transactions described in paragraph 35 below.
28. Those of Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M who still hold common shares of DC after the completion of the transactions described in paragraphs 17 to 23 will cause the incorporation of a corporation ("Transferee Z", referred to in the SECOND BUTTERFLY as, "DC2") under the BCA. Each of such transferees will be appointed a director of Transferee Z. Transferee Z will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee Z will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of common shares, and
(c) an unlimited number of Class C voting preferred shares (the "Class C Preferred Shares"), redeemable/retractable at an amount per share, equal to the fair market value of the property received by Transferee Z as consideration for their issuance, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum
29. No shares of Transferee Z will be issued on its incorporation or prior to the transactions described in paragraph 32 below.
30. For the purposes of subsection 191(4) of the Act, the terms and conditions of the Class A Preferred Shares of Subco A and of the Class A Preferred Shares and Class C Preferred Shares of Transferee Z will specify an amount in respect of each such share for which the share is to be redeemed, acquired or cancelled. The amount shall be designated pursuant to the resolution of the directors of Subco A and Transferee Z, as the case may be, made in connection with the issuance of such share. The amount specified in respect of such share, at the time of the issuance thereof, will be expressed as a fixed dollar amount that will not be determined by formula or subject to change thereafter and will not exceed the fair market value of the consideration for which the share is issued.
31. Mr. A will transfer all the common shares of DC, which he holds in the capital of DC to Transferee A in exchange for Class B Preferred Shares of Transferee A having an aggregate fair market value equal to the Determined Value of the shares of DC transferred by Mr. A to Transferee A.
Mr. A and Transferee A will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC shares as described herein to Transferee A. The agreed amount specified in the election will be equal to the ACB of the transferred shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Shares of Transferee A to be issued as described herein will not exceed the ACB of the shares of DC, as adjusted for purposes of section 84.1 of the Act, to Mr. A immediately before the transfer.
32. As applicable, each of Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M will transfer all the common shares, which they hold in the capital of DC after the completion of the transactions described in paragraphs 17 to 23 to Transferee Z in exchange for common shares of Transferee Z. The number of common shares issued as consideration by Transferee Z shall be equal to the number of common shares of DC transferred to Transferee Z.
As applicable, each of Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M will transfer all the Class B Freeze Shares, which they hold in the capital of DC after the completion of the transactions described in paragraphs 17 to 23 to Transferee Z in exchange for Class C Preferred Shares of Transferee Z. The number of Class C Preferred Shares issued as consideration by Transferee Z shall be equal to the number of Class B Freeze Shares of DC transferred to Transferee Z.
As applicable, each of Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M and Transferee Z will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC common shares as described herein to Transferee Z. The agreed amount specified in the election will be equal to the ACB of the transferred shares, which amount will be less than their fair market value at the time of the transfer. No section 85 election will be filed in respect of the Class B Freeze Shares transferred to Transferee Z
The amount to be added to the stated capital of the common shares and Class C Shares of Transferee Z to be issued as described herein will not exceed the ACB of the shares of DC, as adjusted for purposes of section 84.1 of the Act, to each of Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M immediately before the transfer.
Upon completion of the transfers of shares contemplated in this paragraph 32, Transferee Z will (i) hold more than 10% of the issued capital (having full voting rights under all circumstances) and (ii) shares having a fair market value of more than 10% of the fair market value of all the issued shares, of the capital of DC.
33. Immediately before the transfers of property described in paragraphs 35 and 36 below, the property owned by DC will be classified into the following three different types of property for the purposes of the definition of "distribution" in subsection 55(1) and paragraph 55(3)(b):
(a) cash or near cash property, comprising all of the current assets of DC. This category will include cash, accounts receivable and, if applicable the DC Subco common shares and the DC Subco Promissory Note (to the extent such has not been fully used to pay the capital dividend described in paragraph 14);
(b) investment property, comprising all of the assets of DC, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or from a SIB; and
(c) business property, comprising all of the assets of DC, 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 SIB). The business property of DC at that time will have a value of nil.
For the purpose of calculating the fair market value of each type of property, as described above, DC will not have significant influence over any corporation, except DC Subco.
Any tax accounts of DC, such as the amount of refundable dividend tax on hand, the balance of any capital dividend account, or any deferred income tax debit balance will not be considered property for purposes of the classification described herein.
34. The transfers of property described in paragraphs 35 and 36 below, will be made on a gross FMV basis. In determining the gross fair market value of each type of property of DC immediately before the transfers of property described in paragraphs 35 and 36 below, no liabilities of DC will be allocated to, and deducted in the calculation of the gross fair market value of each type of property of DC.
35. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 33 and 34 above, DC will transfer at fair market value a portion of each type of property owned by it at that time to Subco A such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC to Subco A, determined in accordance with the guidelines described in paragraphs 33 and 34 above, will approximate that proportion of the gross fair market value of all property of DC of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC owned by Transferee A at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the net fair market value of each type of property which Transferee A has received as compared to what Transferee A would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC transferred to Subco A as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC immediately before the transfers.
As consideration for the property so transferred, Subco A will:
(c) assume a portion of the liabilities of DC in the proportion determined by (a) and (b) above of the aggregate liabilities of DC immediately before the transfers. Any liability of DC under the Cash Call Notes will not be considered as a liability of DC for purposes hereof, and
(d) issue to DC Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Subco A exceeds the amount of the liabilities assumed by Subco A as described in (c) above.
Subco A will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Subco A (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
36. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 33 and 34 above, DC will transfer at fair market value a portion of each type of property owned by it at that time to Transferee Z such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC to Transferee Z, determined in accordance with the guidelines described in paragraphs 33 and 34 above, will approximate that proportion of the gross fair market value of all property of DC of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC owned by Transferee Z at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee Z has received as compared to what Transferee Z would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC transferred to Transferee Z as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC immediately before the transfers.
As consideration for the property so transferred, Transferee Z will:
(c) assume a portion of the liabilities of DC in the proportion determined by (a) and (b) above of the aggregate liabilities of DC immediately before the transfers. Any liability of DC arising under the Cash Call Notes will not be considered as a liability of DC for purposes hereof, and
(d) issue to DC Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee Z exceeds the amount of the liabilities assumed by Transferee Z as described in (c) above.
Transferee Z will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee Z (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
The Class A Preferred Shares of Transferee Z held by DC will represent more than 10% of the issued share capital of Transferee Z having full voting rights under all circumstances, and will have a fair market value of more than 10% of the fair market value of all of the issued shares of the capital stock of Transferee Z.
37. The liabilities of DC to be assumed by Subco A and Transferee Z described in paragraphs 35 and 36 above will include the contingent liabilities of DC as described in sub-paragraph 11(vii) above. It is not anticipated that such liabilities, if any, would be in an amount anywhere near the amount which would result, taking into account other liabilities assumed by Subco A and Transferee Z described in sub-paragraph (c) of paragraphs 35 and 36 above, in the non-share consideration received by DC being in excess of the cost to Subco A and Transferee Z, respectively, as determined under section 85, where relevant, of the property transferred to Subco A and Transferee Z, as described in paragraphs 35 and 36 above. Such liabilities will be secured in part through the Indemnity Fund. The Indemnity Fund will be held in the form of cash and/or irrevocable letters of credit. It will be a condition of any distribution of assets contemplated in the Proposed Transactions that the recipient thereof contribute to the Indemnity Fund his/her/its pro rata share.
38. In respect of the transfers described in paragraphs 35 above, DC and Subco A will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC to Subco A as described in paragraph 35 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Subco A as consideration for the transfer of such property.
39. In respect of the transfers described in paragraphs 36 above, DC and Transferee Z will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC to Transferee Z, as described in paragraph 36 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee Z as consideration for the transfer of such property.
40. Subco A will then redeem the Class A Preferred Shares held by DC at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
41. Transferee Z will then redeem the Class A Preferred Shares held by DC at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
42. Transferee Z will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 41.
43. After the transaction described in paragraph 44 below has been completed, DC will purchase for cancellation all of the DC common shares and Freeze Shares in its capital stock owned by Transferee Z for fair market value consideration. To the extent that DC has on hand Pre-Transaction CDA the purchase for cancellation of DC's common shares will be accomplished in two steps. Under the first step, DC will purchase for cancellation that number of DC common shares held by Transferee Z as have a value equal to the proportion, as determined under paragraph 36, of the Pre-Transaction CDA. DC will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax. Under the second step, all remaining DC common shares and Freeze Shares will be purchased for cancellation.
DC will pay the purchase price for such shares by issuing to Transferee Z a demand promissory note, or notes, as the case may be, (the "DC Note Z") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee Z will accept the DC Note Z in full payment of the purchase price of the common shares.
44. DC will purchase for cancellation all of the DC common shares of its capital stock owned by Transferee A for fair market value consideration. To the extent that DC has on hand Pre-Transaction CDA the purchase for cancellation of DC's common shares will be accomplished in two steps. Under the first step, DC will purchase for cancellation that number of DC common shares held by Transferee A as have a value equal to the proportion, as determined under paragraph 35, of the Pre-Transaction CDA. DC will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax. Under the second step, all remaining DC common shares will be purchased for cancellation.
DC will pay the purchase price for such shares by issuing to Transferee A a demand promissory note, or notes, as the case may be, (the "DC Note A") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee A will accept the DC Note Z in full payment of the purchase price of the common shares.
45. Following the purchase for cancellation described in paragraph 44 above, Subco A will be wound-up into Transferee A. As a consequence, Transferee A will receive all the properties transferred by DC to Subco A and will assume all the liabilities and commitments of Subco A, including the Class A Redemption Note. In due course, Subco A will file tax returns and articles of dissolution.
46. DC and Transferee A will then set-off the principal amount of their mutual debt obligations (i.e., the DC Note A and the Class A Redemption Note). Each obligation will then be cancelled.
47. DC and Transferee Z will then set-off the principal amount of their mutual debt obligations (i.e., the DC Note Z and the Class A Redemption Note). Each obligation will then be cancelled.
48. Following the Proposed Transactions described above, DC will be dissolved, having no assets and no liabilities.
Any excess dividend refund or refund of overpayment of taxes for DC's current taxation year to which DC becomes entitled as a result of the Proposed Transactions described herein or otherwise, will be distributed (under the terms of the winding-up) to each of Transferee A and Transferee Z in the same proportion as described in paragraphs 35 and 36 above.
Following the distribution of such tax accounts, Articles of Dissolution will be filed with the appropriate Corporate Registry and upon receipt of the Certificate of Dissolution, DC will be dissolved. In due course, DC will file tax returns.
SECOND BUTTERFLY
The transactions described in paragraphs 49 to 62 below will only be carried out by those shareholders of Transferee Z who hold common shares in the capital of Transferee Z, being those who have not fully cashed out their interest in DC as described in paragraphs 17 to 23. The shareholders of Transferee Z who hold only Class C Preferred Shares will carry out the transactions described in paragraph 70.1.
49. Mr. G will cause the incorporation of a corporation ("Transferee G") under the BCA. Mr G will be the sole director of Transferee G. Transferee G will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee G will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
50. Upon the incorporation of Transferee G the following shares will be issued:
Shareholder Class ACB PUC
Mr. G XXXXX Common $XXXXX $XXXXX
No other shares of Transferee G will be issued prior to the transactions described in paragraph 64 below.
51. Mr. H will cause the incorporation of a corporation ("Transferee H") under the Canada Business Corporations Act. Mr H will be the sole director of Transferee H. Transferee H will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee H will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
52. Upon the incorporation of Transferee H the following shares will be issued:
Shareholder Class ACB PUC
Mr. H XXXX Common $XXXXX $XXXXX
No other shares of Transferee H will be issued prior to the transactions described in paragraph 65 below.
53. Mrs. I will cause the incorporation of a corporation ("Transferee I") under the BCA. Mrs. I will be the sole director of Transferee I. Transferee I will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee I will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
54. Upon the incorporation of Transferee I the following shares will be issued:
Shareholder Class ACB PUC
Mrs. I XXXX Common $XXXX $XXXX
No other shares of Transferee I will be issued prior to the transactions described in paragraph 66 below.
55. Mr. J will cause the incorporation of a corporation ("Transferee J") under the BCA. Mr J will be the sole director of Transferee J. Transferee J will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee J will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
56. Upon the incorporation of Transferee J the following shares will be issued:
Shareholder Class ACB PUC
Mr. J XXXX Common $XXXXX $XXXX
No other shares of Transferee J will be issued prior to the transactions described in paragraph 67 below.
57. Ms. K will cause the incorporation of a corporation ("Transferee K") under the BCA. Mr K will be the sole director of Transferee K. Transferee K will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee K will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
58. Upon the incorporation of Transferee K the following shares will be issued:
Shareholder Class ACB PUC
Ms. K XXXX Common $XXXXX $XXXX
No other shares of Transferee K will be issued prior to the transactions described in paragraph 68 below.
59. Mr. L will cause the incorporation of a corporation ("Transferee L") under the BCA. Mr. L will be the sole director of Transferee L. Transferee L will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee L will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
60. Upon the incorporation of Transferee L the following shares will be issued:
Shareholder Class ACB PUC
Mr. L XXXX Common $XXXXX $XXXXX
No other shares of Transferee L will be issued prior to the transactions described in paragraph 69 below.
61 Mrs. M will cause the incorporation of a corporation ("Transferee M") under the BCA. Mrs. M will be the sole director of Transferee M. Transferee M will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee M will be:
(a) an unlimited number of Class A voting preferred shares (the "Class A Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum;
(b) an unlimited number of Class B non-voting preferred shares (the "Class B Preferred Shares"), redeemable/retractable at $XXXXXXXXXX per share, issuable in fractions, entitled to dividends at the rate of XXXXXXXXXX % per annum; and
(c) an unlimited number of common shares.
62. Upon the incorporation of Transferee M the following shares will be issued:
Shareholder Class ACB PUC
Mr. M XXXX Common $XXXX $XXXX
No other shares of Transferee M will be issued prior to the transactions described in paragraph 70 below.
63. For the purposes of subsection 191(4) of the Act, the terms and conditions of the Class A Preferred Shares of Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M will specify an amount in respect of each such share for which the share is to be redeemed, acquired or cancelled. The amount shall be designated pursuant to the resolution of the directors of Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M, as the case may be, made in connection with the issuance of such share. The amount specified in respect of such share, at the time of the issuance thereof, will be expressed as a fixed dollar amount that will not be determined by formula or subject to change thereafter and will not exceed the fair market value of the consideration for which the share is issued.
64. Mr. G will transfer all his common shares and Class C Preferred Shares, if any, in the capital of Transferee Z (hereinafter, referred to as "DC2") to Transferee G in exchange for Class B Preferred Shares of Transferee G having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee G.
Mr. G and Transferee G will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee G. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee G to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Mr. G immediately before the transfer.
65. Mr. H will transfer all his common shares and Class C Preferred Shares, if any, in the capital of DC2 to Transferee H in exchange for Class B Preferred Shares of Transferee H having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee H.
Mr. H and Transferee H will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee H. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee H to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Mr. H immediately before the transfer.
66. Mrs. I will transfer all her common shares and Class C Preferred Shares, if any, in the capital of DC2 to Transferee I in exchange for Class B Preferred Shares of Transferee I having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee I.
Mrs. I and Transferee I will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee I. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee I to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Mrs. I immediately before the transfer.
67. Mr. J will transfer all his common shares and Class C Preferred Shares, if any, in the capital of DC2 to Transferee J in exchange for Class B Preferred Shares of Transferee J having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee J.
Mr. J and Transferee J will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee J. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee J to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Mr. J immediately before the transfer.
68. Ms. K will transfer all her common shares and Class C Preferred Shares, if any, in the capital of DC2 to Transferee K in exchange for Class B Preferred Shares of Transferee K having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee K.
Ms. K and Transferee K will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee K. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee K to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Ms. K immediately before the transfer.
69. Mr. L will transfer all his common shares and Class C Preferred Shares, if any, in the capital of DC2 to Transferee L in exchange for Class B Preferred Shares of Transferee L having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee L.
Mr. L and Transferee L will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee L. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee L to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Mr. L immediately before the transfer.
70. Mrs. M will transfer all her common shares and Class C Preferred Shares, if any, in the capital of DC2 to Transferee M in exchange for Class B Preferred Shares of Transferee M having an aggregate fair market value equal to the fair market value of the shares of DC2 transferred to Transferee M.
Mrs. M and Transferee M will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee M. The agreed amount specified in the election will be equal to the ACB of the common shares, which amount will be less than their fair market value at the time of the transfer.
The amount to be added to the stated capital of the Class B Preferred Shares of Transferee M to be issued as described herein will not exceed the ACB of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to Mrs. M immediately before the transfer.
70.1 Those shareholders of DC2 who hold only Class C Preferred Shares will cause the incorporation of a corporation ("Transferee N") under the BCA. Each of such shareholders will be appointed a director of Transferee N. Transferee N will be a taxable Canadian corporation and a private corporation. The authorized share capital of Transferee N will be an unlimited number of common shares.
No shares will be issued on the incorporation of Transferee N.
Each such shareholder will transfer all of his/her Class C Preferred Shares in the capital of DC2 to Transferee N in exchange for 1 common share in the capital of Transferee N.
Each such shareholder and Transferee N will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC2 shares as described herein to Transferee N. The agreed amount specified in the election will be equal to the ACB of the transferred shares, which amount will be less than, or equal to, their fair market value at the time of the transfer.
The amount to be added to the stated capital of the common shares of Transferee N to be issued as described herein will not exceed the adjusted cost base of the shares of DC2, as adjusted for purposes of section 84.1 of the Act, to each such shareholder immediately before the transfer.
71. Immediately before the transfers of property described in paragraphs 73 to 79 below, the property owned by DC2 will be classified into the following three different types of property for the purposes of the definition of "distribution" in subsection 55(1) and paragraph 55(3)(b):
(a) cash or near cash property, comprising all of the current assets of DC2. This category will include cash, accounts receivable and, if applicable the DC Subco common shares and the DC Subco Promissory Note (to the extent such has not been fully used to pay the capital dividend described in paragraph 14);
(b) investment property, comprising all of the assets of DC2, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or from a SIB; and
(c) business property, comprising all of the assets of DC2, 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 SIB). The business property of DC2 at that time will have a value of nil.
For the purpose of calculating the fair market value of each type of property, as described above, DC2 will not have significant influence over any corporation.
Any tax accounts of DC2, such as the amount of refundable dividend tax on hand, the balance of any capital dividend account, or any deferred income tax debit balance will not be considered property for purposes of the classification described herein.
72. The transfers of property described in paragraphs 73 to 79 below, will be made on a gross FMV basis. In determining the gross fair market value of each type of property of DC2 immediately before the transfers of property described in paragraphs 73 to 79 below, no liabilities of DC2 will be allocated to, and deducted in the calculation of the gross fair market value of each type of property of DC2.
The transactions described in paragraphs 73 to 79 below will only be carried out by those shareholders of DC2 who hold common shares. The shareholders of DC2 who hold only Class C Preferred Shares will carry out the transactions described in paragraph 115.1.
73. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee G such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee G, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee G at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee G has received as compared to what Transferee G would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee G as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee G will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee G exceeds the amount of the liabilities assumed by Transferee G as described in (c) above.
Transferee G will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee G (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
74. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee H such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee H, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee H at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee H has received as compared to what Transferee H would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee H as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee H will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee H exceeds the amount of the liabilities assumed by Transferee H as described in (c) above.
Transferee H will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee H (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
75. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee I such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee I, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee I at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee I has received as compared to what Transferee I would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee I as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee I will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee I exceeds the amount of the liabilities assumed by Transferee I as described in (c) above.
Transferee I will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee I (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
76. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee J such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee J, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee J at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee J has received as compared to what Transferee J would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee J as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee J will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee J exceeds the amount of the liabilities assumed by Transferee J as described in (c) above.
Transferee J will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee J (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
77. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee K such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee K, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee K at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee K has received as compared to what Transferee K would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee K as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee K will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee K exceeds the amount of the liabilities assumed by Transferee K as described in (c) above.
Transferee K will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee K (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
78. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee L such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee L, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee L at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee L has received as compared to what Transferee L would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee L as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee L will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee L exceeds the amount of the liabilities assumed by Transferee L as described in (c) above.
Transferee L will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee L (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
79. Immediately following the determination of the gross fair market value of its cash or near cash property and its investment property as described in paragraphs 71 and 72 above, DC2 will transfer at fair market value a portion of each type of property owned by it at that time to Transferee M such that immediately following the transfers, the gross fair market value of each type of property so transferred by DC2 to Transferee M, determined in accordance with the guidelines described in paragraphs 71 and 72 above, will approximate that proportion of the gross fair market value of all property of DC2 of that type determined immediately before such transfer that:
(a) the aggregate fair market value, immediately before the transfers, of all of the shares of DC2 owned by Transferee M at that time
is of
(b) the aggregate fair market value, immediately before the transfers, of all the issued and outstanding shares of DC2 at that time.
For the purpose of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the gross fair market value of each type of property which Transferee M has received as compared to what Transferee M would have received had it received its appropriate pro rata share of the gross fair market value of that type of property; however, the aggregate gross fair market value of all property of DC2 transferred to Transferee M as described herein will be equal to that proportion determined by (a) and (b) above of the aggregate gross fair market value of all property of DC2 immediately before the transfers.
As consideration for the property so transferred, Transferee M will:
(c) assume a portion of the liabilities of DC2 in the proportion determined by (a) and (b) above of the aggregate liabilities of DC2 immediately before the transfers, and
(d) issue to DC2 Class A Preferred Shares of its capital stock having an aggregate fair market value and redemption amount equal to the amount by which the aggregate fair market value of the property transferred to Transferee M exceeds the amount of the liabilities assumed by Transferee M as described in (c) above.
Transferee M will add to the stated capital account in respect of the Class A Preferred Shares it issues an amount not exceeding the cost to Transferee M (as determined under section 85, where relevant) of the property transferred to it less any liabilities assumed by it.
80. The liabilities of DC2 to be assumed by Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M described in paragraphs 73 to 79 above will include the contingent liabilities of DC2 as described in sub-paragraph 11(vii) above and assumed by DC2 under paragraph 36. It is not anticipated that such liabilities, if any, would be in an amount anywhere near the amount which would result, taking into account other liabilities assumed by Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M described in sub-paragraph (c) of paragraphs 73 to 79 above, in the non-share consideration received by DC2 being in excess of the cost to Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M, respectively, as determined under section 85, where relevant, of the property transferred to Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M, as described in paragraphs 73 to 79 above. Such liabilities will be secured in part through the Indemnity Fund. The Indemnity Fund will be held in the form of cash and/or irrevocable letters of credit. It will be a condition of any distribution of assets contemplated in the Proposed Transactions that the recipient thereof contribute to the Indemnity Fund his/her/its pro rata share.
81. In respect of the transfers described in paragraph 73 above, DC2 and Transferee G will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee G, as described in paragraph 73 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee G as consideration for the transfer of such property.
82. In respect of the transfers described in paragraphs 74 above, DC2 and Transferee H will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee H, as described in paragraph 74 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee H as consideration for the transfer of such property.
83. In respect of the transfers described in paragraphs 75 above, DC2 and Transferee I will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee I, as described in paragraph 75 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee I as consideration for the transfer of such property.
84. In respect of the transfers described in paragraphs 76 above, DC2 and Transferee J will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee J, as described in paragraph 76 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee J as consideration for the transfer of such property.
85. In respect of the transfers described in paragraphs 77 above, DC2 and Transferee K will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee K, as described in paragraph 77 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee K as consideration for the transfer of such property.
86. In respect of the transfers described in paragraphs 78 above, DC2 and Transferee L will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee L, as described in paragraph 78 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee L as consideration for the transfer of such property.
87. In respect of the transfers described in paragraphs 79 above, DC2 and Transferee M will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC2 to Transferee M, as described in paragraph 79 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC2. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:
(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).
In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount of any liabilities assumed by Transferee M as consideration for the transfer of such property.
88. Transferee G will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
89. Transferee G will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 88.
90. Transferee H will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
91. Transferee H will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 90.
92. Transferee I will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
93. Transferee I will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 92.
94. Transferee J will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
95. Transferee J will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 94.
96. Transferee K will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
97. Transferee K will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 96.
98. Transferee L will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
99. Transferee L will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 98.
100. Transferee M will then redeem the Class A Preferred Shares held by DC2 at their aggregate redemption amount and fair market value and will pay the redemption amount by issuing to DC2 a demand promissory note (the "Class A Redemption Note") having a principal amount and fair market value equal to the redemption amount of the Class A Preferred Shares. DC2 will accept the Class A Redemption Note as full payment for the redemption amount of the Class A Preferred Shares so redeemed.
101. Transferee M will cause its first taxation year to end immediately after the redemption of the Class A Preferred Shares provided for in paragraph 100.
102. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee G for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee G as have a value equal to the proportion, as determined under paragraph 73, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee G will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee G a demand promissory note, or notes, as the case may be, (the "DC2 Note G") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee G will accept the DC2 Note G in full payment of the purchase price of the common shares and Class C Shares, if any,
103. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee H for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee H as have a value equal to the proportion, as determined under paragraph 74, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee H will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee H a demand promissory note, or notes, as the case may be, (the "DC2 Note H") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee H will accept the DC2 Note H in full payment of the purchase price of the common shares and Class C Shares, if any,
104. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee I for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee I as have a value equal to the proportion, as determined under paragraph 75, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee I will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee I a demand promissory note, or notes, as the case may be, (the "DC2 Note I") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee I will accept the DC2 Note I in full payment of the purchase price of the common shares and Class C Shares, if any,
105. DC2 will purchase for cancellation all of common shares and Class C Shares, if any, of its capital stock owned by Transferee J for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee J as have a value equal to the proportion, as determined under paragraph 76, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee J will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee J a demand promissory note, or notes, as the case may be, (the "DC2 Note J") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee J will accept the DC2 Note J in full payment of the purchase price of the common shares and Class C Shares, if any,
106. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee K for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 and common shares held by Transferee K as have a value equal to the proportion, as determined under paragraph 77, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee K will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee K a demand promissory note, or notes, as the case may be, (the "DC2 Note K") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee K will accept the DC2 Note K in full payment of the purchase price of the common shares and Class C Shares, if any,
107. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee L for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee L as have a value equal to the proportion, as determined under paragraph 78, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee L will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee L a demand promissory note, or notes, as the case may be, (the "DC2 Note L") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee L will accept the DC2 Note L in full payment of the purchase price of the common shares and Class C Shares, if any,
108. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee M for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA the purchase for cancellation of DC2's shares will be accomplished in two steps.
Under the first step, DC2 will purchase for cancellation that number of DC2 and common shares held by Transferee M as have a value equal to the proportion, as determined under paragraph 79, of the Pre-Transaction CDA. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.
Under the second step, all remaining DC2 shares held by Transferee M will be purchased for cancellation.
DC2 will pay the purchase price for such shares by issuing to Transferee M a demand promissory note, or notes, as the case may be, (the "DC2 Note M") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee M will accept the DC2 Note M in full payment of the purchase price of the common shares and Class C Shares, if any,
109. DC2 and Transferee G will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note G and the Class A Redemption Note). Each obligation will then be cancelled.
110. DC2 and Transferee H will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note H and the Class A Redemption Note). Each obligation will then be cancelled.
111. DC2 and Transferee I will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note I and the Class A Redemption Note). Each obligation will then be cancelled.
112. DC2 and Transferee J will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note J and the Class A Redemption Note). Each obligation will then be cancelled.
113. DC2 and Transferee K will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note K and the Class A Redemption Note). Each obligation will then be cancelled.
114. DC2 and Transferee L will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note L and the Class A Redemption Note). Each obligation will then be cancelled.
115. DC2 and Transferee M will then set-off the principal amount of their mutual debt obligations (i.e., the DC2 Note M and the Class A Redemption Note). Each obligation will then be cancelled.
115.1 DC2 will purchase for cancellation all of the Class C Preferred Shares of its capital stock held by Transferee N for fair market value consideration, which consideration will be nominal.
115.2. Immediately following the Proposed Transactions described above, DC2 will be dissolved, having no assets and no liabilities. Any dividend refund or refund of overpayment of taxes for DC2's XXXXXXXXXX taxation year to which DC2 becomes entitled as a result of the Proposed Transactions described herein, will be distributed (under the terms of the winding-up) to each of Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M in the same proportion as described in paragraphs 73 to 79 above.
Following the distribution of such tax accounts, Articles of Dissolution will be filed with the appropriate Corporate Registry and upon receipt of the Certificate of Dissolution, DC2 will be dissolved. In due course, DC2 will file tax returns.
116. Other than as described in paragraph 11 above, none of the transactions or events described in the facts of this letter occurred as part of the same series of transactions or events as the Proposed Transactions described in this letter.
117. Other than as described in paragraphs 11 and 13.2 above, no liabilities have been incurred by, and no assets have been acquired by or disposed of by DC or any predecessor thereof in contemplation of the Proposed Transactions described herein.
118. None of DC, DC Subco, Subco A, Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L, Transferee M, Transferee N and Transferee Z/DC2, at the time the Proposed Transactions described herein are implemented, will be an SFI or a restricted financial institution.
119. None of the shares of DC, DC Subco, Subco A, Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L, Transferee M, Transferee N and Transferee Z/DC2 will be, at any time during the implementation of the Proposed Transactions described herein:
(a) the subject of any undertaking or agreement that is referred to in subsection 112(2.2) as a "guarantee agreement";
(b) issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5); or
(c) the subject of a "dividend rental arrangement" as that term is defined in subsection 248(1).
120. None of the Class A Preferred Shares of Subco A, Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L, Transferee M and Transferee Z/DC2 will be issued for consideration that includes a taxable preferred share.
121. Immediately prior to the redemptions of the Class A shares held by DC in the capital of Subco A described in paragraph 40 above, Subco A will be connected with DC pursuant to paragraph 186(4)(a) of the Act.
122. Immediately prior to the redemptions of the Class A shares held by DC in the capital of Transferee Z described in paragraph 41 above, Transferee Z will be connected with DC pursuant to paragraph 186(4)(b) of the Act.
123. Immediately prior to the purchase for cancellation of the common shares held by Transferee A in the capital of DC described in paragraph 44 above, DC will be connected with Transferee A pursuant to paragraph 186(4)(a) of the Act.
124. Immediately prior to the purchase for cancellation of the common shares held by Transferee Z in the capital of DC described in paragraph 43 above, DC will be connected with DC2 pursuant to paragraph 186(4)(b) of the Act.
125. Immediately prior to the redemptions of the Class A shares held by DC2 in the capital of Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M described in paragraphs 88, 90, 92, 94, 96, 98 and 100 above, each of Transferee G, Transferee H, Transferee I, Transferee J, Transferee L and Transferee M will be connected with DC2 pursuant to paragraph 186(4)(a) of the Act. Transferee K will not be connected with DC2 pursuant to paragraph 186(4)(a) of the Act.
126. Immediately prior to the purchases for cancellation of the common shares held by Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M in the capital of DC2 described in paragraphs 102 to 108 above, DC2 will be connected with each of Transferee G, Transferee H, Transferee I, Transferee J, Transferee L and Transferee M pursuant to paragraph 186(4)(a) of the Act. DC2 will not be connected to Transferee K pursuant to paragraph 186(4)(a) of the Act.
127. The fair market value of the Class A Redemption Notes of Subco A and Transferee Z acquired by DC as described in paragraphs 43 and 44 above will be equal to their respective principal amounts at all times.
128. The fair market value of the DC Notes acquired by Subco A and Transferee Z as described in paragraphs 40 and 41 above will be equal to their respective principal amounts at all times.
129. The fair market value of the Class A Redemption Notes of Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M acquired by DC2 as described in paragraphs 88, 90, 92, 94, 96, 98 and 100 above will be equal to their respective principal amounts at all times.
130. The fair market value of the DC2 Notes acquired by Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M as described in paragraphs 102 to 108 above will be equal to their respective principal amounts at all times.
131. None of the individuals and corporations described herein has any intention of disposing of any shares of their respective Transferee corporations.
PURPOSE OF THE PROPOSED TRANSACTIONS:
The purpose of the Proposed Transactions is to distribute a proportionate share of the assets of DC to the respective shareholders in order to separate the interests of the various shareholders of DC such that the interest in the underlying assets is held directly in the respective Transferee corporations. In essence, the proposed series of transactions is a split up of the existing assets of DC which will permit the individual shareholders to determine the future investment policies of the new corporations controlled by them independently. The cashing out transactions are required for a number of reasons including specific cash needs of certain shareholders. It is anticipated XXXXXXXXXX of the non-specified shareholders will make Cash Calls in respect of their entire interest in DC (other than a nominal amount). The Proposed Transactions will result in a resolution of the ongoing dispute between the shareholders of DC.
RULINGS:
Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, the Proposed Transactions, and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed as described, our rulings are as follows:
A. Subparagraph 40(2)(g)(i) will not apply on the disposition of any Class B Freeze Shares by a shareholder of DC to Transferee Z.
B. Subject to the application of subsection 69(11), subsection 85(1) will apply to each transfer of eligible property by DC to Subco A and Transferee Z described in paragraphs 35 and 36 above that is the subject of an election described in paragraphs 38 and 39 above such that the agreed amount pursuant to paragraph 85(1)(a) in respect of each such transfer will be deemed to be the proceeds of disposition of such property to DC and the cost of such property to Subco A and Transferee Z, as the case may be.
C. Subject to the application of subsection 69(11), subsection 85(1) will, as applicable, apply to each transfer of eligible property by DC2 to Transferee G, Transferee H, Transferee I , Transferee J, Transferee K, Transferee L and Transferee M described in paragraphs 73 to 79 above that is the subject of an election described in paragraphs 81 to 87 above such that the agreed amount pursuant to paragraph 85(1)(a) in respect of each such transfer will be deemed to be the proceeds of disposition of such property to DC2 and the cost of such property to Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M, as the case may be.
D. On the redemption of the Class A Preferred Shares by Subco A described in paragraph 40 above, and on the purchase for cancellation of the all of the DC shares owned by Transferee A, as described in paragraphs 44 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Subco A will be deemed to have paid, and DC will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC will be deemed to have paid, and Transferee A will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC shares owned by Transferee A exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC and Transferee A in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Subco A will be connected with DC and DC will be connected with Transferee A pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Subco A is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee A will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee A is of the aggregate of all taxable dividends paid by DC in its taxation year in which such dividends are paid.
E. On the redemption of the Class A Preferred Shares by Transferee Z described in paragraph 41 above, and on the purchase for cancellation of the all of the DC shares owned by Transferee Z, as described in paragraphs 43 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee Z will be deemed to have paid, and DC will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC will be deemed to have paid, and Transferee Z will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC shares owned by Transferee Z exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC and Transferee Z in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee Z will be connected with DC and DC will be connected with Transferee Z pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee Z is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee Z will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee Z is of the aggregate of all taxable dividends paid by DC in its taxation year in which such dividends are paid.
F. On the redemption by Transferee G of the Class A Preferred Shares described in paragraph 88 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee G, as described in paragraph 102 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee G will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee G will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee G exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee G in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee G will be connected with DC2 and DC2 will be connected with Transferee G pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee G is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC2 will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee G will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC2 will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee G is of the aggregate of all taxable dividends paid by DC2 in its taxation year in which such dividends are paid.
G. On the redemption by Transferee H of the Class A Preferred Shares described in paragraph 90 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee H, as described in paragraph 103 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee H will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee H will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee H exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee H in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee H will be connected with DC2 and DC2 will be connected with Transferee H pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee H is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC2 will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee H will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC2 will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee H is of the aggregate of all taxable dividends paid by DC2 in its taxation year in which such dividends are paid.
H. On the redemption by Transferee I of the Class A Preferred Shares described in paragraph 92 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee I, as described in paragraph 104 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee I will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee I will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee I exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee I in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee I will be connected with DC2 and DC2 will be connected with Transferee I pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee I is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC2 will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee I will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC2 will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee I is of the aggregate of all taxable dividends paid by DC2 in its taxation year in which such dividends are paid.
I. On the redemption by Transferee J of the Class A Preferred Shares described in paragraph 94 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee J, as described in paragraph 105 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee J will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee J will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee J exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee J in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee J will be connected with DC2 and DC2 will be connected with Transferee J pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee J is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC2 will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee J will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC2 will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee J is of the aggregate of all taxable dividends paid by DC2 in its taxation year in which such dividends are paid.
J. On the redemption by Transferee K of the Class A Preferred Shares described in paragraph 96 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee K, as described in paragraph 106 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee K will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee K will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee K exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee K in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
K. On the redemption by Transferee L of the Class A Preferred Shares described in paragraph 98 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee L, as described in paragraph 107 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee L will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee L will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee L exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee L in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee L will be connected with DC2 and DC2 will be connected with Transferee L pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee L is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC2 will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee L will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC2 will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee L is of the aggregate of all taxable dividends paid by DC2 in its taxation year in which such dividends are paid.
L. On the redemption by Transferee M of the Class A Preferred Shares described in paragraph 100 above, and on the purchase for cancellation of the all of the DC2 shares owned by Transferee M, as described in paragraph 108 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) Transferee M will be deemed to have paid, and DC2 will be deemed to have received taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class A Preferred Shares exceeds the PUC of those shares immediately before the redemption;
(ii) DC2 will be deemed to have paid, and Transferee M will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee M exceeds the PUC of those shares immediately before the purchase;
(b) the taxable dividends deemed to have been received by each of DC2 and Transferee M in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) the taxable deemed dividends referred to in (a)(i) and (a)(ii) above will not be subject to tax under Part IV.1 of the Act;
(d) the taxable deemed dividends referred to in (a)(i) above will not be subject to tax under Part VI.1 of the Act on the basis that such dividends will be deemed to be excluded dividends pursuant to subsection 191(4), but only to the extent that the amount paid to DC on the redemption of each Class A Preferred Share does not exceed the amount specified in respect of the share for the purposes of subsection 191(4);
(e) the taxable deemed dividends referred to in (a)(ii) above will not be subject to tax under Part VI.1 of the Act;
(f) Transferee M will be connected with DC2 and DC2 will be connected with Transferee M pursuant to subsection 186(4) of the Act. Consequently:
(i) provided that Transferee M is not entitled to a dividend refund (within the meaning of subsection 129(1) of the Act) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) above, DC2 will not be subject to Part IV tax in respect of such dividends, and
(ii) Transferee M will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the dividend refund to which DC2 will become entitled for its taxation year in which the dividends referred to in (a)(ii) above, are paid, that the amount of such dividends received by Transferee M is of the aggregate of all taxable dividends paid by DC2 in its taxation year in which such dividends are paid.
L.1. On the redemption by DC2 of the Class C Shares owned by Transferee N, as described in paragraph 115.1 above:
(a) pursuant to paragraphs 84(3)(a) and 84(3)(b):
(i) DC2 will be deemed to have paid, and Transferee N will be deemed to have received, taxable dividends at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of all of the DC2 shares owned by Transferee N exceeds the PUC of those shares immediately before the purchase;
(b) the taxable deemed dividends referred to in (a) above will be:
(i) included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);
(ii) deductible in computing the taxable income of the recipient for the year in which the dividends are deemed to have been received pursuant to subsection 112(1) and such deductions will not be denied by any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
M. [ ]
N. The extinguishments of:
(a) the DC Note A and the DC Note Z by DC; and
(b) the Class A Redemption Notes by Transferee A and Transferee Z,
as described in paragraphs 46 and 47 above, will not, in and of themselves, result in a forgiven amount within the meaning of either subsection 80(1) or section 80.01. In addition, DC, Transferee A and Transferee Z will not otherwise realize any gain or incur any loss as a result of such extinguishments.
O. The extinguishments of:
(a) the DC2 Note G, the DC2 Note H, the DC2 Note I, the DC2 Note J, the DC2 Note K, the DC2 Note L and the DC2 Note M by DC2; and
(b) the Class A Redemption Notes by Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M,
as described in paragraphs 109 to 115 above, will not, in and of themselves, result in a forgiven amount within the meaning of either subsection 80(1) or section 80.01. In addition, DC2, Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M will not otherwise realize any gain or incur any loss as a result of such extinguishments.
P. Subsection 245(2) will not be applied, as a result of the Proposed Transactions in and by themselves, to re-determine the tax consequences confirmed in the rulings given.
Q. Provided that as part of the series of transactions or events that includes the Proposed Transactions, there is not:
(a.1) an acquisition of property in circumstances described in paragraph 55(3.1)(a);
(a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(c) an acquisition of shares of the capital stock of the distributing corporation in the circumstances described in subparagraph 55(3.1)(b)(iii);
(d) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(e) 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 apply to the taxable dividends referred to in Ruling D, E, F, G, H, I, J, K, L and L.1 above, and for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
R. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not apply as a result of the Proposed Transactions described herein, in and by themselves.
S. Provided that the addition to the stated capital of the Class B Preferred Shares in the capital of Transferee A and the common shares of Transferee Z issued as described in paragraphs 31 and 32 above does not exceed the ACB of the shares of DC held by the shareholders of DC as determined for purposes of section 84.1 of the Act, the application of subsection 84.1(1) thereto will not result:
(a) in a reduction of the PUC, pursuant to paragraph 84.1(1)(a), of the Class B Preferred Shares and common shares so issued, or
(b) in a deemed dividend, pursuant to paragraph 84.1(1)(b), to Mr. A, Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M.
T. Provided that the addition to the stated capital of the Class B Preferred Shares in the capital of Transferee G, Transferee H, Transferee I, Transferee J, Transferee K, Transferee L and Transferee M issued as described in paragraphs 64 to 70 above does not exceed the ACB of the shares of DC held by the shareholders of DC as determined for purposes of section 84.1 of the Act, the application of subsection 84.1(1) thereto will not result:
(a) in a reduction of the PUC, pursuant to paragraph 84.1(1)(a), of the Class B Preferred Shares so issued, or
(b) in a deemed dividend, pursuant to paragraph 84.1(1)(b), to Mr. A, Mr. G, Mr. H, Mrs. I, Mr. J, Ms. K, Mr. L and Mrs. M.
U. DC will not have a year end as a result of any of the Proposed Transactions other than a year end which may arise as a result of its dissolution as described in paragraph 48.
V. The offsetting of the Mr. H Shareholder Loan as part of the transactions described at paragraph 17 above will give rise to a deduction by Mr. H under paragraph 20(1)(j) of the Act in an amount equal to the lesser of (i) the amount thereof included in Mr. H's taxable income pursuant to section 15(1) in a prior taxation year and (ii) such repayment or repayments provided such repayment or repayments was, or were, not made as part of a series of loans or other transactions and repayments.
Our rulings are given subject to the limitations set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided the Proposed Transactions are completed within six months of the date of this letter. Our rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act or Regulations.
Nothing in this ruling should be construed as implying that CRA has reviewed any tax consequences relating to the facts or the Proposed Transactions other than those described in the rulings given above, or has agreed:
(a) to the fair market value or adjusted cost base of any asset or to the paid-up capital of any share;
(b) to the CDA or RDTOH balances of any corporation; or
(c) to the characterization of any amount as a 'retiring allowance' for purposes of the Act.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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