TAX CONSEQUENCES TO CANADIAN RESIDENT SHAREHOLDERS WHO RECEIVE AYLEN SHARES AS A RESULT OF CENTIVA ARRANGEMENT

Will I need to include the value of the Aylen shares in my income?
Aylen, based on professional advice, is of the view that the distribution by Centiva of Aylen shares constitutes a taxfree return of capital and is not considered to be a dividend. However, Aylen did not apply for an advance income tax ruling or opinion from the Canada Revenue Agency confirming that the distribution of the Aylen shares will be treated as a taxfree return of capital and not as a deemed dividend. Shareholders should consult their own tax advisors to determine whether to report the distribution as a taxfree return of capital or a deemed dividend.

Will the receipt of the Aylen shares affect the adjusted cost base of the Centiva common shares that I own?
The adjusted cost base of your Centiva common shares will be reduced by the value of your Aylen shares that you received in connection with the distribution. This value will also become your adjusted cost base in your Aylen shares.

What was the value of my Aylen shares at the time of the distribution by Centiva?
With respect to the value of your Aylen shares, you should note that the Canadian tax authorities do not prescribe any specific methodology for determining such value. Aylen believes that $0.095 per share provides an accurate indication of such value. However, Aylen cannot provide assurance that the Canadian tax authorities will agree with the value as determined by Aylen. Consequently, Aylen should not be considered responsible for any additional tax, interest or penalties assessed by the Canadian tax authorities should you decide to use the abovementioned estimate of the value of the shares.

Could you please provide some examples which explain the Canadian tax consequences?
Assume that you own 100 Centiva common shares having an adjusted cost base of $100. On the distribution, assume that you received 100 Aylen shares with an aggregate value of $9.50 (100 x $0.095). The adjusted cost base of your Centiva common shares would be reduced by $9.50 as a result of the distribution of the Aylen shares, which is received taxfree. Therefore, the adjusted cost base of your Centiva shares is $90.50 (or $0.905 per share) and the adjusted cost base of the Aylen shares received is $9.50 (or $0.095 per share).
If, however, the adjusted cost base of your Centiva common shares is an aggregate of $9.00, and you received Aylen shares worth $9.50 on the distribution, the adjusted cost case of your Centiva shares would be reduced to zero, and you would have a capital gain of $0.50, onehalf of which is included in computing your taxable income. The adjusted cost base of your Aylen shares would still be $9.50 (or $0.095 per share).

Need to report?
Unless you have a capital gain because the adjusted cost base of your Centiva common shares is less than the value of the Aylen shares you received on the distribution (see example above), you do not need to report or file anything with the tax authorities in respect of the distribution until you dispose of your Centiva or Aylen shares. At that time, you will need to know the adjusted cost base of your Centiva shares or your Aylen shares, as appropriate, to determine the amount of your capital gain or loss, if any.