2015-0585681R3 Cross-border spin-off butterfly

Principal Issues: Spin-off butterfly of assets from a corporation to another.

Position: Favourable rulings given.

Reasons: In compliance with the law and previous positions.

Author: XXXXXXXXXX
Section: 20(24); 55(3)(b); 55(3.1); 245(2)

XXXXXXXXXX                                                                                                                     2015-058568

XXXXXXXXXX, 2015

Madam,

Re:   Advance Income Tax Ruling
         XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. The documents submitted as part of your request are only part of this document to the extent described herein. We also acknowledge the information provided in various emails and telephone conversations.

To the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in this ruling application:

(a)   involves a previously filed tax return of the above-referenced taxpayer or a related person;

(b)   is being considered by a tax services office or a taxation centre in connection with a previously filed tax return of the above-referenced taxpayer or a related person;

(c)   is under objection by the above-referenced taxpayer or a related person;

(d)   is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

(e)   is the subject of a ruling previously considered by the Directorate.

Unless otherwise specified, all statutory references herein are to provisions or parts of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof (the “Act”) and all references to monetary amounts are in Canadian dollars.

I.    DEFINITIONS AND DESIGNATION OF THE PARTIES

In this ruling application, unless otherwise specified, the following terms have the meanings specified below:

“ACB” means adjusted cost base, as defined in section 54;

“Act” means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c. 1, as amended to the date hereof;

“agreed amount” means the amount agreed to by the transferor and the transferee in respect of the transfer of eligible property in a joint election filed pursuant to subsection 85(1);

“arm’s length” has the meaning assigned by subsection 251(1);

“Benefit Plan 1” means the XXXXXXXXXX as described in Paragraph 90;

“Benefit Plan 2” means the XXXXXXXXXX as described in Paragraph 90;

“Benefit Plan 3” means the XXXXXXXXXX as described in Paragraph 90;

“Butterfly Percentage” means the proportion, expressed as a percentage, that the net FMV of the business property owned (directly and indirectly) by Canadian DC that relates to the New Business Unit is of the net FMV of all of the business property of Canadian DC, determined: (i) immediately before the transfer of property by Canadian DC to Canadian TC described in Paragraph 120, and (ii) using the principles set out in Paragraphs 117 to 119;

“Canada Group” means, collectively, Canadian DC, Canadian Subco, Canco 1 and Canco 2;

“Canadian DC” means XXXXXXXXXX, a corporation existing under the XXXXXXXXXX;

“Canadian DC Articles” means the certificate and articles of amalgamation of Canadian DC which became effective on XXXXXXXXXX;

“Canadian DC Butterfly Shares” means the shares described in Paragraph 112(b)(ii);

“Canadian DC Class A Shares” means the shares described in Paragraph 45(c);

“Canadian DC Class B Shares” means the shares described in Paragraph 45(d);

“Canadian DC Class C Shares” means the shares described in Paragraph 45(e);

“Canadian DC Common Shares” means the shares described in Paragraph 45(a);

“Canadian DC New Common Shares” means the shares described in Paragraph 112(b)(i);

“Canadian DC Preferred Shares” has the meaning assigned in Paragraph 45;

“Canadian DC Redemption Amount” means the redemption amount of a Canadian DC Butterfly Share, as described in Paragraph 113(c);

“Canadian DC Redemption Note” means the promissory note described in Paragraph 125;

“Canadian DC Share Exchange” means the share exchange described in Paragraph 114;

“Canadian DC Shares” has the meaning assigned in Paragraph 45;

“Canadian DC Special Common Shares” means the shares described in Paragraph 45(b);

“Canadian Subco” means the corporation to be incorporated under the XXXXXXXXXX as described in Paragraph 106.1;

“Canadian TC” means the corporation to be incorporated under the XXXXXXXXXX as described in Paragraph 106;

“Canadian TC Butterfly Shares” means the shares described in Paragraph 106(b);

“Canadian TC Common Shares” means the shares described in Paragraph 106(a);

“Canadian TC Redemption Amount” means the redemption amount of a Canadian TC Butterfly Share, as described in Paragraph 107(c);

“Canadian TC Redemption Note” means the promissory note described in Paragraph 124;

“Canco 1” means XXXXXXXXXX, a corporation existing under the XXXXXXXXXX;

“Canco 2” means XXXXXXXXXX, a corporation existing under the XXXXXXXXXX;

“Canco 3” means XXXXXXXXXX, a corporation existing under the XXXXXXXXXX;

“capital property” has the meaning assigned by section 54 and subsection 248(1);

“Cash Pooling Accounts” has the meaning assigned in Paragraph 93;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

“CDA” means capital dividend account, as defined in subsection 89(1);

XXXXXXXXXX;

“cost amount” has the meaning assigned by subsection 248(1);

“CRA” means the Canada Revenue Agency;

“distribution” has the meaning assigned by subsection 55(1);

“Distribution Property” means the property owned by Canadian DC which will be transferred to Canadian TC pursuant to the First Distribution, as described in Paragraph 120;

“dividend refund” has the meaning assigned in paragraph 129(1)(a);

“eligible property” has the meaning assigned by subsection 85(1.1);

“financial intermediary corporation” has the meaning assigned by subsection 191(1);

“First Distribution” means the transfer of property described in Paragraph 120;

“First Distribution Steps” means the transactions described in Paragraphs 105 to 130;

“First Three-Party Share Exchange” means the share exchange described in Paragraph 115;

“FMV” means fair market value, being the highest price available in an open and unrestricted market between informed prudent parties acting at arm’s length and without compulsion to act, expressed in terms of cash;

“Forco 1” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 2” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 3” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 4” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 5” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 6” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 7” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 8” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 9” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 10” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 11” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 12” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 13” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 14” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 14 First Notes” has the meaning assigned in Paragraph 141;

“Forco 14 Notes” means the promissory notes described in Paragraph 131;

“Forco 14 Second Notes” has the meaning assigned in Paragraph 141;

“Forco 14 Short-Term Borrowing” has the meaning assigned in Paragraph 138;

“Forco 14 Third Notes” has the meaning assigned in Paragraph 141;

“Forco 15” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 16” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 17” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 18” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 19” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX

“Forco 20” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 20 Ordinary Shares” has the meaning assigned by Paragraph 39;

“Forco 21” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 22” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Forco 23” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Foreign Pubco 1” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Foreign Pubco 1 First Preference Shares” means the shares described in Paragraph 2(c);

“Foreign Pubco 1 Ordinary Shares” means the shares described in Paragraph 2(a);

“Foreign Pubco 1 Second Preference Shares” means the shares described in Paragraph 2(d);

“Foreign Pubco 1 Special Shares” means the shares described in Paragraph 2(b);

“Foreign Pubco 2” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX;

“Foreign Pubco 2 Deferred Shares” means the shares described in Paragraph 6(b);

“Foreign Pubco 2 Ordinary Shares” means the shares described in Paragraph 6(a);

“Former Canco” means XXXXXXXXXX, a corporation which existed under the XXXXXXXXXX and a predecessor to Canco 1 by way of amalgamation on XXXXXXXXXX;

“Global Reorganization Steps” means the transactions described in Paragraphs 97 to 103;

“GST” means the Goods and Services Tax imposed under the laws of Canada;

“HST” means the Harmonized Sales Tax imposed under the laws of Canada, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island;

“IFRS” means the International Financial Reporting Standards;

“insurance corporation” has the meaning assigned by subsection 138(1);

“Joint Group” has the meaning assigned in Paragraph 18(c);

“Joint Group Vendors” has the meaning assigned in Paragraph 18(c);

“New Business Unit” means the business unit of the Pubco Group that will carry on the Subcategory 1 operations as described in Paragraphs 16 and 17;

“Newco” means the corporation to be incorporated that is described in Paragraph 98;

“New DC” means the corporation to be incorporated under the laws of XXXXXXXXXX as described in Paragraph 105;

“New Global Holdco” means XXXXXXXXXX, a corporation formed under the laws of XXXXXXXXXX and acquired by Forco 14 as described in Paragraph 96;

“New TC” means the new corporation to be formed under the laws of XXXXXXXXXX as described in Paragraph 132;

“non-resident” has the meaning assigned by subsection 248(1);

“Note Settlement Steps” means the transactions described in Paragraphs 136 to 147;

XXXXXXXXXX;

“Paragraph” refers to a numbered paragraph in this advance income tax ruling application;

“Pension Fund” means the XXXXXXXXXX, a master trust which serves as an investment vehicle for certain pension plans sponsored by Canadian DC;

“Pension Plan 1” means the XXXXXXXXXX as described in Paragraph 90;

“Pension Plan 2” means the XXXXXXXXXX as described in Paragraph 90;

“Pension Plan 3” means the XXXXXXXXXX as described in Paragraph 90;

“Pension Plan 4” means the XXXXXXXXXX as described in Paragraph 90;

“Pension Plan 5” means the XXXXXXXXXX as described in Paragraph 90;

“Pension Plan 6” means the XXXXXXXXXX as described in Paragraph 90;

“permanent establishment” has the meaning assigned by subsection 400(2) of the Regulations;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

“POD” means proceeds of disposition, as defined in section 54;

“private corporation” has the meaning assigned by subsection 89(1);

“Proposed Transactions” means the transactions described in Section IV below;

“PST” means the Provincial Sales Tax imposed under the laws of British Columbia, Manitoba, and Saskatchewan;

“Pubco Group” means Foreign Pubco 1 and Foreign Pubco 2, together with their direct and indirect subsidiaries;

“Pubco 1 Group” has the meaning assigned in Paragraph 18(a);

“Pubco 1 Group Vendors” has the meaning assigned in Paragraph 18(a);

“Pubco 2 Group” has the meaning assigned in Paragraph 18(b);

“Pubco 2 Group Newco” means the corporation described in Paragraph 100;

“Pubco 2 Group Vendors” has the meaning assigned in Paragraph 18(b);

“Pubco 1 Holdco” means the corporation described in Paragraph 172.1(a);

“Pubco 2 Holdco” means the corporation described in Paragraph 172.1(b);

“PUC” means paid-up capital, as defined in subsection 89(1);

“Purchaseco” means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX;

“QST” means the Québec Sales Tax imposed under the laws of Québec;

“RDTOH” means refundable dividend tax on hand, as defined in subsection 129(3);

“Regulations” means the Income Tax Regulations, C.R.C., c.945, as amended to the date hereof;

“related persons” has the meaning assigned by subsection 251(2);

“Sale Note” means the promissory note described in Paragraph 67;

“Sales Offices” means the sales offices described in Paragraph 58;

“Sales Office 1” has the meaning assigned in Paragraph 58;

“Sales Office 2” has the meaning assigned in Paragraph 58;

“Sales Office 3” has the meaning assigned in Paragraph 58;

“Second Distribution” means the transaction described in Paragraph 135;

“Second Distribution Steps” means the transactions described in Paragraphs 131 to 135;

“Second Three-Party Share Exchange” means the share exchange described in Paragraph 133;

“ServiceCo” means the corporation described in Paragraph 100.1;

“Share Plan” means the XXXXXXXXXX;

“Share Plan Committee” has the meaning assigned in Paragraph 83;

“short-term preferred share” has the meaning assigned by subsection 248(1);

“Significant Influence” has the meaning assigned by IAS 28 of IFRS;

“specified class” has the meaning assigned by subsection 55(1);

“specified financial institution” has the meaning assigned by subsection 248(1);

“specified investment business” has the meaning assigned by subsection 125(7);

“Subcategory 1” means the business subcategory of the Pubco Group described in Paragraph 16;

“Subcategory 1 Vendors” has the meaning assigned in Paragraph 97;

“taxable Canadian corporation” has the meaning assigned by subsection 89(1);

“taxable Canadian property” has the meaning assigned by subsection 248(1);

“taxable dividend” has the meaning assigned by subsection 89(1);

“taxable preferred share” has the meaning assigned by subsection 248(1);

“taxable RFI share” has the meaning assigned by subsection 248(1); and

“term preferred share” has the meaning assigned by subsection 248(1).

II.   FACTS

(a)   Foreign Pubcos

1.    Foreign Pubco 1 and Foreign Pubco 2 are the top-tier companies in the Pubco Group. The Pubco Group operates in XXXXXXXXXX.

2.    Foreign Pubco 1 is a non-resident corporation. The authorized share capital of Foreign Pubco 1 consists of the following four classes of shares:

(a)   ordinary shares (voting) with a nominal value of XXXXXXXXXX per share (the “Foreign Pubco 1 Ordinary Shares”);

(b)   ordinary shares (voting) with a nominal value of XXXXXXXXXX per share (the “Foreign Pubco 1 Special Shares”);

(c)   XXXXXXXXXX% cumulative preference shares (voting) with a nominal value of XXXXXXXXXX per share (the “Foreign Pubco 1 First Preference Shares”); and

(d)   XXXXXXXXXX% cumulative preference shares (voting) with a nominal value of XXXXXXXXXX per share (the “Foreign Pubco 1 Second Preference Shares”).

3.    The Foreign Pubco 1 Ordinary Shares, the Foreign Pubco 1 First Preference Shares, and the Foreign Pubco 1 Second Preference Shares are listed on XXXXXXXXXX. The Foreign Pubco 1 Ordinary Shares are also registered on XXXXXXXXXX. The Foreign Pubco 1 Ordinary Shares and the Foreign Pubco 1 Second Preference Shares are also listed on XXXXXXXXXX in the form of depositary receipts. The Foreign Pubco 1 Special Shares are not publicly listed.

4.    As of XXXXXXXXXX, the following shares of the capital stock of Foreign Pubco 1 were issued and outstanding (including shares held in treasury, where applicable): XXXXXXXXXX Foreign Pubco 1 Ordinary Shares, XXXXXXXXXX Foreign Pubco 1 Special Shares, XXXXXXXXXX Foreign Pubco 1 First Preference Shares and XXXXXXXXXX Foreign Pubco 1 Second Preference Shares.

5.    The Foreign Pubco 1 Ordinary Shares are widely-held, and as of XXXXXXXXXX, to the best of Foreign Pubco 1’s knowledge, the only persons who held more than XXXXXXXXXX% of the issued and outstanding shares of any class of the capital stock of Foreign Pubco 1 (other than the depositary institution which is the registered holder of the shares represented by depositary receipts) were as follows: 

(a)   XXXXXXXXXX owned approximately XXXXXXXXXX% of the Foreign Pubco 1 Ordinary Shares, approximately XXXXXXXXXX% of the Foreign Pubco 1 First Preference Shares, and approximately XXXXXXXXXX% of the Foreign Pubco 1 Second Preference Shares. These shares confer less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of Foreign Pubco 1 (excluding voting rights attributable to shares held in treasury).

(b)   XXXXXXXXXX owned approximately XXXXXXXXXX% of the Foreign Pubco 1 Ordinary Shares and approximately XXXXXXXXXX% of the Foreign Pubco 1 First Preference Shares. These shares confer less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of Foreign Pubco 1 (excluding voting rights attributable to shares held in treasury).

(c)   Forco 4 and Forco 13 each owned XXXXXXXXXX% of the Foreign Pubco 1 Special Shares. These shares confer less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of Foreign Pubco 1 (excluding voting rights attributable to shares held in treasury).

6.    Foreign Pubco 2 is a non-resident corporation. The authorized share capital of Foreign Pubco 2 consists of the following two classes of shares:

(a)   ordinary shares (voting) with a nominal value of XXXXXXXXXX per share (the “Foreign Pubco 2 Ordinary Shares”); and

(b)   deferred shares (voting) with a nominal value of XXXXXXXXXX per share (the “Foreign Pubco 2 Deferred Shares”).

7.    The Foreign Pubco 2 Ordinary Shares are listed on XXXXXXXXXX in the form of depositary receipts. The Foreign Pubco 2 Deferred Shares are not publicly listed.

8.    As of XXXXXXXXXX, the following shares of the capital stock of Foreign Pubco 2 were issued and outstanding (including shares held in treasury, where applicable): XXXXXXXXXX Foreign Pubco 2 Ordinary Shares and XXXXXXXXXX Foreign Pubco 2 Deferred Shares.

9.    The Foreign Pubco 2 Ordinary Shares are widely-held, and as of XXXXXXXXXX, to the best of Foreign Pubco 2’s knowledge, the only persons who held more than XXXXXXXXXX% of the issued and outstanding shares of any class of the capital stock of Foreign Pubco 2 (other than the depositary institution which is the registered holder of the shares represented by depositary receipts) were as follows:

(a)   XXXXXXXXXX owned approximately XXXXXXXXXX% of the Foreign Pubco 2 Ordinary Shares. These shares confer less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of Foreign Pubco 2 (excluding voting rights attributable to shares held in treasury).

(b)   XXXXXXXXXX owned approximately XXXXXXXXXX% of the Foreign Pubco 2 Ordinary Shares. These shares confer less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of Foreign Pubco 2 (excluding voting rights attributable to shares held in treasury).

(c)   Forco 4 and Forco 13 each owned XXXXXXXXXX% of the Foreign Pubco 2 Deferred Shares. These shares confer less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of Foreign Pubco 2 (excluding voting rights attributable to shares held in treasury).

10.   To the best of the knowledge of Foreign Pubco 1 and Foreign Pubco 2, as of XXXXXXXXXX, no person or related group of persons beneficially owned, directly or indirectly, more than XXXXXXXXXX% of the issued and outstanding shares of any class of the capital stock of Foreign Pubco 1 or Foreign Pubco 2, except as described in Paragraphs 5 and 9.

11.   Foreign Pubco 1 Ordinary Shares and Foreign Pubco 2 Ordinary Shares (including shares represented by depositary receipts), or rights in respect of such shares, may be granted to employees of members of the Pubco Group pursuant to share-based compensation programs, which are described in more detail below. Foreign Pubco 1 Ordinary Shares and Foreign Pubco 2 Ordinary Shares are purchased on the open market to satisfy grants of shares and rights under these programs. As of XXXXXXXXXX, XXXXXXXXXX Foreign Pubco 1 Ordinary Shares and XXXXXXXXXX Foreign Pubco 2 Ordinary Shares were held by members of the Pubco Group or by share trusts to satisfy obligations under share-based compensation plans of the Pubco Group. The XXXXXXXXXX Foreign Pubco 1 Ordinary Shares represent less than XXXXXXXXXX% of the issued share capital of Foreign Pubco 1 and the XXXXXXXXXX Foreign Pubco 2 Ordinary Shares represent less than XXXXXXXXXX% of the issued share capital of Foreign Pubco 2. These shares are generally not voted. If voted, the XXXXXXXXXX Foreign Pubco 1 Ordinary Shares and XXXXXXXXXX Foreign Pubco 2 Ordinary Shares would each individually represent less than XXXXXXXXXX% of the total voting rights attributable to the outstanding shares of the capital stock of each of Foreign Pubco 1 and Foreign Pubco 2.

12.   XXXXXXXXXX

13.   Foreign Pubco 1 and Foreign Pubco 2 pay XXXXXXXXXX dividends on the Foreign Pubco 1 Ordinary Shares and the Foreign Pubco 2 Ordinary Shares, respectively and currently, XXXXXXXXXX.

(b)   Business Operations of the Pubco Group

14.   The members of the Pubco Group are engaged in XXXXXXXXXX. The business activities of the Pubco Group are organized into XXXXXXXXXX:

      XXXXXXXXXX

15.   For the year ended on XXXXXXXXXX, the Pubco Group’s turnover was XXXXXXXXXX.

16.   As part of the XXXXXXXXXX investor presentation, the Pubco Group announced that it intended to restructure the business activities of XXXXXXXXXX in order to separate the operations relating to the XXXXXXXXXX (“Subcategory 1”) into a stand-alone XXXXXXXXXX business unit (the “New Business Unit”). XXXXXXXXXX.

17.   The top holding company in the New Business Unit will be New Global Holdco, which will be indirectly owned by Foreign Pubco 1 and Foreign Pubco 2, but which will be controlled by Foreign Pubco 1 for purposes of the Act. The Subcategory 1 operations carried on by the Pubco Group members, including Canadian DC, will be indirectly transferred to New Global Holdco. The New Business Unit will continue to be indirectly owned by Foreign Pubco 1 and Foreign Pubco 2. There is no present intention to spin-off the New Business Unit to the public, or to sell the New Business Unit to an unrelated party.

(c)   Ownership Structure of the Pubco Group

18.   The Pubco Group can be divided into the following subgroups:

(a)   A group comprised of Foreign Pubco 1 and entities that are directly or indirectly wholly owned (or principally owned) by Foreign Pubco 1 (the “Pubco 1 Group”). This group includes Forco 1, Forco 2, Forco 3, Forco 4, Forco 5 and Forco 6, as well as, among others, a number of corporations that carry on Subcategory 1 operations in XXXXXXXXXX (collectively, the “Pubco 1 Group Vendors”).

(b)   A group comprised of Foreign Pubco 2 and entities that are directly or indirectly wholly owned (or principally owned) by Foreign Pubco 2 (the “Pubco 2 Group”). This group includes Forco 7, Forco 8, Forco 9, Forco 10, Forco 11, Forco 12, and Forco 13, as well as, among others, a number of corporations that carry on Subcategory 1 operations in XXXXXXXXXX (collectively, the “Pubco 2 Group Vendors”).

(c)   A group comprised of entities which are jointly owned by Foreign Pubco 1 and Foreign Pubco 2 (the “Joint Group”), and Foreign Pubco 1 has de jure control over corporations in this group and corporate partners of partnerships in this group. The Joint Group includes Forco 14, Forco 15, Forco 16, Forco 17, Forco 18, Forco 19, Forco 20, Forco 21, Forco 22, Forco 23, Canadian DC and Canco 1, several partnerships, as well as a number of corporations located in XXXXXXXXXX. The Joint Group  members which are indirectly owned by Forco 21 and which carry on Subcategory 1 operations are referred to as the “Joint Group Vendors”, and these corporations and partnerships are located in XXXXXXXXXX.

19.   The Pubco Group is of the view that Foreign Pubco 1 and Foreign Pubco 2 are not related persons. As a member of the Joint Group, Canadian DC is controlled by Foreign Pubco 1. As a result, Canadian DC is related to corporate members of the Pubco 1 Group and the Joint Group, and Canadian DC is not related to corporate members of the Pubco 2 Group. The principal members of the Pubco Group that directly or indirectly own shares of Canadian DC, or that are otherwise relevant to the Proposed Transactions, are described below.

20.   Forco 1 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 1 are directly owned by Foreign Pubco 1.

21.   Forco 2 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 2 are directly owned by Foreign Pubco 1.

22.   Forco 3 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 3 are directly owned by Foreign Pubco 1. Forco 3 is a holding company for Foreign Pubco 1’s investment in the Joint Group.

23.   Forco 4 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 4 are directly or indirectly owned by Foreign Pubco 1.

24.   Forco 5 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 5 are directly or indirectly owned by Foreign Pubco 1. Forco 5 is responsible for XXXXXXXXXX of the Pubco Group in XXXXXXXXXX.

25.   Forco 6 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 6 are directly or indirectly owned by Foreign Pubco 1. Forco 6 acts XXXXXXXXXX the Pubco Group.

26.   Forco 7 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 7 are directly owned by Foreign Pubco 2. Forco 7 is a holding company for Foreign Pubco 2’s investment in the Joint Group.

27.   Forco 8 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 8 are directly owned by Forco 7. Forco 8 is a holding company for Foreign Pubco 2’s investment in the Joint Group.

28.   Forco 9 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 9 are directly owned by Foreign Pubco 2. Forco 9 is a holding company for Foreign Pubco 2’s investment in the Pubco 2 Group.

29.   Forco 10 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 10 are directly owned by Forco 9. Forco 10 is a holding corporation for operations of the Pubco Group in XXXXXXXXXX, and Forco 10 also has XXXXXXXXXX.

30.   Forco 11 is a non-resident corporation. Forco 10 indirectly owns shares of the capital stock of Forco 11 which confer approximately XXXXXXXXXX% of the total voting rights attached to the issued and outstanding shares of the capital stock of Forco 11; the remaining issued and outstanding shares of the capital stock of Forco 11 are indirectly owned by Forco 16. Forco 11 carries on Subcategory 1 operations in XXXXXXXXXX.

31.   Forco 12 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 12 are directly owned by Foreign Pubco 2.

32.   Forco 13 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 13 are directly or indirectly owned by Foreign Pubco 2.

33.   Forco 14 is a non-resident corporation. Forco 14 has two classes of outstanding shares: (i) class A ordinary shares, which comprise XXXXXXXXXX% of all issued and outstanding shares and are directly owned by Forco 3, and (ii) class B ordinary shares, which comprise XXXXXXXXXX% of all issued and outstanding shares and are directly owned by Forco 7. Forco 14 is a holding company for the XXXXXXXXXX operations of the Pubco Group.

34.   Forco 15 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 15 are owned by Forco 14. Forco 15 carries on business operations of the Pubco Group in XXXXXXXXXX.

35.   Forco 16 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 16 are owned by Forco 15. Forco 16 carries on Subcategory 1 operations in XXXXXXXXXX.

36.   Forco 17 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 17 are owned by Forco 16.

37.   Forco 18 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 18 are directly or indirectly held by Forco 16.

38.   Forco 19 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 19 are owned by Forco 18.

39.   Forco 20 is a non-resident corporation. Forco 20 is a holding company for the operations of the Pubco Group in several countries. Forco 20 has two classes of ordinary shares (classes A and B, which are collectively referred to as the “Forco 20 Ordinary Shares”), and six classes of cumulative preference shares (classes C, D, E, F, G, and H). Each share carries XXXXXXXXXX per share. The issued and outstanding share capital of Forco 20 consists of:

(a)   XXXXXXXXXX  class A shares, of which XXXXXXXXXX are owned by Foreign Pubco XXXXXXXXXX are owned by Forco 1 and XXXXXXXXXX are owned by Forco 2;

(b)   XXXXXXXXXX class B shares, all of which are owned by Forco 8;

(c)   XXXXXXXXXX class C shares, all of which are owned by Forco 19;

(d)   XXXXXXXXXX class D shares, all of which are owned by Forco 19;

(e)   XXXXXXXXXX class E shares, all of which are owned by Forco 19;

(f)   XXXXXXXXXX class F shares, all of which are owned by Forco 19;

(g)   XXXXXXXXXX class G shares, all of which are owned by Forco 19; and

(h)   XXXXXXXXXX class H shares, all of which are owned by Forco 19.

Foreign Pubco 1 and Foreign Pubco 2 directly or indirectly own shares of Forco 20 which confer approximately XXXXXXXXXX% and XXXXXXXXXX%, respectively, of the total voting rights attached to such shares.

40.   Holders of the cumulative preference shares of Forco 20 are generally entitled to receive preferential dividends computed as a fixed percentage of the par value of the share plus the share premium attributed on the issuance of the share (the fixed rate varies between the classes of cumulative preference shares). The cumulative preference shares of each class have equal preference with respect to such dividends. Any remaining profits of Forco 20 may be reserved or distributed to the holders of the Forco 20 Ordinary Shares, as decided by a general meeting of shareholders. All shares have a par value of XXXXXXXXXX per share.

41.   Forco 21 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 21 are owned by Forco 20. Forco 21 is a holding corporation for the operations of the Pubco Group in XXXXXXXXXX.

42.   Forco 22 is a non-resident corporation. All of the issued and outstanding shares of the capital stock of Forco 22 are owned by Forco 20. Forco 22 is a holding corporation for the operations of the Pubco Group in XXXXXXXXXX.

43.   Forco 23 is a non-resident corporation which was formed in XXXXXXXXXX under the laws of XXXXXXXXXX. All of the issued and outstanding shares of the capital stock of Forco 23 are owned by Forco 22. The only significant asset of Forco 23 is an account receivable from Forco 20. Forco 23 does not have any significant liabilities.

(d)   Canadian DC

44.   Canadian DC is a taxable Canadian corporation and a private corporation. Canadian DC has a XXXXXXXXXX taxation year-end. Canadian DC’s head office is located at XXXXXXXXXX. Canadian DC’s business number and tax account number is XXXXXXXXXX, it deals with the XXXXXXXXXX tax services office, and it files its returns with the XXXXXXXXXX tax centre. Canadian DC has not made a functional currency election under paragraph 261(3)(b). Canadian DC was formed on XXXXXXXXXX, on the amalgamation of the former XXXXXXXXXX, a wholly owned subsidiary of the former XXXXXXXXXX.

45.   Canadian DC’s authorized and issued share capital consists of the following:

(a)   an unlimited number of common shares (the “Canadian DC Common Shares”), XXXXXXXXXX of which are issued and outstanding;

(b)   an unlimited number of special common shares (the “Canadian DC Special Common Shares”), XXXXXXXXXX of which are issued and outstanding;

(c)   an unlimited number of class A shares (the “Canadian DC Class A Shares”), XXXXXXXXXX of which are issued and outstanding;

(d)   an unlimited number of class B shares (the “Canadian DC Class B Shares”), XXXXXXXXXX of which are issued and outstanding; and

(e)   an unlimited number of class C shares (the “Canadian DC Class C Shares”), XXXXXXXXXX of which are issued and outstanding.

The Canadian DC Class A Shares, the Canadian DC Class B Shares and the Canadian DC Class C Shares are collectively referred to as the “Canadian DC Preferred Shares”. The shares of the capital stock of Canadian DC of all classes are collectively referred to as the “Canadian DC Shares”.

46.   All of the issued and outstanding Canadian DC Shares are owned by Forco 21, except for the Canadian DC Class C Shares, which are owned by Forco 12. Predecessor shares to the Canadian DC Class C Shares held by Forco 12 were originally issued to Forco 12 on XXXXXXXXXX by XXXXXXXXXX, a predecessor to Canadian DC by way of amalgamations occurring on XXXXXXXXXX. The shares became shares of the capital stock of the former XXXXXXXXXX upon the XXXXXXXXXX amalgamation, and became shares of the capital stock of Canadian DC upon the XXXXXXXXXX amalgamation. The predecessor Canadian DC Class C Shares were issued by XXXXXXXXXX for aggregate cash consideration of $XXXXXXXXXX, and the aggregate redemption amount and PUC of these shares is currently $XXXXXXXXXX. Subsequent to the amalgamations described above, the PUC and redemption amount of the Canadian DC Class C Shares did not change.

47.   The terms of the Canadian DC Common Shares and the Canadian DC Special Common Shares include the following:

(a)   Each Canadian DC Common Share entitles the holder to XXXXXXXXXX at general meetings of shareholders, and each Canadian DC Special Common Share entitles the holder to XXXXXXXXXX votes at general meetings of shareholders.

(b)   Holders of the Canadian DC Common Shares and the Canadian DC Special Common Shares are entitled to dividends as and when declared by the board of directors of Canadian DC, and participate equally with respect to dividends.

(c)   In the event of any liquidation, dissolution or winding-up of Canadian DC, holders of the Canadian DC Common Shares and the Canadian DC Special Common Shares are entitled to the residual assets of Canadian DC, and participate equally with respect to any such distribution.

48.   The terms of the Canadian DC Preferred Shares include the following:

(a)   The Canadian DC Preferred Shares are non-voting, except as provided under the XXXXXXXXXX.

(b)   The Canadian DC Preferred Shares are redeemable at the option of Canadian DC or the holder, for a redemption amount equal to $XXXXXXXXXX per share, together with any declared and unpaid dividends on the share.

(c)   Holders of the Canadian DC Preferred Shares are entitled to receive non‑cumulative preferential dividends, as and when declared by the board of directors of Canadian DC, at XXXXXXXXXX computed on the redemption amount of the shares. Such dividends are payable on XXXXXXXXXX of each year.

(d)   In the event of any liquidation, dissolution or winding-up of Canadian DC, holders of the Canadian DC Preferred Shares are entitled to receive an amount equal to the redemption amount of the shares, together with any accrued and unpaid dividends on the shares. The holders of the Canadian DC Preferred Shares are entitled to receive this distribution before any distribution on the Canadian DC Common Shares and the Canadian DC Special Common Shares, and rank equally with respect to this distribution.

(e)   Canadian DC may purchase the Canadian DC Preferred Shares for cancellation, but the price paid for such shares may not exceed the redemption amount of the shares, together with any accrued and unpaid dividends on the shares.

(f)   The redemption amounts of the Canadian DC Preferred Shares, and the amounts of dividends computed based on this redemption amount, are subject to a price adjustment clause, which allows the board of directors of Canadian DC to adjust such amounts if an adjustment is made to the valuation of the property received for the issuance of the relevant Canadian DC Preferred Shares.

(g)   The Canadian DC Preferred Shares are not convertible into or exchangeable for any other shares.

49.   The Canadian DC Common Shares are not short-term preferred shares, taxable preferred shares, or taxable RFI shares.

50.   Prior to the First Distribution Steps, the FMV of the Canadian DC Common Shares will exceed the ACB of such shares to Forco 21 and the PUC of such shares.

51.   The Pubco Group has a general dividend policy, which contemplates that members will distribute their annual after-tax profits to their shareholders. With respect to members of the Pubco 1 Group, this general dividend policy is subject to general dividend and cash planning considerations from a group perspective.

52.   Consistent with the Pubco Group dividend policy, Canadian DC has historically distributed its after-tax profits by way of regular dividends on the Canadian DC Common Shares and the Canadian DC Special Common Shares. For example, Canadian DC paid dividends on the Canadian DC Common Shares and Canadian DC Special Common Shares in aggregate amounts of XXXXXXXXXX.

(e)   Business Operations of Canadian DC

53.   Canadian DC carries on the Canadian business operations of the Pubco Group. Canadian DC carries on business operations of XXXXXXXXXX, including Subcategory 1. Canadian DC conducts its business through permanent establishments in XXXXXXXXXX. The significant business activities of Canadian DC consist of the following:

XXXXXXXXXX

54.   As of XXXXXXXXXX, Canadian DC employed approximately XXXXXXXXXX employees in its business operations, and approximately XXXXXXXXXX of these employees were employed in activities relating to Subcategory 1.

55.   The assets of Canadian DC include: (i) amounts receivable from members of the Pubco Group, which generally consist of trade receivables arising in the course of Canadian DC’s business, including fees receivable from Forco 5 under XXXXXXXXXX described above, and (ii) other amounts receivable, which generally consist of trade receivables and prepaid expenses arising in the course of Canadian DC’s business.

56.   The property, plant and equipment of Canadian DC (including property owned by Canadian DC and leasehold interests held by Canadian DC) are described below.

57.   The head office of Canadian DC is located at XXXXXXXXXX. This office is leased from an arm’s length lessor.

58.   Canadian DC operates three sales offices (the “Sales Offices”), which are located at XXXXXXXXXX (“Sales Office 1”); XXXXXXXXXX (“Sales Office 2”); and XXXXXXXXXX (“Sales Office 3”). XXXXXXXXXX. All three Sales Offices are leased from arm’s length lessors. A small section of Sales Office 2 is currently sub-leased by Canadian DC to an arm’s length sub-lessee.

59.   Canadian DC leases a distribution centre that is operated by arm’s length third parties, which is located at XXXXXXXXXX. This facility is leased from an arm’s length lessor. Canadian DC is reimbursed for usage of the distribution centre. XXXXXXXXXX.

60.   Canadian DC operates XXXXXXXXXX which is located at XXXXXXXXXX. This facility serves as the main XXXXXXXXXX operations of the Pubco Group. This facility is leased from an arm’s length lessor.

61.   Canadian DC owns a manufacturing plant located at XXXXXXXXXX. XXXXXXXXXX manufactures products for XXXXXXXXXX of the Pubco Group. The products manufactured at XXXXXXXXXX consist of XXXXXXXXXX (which are part of Subcategory 1) and XXXXXXXXXX (which are not part of Subcategory 1). The manufacturing activities carried on at XXXXXXXXXX primarily relate to Subcategory 1.

62.   On XXXXXXXXXX, Canadian DC sold real property adjacent to the XXXXXXXXXX site to Purchaseco, an arm’s length purchaser, for approximately $XXXXXXXXXX cash consideration. XXXXXXXXXX:

XXXXXXXXXX

62.1  Any amount recorded under IFRS as a capital lease asset represents only accounting entries for financial statement purposes and such accounting entries do not represent any property as defined in subsection 248(1) of the Act.

63.   XXXXXXXXXX.

64.   XXXXXXXXXX.

65.   The intangible property of Canadian DC consists of trademarks, licenses, goodwill and software, all of which relate to the business operations of Canadian DC. The trademarks owned by Canadian DC are generally Canadian trademarks relating to the brands of the Pubco Group. The trademarks owned by Canadian DC were acquired or developed in connection with the business operations of Canadian DC and are used or held in these business operations.

66.   Among other trademarks, Canadian DC owns the Canadian trademarks for XXXXXXXXXX. Under a license agreement with Forco 16, Canadian DC has granted Forco 16 the right to sublicense the use of these trademarks to XXXXXXXXXX, solely XXXXXXXXXX. In consideration for the license to Forco 16, Canadian DC receives an annual fee from Forco 16, which is generally equal to XXXXXXXXXX% of the net amounts receivable from customers for goods supplied and services rendered in Canada in the course of the XXXXXXXXXX ordinary business activities. Canadian DC licenses the trademarks in this manner as part of XXXXXXXXXX of the Pubco Group, and does not manage this license arrangement as an investment. Canadian DC earns annual royalty income of approximately $XXXXXXXXXX pursuant to this licensing arrangement. Such income is considered to be incidental to the active business of Canadian DC, on the basis that this business is integrated with the other business operations of the Pubco Group, and the license arrangement is necessary to facilitate these business operations. Canadian DC does not earn any other income from the licensing of its intangible property.

67.   On XXXXXXXXXX, the Pubco Group sold a partial interest in its XXXXXXXXXX business operations to XXXXXXXXXX, an arm’s length purchaser. As part of this sale, Canadian DC sold the Canadian business operations associated with the XXXXXXXXXX, which were part of XXXXXXXXXX, for consideration of approximately XXXXXXXXXX, which was payable in the form of an interest‑bearing promissory note (the “Sale Note”) issued by a member of the XXXXXXXXXX to Canadian DC. The Sale Note remains outstanding and may be prepaid at any time by the XXXXXXXXXX. Absent early repayment, the maturity date of the Sale Note is XXXXXXXXXX. The Sale Note has an interest rate of XXXXXXXXXX% that is payable XXXXXXXXXX.  Pursuant to an agreement dated XXXXXXXXXX, Forco 16 acquired the Sale Note for cash equal to XXXXXXXXXX from Canadian DC, due to XXXXXXXXXX foreign exchange concerns. As part of this sale there is a contingent obligation of Canadian DC to pay any difference between the principal of the Sale Note and the amount ultimately recovered by Forco 16 from the third party debtor. It is currently expected that the Sale Note will be repaid in full by the third party debtor at maturity.

68.   Canadian DC has established various restructuring reserves for accounting purposes. XXXXXXXXXX including contingent liabilities and liabilities which are currently difficult to quantify. XXXXXXXXXX. As of XXXXXXXXXX, this legal liability was estimated to be approximately $XXXXXXXXXX and this liability is expected to be due within XXXXXXXXXX months of the date of the transactions referred to in Paragraph 120. To the extent these reserves, including the $XXXXXXXXXX reserve, are estimated amounts that either do not represent a legal liability or cannot be accurately quantified, these are considered contingent for tax return purposes until they are paid.

69.   The restructuring reserves of Canadian DC XXXXXXXXXX discussed in Paragraph 68 may be funded by another member of the Pubco Group that is not part of the Canada Group. Where such funding occurs, at the time when Canadian DC records the restructuring liability, it also records an equal and offsetting intercompany receivable XXXXXXXXXX. Any such intercompany receivable may or may not be settled at the time the corresponding restructuring liability is paid. Similar to the restructuring liabilities, these receivables are contingent in nature. The corporation which funds the restructuring liabilities may subsequently recover all or a portion of the amounts paid to Canadian DC over the course of a number of years, XXXXXXXXXX.

70.   Canadian DC receives management services and access to technology and trademarks from members of the Pubco Group pursuant to various agreements. Services generally relate to head office functions performed outside of Canada. Once Canadian DC is invoiced for management services or for the use of technology it incurs a legal liability to pay for the services. Under these management services and technology agreements, amounts payable for a given year are payable XXXXXXXXXX throughout the year and are subject to a true up adjustment. The true up adjustment is determined in the subsequent taxation year once accounts for the preceding year are finalized and is typically paid within XXXXXXXXXX days following the day the accounts are finalized for the year.

71.   The liabilities of Canadian DC include: (i) amounts payable to other members of the Pubco Group, which generally consist of trade payables arising in the course of Canadian DC’s business and liabilities in respect of management services received from members of the Pubco Group, as described in the previous Paragraph, and (ii) other amounts payable, which generally consist of trade payables and employee compensation expenses relating to Canadian DC’s business operations.

72.   Canadian DC directly or indirectly owns shares of the capital stock of Canco 1 and Canco 2 (which are described below), and does not directly or indirectly own any shares of the capital stock of corporations which are non-residents of Canada for purposes of the Act. In addition, Canadian DC does not own any interest in a partnership and is not a party to any joint venture agreement.

(f)   Canco 1 and Canco 2

73.   Canco 1 is a taxable Canadian corporation and a private corporation. Canco 1 has a XXXXXXXXXX taxation year-end. The authorized share capital of Canco 1 consists of an unlimited number of common shares and an unlimited number of preferred shares, of which XXXXXXXXXX common shares and no preferred shares are issued and outstanding. Canadian DC owns all of the issued and outstanding shares of Canco 1. Canco 1 was formed on XXXXXXXXXX, on an amalgamation XXXXXXXXXX.

74.   Canco 1 is a holding corporation and its primary function is to hold the class B common shares of Canco 2, as described below.

75.   Canco 2 is a taxable Canadian corporation and a private corporation. Canco 2 has a XXXXXXXXXX taxation year-end. The authorized share capital of Canco 2 consists of the following shares:

(a)   XXXXXXXXXX class A common shares. XXXXXXXXXX class A common shares are issued and outstanding, all of which are owned by Canco 3, a corporation which deals at arm’s length with the members of the Pubco Group for purposes of the Act.

(b)   XXXXXXXXXX class B common shares. XXXXXXXXXX class B common shares are issued and outstanding, all of which are owned by Canco 1.

76.   The holders of the class A common shares and class B common shares of Canco 2 are each entitled to dividends if, as and when declared by the directors of Canco 2, in such amounts as the directors may determine. Dividends may be declared on the class A common shares of the capital stock of Canco 2 to the exclusion of the class B common shares, and vice versa. The class A common shares and the class B common shares of the capital stock of Canco 2 are entitled to participate rateably in any distribution of assets of Canco 2, including on the liquidation, dissolution or winding-up of Canco 2.

77.   Each class A common shares of the capital stock of Canco 2 may be converted into XXXXXXXXXX class B common share of the capital stock of Canco 2, at the option of the holder. Canco 2 may not issue any class B common shares that would cause the authorized unissued shares of such class to be insufficient to satisfy the conversion rights of the class A common shares. The class A common shares and class B common shares of the capital stock of Canco 2 can only be subdivided, consolidated or reclassified at the same time, in the same proportion, and in the same manner.

78.   Each class A common share and class B common share of the capital stock of Canco 2 entitles the holder to XXXXXXXXXX at all meetings of shareholders. Decisions at shareholders meetings generally require majority approval.

79.   The management of Canco 2 is subject to the terms of a unanimous shareholders agreement between Canco 1, Canco 2 and Canco 3. Among other things, this agreement provides that:

(a)   XXXXXXXXXX

(b)   XXXXXXXXXX

(c)   XXXXXXXXXX

(d)   Canco 1 is entitled to receive XXXXXXXXXX dividends on its class B common shares of the capital stock of Canco 2, equal to its pro-rata share of the company’s net income XXXXXXXXXX (based on the number of shares held by Canco 1 as a proportion of all outstanding shares).

(e)   If any offer is made to purchase the shares held by Canco 3, Canco 3 may only accept this offer if the offer is also to purchase the shares held by Canco 1.

80.   Canco 2 carries on a business in Canada of XXXXXXXXXX. The use of the XXXXXXXXXX.

81.   Canco 2 was formed on XXXXXXXXXX. Prior to the formation of Canco 2, the business of XXXXXXXXXX was carried on by Former Canco. Former Canco was a wholly owned indirect subsidiary of Canadian DC and a predecessor to Canco 1 by way of amalgamation on XXXXXXXXXX. On XXXXXXXXXX, Former Canco granted Canco 2 a perpetual exclusive right to license and use the trade name XXXXXXXXXX, in exchange for class B common shares of the capital stock of Canco 2. Former Canco also assigned certain XXXXXXXXXX trade-marks to a subsidiary of Canco 3 for nominal consideration.

82.   Canco 1, as successor to Former Canco, is the licensor of the perpetual exclusive license originally granted by Former Canco to Canco 2. Canco 1, as successor to Former Canco, is also the owner of the XXXXXXXXXX trade name and the class B common shares of Canco 2. Canco 1 does not receive any income from the perpetual licensing arrangement.

(g)   Share-Based Compensation Plans

83.   The Pubco Group provides a variety of share-based compensation plans to its officers and employees. These global share-based compensation plans are provided to employees of the XXXXXXXXXX members of the Pubco Group (including Canadian DC) pursuant to XXXXXXXXXX (the “Share Plan”). The Share Plan is administered by a committee appointed by the board of directors of Forco 15 (the “Share Plan Committee”).

84.   The Share Plan comprises several share-based compensation programs, which provide eligible employees (including those employed by Canadian DC) with opportunities to receive grants of various awards payable in, based upon or otherwise related to Foreign Pubco 1 Ordinary Shares and/or Foreign Pubco 2 Ordinary Shares (including shares represented by depositary receipts).XXXXXXXXXX No Canadian DC Shares, or options or other rights in respect of such shares, are granted pursuant to the Share Plan.

85.   XXXXXXXXXX Canadian DC makes payments to these entities in respect of the awards paid by these entities to employees of Canadian DC once the award has vested. XXXXXXXXXX Canadian DC may or may not recognize a liability to make a payment at the time such an award is granted.

(h)   Post-Employment Benefit Plans

86.   Canadian DC provides a number of pension and other post-employment benefit plans for qualifying employees. The pension plans provided by Canadian DC include several defined benefit plans and a defined contribution plan.

87.   The defined benefit pension plans provided by Canadian DC include registered plans (which are subject to the limits on pension benefits set out in the Act and other applicable legislation) and supplemental plans (which provide certain supplemental pension benefits in addition to those provided under the registered plans). Pension benefits offered through registered plans and supplemental plans are generally based on years of service and final pensionable earnings.

88.   XXXXXXXXXX.

89.   XXXXXXXXXX.

90.   Canadian DC provides the following specific pension and other future benefit plans:

(a)   Pension Plan 1 is a registered pension plan XXXXXXXXXX which is sponsored by Canadian DC. XXXXXXXXXX.

(i)   XXXXXXXXXX.

(ii)  XXXXXXXXXX. 

(b)   Pension Plan 2 is an unfunded, supplemental defined benefit plan. XXXXXXXXXX.

(c)   Pension Plan 3 is an unfunded, supplemental defined benefit plan. XXXXXXXXXX.

(d)   Pension Plan 4 is a funded, registered defined benefit plan (XXXXXXXXXX), which is sponsored by Canadian DC.  XXXXXXXXXX.

(e)   Pension Plan 5 was a funded, registered defined benefit plan XXXXXXXXXX which was sponsored by Canadian DC. XXXXXXXXXX.

(f)   Pension Plan 6 is an unfunded, supplemental defined benefit plan. XXXXXXXXXX.

(g)   Benefit Plan 1 is an unfunded and non-registered plan that provides XXXXXXXXXX.

(h)   Benefit Plan 2 is an unfunded and non-registered plan that provides XXXXXXXXXX.

(i)   Benefit Plan 3 is an unfunded and unregistered plan that provides XXXXXXXXXX.

(i)   Cash Pooling Arrangements.

91.   Canadian DC participates in cash pooling arrangements with XXXXXXXXXX and XXXXXXXXXX, an arm’s length financial services company. Separate arrangements are in place for Canadian dollar and U.S. dollar cash. XXXXXXXXXX enters into similar cash pooling arrangements with other members of the Pubco Group in foreign countries.

92.   The cash pooling arrangements are “zero balancing” arrangements. Canadian DC maintains separate Canadian dollar and U.S. dollar accounts with XXXXXXXXXX. These accounts are balanced at the close of business on each day. In particular, if Canadian DC has a credit balance in one of its accounts with XXXXXXXXXX, funds are transferred from that account to an account of XXXXXXXXXX with XXXXXXXXXX (the “XXXXXXXXXX”) equal to the credit balance. On the other hand, if Canadian DC has a debit balance in one of its accounts with XXXXXXXXXX, funds are transferred to that account from the XXXXXXXXXX equal to the debit balance. The intent of these arrangements is that Canadian DC have a zero balance in each of its accounts following the close of business on each day.

93.   The daily cash balancing is reflected in Canadian dollar and U.S. dollar current accounts maintained between Canadian DC and XXXXXXXXXX(the “Cash Pooling Accounts”). A transfer of funds from a bank account of Canadian DC to the XXXXXXXXXX increases the amount receivable (or decreases the amount payable) by Canadian DC in the appropriate current account, while a transfer of funds from the XXXXXXXXXX to a bank account of Canadian DC decreases the amount receivable (or increases the amount payable). Separate current accounts are maintained for Canadian dollar funds and U.S. dollar funds, and the amounts receivable (or payable) in each account are considered separate assets (or indebtedness) of Canadian DC. Interest accrues at market rates on the outstanding balance in each current account, and is settled on a monthly basis. Amounts owing by Canadian DC or XXXXXXXXXX in the Cash Pooling Accounts are payable on demand.

94.   XXXXXXXXXX. These fluctuations are generally attributable to XXXXXXXXXX.

(j)   Recent Transactions

95.   The Pubco Group is engaged in large number of business operations involving XXXXXXXXXX. The Pubco Group has historically expanded through the acquisition of new business operations and the divestment of existing business operations XXXXXXXXXX. Canadian DC generally participates in these acquisition and divestment activities by purchasing or selling the Canadian operations of the relevant business operations. XXXXXXXXXX. Several such transactions have occurred in recent years, and more are expected to occur in the near future. These transactions are independent of the Proposed Transactions, and are not related to or undertaken in contemplation of the Proposed Transactions. Over the past year, the only transactions that Canadian DC has been involved in have been XXXXXXXXXX.

III.  PRELIMINARY TRANSACTIONS

96.   On XXXXXXXXXX, New Global Holdco was incorporated under the laws of XXXXXXXXXX by XXXXXXXXXX, a law firm which deals at arm’s length with the members of the Pubco Group. XXXXXXXXXX subscribed for XXXXXXXXXX ordinary share of the capital stock of New Global Holdco upon its formation for XXXXXXXXXX consideration, on the basis of an undertaking to pay. On XXXXXXXXXX, XXXXXXXXXX transferred the XXXXXXXXXX ordinary share of the capital stock of New Global Holdco to Forco 14 for XXXXXXXXXX consideration, on the basis of an undertaking to pay.

IV.   PROPOSED TRANSACTIONS

(k)   Global Reorganization Steps

97.   In connection with the establishment of the New Business Unit, the Subcategory 1 assets of the following foreign Pubco Group members (the “Subcategory 1 Vendors”) will be indirectly transferred to New Global Holdco:

(a)   Foreign Pubco 1;

(b)   the Pubco 1 Group Vendors;

(c)   Forco 16;

(d)   Forco 17;

(e)   the Joint Group Vendors;

(f)   Foreign Pubco 2;

(g)   Forco 11; and

(h)   the Pubco 2 Group Vendors.

98.   The transfer of the Subcategory 1 assets from the Subcategory 1 Vendors to New Global Holdco will generally be undertaken in one of the following ways:

(a)   New Global Holdco will incorporate a new corporation, or will acquire XXXXXXXXXX of the shares of the capital stock of a “shelf” company, in the relevant foreign jurisdiction, and the relevant Subcategory 1 Vendor will transfer the Subcategory 1 assets to such Newco; or 

(b)   the Subcategory 1 Vendor, or its shareholder, will incorporate a new corporation, or will acquire all of the shares of the capital stock of a “shelf” company, in the relevant foreign jurisdiction, the relevant Subcategory 1 Vendor will transfer the Subcategory 1 assets to such new corporation by way of an asset transfer or a demerger, and the Subcategory 1 Vendor, or its shareholder, will transfer the shares of the capital stock of the new corporation to New Global Holdco.

Each new corporation described in (a) and (b) is referred to as a “Newco”.  

99.   The consideration that will be provided by Newco (in the case of transactions described in Paragraph 98(a)) and New Global Holdco (in the case of transactions described in Paragraph 98(b)) will generally include cash, debt, a mix of cash and debt or shares. More specifically, however, with respect to share consideration, New Global Holdco will not issue any shares to any person or partnership, other than Forco 14, as part of the Proposed Transactions and each Newco (other than Pubco 2 Group Newco) will be wholly owned by New Global Holdco following the transfers as part of the Global Reorganization Steps. Forco 6 will fund New Global Holdco and the relevant Newcos with sufficient cash to ensure that New Global Holdco and the Newcos have the requisite cash to fund the cash component of the various acquisitions.

100.  The Subcategory 1 assets held by Foreign Pubco 2 and Forco 11 will be indirectly transferred to New Global Holdco through the following steps:

(a)   Forco 11 incorporated Pubco 2 Group Newco under the laws of XXXXXXXXXX and the authorized share capital of Pubco 2 Group Newco includes ordinary shares and XXXXXXXXXX share. The XXXXXXXXXX share entitles the holder to elect the majority of the directors of Pubco 2 Group Newco. On incorporation, Pubco 2 Group Newco issued XXXXXXXXXX ordinary share to Forco 11 for nominal cash consideration and issued XXXXXXXXXX share to Foreign Pubco 2 for nominal cash consideration. Pursuant to the terms of the XXXXXXXXXX share, Foreign Pubco 2 appointed a majority of the board of directors of Pubco 2 Group Newco. The purpose of the XXXXXXXXXX share is to ensure that Foreign Pubco 2 has the right to elect the majority of the board of directors of Pubco 2 Group Newco, thereby satisfying XXXXXXXXXX pension requirements, so that employees of Pubco 2 Group Newco are eligible to participate in employee plans administered in XXXXXXXXXX.

(b)   Each of Foreign Pubco 2 and Forco 11 transferred Subcategory 1 assets to Pubco 2 Group Newco in exchange for debt consideration. Forco 11 transferred Subcategory 1 operating assets (including employees) and Foreign Pubco 2 transferred certain technology-related intellectual property relating to the Subcategory 1 operations, consisting of patents and related know-how and technology rights. Prior to this transfer, Foreign Pubco 2 licensed the use of this intellectual property to many members of the Pubco Group, including Canadian DC, in exchange for a fee. In connection with the transfer of the intellectual property, the licensing agreement between Foreign Pubco 2 and Canadian DC was terminated, and Pubco 2 Group Newco and Canadian DC entered into a licensing agreement on the same terms as of the licence agreement between Foreign Pubco 2 and Canadian DC.

(c)   Following the asset transfers, Forco 11 subscribed for additional ordinary shares of Pubco 2 Group Newco for cash consideration. Forco 11 will transfer XXXXXXXXXX of the ordinary shares of Pubco 2 Group Newco to New Global Holdco in exchange for debt consideration. Foreign Pubco 2 will continue to own the sole issued and outstanding XXXXXXXXXX share of Pubco 2 Group Newco.

100.1 New Global Holdco incorporated ServiceCo and the authorized capital of ServiceCo includes ordinary shares and XXXXXXXXXX share with terms identical to the XXXXXXXXXX share of Pubco 2 Group Newco. On incorporation, ServiceCo issued XXXXXXXXXX ordinary share to Forco 11 for nominal cash consideration and issued XXXXXXXXXX share to Foreign Pubco 2 for nominal cash consideration. Pursuant to the terms of the XXXXXXXXXX share, Foreign Pubco 2 appointed a majority of the board of directors of ServiceCo. ServiceCo employs executives in XXXXXXXXXX who, through services provided to New Global Holdco, will oversee the management of the Subcategory 1 operations of the New Business Unit. These services will be provided by ServiceCo to New Global Holdco in exchange for a fee. ServiceCo issued the XXXXXXXXXX share to Foreign Pubco 2 in order to ensure that employees of ServiceCo are eligible to participate in employee plans administered in XXXXXXXXXX. In the future, it is expected that Canadian TC may reimburse or fund its portion of the executive employee costs through management fees, which would only arise after the transactions described in Paragraph 120. ServiceCo will not directly or indirectly own any shares of Canadian TC, New DC, or New TC, or any of the Distribution Property.

101.  Of the Subcategory 1 Vendors who will transfer assets by means of a demerger transaction, Foreign Pubco 1 is the only entity that indirectly owns shares of the capital stock of Canadian DC. On the demerger, under the relevant corporate law:

(a)   Foreign Pubco 1 will dispose of the foreign Subcategory 1 assets to a new corporation established under the laws of XXXXXXXXXX, which will be wholly owned by Foreign Pubco 1 immediately after the demerger;

(b)   Foreign Pubco 1 will not dispose of any of its other assets;

(c)   The liabilities of Foreign Pubco 1 will be unaffected;

(d)   There will be no exchange, disposition, cancellation or reissuance of the issued and outstanding shares of the capital stock of Foreign Pubco 1, nor any material change to the rights and conditions attached to these shares; and

(e)   Foreign Pubco 1’s legal existence will be unaffected, and it will be considered the same corporation following the demerger.

102.  The foreign Subcategory 1 assets to be indirectly transferred by the Subcategory 1 Vendors will be comprised of operating assets, and will not include shares of, or receivables owing by, any of Canadian DC, Canco 1 or Canco 2.

103.  The Subcategory 1 Vendors may acquire debt issued by New Global Holdco or Pubco 2 Group Newco as consideration for the transfer of the Subcategory 1 assets by these vendors, as described in Paragraphs 98 and 100. No Subcategory 1 Vendor will dispose of any such debt to a person who is not related to the vendor.

(l)   Annual Dividend

104.  At any time prior to the share transfer in Paragraph 111, Canadian DC may distribute all or a portion of its XXXXXXXXXX after-tax earnings by paying a cash dividend on the Canadian DC Common Shares and the Canadian DC Special Common Shares held by Forco 21. XXXXXXXXXX. The decision to pay any such dividend will be made in accordance with the Pubco Group’s dividend policy described in Paragraphs 51 and 52, and such dividend would be paid regardless of whether the Proposed Transactions are ultimately undertaken.

(m)   First Distribution Steps

105.  At any time prior to the First Three-Party Share Exchange, Forco 23 will incorporate New DC under the laws of XXXXXXXXXX. The authorized share capital of New DC will be comprised of ordinary shares. Forco 23 will subscribe for a XXXXXXXXXX of ordinary shares of the capital stock of New DC upon its formation, for XXXXXXXXXX cash consideration. New DC will be a non-resident of Canada for purposes of the Act.

106.  At any time prior to the First Three-Party Share Exchange, New DC will incorporate Canadian TC under the XXXXXXXXXX. The authorized share capital of Canadian TC will be comprised of:

(a)   an unlimited number of voting, fully participating common shares (the “Canadian TC Common Shares”); and

(b)   an unlimited number of preferred shares (the “Canadian TC Butterfly Shares”), with terms and conditions described in Paragraph 107.

New DC will subscribe for a XXXXXXXXXX of Canadian TC Common Shares upon its formation, for XXXXXXXXXX cash consideration. Canadian TC will be a taxable Canadian corporation and Canadian TC will adopt a XXXXXXXXXX taxation year-end. Canadian TC’s head office will be located at XXXXXXXXXX.

106.1 At any time prior to the transactions in Paragraph 106.2, Canadian DC will incorporate Canadian Subco under the XXXXXXXXXX. The authorized share capital of Canadian Subco will be comprised of common shares. Canadian DC will subscribe for XXXXXXXXXX of common shares of Canadian Subco on incorporation for XXXXXXXXXX cash consideration. Canadian Subco will be a taxable Canadian corporation.

106.2 At any time prior to the First Distribution, Canadian DC and Canadian Subco will enter into a nominee agreement whereby Canadian Subco will agree to hold legal title of XXXXXXXXXX on behalf of Canadian DC, the beneficial owner of such property, solely as nominee, agent and bare trustee. XXXXXXXXXX.

107.  The Canadian TC Butterfly Shares will have the following terms:

(a)   The Canadian TC Butterfly Shares will be non-voting.

(b)   Each Canadian TC Butterfly Share will entitle the holder to receive non‑cumulative dividends as and when declared by the board of directors of Canadian TC.

(c)   The Canadian TC Butterfly Shares will be redeemable and retractable, subject to applicable law, at any time at the option of the holder or Canadian TC for a redemption amount per share (the “Canadian TC Redemption Amount”) equal to the aggregate of the following two amounts:

(i)   the FMV of the consideration paid to Canadian TC for the issuance of the Canadian TC Butterfly Share; and

(ii)  that amount which is equal to all declared and unpaid dividends on such Canadian TC Butterfly Share.

(d)   Except with the consent in writing of the holders of all of the Canadian TC Butterfly Shares, no dividend shall at any time be declared and paid on, or declared and set apart for payment on, the Canadian TC Common Shares unless, after the payment of such dividend, the realizable value of the assets of Canadian TC would not be less than the aggregate Canadian TC Redemption Amount.

(e)   In the event of the dissolution, liquidation or winding-up of Canadian TC, whether voluntary or involuntary, or any other distribution of assets of Canadian TC among its shareholders for the purpose of winding-up its affairs, the holders of Canadian TC Butterfly Shares shall be entitled to receive from the assets of Canadian TC an amount equal to the aggregate Canadian TC Redemption Amount before any amount shall be paid or any assets of Canadian TC are distributed upon any liquidation, dissolution or winding-up of Canadian TC to the holders of the Canadian TC Common Shares. After payment to the holders of Canadian TC Butterfly Shares of the amount so payable to them, such holders shall not be entitled to share in any further distribution of the assets of Canadian TC.

108.  XXXXXXXXXX.

109.  Forco 23 will distribute the account receivable from Forco 20 to Forco 22 as a dividend. Following this dividend, Forco 23 will have no significant assets or liabilities.

110.  Forco 22 will transfer all of the shares of the capital stock of Forco 23 to Forco 21 for a purchase price equal to the FMV of these shares, which is expected to be XXXXXXXXXX. Forco 21 will satisfy the purchase price in cash.

111.  Forco 21 will transfer all of the Canadian DC Shares that it owns to Forco 23 for a purchase price equal to the FMV of these shares. Forco 23 will satisfy the purchase price by issuing additional shares to Forco 21. Forco 23 will acquire the Canadian DC Shares as a long-term investment, and accordingly the Canadian DC Shares will be capital property of Forco 23.

112.  Canadian DC will file articles of amendment to amend the Canadian DC Articles to:

(a)   redesignate the Canadian DC Common Shares as “Class I common shares” and redesignate the Canadian DC Special Common Shares as “Class II common shares”; and

(b)   Reorganize its capital to create and authorize the issuance of (in addition to the shares that Canadian DC is authorized to issue immediately before such amendment) the following new classes of shares:

(i)   an unlimited number of Class III common shares (the “Canadian DC New Common Shares”), with terms and conditions identical to the Canadian DC Common Shares immediately before such amendment, except that each share will entitle the holder to XXXXXXXXXX per share (instead of XXXXXXXXXX per share); and

(ii)  an unlimited number of class D preferred shares (the “Canadian DC Butterfly Shares”), with terms and conditions described in Paragraph 113.

113.  The Canadian DC Butterfly Shares will have the following terms:

(a)   The Canadian DC Butterfly Shares will be non-voting.

(b)   Each Canadian DC Butterfly Share will entitle the holder to receive non‑cumulative dividends as and when declared by the board of directors of Canadian DC.

(c)   The Canadian DC Butterfly Shares will be redeemable and retractable, subject to applicable law, at any time at the option of the holder or Canadian DC, for a redemption amount per share (the “Canadian DC Redemption Amount”) equal to the total of the following two amounts:

(i)   that amount which is equal to the quotient obtained when

(A)   the amount equal to the aggregate FMV of all of the issued and outstanding Canadian DC Shares, determined immediately prior to the Canadian DC Share Exchange, multiplied by the Butterfly Percentage;

is divided by:

(B)   the number of Canadian DC Butterfly Shares issued in connection with the Canadian DC Share Exchange;

plus:

(ii)  that amount which is equal to all declared and unpaid dividends on such Canadian DC Butterfly Share.

(d)   Except with the consent in writing of the holders of all of the Canadian DC Butterfly Shares, no dividend shall at any time be declared and paid on, or declared and set apart for payment on any other class of Canadian DC Shares unless, after the payment of such dividend, the realizable value of the assets of Canadian DC would not be less than the aggregate Canadian DC Redemption Amount.

(e)   In the event of the dissolution, liquidation or winding-up of Canadian DC, whether voluntary or involuntary, or any other distribution of assets of Canadian DC among its shareholders for the purpose of winding-up its affairs, the holders of Canadian DC Butterfly Shares shall be entitled to receive from the assets of Canadian DC an amount equal to the aggregate Canadian DC Redemption Amount before any amount shall be paid or any assets of Canadian DC are distributed upon any liquidation, dissolution or winding-up of Canadian DC to the holders of any other class of Canadian DC Shares. After payment to the holders of Canadian DC Butterfly Shares of the amount so payable to them, such holders shall not be entitled to share in any further distribution of the assets of Canadian DC.

114.  Forco 23 will exchange each issued and outstanding Canadian DC Common Share for one Canadian DC New Common Share and one Canadian DC Butterfly Share, and the Canadian DC Common Shares so exchanged will be cancelled (the “Canadian DC Share Exchange”). In connection with the Canadian DC Share Exchange:

(a)   Canadian DC and Forco 23 will not make a joint election under the provisions of subsection 85(1); and

(b)   Canadian DC will add to the stated capital accounts of the Canadian DC New Common Shares and the Canadian DC Butterfly Shares issued on the Canadian DC Share Exchange an amount equal to the aggregate PUC of the Canadian DC Common Shares immediately before such exchange, and such PUC will be allocated between the Canadian DC New Common Shares and the Canadian DC Butterfly Shares based on the proportion that the FMV of the Canadian DC New Common Shares and the Canadian DC Butterfly Shares, as the case may be, is of the FMV of all of the Canadian DC New Common Shares and the Canadian DC Butterfly Shares issued on such exchange.

115.  In the context of a three-party transfer agreement between Forco 23, Canadian TC and New DC (the “First Three-Party Share Exchange”), Forco 23 will transfer the Canadian DC Butterfly Shares to Canadian TC in the following manner:

(a)   Canadian TC will agree to pay the purchase price for the Canadian DC Butterfly Shares transferred to it by Forco 23 by issuing Canadian TC Common Shares to New DC having an aggregate FMV at that time equal to the aggregate FMV of the Canadian DC Butterfly Shares so transferred to it by Forco 23;

(b)   New DC will agree to pay the purchase price for the Canadian TC Common Shares issued to it as described in (a) above by issuing common shares to Forco 23 having an aggregate FMV at that time equal to the aggregate FMV of the Canadian TC Common Shares issued to it; and

(c)   Forco 23, New DC and Canadian TC will agree that: (i) the Canadian TC Common Shares issued to New DC as described in (a) above will be issued as a consequence of the transfer by Forco 23 of the Canadian DC Butterfly Shares to Canadian TC, (ii) the common shares of New DC issued to Forco 23 as described in (b) above will be issued as a consequence of the issuance by Canadian TC of the Canadian TC Common Shares, and (iii) Forco 23 will receive the common shares of the capital stock of New DC issued to it as described in paragraph (b) above as a consequence of the transfer by Forco 23 of the Canadian DC Butterfly Shares to Canadian TC.

In connection with the First Three-Party Share Exchange, Canadian TC will add an amount to the stated capital of the Canadian TC Common Shares not exceeding the aggregate FMV of the Canadian DC Butterfly Shares transferred to Canadian TC.

116.  The aggregate FMV, immediately before the transfer of property by Canadian DC to Canadian TC described in Paragraph 120, of the common shares of the capital stock of New DC owned by Forco 23 will be equal to or approximate the amount determined by the formula, on the assumption that Forco 23 is the participant, Canadian DC is the distributing corporation and New DC is the acquiror,

(A × B/C) + D

as found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1).

117.  Immediately before the transfer of the Distribution Property by Canadian DC to Canadian TC described in Paragraph 120, the property of Canadian DC will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation over which Canadian DC has the ability to exercise Significant Influence (being Canco 1, Canco 2 and Canadian Subco). The assets of Canadian DC, determined on a consolidated basis as described herein will be classified into the following three types of property for the purposes of the definition of “distribution” in subsection 55(1):

(a)   cash or near-cash property, comprising all of the current assets of the Canada Group, including cash, marketable securities, accounts receivable (including HST/GST/PST/QST receivables), trade receivables, inventory and prepaid expenses;

(b)   business property, comprising all of the assets of the Canada Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from an active business (other than a specified investment business) including goodwill; and

(c)   investment property, comprising all of the assets of the Canada Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from property or from a specified investment business.

For greater certainty, for purposes of this distribution:

(d)   any tax accounts such as the balance of any non-capital losses of the Canada Group or the balance of any RDTOH or CDA of the Canada Group, if any, will not be considered property;

(e)   the amount of any deferred or future income tax asset will not be considered property;

(f)   advances and loans of the Canada Group, or portions thereof (including those owing from non-arm’s length persons), that are not due within the next 12 months and that have fixed term of repayment, other than as described in Paragraph 117(k) below, will be considered business property;

(g)   advances and loans of the Canada Group, or portion thereof (including those owing from non-arm’s length persons) that are due within the next 12 months or those with no fixed term of repayment, other than as described in Paragraph 117(k) below, will be considered cash or near-cash property;

(h)   the accounts receivable and trade receivables will be classified as cash or near-cash property even if they are not expected to be paid within 12 months;

(i)   amounts receivable by Canadian DC under the cash pooling arrangement, as described in Paragraphs 91 to 94, will be considered cash or near-cash property;

(j)   Canadian DC will be considered to have Significant Influence over a corporation if it has Significant Influence over that corporation or over any other corporation that has Significant Influence over that corporation, or if Canadian DC in combination with corporations over which it has Significant Influence have Significant Influence over that corporation, and for greater certainty:

(i)   Canadian DC will only be considered to have Significant Influence over Canco 1, Canco 2 and Canadian Subco;

(ii)  Canco 1 will only be considered to have Significant Influence over Canco 2 (and will not have Significant Influence over Canadian DC and Canadian Subco);

(iii) Canco 2 will not have Significant Influence over Canco 1, Canadian Subco or Canadian DC; and

(iv)  Canadian Subco will not have Significant Influence over Canco 1, Canco 2 or Canadian DC.

(k)   for the purposes of determining the FMV of each type of property of Canadian DC, the FMV of the shares of the capital stock of any corporation over which any of the above mentioned corporations has the ability to exercise Significant Influence and of any indebtedness receivable by any such corporation from a corporation over which it has Significant Influence will be allocated among the three types of property described above by multiplying the FMV of the shares of the capital stock of the particular corporation or the indebtedness receivable from the particular corporation, as the case may be, by the proportion that the net FMV of each type of property owned by the corporation (as determined in accordance with the methodologies described herein) is of the aggregate net FMV of all property owned by such corporation (as determined in accordance with the methodologies described herein);

(l)   the XXXXXXXXXX intellectual property and rights under the licensing agreement described in Paragraph 66 will be considered to be business property;

(m)   the XXXXXXXXXX intellectual property and rights under the licensing agreement described in Paragraphs 80 to 82 will be considered to be business property;

(n)   provided that the intercompany receivable is an estimate for an amount the right to which is dependent on the occurrence of future events, the intercompany receivables described in Paragraph 69 will not be considered property;

(o)   each of XXXXXXXXXX, as described in Paragraphs 61 to 64, will be considered to be business property;

(p)   XXXXXXXXXX;

(q)   XXXXXXXXXX;

(r)   any amount recorded under IFRS as a capital lease asset represents only accounting entries for financial statement purposes and such accounting entries do not represent property as defined in subsection 248(1) of the Act;

(s)   any net pension plan asset (i.e. actuarial plan assets in excess of actuarial plan liabilities) of Canadian DC will not be considered property of Canadian DC; and

(t)   income and other taxes receivable within a year, as well as any corresponding interest and penalties, which relate to either an assessment, additional assessment, reassessment or variance thereof received prior to the transfer of property described in Paragraph 120 or a return filed for a taxation year for which no assessment, additional assessment, reassessment or variance thereof has been received prior to the transfer of property described in Paragraph 120, will be classified as current assets. Income and other taxes receivable (excluding HST/GST/PST/QST) that relate to taxation years for which a return has not been filed will not be considered property.

118.  Based on the preceding Paragraphs, at present, to the best of its knowledge, the Canada Group has no property (other than cash and near-cash property) the income from which would be considered income from property, nor does the Canada Group carry on any specified investment business. Accordingly, the Canada Group is not expected to have any investment property for the purposes of the transfer of property described in Paragraph 120.

119.  In determining, on a consolidated basis, the net FMV of each of the three types of property of the Canada Group immediately before the transfer of property described in Paragraph 120, the liabilities of Canadian DC and any corporation over which Canadian DC exercises Significant Influence will be allocated to, and will be deducted in the calculation of the net FMV of each type of property of Canadian DC or such corporation or partnership, as the case may be, in the following manner:

(a)   in determining the net FMV of each type of property of a corporation over which Canadian DC exercises Significant Influence immediately before the transfer of property described in Paragraph 120, the liabilities of that corporation (other than any amount owing by such corporation to another corporation that has the ability to exercise Significant Influence over the debtor corporation as described in Paragraph 117(k)) will be allocated to, and deducted in the calculation of, the net FMV of each type of property of that particular corporation as follows:

(i)   current liabilities of such corporation will be allocated to each cash or near-cash property of the corporation in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property owned by such corporation. To the extent that the total amount of current liabilities to be allocated to the cash or near-cash property exceeds the total FMV of all the cash or near-cash property, such corporation will be considered to have a negative amount of cash or near-cash property;

(ii)  following the allocation of current liabilities to cash or near-cash property as described in (a)(i) above, provided that the net FMV of the cash or near-cash property of such corporation is positive, any remaining net FMV of any accounts receivable and trade receivables (including HST/GST/PST/QST receivables and accounts receivables and trade receivables owing from non-arm’s length persons other than any amount owing by such corporation to another corporation that has the ability to exercise Significant Influence over the debtor corporation as described in Paragraph 117(k)), inventories and prepaid expenses of such corporation will be reclassified as business property of such corporation and excluded from the net FMV of the cash or near-cash property, to the extent that such property will be collected, sold, used or consumed in the ordinary course of business to which such property relates;

(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property will be allocated to that particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of a particular property and liabilities that pertain to a particular type of property, but not to a particular property, will then be allocated to that particular type of property. To the extent that the total amount of liabilities that are to be allocated to a particular type of property as described herein exceeds the total FMV of that type of property, such corporation will be considered to have a negative amount of that type of property; and

(iv)  if any liabilities remain after the allocations described above are made, such excess unallocated liabilities will then be allocated to the cash or near-cash property, investment property and business property of such corporation, based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities. However, where a corporation is considered to have a negative amount of a type of property because of (a)(i) or (iii) above, for the purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property;

(b)   in determining, on a consolidated basis, the net FMV of each type of property of Canadian DC immediately before the transfer of property described in Paragraph 120, Canadian DC will include the appropriate pro-rata share of the net FMV of each type of property of any corporation over which Canadian DC exercises Significant Influence and, for greater certainty, the appropriate negative amount of such type of property of any such entity, as determined in accordance with (a) above, and any liabilities of Canadian DC will be allocated to, and be deducted in the calculation of, the net FMV of each type of property of Canadian DC in the following manner:

(i)   current liabilities of Canadian DC will be allocated to the cash or near-cash property of Canadian DC in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property of Canadian DC. The allocation of current liabilities as described herein will not exceed the FMV of all the cash or near-cash property of Canadian DC;

(ii)  following the allocation of current liabilities to each cash or near-cash property in (b)(i) above, any remaining net FMV of any accounts receivable and trade receivables (including HST/GST/PST/QST receivables and accounts receivables and trade receivables owing from non-arm’s length persons other than any amount owing by such corporation to Canadian DC that Canadian DC has the ability to exercise Significant Influence over the debtor corporation as described in Paragraph 117(k)), inventories and prepaid expenses of Canadian DC will be reclassified as business property and excluded from the cash or near-cash property, to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates;

(iii) liabilities of Canadian DC, other than current liabilities, that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. The liabilities that pertain to a type of property but not to a particular property will be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and

(iv)  if any liabilities remain after the allocations described in (b)(i) and (iii) are made, such excess unallocated liabilities will then be allocated to the cash or near-cash property, investment property and business property of Canadian DC, on the basis of the relative net FMV of each type of property prior to the allocation of such excess, but after the allocation of the liabilities described in (b)(i) and (iii) above; and

(c)   For greater certainty, for the purposes of this distribution,

(i)   no amount will be considered to be a liability unless it represents a legal liability which is capable of quantification. For greater certainty, an obligation that is contingent at the time of the transfer of property described in Paragraph 120, unless otherwise noted below, will not be considered to be a liability as the amount does not represent a legal liability that is capable of quantification at that time;

(ii)  the amount of any deferred or future income tax liability will not be considered a liability because such amount does not represent a legal liability;

(iii) current liabilities will include amounts with no fixed term of repayment and amounts normally classified as current liabilities, including accounts payable, bonuses payable, vacation payable, and the portion of any long-term debt or advance due within one year, owing to both arm’s length and non-arm’s length parties (other than as described in Paragraph 119(c)(v) below);

(iv)  income or other taxes due and payable within a year, as well as any corresponding interest and penalties, which relate to either an assessment, additional assessment, reassessment or variance thereof received prior to the transfer of property described in Paragraph 120 or a return filed for a taxation year for which no assessment, additional assessment, reassessment or variance thereof has been received prior to the transfer of property described in Paragraph 120, will be classified as current liabilities. Income and other taxes payable (excluding HST/GST/PST/QST) that relate to taxation years for which a return has not been filed will be classified as a contingent liability unless they represent non-resident withholding tax and similar non-income taxes which are payable pursuant to the applicable legislation;

(v)   notwithstanding Paragraph 119(a)(i) and Paragraph 119(b)(i) above:

*     any amounts payable by Canadian DC under the cash pooling arrangement, as described in Paragraphs 91 to 94, will be considered current liabilities allocable solely to cash property;

*     outstanding cheques corresponding to a particular bank account (cash pool or non-cash pool) are to be netted against the positive balance of that same account;

*     if a particular cash pool account is negative, due to outstanding cheques or otherwise, pursuant to 119(c)(v) that negative balance can be offset against any other bank account that is in a positive position (i.e., whether that account is a cash pool account or a non-cash pool account);

*     if the cash pool accounts (in aggregate) are in an overall negative balance position, due to outstanding cheques or otherwise, and that negative balance exceeds the aggregate positive balance of all other bank accounts, then that excess will be considered to be a current liability for the purposes of 119(a)(i) and 119(b)(i); and

*     if a particular non-cash pool account is negative, due to outstanding cheques or otherwise, then that negative balance cannot offset the positive balance of another bank account, and such negative balance will be considered to be a current liability for the purposes of 119(a)(i) and 119(b)(i).

(vi)  any amount collected from customers and recorded as deferred revenue under IFRS will not be considered a liability provided it does not represent a true legal liability capable of quantification;

(vii) provided the restructuring reserves are not capable of quantification or are estimates for accounting purposes for an eventual obligation that is dependent on the occurrence of future events (these estimates may or may not ultimately materialize into an obligation of Canadian DC), the restructuring reserve liabilities described in Paragraph 68 will not be considered true legal liabilities capable of quantification;

(viii)      if an amount is owed by Canadian DC prior to the transfer of property described in Paragraph 120 as a result of a management, technology, trademark or similar fee that has been invoiced to Canadian DC, as described in Paragraph 70, such amount will be classified as a current liability. However, any amount that has not yet been invoiced as a management, technology or similar fee to Canadian DC, as described in Paragraph 70, will not be considered a liability;

(ix)  XXXXXXXXXX;

(x)   any amount recorded under IFRS as a capital lease liability (or as a liability associated with a capital lease) will not be considered a liability;

(xi)  any net pension liability (i.e. actuarial plan liabilities in excess of actuarial plan assets as determined by the method prescribed by the applicable pension legislation) that is in respect of a registered pension plan that is governed by specific pension legislation (Pension Plan 1 and Pension Plan 4) will be considered a legal liability capable of quantification. Any net current pension plan liability in respect of these registered plans (i.e. current actuarial plan liabilities in excess of current actuarial plan assets as determined by the method prescribed by the applicable pension legislation) will be allocated to cash or near-cash property, and any net non-current pension plan liability (i.e. non-current actuarial plan liabilities in excess of non-current actuarial plan assets as determined by the method prescribed by the applicable pension legislation) will be allocated to business property;

(xii) any liability that is related to an unregistered retirement plan or similar post-employment arrangement (including a pension plan, a post-retirement benefit plan, a supplemental retirement plan, a disability plan, a health care plan, a dental care plan, a life insurance plan, a plan in respect of long term service awards and a retirement bonus plan), including Pension Plan 2, Pension Plan 3, Pension Plan 6, Benefit Plan 1, Benefit Plan 2 and Benefit Plan 3, will be considered a contingent liability which will be disregarded provided such amounts are dependent on future events before it can be ascertained that an obligation exists; and

(xiii)      provided that no amount is due to XXXXXXXXXX with respect to the amounts or awards under share compensation plans or incentive plan and provided that such amounts or awards are dependent on future events before it can be ascertained that an obligation exists, any such amount or award that has not yet vested will be considered a contingent liability, which will be disregarded; however, any such amount or award that is not dependent on future events before it can be ascertained that an obligation exists and which has vested or that is due to XXXXXXXXXX will be considered a true legal liability that is capable of quantification and will be classified as current liability.

120.  Canadian DC will transfer assets relating to the Subcategory 1 business operations, including beneficial ownership of XXXXXXXXXX, the shares of Canadian Subco and the nominee agreement described in Paragraph 106.2 (the “Distribution Property”) to Canadian TC for a purchase price equal to the FMV of the Distribution Property (the “First Distribution”). In the event that Canadian DC has cash or near-cash property at the time of the transfer, the transfer of any cash and near-cash property by Canadian DC to Canadian TC in this step will occur no later than XXXXXXXXXX days after the date of the transfer of all other property by Canadian DC to Canadian TC as described in this step, but will nonetheless be considered to have been Distribution Property transferred to Canadian TC as part of the transfer of property as described in this step for purposes of section 55. As the consideration for the Distribution Property, Canadian TC will:

(a)   if applicable, assume all or a portion of certain liabilities of Canadian DC; and

(b)   issue Canadian TC Butterfly Shares to Canadian DC having an aggregate FMV at that time equal to the amount by which the aggregate FMV of the Distribution Property transferred to Canadian TC exceeds the aggregate amount of the liabilities assumed by Canadian TC in (a) above.

In connection with the First Distribution:

(c)   Canadian DC and Canadian TC will jointly elect, in the prescribed form and manner and within the time specified in subsection 85(6), to have subsection 85(1) apply in respect of the transfer of each eligible property transferred to Canadian TC and in respect of which the Canadian TC Butterfly Shares have been issued as full or partial consideration for the transfer of the Distribution Property as described in Paragraph 120. The agreed amount in respect of each eligible property so transferred will be as follows:

(i)   in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

(ii)  in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(iii) 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);

and, in each case, the agreed amount will not exceed the FMV of the particular eligible property transferred, nor will it be less than the amount permitted under paragraph 85(1)(b);

(d)   the amount of any liabilities assumed by Canadian TC which are allocated to a particular eligible property that is the subject of an election under subsection 85(1) as described above will not exceed the agreed amount for that particular property;

(e)   Canadian TC will add an amount to the stated capital of the Canadian TC Butterfly Shares equal to the amount by which the aggregate cost to Canadian TC of the properties transferred to Canadian TC (determined pursuant to subsection 85(1), where relevant) exceeds the aggregate amount of the liabilities assumed by Canadian TC on the transfer;

(f)   Canadian DC may make payments to Canadian TC in consideration for Canadian TC assuming undertakings of Canadian DC to which paragraph 12(1)(a) applies. In such case, any such payments made by Canadian DC to Canadian TC will be considered to be part of the First Distribution, as described in Paragraph 120, made by Canadian DC to Canadian TC. For purposes of paragraph 20(24)(b), Canadian TC will receive the amounts in the course of the business and will include the amount in income under paragraph 12(1)(a). Further, Canadian TC and Canadian DC will elect, jointly and in prescribed form within the time referred to in subsection 20(25) to have the rules in subsection 20(24) apply in respect of amounts paid for such amounts; and

(g)   The employees of Canadian DC who are employed in activities relating to Subcategory 1 will become employed by Canadian TC.

121.  As a result of the transfer of the Distribution Property to Canadian TC and the assumption of liabilities by Canadian TC as described in Paragraph 120, the net FMV of each type of property received by Canadian TC will be equal to or approximate that proportion of the net FMV of all property of Canadian DC of that type (as determined immediately before such transfer and using the principles set out in Paragraphs 117 to 119), that:

(a)   the aggregate FMV of the Canadian DC Butterfly Shares owned by Canadian TC immediately before the transfer;

is of

(b)   the aggregate FMV of all the issued and outstanding shares of the capital stock of Canadian DC immediately before the transfer.

In determining the net FMV of each type of property that has been received by Canadian TC, a liability assumed by Canadian TC will be allocated to the same type of property to which such liability was allocated in determining the net FMV of each type of property of Canadian DC (as determined using the principles set out in Paragraphs 117 to 119).

For greater certainty, a current liability, or a portion thereof, allocated to an account receivable, trade receivable, inventory or prepaid expense of Canadian DC that will be reclassified as business property in accordance with Paragraph 119(a)(ii) or Paragraph 119(b)(ii) will be considered to be a liability allocated to a business property.

To the extent that current liabilities of Canadian DC are allocated to more than one category of property of Canadian DC (for example, as a result of the reclassification of property pursuant to Paragraph 119(a)(ii) or Paragraph 119(b)(ii)), and all or a portion of those liabilities are assumed by Canadian TC as partial consideration for the transfer of assets described in Paragraph 120, Canadian TC will have the option to allocate those current liabilities to any such corresponding category of property of Canadian TC, or a combination thereof, provided that the amount allocated to a particular category of property of Canadian TC does not exceed the amount allocated to that same category of property by Canadian DC.

The expression “approximate that proportion” described above means that the discrepancy from that proportion, if any, would not exceed 1% determined as a percentage of the net FMV of each type of property which Canadian TC will receive (or Canadian DC will retain) as compared to what Canadian TC would have received (or Canadian DC would have retained) had it received (or retained) its appropriate pro-rata share of the net FMV of that type of property.

122.  Canadian DC and Canadian TC will enter into one or more agreements, pursuant to which Canadian DC, Canadian TC and other members of the Pubco 1 Group will provide each other certain services, facilities, goods and intangibles in order to facilitate the ongoing conduct of their respective businesses. Certain services will be provided only for a transitional period following the First Distribution, while other services will be provided on an ongoing basis. In addition, Canadian TC will enter into a trademark license agreement with Foreign Pubco 2 with respect to the XXXXXXXXXX trademark. For greater certainty, there will not be any property or liabilities that result from these agreements prior to the completion of Paragraph 120 of the Proposed Transactions.

123.  For purposes of applying the types of property classification in regards to Canadian DC and Canadian TC, any liability that is assumed by Canadian TC, but in respect of which Canadian DC provides an indemnity to Canadian TC, will, to the extent of that indemnity, be treated as a liability of Canadian DC and not of Canadian TC, and any liability that is retained by Canadian DC, but in respect of which Canadian TC provides an indemnity to Canadian DC, will, to the extent of that indemnity, be treated as a liability of Canadian TC and not of Canadian DC. However, no such indemnities are expected.

124.  Canadian TC will redeem all of the outstanding Canadian TC Butterfly Shares held by Canadian DC for an amount equal to the aggregate Canadian TC Redemption Amount. In satisfaction of the Canadian TC Redemption Amount for such shares, Canadian TC will issue to Canadian DC a non-interest-bearing promissory note, payable on demand (the “Canadian TC Redemption Note”) with a principal amount equal to the aggregate Canadian TC Redemption Amount of the shares so redeemed. Canadian DC will accept the Canadian TC Redemption Note in full payment of the aggregate Canadian TC Redemption Amount of the redeemed shares.

125.  Canadian DC will redeem all of the outstanding Canadian DC Butterfly Shares held by Canadian TC for an amount equal to the aggregate Canadian DC Redemption Amount. In satisfaction of the Canadian DC Redemption Amount for such shares, Canadian DC will issue to Canadian TC a non-interest-bearing promissory note, payable on demand (the “Canadian DC Redemption Note”) with a principal amount equal to the aggregate Canadian DC Redemption Amount of the shares so redeemed. Canadian TC will accept the Canadian DC Redemption Note in full payment of the aggregate Canadian DC Redemption Amount of the redeemed shares.

126.  Canadian DC and Canadian TC will enter into a set-off agreement, pursuant to which the principal amount owing by Canadian DC to Canadian TC under the Canadian DC Redemption Note and the principal amount owing by Canadian TC to Canadian DC under the Canadian TC Redemption Note will be set off in full against each other. Following the set-off, each such note will be considered to be paid in full and will be cancelled.

127.  It is expected that Canadian TC will receive management services from other members of the Pubco Group, pursuant to management services arrangements similar to the arrangements described in Paragraph 70. Canadian TC will incur amounts payable under these arrangements similar to those described in Paragraph 70.

128.  Following the First Distribution, it is expected that Canadian TC will borrow money from one or more of the following sources in order to ensure that Canadian TC has sufficient cash to satisfy obligations that arise in connection with the Subcategory 1 business operations: (a) under cash pooling arrangements with XXXXXXXXXX and XXXXXXXXXX on terms substantially similar to those of the arrangements described in Paragraphs 91 to 94, (b) under loans from third parties outside of the Pubco Group, and/or (c) under loans from Canadian DC or another member of the Pubco Group that is related to Canadian TC.

129.  It is expected that employees of Canadian TC will be eligible to participate in the same share-based compensation programs provided under the Share Plan to employees of Canadian DC, as described in Paragraphs 83 to 85, or in similar share-based compensation programs, except that any performance conditions will be based on the performance of the New Business Unit or its Canadian operations. Any such programs will be funded in a manner similar to that described in Paragraph 85.

130.  It is expected that employees of Canadian TC will continue to be members of the relevant post-employment benefit plans of Canadian DC described in Paragraph 90. Where applicable, pension fund assets will be determined as a pro-rata share of the pension fund assets based on the actuarially determined pro-rata share of the wind-up liability.

(n)   Second Distribution Steps

131.  Forco 23 will transfer the shares of the capital stock of New DC to Forco 14 for a purchase price equal to the FMV of the shares transferred. Forco 14 will satisfy this purchase price by issuing to Forco 23 a number of XXXXXXXXXX non‑interest-bearing demand notes (the “Forco 14 Notes”), with an aggregate principal amount equal to the FMV of the New DC shares transferred by Forco 23 to Forco 14. Multiple promissory notes will be issued in order to facilitate the distribution of these notes to the holders of the Forco 20 Ordinary Shares, as described in Paragraph 141 below.

132.  At any time prior to the Second Three-Party Share Exchange, New Global Holdco will incorporate New TC under the laws of XXXXXXXXXX. The authorized share capital of New TC will be comprised of ordinary shares. New Global Holdco will subscribe for XXXXXXXXXX of ordinary shares of New TC upon its formation, for XXXXXXXXXX cash consideration. New TC will be a non-resident of Canada for purposes of the Act.

133.  In the context of a three-party transfer agreement between Forco 14, New TC and New Global Holdco (the “Second Three-Party Share Exchange”), Forco 14 will transfer the New DC shares to New TC in the following manner:

(a)   New TC will agree to pay the purchase price for the New DC shares transferred to it by Forco 14 by issuing New TC shares to New Global Holdco having an aggregate FMV at that time equal to the aggregate FMV of the New DC shares so transferred to it by Forco 14;

(b)   New Global Holdco will agree to pay the purchase price for the New TC shares issued to it as described in (a) above by issuing shares to Forco 14 having an aggregate FMV at that time equal to the aggregate FMV of the New TC shares issued to it; and

(c)   Forco 14, New Global Holdco and New TC will agree that: (i) the New TC shares issued to New Global Holdco as described in (a) above will be issued as a consequence of the transfer by Forco 14 of the New DC shares to New TC, (ii) the shares of New Global Holdco issued to Forco 14 as described in (b) above will be issued as a consequence of the issuance by New TC of the New TC shares, and (iii) Forco 14 will receive the shares of the capital stock of New Global Holdco issued to it as described in paragraph (b) above as a consequence of the transfer by Forco 14 of the New DC shares to New TC.

134.  The aggregate FMV, immediately before the transfer of property by New DC to New TC described in Paragraph 135, of the shares of New DC owned by Forco 14 will be equal to or approximate the amount determined by the formula, on the assumption that Forco 14 is the participant, New DC is the distributing corporation and New Global Holdco is the acquiror,

(A × B/C) + D

as found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1).

135.  New DC will resolve to dissolve its existence and to commence the winding-up of its assets and liabilities. Once this resolution is adopted, New DC will be dissolved and will continue to exist only to the extent required for the purpose of the liquidation of its assets and liabilities. In the course of the winding-up process, New DC will settle its debts and will distribute all of its remaining property (including the shares of Canadian TC) to its sole shareholder New TC (the “Second Distribution”). XXXXXXXXXX. New DC will cease to exist upon the termination of the winding-up process.

(o)   Note Settlement Steps

136.  Forco 23 will distribute the Forco 14 Notes to Forco 21 as a dividend or return of capital on its shares.

137.  Forco 21 will distribute the Forco 14 Notes to Forco 20 as a dividend or return of capital on its shares.

138.  If Forco 14 does not have sufficient cash on hand, Forco 14 will borrow money from internal related party sources on a non-interest-bearing basis (the “Forco 14 Short-Term Borrowing”). Forco 14 will require cash in an amount equal the aggregate principal amounts of the Forco 14 Notes, multiplied by the proportion that the shareholdings of Forco 8 in Forco 20 is of the aggregate shareholdings of Forco 8, Forco 1, Forco 2 and Foreign Pubco 1 in Forco 20.

139.  Forco 14 will repay a portion of the Forco 14 Notes held by Forco 20 with the cash described in Paragraph 138. 

140.  Forco 20 will declare a dividend on the Forco 20 Ordinary Shares equal to the aggregate principal amounts of the Forco 14 Notes prior to the repayment described in Paragraph 139. No dividend will be declared on the preferred shares of Forco 14.

141.  In satisfaction of the dividend declared in Paragraph 140, Forco 20 will distribute the cash received in Paragraph 139 to Forco 8 and will distribute the remaining balance of the Forco 14 Notes pro-rata amongst Foreign Pubco 1, Forco 1 and Forco 2. The Forco 14 Notes distributed to Foreign Pubco 1 are referred to as the “Forco 14 First Notes”, the Forco 14 Notes distributed to Forco 1 are referred to as the “Forco 14 Second Notes”, and the Forco 14 Notes distributed to Forco 2 are referred to as the “Forco 14 Third Notes.”

142.  Forco 1 and Forco 2 will distribute the Forco 14 Second Notes and the Forco 14 Third Notes, respectively, to Foreign Pubco 1 as dividends or returns of capital on their shares.

143.  Foreign Pubco 1 will contribute the Forco 14 First Notes, the Forco 14 Second Notes and the Forco 14 Third Notes to Forco 3 in exchange for newly issued shares of Forco 3.

144.  Forco 3 will contribute the Forco 14 First Notes, the Forco 14 Second Notes and the Forco 14 Third Notes to Forco 14 in exchange for newly issued shares of the capital stock of Forco 14. As a result of these contributions, the Forco 14 Notes will be settled by operation of law.

145.  Forco 8 will distribute the cash received in Paragraph 141 to Forco 7.

146.  Forco 7 will contribute the cash received in Paragraph 145, and some additional cash amounts, to Forco 14 in exchange for newly issued shares of the capital stock of Forco 14. The relative ownership and voting percentages of Forco 3 and Forco 7 in Forco 14 will not change as a result of the share issuances in this Paragraph and in Paragraph 144. It is possible that Forco 7 may only contribute the cash received in Paragraph 145, and not contribute any additional cash amounts; in such case, there would be a change in the relative ownership and voting percentages of Forco 3 and Forco 7 in Forco 14. However, any such change would be small, and Forco 3 would continue to own more than 50% of the voting shares of Forco 14 after the issuance of shares to Forco 7.

147.  Forco 14 will repay the Forco 14 Short-Term Borrowing, if any, with the cash received in Paragraph 146.

V.    ADDITIONAL INFORMATION

148.  The Proposed Transactions will occur in the order presented unless otherwise indicated, subject to the following exceptions:

(a)   The arrangements described in Paragraphs 122 and 127 to 130 may not come into effect until after the completion of certain of the Second Distribution Steps and Note Settlement Steps;

(b)   the applicable election forms will be filed within the applicable due dates following the completion of the Proposed Transactions; and

(c)   the filing of any articles of dissolution may occur following the completion of the Proposed Transactions.

149.  Substantially all of the Global Reorganization Steps are expected to be undertaken before the end of XXXXXXXXXX and the First Distribution Steps are expected to be undertaken on or before XXXXXXXXXX. The balance of the Global Reorganization Steps, as well as the Second Distribution Steps and the Note Settlement Steps are expected to be undertaken in XXXXXXXXXX.

150.  The members of the Pubco Group will not enter into any separation agreements in respect of the Proposed Transactions or the creation of the New Business Unit.

151.  Canadian DC is, and Canadian TC will be, a specified financial institution, XXXXXXXXXX. None of these corporations is or will be a financial intermediary corporation. The Canadian DC Butterfly Shares and the Canadian TC Butterfly Shares will be term preferred shares, but will not be taxable RFI shares.

152.  XXXXXXXXXX.

153.  None of the shares of the capital stock of Canadian DC or Canadian TC has been, or will be, at any time during the implementation of the Proposed Transactions described herein:

(a)   the subject of any undertaking that is referred to in subsection 112(2.2) as a “guarantee agreement”;

(b)   the subject of a dividend rental arrangement referred to in subsection 112(2.3), as that term is defined in subsection 248(1);

(c)   a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5);

(d)   the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or

(e)   issued for consideration that is or includes:

(i)   an obligation of the type described in subparagraph 112(2.4)(b)(i); or

(ii)  any right of the type described in subparagraph 112(2.4)(b)(ii).

154.  Each of Canadian DC, Canadian TC, New Global Holdco and Forco 14 will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory notes issued or assumed by it as part of the Proposed Transactions.

155.  The Canadian DC Class C Shares are shares of a specified class, and the FMV of such shares will be XXXXXXXXXX relative to the FMV of the Canadian DC Butterfly Shares.

156.  No property has or will become property of Canadian DC or any corporation controlled by Canadian DC, and no liabilities have been or will be incurred by Canadian DC or any corporation controlled by Canadian DC, in contemplation of and before the transfer described in Paragraph 120, otherwise than as described herein.

157.  No property has or will become property of New DC or any corporation controlled by New DC, and no liabilities have been or will be incurred by New DC or any corporation controlled by New DC, in contemplation of and before the liquidation described in Paragraph 135, otherwise than as described herein.

158.  As part of the series of transactions or events that includes the Proposed Transactions, no entity within the Pubco Group intends to cause:

(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); or

(c)   an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii).

159.  The members of the Pubco Group have no present intention to dispose of any shares of the capital stock of Canadian DC, Canadian TC, Forco 14, Forco 21, Forco 23, New Global Holdco, New DC (prior to its dissolution described in Paragraph 135) or New TC (or any property 10% or more of the FMV of which is or may be derived from such shares) to an unrelated person or a person who will cease to be related to the transferor as part of the Proposed Transactions.

160.  For the purposes of Paragraphs 158 and 159, in determining the portion of the FMV of the shares or debt of a particular corporation which is derived from the shares of the capital stock of another corporation, any indebtedness of the particular corporation that is not a secured debt or a debt related to a particular property will be considered to reduce the FMV of each property of the particular corporation (or indirectly the FMV derived from shares owned by the particular corporation) pro-rata in proportion to the relative FMV of all property of the particular corporation.

161.  The Canadian DC Common Shares will not be taxable Canadian property at the time these shares are transferred by Forco 21 to Forco 23, as described in Paragraph 111. Accordingly, Forco 21 will not apply for a clearance certificate under section 116 in respect of the transfer, and will not file a Canadian income tax return to report the disposition of these shares.

162.  The Canadian DC Butterfly Shares will not be taxable Canadian property at the time these shares are transferred by Forco 23 to Canadian TC, as described in Paragraph 115. Accordingly, Forco 23 will not apply for a clearance certificate under section 116 in respect of the transfer, and will not file a Canadian income tax return to report the disposition of these shares.

163.  It is expected that the shares of the capital stock of New DC will not be taxable Canadian property at the time these shares are transferred by Forco 23 to Forco 14, as described in Paragraph 131, or at the time these shares are transferred by Forco 14 to New TC, as described in Paragraph 133. Provided that the shares are not taxable Canadian property at such times, Forco 23 and Forco 14 will not apply for clearance certificates under section 116 in respect of these transfers, and will not file Canadian income tax returns to report the dispositions of these shares. If the shares are taxable Canadian property at such times, Forco 23 and Forco 14 will comply with the rules in section 116 in respect of the dispositions of these shares, and will file Canadian income tax returns to report the dispositions.

164.  It is expected that the shares of the capital stock of Canadian TC will not be taxable Canadian property at the time these shares are transferred to New TC on the liquidation of New DC, as described in Paragraph 135. Provided that the shares are not taxable Canadian property at such time, New DC will not apply for a clearance certificate under section 116 in respect of the transfer, and will not file a Canadian income tax return to report the disposition of these shares. If the shares are taxable Canadian property at such time, New DC will comply with the rules in section 116 in respect of the disposition of these shares, and will file a Canadian income tax return to report the disposition.

165.  Canadian DC did not have any RDTOH or dividend refund balance at the end of its taxation year ended XXXXXXXXXX. Canadian DC and Canadian TC are not expected to have any RDTOH at the end of their taxation years which include the First Distribution Steps.

166.  The New Business Unit is intended to generally become operational on or around XXXXXXXXXX, and a majority of the Global Reorganization Steps are expected to be completed by XXXXXXXXXX. To the extent that the legal steps to effect the indirect transfer of the Subcategory 1 assets held by certain entities (including Canadian DC) to New Global Holdco have not been completed by XXXXXXXXXX, the internal management, reporting, and accounting systems of those entities may be organized so as to treat Subcategory 1 as a distinct business unit from the other operations of XXXXXXXXXX. This operational change will not affect the legal ownership of these affected entities (including Canadian DC), nor will it affect the ownership of the Subcategory 1 assets held by these entities.

167.  Canco 1 may consider selling its shares of the capital stock of Canco 2 to Canco 3. Any such sale would occur at a time after the completion of the First Distribution Steps and would be for consideration consisting of cash or non‑convertible debt, and as such would occur on a taxable basis.

168.  Canadian DC may consider terminating the existence of Canco 1, either by amalgamating Canco 1 with Canadian DC or by winding-up Canco 1 into Canadian DC, in order to simplify the corporate structure of the group. Any such transaction would occur at a time after the completion of the First Distribution Steps.

169.  Canadian DC may consider unwinding the cash pooling arrangements described in Paragraphs 91 to 94. Canadian DC expects that any such action would not be taken until after the completion of the First Distribution Steps.

170.  XXXXXXXXXX.

171.  Other than as described herein, no property of Canadian DC is expected to be sold outside of the ordinary course of its business.

172.  A disposition of Foreign Pubco 1 Ordinary Shares or Foreign Pubco 2 Ordinary Shares by an employee benefit trust or a member of the Pubco Group to an employee of Canadian DC in satisfaction of an award granted to such employee under the Share Plan would occur regardless of whether the Proposed Transactions are undertaken. If Canadian TC adopts the Share Plan as part of the compensation package for its employees, a disposition of Foreign Pubco 1 Ordinary Shares or Foreign Pubco 2 Ordinary Shares by an employee benefit trust or a member of the Pubco Group to an employee of Canadian TC in satisfaction of an award granted to such employee under any such plan will occur regardless of whether the Proposed Transactions are undertaken.

172.1 The Pubco Group is planning to undertake an internal reorganization in order to XXXXXXXXXX:

XXXXXXXXXX

Following these transactions, Foreign Pubco 1 will continue to have de jure control of Canadian DC and New Global Holdco. XXXXXXXXXX.

172.2 In order to simplify the share structure of Forco 20, it is expected that in early  XXXXXXXXXX Pubco 1 will continue to have de jure control of Forco 19, Forco 20 and Canadian DC following XXXXXXXXXX Forco 19 would occur regardless of whether the Proposed Transactions are ultimately undertaken.

VI.   PURPOSE OF THE PROPOSED TRANSACTIONS

173.  The purpose of the Proposed Transactions is to transfer the Canadian assets of Subcategory 1 from Canadian DC to Canadian TC on the basis outlined above, in order to facilitate the formation of the New Business Unit. XXXXXXXXXX.

XXXXXXXXXX.

174.  As noted above, there is no present intention to spin-off the New Business Unit to the public shareholders of Foreign Pubco 1 or Foreign Pubco 2, or sell the New Business Unit to a third party. Rather, the Pubco Group wishes to retain ownership of the New Business Unit in order to XXXXXXXXXX.

VII.  RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, additional information and purposes of the proposed transactions, and provided that the Proposed Transactions are undertaken in the manner described above, our Rulings are set forth below:

A.    The transfer by Canadian DC of legal title to XXXXXXXXXX to Canadian Subco, as described in Paragraph 106.2, will not constitute a disposition for the purpose of the Act provided Canadian Subco can reasonably be considered to act as nominee, agent and bare trustee for Canadian DC (prior to the First Distribution) and Canadian TC (following the First Distribution) with respect to all dealings with all such property.

B.    The provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the exchange of shares on the Canadian DC Share Exchange, as described in Paragraph 114, such that:

(a)   the cost of each of the Canadian DC New Common Shares and the Canadian DC Butterfly Shares received by Forco 23 on the exchange will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB to Forco 23, immediately before the exchange, of the Canadian DC Common Shares held by Forco 23, that:

(i)   the FMV, immediately after the exchange, of the Canadian DC New Common Shares or the Canadian DC Butterfly Shares, as the case may be, received by Forco 23;

is of

(ii)  the FMV, immediately after the exchange, of all of the shares the capital stock of Canadian DC received by Forco 23 for the Canadian DC Common Shares; and

(b)   pursuant to paragraph 86(1)(c), Forco 23 will be deemed to have disposed of the Canadian DC Common Shares for aggregate POD equal to the aggregate cost to Forco 23 of the Canadian DC New Common Shares and the Canadian DC Butterfly Shares received by Forco 23, as determined in (a) above.

C.    As a result of the share exchange pursuant to the First Three-Party Share Exchange described in Paragraph 115:

(a)   the provisions of subsection 84(1) and paragraph 212.1(1)(a) will not apply to deem a dividend to be paid by Canadian TC, or to be received by Forco 23, as a result of the exchange;

(b)   the provisions of paragraph 212.1(1)(b) will apply such that the amount added to the PUC of the Canadian TC Common Shares in connection with the exchange will not exceed the PUC, immediately before the exchange, of the Canadian DC Butterfly Shares transferred to Canadian TC; and

(c)   the aggregate cost to Canadian TC of the Canadian DC Butterfly Shares that Canadian TC acquires from Forco 23 on the exchange will be equal to the aggregate FMV at that time of such shares.

D.    The provisions of subsection 85(1), other than paragraph 85(1)(e.2), will apply to the transfer of the Distribution Property by Canadian DC to Canadian TC as described in Paragraph 120 above, such that the agreed amount in respect of each transfer of eligible property will be deemed to be Canadian DC’s POD and Canadian TC’s cost of such property pursuant to paragraph 85(1)(a). In applying subsection 85(1):

(a)   the reference in subparagraph 85(1)(e)(i) to the “undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition” shall be interpreted to mean that proportion of the undepreciated capital cost to Canadian DC of all of the property of that class immediately before the disposition that the FMV at that time of the asset that is transferred is of the FMV at that time of all property of that class; and

(b)   if Canadian DC and Canadian TC so indicate in their joint election, the reference in subparagraph 85(1)(d)(i) to “4/3 of the taxpayer’s cumulative eligible capital in respect of the business immediately before the disposition” shall be interpreted to mean that proportion of 4/3 of Canadian DC’s cumulative eligible capital in respect of its business immediately before the disposition that the transferred eligible capital property in respect of the business (based on the FMV at that time or the amount of the cumulative eligible capital that is attributable to those assets) is of all of Canadian DC’s eligible capital property in respect of the business (based on the FMV at that time or the amount of the cumulative eligible capital that is attributable to those assets).

E.    Subsection 84(3) will apply to:

(a)   the redemption of the Canadian TC Butterfly Shares held by Canadian DC, as described in Paragraph 124 above, such that Canadian TC will be deemed to have paid and Canadian DC will be deemed to have received; and

(b)   the redemption of the Canadian DC Butterfly Shares held by Canadian TC, as described in Paragraph 125 above, such that Canadian DC will be deemed to have paid and Canadian TC will be deemed to have received;

a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such shares immediately before such redemption and any such dividend:

(c)   will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;

(d)   will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

(e)   will be excluded in determining the POD to the recipient corporation of the shares which are redeemed pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54;

(f)   will, by virtue of the provisions of subsection 112(3), apply to reduce any loss arising from the redemption to Canadian TC and Canadian DC which would otherwise be determined;

(g)   will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b); and

(h)   will not be subject to tax under Parts IV.1 and VI.1.

F.    By virtue of the provisions of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends described in Ruling E, provided that as part of the series of transactions or events that includes the taxable dividends described in Ruling E above, there is not:

(a)   an acquisition of property in circumstances described in paragraph 55(3.1)(a);

(b)   a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(c)   an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii); or

(d)   an acquisition of shares of Canadian DC in the circumstances described in subparagraph 55(3.1)(b)(iii);

which has not been described herein, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b) to any of the taxable dividends described in Ruling E.

Notwithstanding the above, subsection 55(2) will not apply to the taxable dividend resulting from the redemption of the Canadian DC Butterfly Shares described in Ruling E(b) on the basis that the redemption does not result in a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition at FMV of the Canadian DC Butterfly Shares immediately before the dividend was deemed to be paid by Canadian DC.

G.    Subject to subsections 1102(14.11) and (14.12) of the Regulations, each property which immediately before the transfer described in Paragraph 120, is depreciable property of a prescribed class or separate prescribed class of Canadian DC and which is acquired by Canadian TC on the transfer described in Paragraph 120, will be deemed to be depreciable property of the same prescribed class or separate prescribed class, as the case may be, of Canadian TC by virtue of subsection 1102(14) of the Regulations.

H.    Provided that the condition specified in paragraph 1100(2.2)(f) or (g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply so that no amount will be included by Canadian TC under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of a prescribed class that is property acquired by Canadian TC from Canadian DC, on the transfer described in Paragraph 120.

I.    The set-off and cancellation of the Canadian DC Redemption Note held by Canadian TC and the Canadian TC Redemption Note held by Canadian DC, as described in Paragraph 126 above, will not give rise to a “forgiven amount” within the meaning of subsections 80(1) or 80.01(1). Neither Canadian TC nor Canadian DC will realize any gain or incur any loss as a result of the set-off and resultant cancellation of the Canadian DC Redemption Note or the Canadian TC Redemption Note.

J.    The provisions of subsections 15(1), 56(2), 56(4), 69(4) and 246(1) will not apply to the Proposed Transactions, in and of themselves.

K.    Subsection 245(2) will not apply to the Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the Rulings given above.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R6 issued on August 29, 2014, and are binding on the CRA, provided that the Proposed Transactions are completed before XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise expressly confirmed, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of:

a)    the ACB, PUC or FMV of any shares referred to herein;

b)    the balance of CDA or RDTOH of any corporation;

c)    the safe-income on hand attributable to any shares of any corporation; or

d)    any other tax consequences relating to the Definitions, Facts, Proposed Transactions and Additional Information described herein, or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred and the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. In addition, any such adjustment could affect the ruling given in Ruling F above. Furthermore, none of the rulings given in this letter are intended to apply to, or in the event of, the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, dated March 28, 2013.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
for Director
Reorganizations Division
Income Tax Ruling Directorate`
Legislative Policy and Regulatory Affairs Branch

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