On the day before a third party acquired all of the shares of a Canadian-controlled private corporation (CCPC), two directors of its directors exercised their stock options and then, on the acquisition date, the shares so acquired by them were purchased for cancellation by Opco so to reduce the number of issued and outstanding shares to the number agreed with the third party acquirer. In finding that their shares were not prescribed shares, so that the s. 110(1)(d) deduction was unavailable, CRA stated, regarding the condition in Reg. 6204(1)(b):
[T]his condition would not be met since at the time of issue it was reasonable to expect that the shares would be acquired and cancelled by the corporation.