2024 Ruling 2023-0987001R3 - Public Spin-Off Butterfly

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the proposed transactions meet the requirements of paragraph 55(3)(b).

Position: Yes.

Reasons: In accordance with law and previous positions.

XXXXXXXXXX									2023-098700

XXXXXXXXXX, 2024

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above named Taxpayers.

This letter is based solely on the facts, proposed transactions, additional information and purposes of the proposed transactions described below. Any documentation submitted in respect of your request does not form part of the facts, proposed transactions or additional information unless specifically reproduced therein and any references to documentation are provided solely for the convenience of the reader.

We understand that, to the best of your knowledge and that of the Taxpayers, none of the proposed transactions and/or issues involved in this ruling are the same as, or substantially similar to, transactions and/or issues that are:

(a) in a previously filed tax return of the Taxpayers or a related person;

(b) being considered by the CRA in connection with a previously filed tax return of the Taxpayers or a person related to the Taxpayers;

(c) under objection by the Taxpayers or a person related to the Taxpayers;

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

(e) the subject of an advance income tax ruling previously considered by the Income Tax Rulings Directorate in connection with the Taxpayers or a person related to the Taxpayers.

The tax account numbers, Tax Services Offices and the Tax Centres and addresses of the Taxpayers involved are as follows:

XXXXXXXXXX

Unless otherwise stated:

(a) all references herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (the “Act”), as amended to the date of this letter;

(b) all terms and conditions used in this letter that are defined in the Act have the meaning given in such definition;

(c) unless otherwise stated, all references to specific dollar amounts are in Canadian dollars; and

(d) the singular should be read as plural and vice versa where the circumstances so require.

DEFINITIONS

The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions (as defined below) will be referred to as follows:

“acquiror” has the meaning assigned in the definition of “specified corporation” in subsection 55(1);

“Act 1” means the XXXXXXXXXX;

“Act 2” means the XXXXXXXXXX;

“Act 3” means the XXXXXXXXXX;

“Act 4” means the XXXXXXXXXX;

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

“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);

“Arrangement Agreement” means the arrangement agreement to be entered into by DC2 and SpinCo that will set forth the respective rights and obligations of the parties thereto in respect of the Plan of Arrangement, as further described in Paragraph 53;

“Articles” means, in relation to a particular corporation, the constating documents of the corporation;

“Canadian XXXXXXXXXX Business” means the Group’s XXXXXXXXXX business in Canada;

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

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

“CRA” means Canada Revenue Agency;

“DC1” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

XXXXXXXXXX means XXXXXXXXXX;

“DC1 Capital Reorganization” means the exchange of DC1 Common Shares, as described in Paragraph 46;

“DC1 Common Share” means a XXXXXXXXXX share of DC1 which is a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX per share at a meeting of shareholders of DC1;

“DC1 Distribution” means the transfer by DC1 of the Newco 1 Common Shares to SpinCo Sub described in Paragraph 48;

“DC1 Redemption Note” means the non-interest bearing promissory note, payable on demand, having a principal amount and FMV equal to the aggregate redemption amount of the New DC1 Special Shares;

“DC1 Spin-off Butterfly” means the transactions described in Paragraphs 46 to 49;

“DC1 Spin-off Proportion” means the fraction A/B where:

“A” is the FMV of all of the issued and outstanding Newco 1 Common Shares to be transferred by DC1 to SpinCo Sub on the DC1 Distribution; and

“B” is the net FMV of all the property owned by DC1;

determined, in each case, immediately before the DC1 Distribution;

“DC2” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“DC2 Capital Reorganization” means the exchange of DC2 Common Shares described in Paragraph 58;

“DC2 Common Share” means a XXXXXXXXXX share of DC2. The holders of the DC2 Common Shares are entitled to receive dividends from DC2, if, as and when declared by the board of directors of DC2;

“DC2 Distribution” means the transfer by DC2 of the SpinCo Sub Common Shares to SpinCo, as described in Paragraph 64;

“DC2 Preferred Shares” means, collectively, all of the XXXXXXXXXX Preferred Shares of DC2, authorized as Series XXXXXXXXXX, that are issued and outstanding;

“DC2 Redemption Note” means the non-interest bearing promissory note, payable on demand, having a principal amount and FMV equal to the aggregate redemption amount of the New DC2 Special Shares;

“DC2 Spin-off Butterfly” means the transactions described in Paragraphs 58 to 65;

“DC2 Spin-off Proportion” means the fraction A/B where:

“A” is the FMV of all of the issued and outstanding SpinCo Sub Common Shares to be transferred by DC2 to SpinCo on the DC2 Distribution; and

“B” is the net FMV of all the property owned by DC2;

determined, in each case, immediately before the DC2 Distribution;

“designated stock exchange” has the meaning assigned by subsection 248(1);

“Dissenting Shareholder” means a holder of a DC2 Common Share who validly exercises its right to dissent from the Plan of Arrangement;

“distributing corporation” has the meaning assigned in the definition of “distribution” in subsection 55(1);

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

“DSU” means a right granted by DC2 to an eligible director to receive, on a deferred payment basis, the cash equivalent of a DC2 Common Share on the terms and conditions set out in the DSU Plan;

“DSU Plan” means the DC2 Deferred Share Unit Plan, as amended, being a “prescribed plan or arrangement” as described under paragraph 6801(d) of the Regulations and described in Paragraph 11;

“Effective Date” means the effective date of the Plan of Arrangement;

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

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

“ESU” means a right granted by DC2 to an eligible executive to receive the cash equivalent of a DC2 Common Share on the terms and conditions set out in the ESU Plan;

“ESU Plan” means, for ESUs granted on or after XXXXXXXXXX, the DC2 XXXXXXXXXX Share Unit Plan amended and effective XXXXXXXXXX and for ESUs granted before XXXXXXXXXX, the DC2 XXXXXXXXXX Share Unit Plan as amended and restated XXXXXXXXXX and described in Paragraph 12;

“Exchange Ratio” means the quotient of (i) the weighted average trading price of a DC2 Common Share as reported on Exchange 1 for the 5-day trading period (or such other trading period that is acceptable to Exchange 1) ending immediately before the Effective Date, divided by (ii) the weighted average trading price of a SpinCo Common Share as reported on Exchange 1 for a 5-day trading period (or such other trading period that is acceptable to Exchange 1) beginning on the Effective Date;

“Exchange 1” means the XXXXXXXXXX;

“Exchange 2” means the XXXXXXXXXX;

“fair market value” or “FMV” means the highest price available in an open and unrestricted market between informed and prudent parties dealing at arm’s length and under no compulsion to act, expressed in terms of money;

“FMV Reduction of a DC2 Common Share” means the reduction in the FMV of a DC2 Common share that will arise solely as a result of the DC2 Spin-off Butterfly, and which will be calculated by subtracting:

(a) the weighted average trading price of a DC2 Common Share on Exchange 1 for a 5-day trading period (or such other trading period that is acceptable to Exchange 1) beginning on the Effective Date;

from

(b) the weighted average trading price of a DC2 Common Share on Exchange 1 for a 5-day trading period (or such other trading period that is acceptable to Exchange 1) ending immediately before the Effective Date;

“Group” means the XXXXXXXXXX group of companies, ultimately controlled by DC2;

“In the Money Amount” means, in relation to a particular stock option, the amount by which the FMV of the share that is the subject of the particular option exceeds the exercise price of the option;

“XXXXXXXXXX Business” means the Group’s XXXXXXXXXX business in Canada and XXXXXXXXXX;

“XXXXXXXXXX Employee” means an employee who, immediately prior to the Effective Date, is employed by a member of the Group, and who, immediately after the Effective Date, will become an employee of SpinCo or one of its affiliates;

“New DC1 Common Share” means a new common share of DC1 with the terms and conditions described in Paragraph 45a.;

“New DC1 Special Share” means a new special share of DC1 with the terms and conditions described in Paragraph 45b.;

“New DC2 Common Share” means a new common share of DC2 with the terms and conditions described in Paragraph 57a.;

“New DC2 Special Share” means a new special share of DC2 with the terms and conditions described in Paragraph 57b.;

“New DC2 Stock Option” means a right granted by DC2 to an eligible employee to acquire a DC2 Common Share (the material financial terms and conditions of which will be substantially similar to those of the Stock Options, other than the exercise price) on the terms and conditions set out in the New DC2 Stock Option Plan;

“New DC2 Stock Option Plan” means the stock option plan or plans of DC2 (the material financial terms and conditions of which will be substantially similar to those of the Stock Option Plan) adopted as of the effective time of the Plan of Arrangement pursuant to which DC2 will have discretion to grant New DC2 Stock Options to employees of DC2 and its affiliates with an exercise price that may not be less than the FMV of a DC2 Common Share, as determined in accordance with the plan, on the date of grant;

“Newco 1” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Newco 1 Common Share” means a common share of Newco 1 with the terms and conditions described in Paragraph 24;

“Newco 2” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Newco 2 Common Share” means a common share of Newco 2 with the terms and conditions described in Paragraph 26a.;

“Newco 2 Preferred Share” means a preferred share of Newco 2 with the terms and conditions described in Paragraph 26b.;

“Newco XXXXXXXXXX” means XXXXXXXXXX, the new XXXXXXXXXX company described in Paragraph 22;

“Newco XXXXXXXXXX Sub” means XXXXXXXXXX, the new XXXXXXXXXX company described in Paragraph 40 and that changed its legal name to XXXXXXXXXX;

XXXXXXXXXX means XXXXXXXXXX;

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

“Paragraph” means a numbered paragraph in this letter;

“Participant” means a holder of a DC2 Common Share, immediately before the effective time of the Plan of Arrangement, other than a Dissenting Shareholder;

“Partnership A” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership B” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership C” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership D” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership E” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership F” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership G” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership H” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership I” means XXXXXXXXXX, a limited partnership formed under Act 4;

“Partnership J” means XXXXXXXXXX, a limited partnership formed under the XXXXXXXXXX;

“Partnership K” means XXXXXXXXXX, a limited partnership formed under the XXXXXXXXXX;

“Plan of Arrangement” means the proposed plan of arrangement under section 192 of Act 1 to effect the transactions described in Paragraphs 56 to 70;

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

“proceeds of disposition” has the meaning assigned by section 54;

“Proposed Transactions” means the proposed transactions described in Paragraphs 45 to 73;

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

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

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

“RSU” means a right granted by DC2 to a Participant to receive the cash equivalent of a DC2 Common Share on the terms and conditions set out in the RSU Plan;

“RSU Plan” means, for RSUs granted on or after XXXXXXXXXX, the DC2 Restricted Share Unit Plan amended and effective XXXXXXXXXX, and for RSUs granted prior to XXXXXXXXXX, the DC2 Restricted Share Unit Plan amended and restated XXXXXXXXXX, and described in Paragraph 10;

“series of transactions or events” includes the transactions or events described in subsection 248(10);

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

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

“specified shareholder” has the meaning assigned by subsection 248(1), as modified by subsections 55(3.2), (3.3) and (3.4);

“SpinCo” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“SpinCo Common Share” means a common share of SpinCo with the terms and conditions described in Paragraph 42a.;

“SpinCo ESU” means a right granted by SpinCo to an eligible employee to receive the cash equivalent of a SpinCo Common Share on the terms and conditions set out in the SpinCo ESU Plan;

“SpinCo ESU Plan” means the SpinCo XXXXXXXXXX Share Unit Plan to be adopted on or before the Effective Date, the material financial terms and conditions of which will be substantially similar to the ESU Plan;

“SpinCo Redemption Note” means the non-interest bearing promissory note, due on demand, having a principal amount and FMV equal to the aggregate redemption amount of the SpinCo Special Shares;

“SpinCo RSU” means a right granted by SpinCo to participate to receive the cash equivalent of a SpinCo Common Share on the terms and conditions set out in the SpinCo RSU Plan;

“SpinCo RSU Plan” means the SpinCo Restricted Share Unit Plan to be adopted on or before the Effective Date, the material financial terms and conditions of which will be substantially similar to the RSU Plan;

“SpinCo Special Share” means the preferred share of SpinCo with the terms and conditions described in Paragraph 42b.;

“SpinCo Stock Option” means a right granted by SpinCo to an eligible employee to acquire a SpinCo Common Share (the material financial terms and conditions of which will be substantially similar to those of the Stock Options, other than the exercise price) on the terms and conditions set out in the SpinCo Stock Option Plan;

“SpinCo Stock Option Plan” means the stock option plan or plans of SpinCo (the material financial terms and conditions of which will be substantially similar to those of the Stock Option Plan) adopted as of the effective time of the Plan of Arrangement pursuant to which SpinCo will have discretion to grant SpinCo Stock Options to employees of SpinCo and its affiliates with an exercise price that may not be less than the FMV of a SpinCo Common Share, as determined in accordance with the plan, on the date of grant.

“SpinCo Sub” means XXXXXXXXXX a corporation incorporated under Act 1 and a TCC;

“SpinCo Sub Common Share” means a common share of SpinCo Sub with the terms and conditions described in Paragraph 44a.;

“SpinCo Sub Redemption Note” means the non-interest bearing promissory note, payable on demand, having a principal amount and FMV equal to the aggregate redemption amount of the SpinCo Sub Special Shares;

“SpinCo Sub Special Share” means a preferred share of SpinCo Sub with the terms and conditions described in Paragraph 44b.;

“Stock Option” means a right granted by DC2 to an eligible employee to acquire a DC2 Common Share on the terms and conditions set out in the Stock Option Plan;

“Stock Option Plan” means DC2’s Stock Option Plan as amended and restated XXXXXXXXXX, and further amended XXXXXXXXXX and described in Paragraph 9;

“Sub 2” means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the Tax Treaty;

“Sub 3” means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the Tax Treaty;

“Sub 4” means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the Tax Treaty;

“Sub 5” means XXXXXXXXXX, a corporation incorporated under Act 2 and a TCC;

“Sub 6” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Sub 7” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Sub 8” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Sub 9” means XXXXXXXXXX, a corporation incorporated under Act 2 and a TCC;

“Sub 10” means XXXXXXXXXX, a corporation incorporated under Act 3 and a TCC;

“Sub 11” means XXXXXXXXXX, a corporation incorporated under Act 2 and a TCC;

“Sub 12” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Sub 13” means XXXXXXXXXX., a corporation incorporated under Act 2 and a TCC;

“Sub 14” means XXXXXXXXXX, a corporation incorporated under Act 2 and a TCC;

“Sub 15” means XXXXXXXXXX, a XXXXXXXXXX company formed in XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Sub 16” means XXXXXXXXXX, a XXXXXXXXXX company formed under the XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Sub 17” means XXXXXXXXXX, a XXXXXXXXXX company formed under the XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Sub 18” means XXXXXXXXXX, a XXXXXXXXXX company formed under the XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Sub 19” means XXXXXXXXXX, a XXXXXXXXXX company formed under the XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Sub 20” means XXXXXXXXXX, LLC, a XXXXXXXXXX company formed under the XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Sub 21” means XXXXXXXXXX, a corporation incorporated under Act 1 and a TCC;

“Sub 22” means XXXXXXXXXX formed under the XXXXXXXXXX and a non-resident of Canada for purposes of the Act;

“Tax Treaty” means the Convention Between Canada and XXXXXXXXXX, as amended;

“taxable Canadian corporation” or “TCC” means “taxable Canadian corporation” as defined in subsection 89(1);

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

“taxation year” has the meaning assigned by subsection 249(1);

XXXXXXXXXX means XXXXXXXXXX;

“transferee corporation” has the meaning assigned in the definition of “distribution” in subsection 55(1);

XXXXXXXXXX; and

“XXXXXXXXXX Business” means the Group’s XXXXXXXXXX business in XXXXXXXXXX.

FACTS

DC2

1. DC2 is a public corporation and a specified corporation. DC2’s taxation year end is XXXXXXXXXX.

2. DC2 is the parent corporation of the Group. The Group owns and operates XXXXXXXXXX. The Group’s assets include the XXXXXXXXXX Business which includes approximately XXXXXXXXXX of wholly-owned XXXXXXXXXX and over XXXXXXXXXX of partially-owned XXXXXXXXXX used for XXXXXXXXXX.

3. DC2 is authorized to issue an unlimited number of DC2 Common Shares and DC2 Preferred Shares. All of the issued and outstanding DC2 Common Shares are widely held and publicly traded on a designated stock exchange in XXXXXXXXXX (Exchange 1) and a designated stock exchange in XXXXXXXXXX (Exchange 2). All of the issued and outstanding DC2 Preferred Shares are widely held and publicly traded in XXXXXXXXXX (Exchange 1). DC2 does not have any issued and outstanding shares other than DC2 Common Shares and DC2 Preferred Shares.

4. As at XXXXXXXXXX DC2 has XXXXXXXXXX DC2 Common Shares issued and outstanding.

5. DC2 has a long-standing practice of declaring and paying cash dividends on the DC2 Common Shares.

6. As at XXXXXXXXXX, DC2 has approximately:

a. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

b. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

c. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

d. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

e. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

f. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

g. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof;

h. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof; and

i. XXXXXXXXXX Series XXXXXXXXXX DC2 Preferred Shares issued and outstanding and convertible into Series XXXXXXXXXX DC2 Preferred Shares, in accordance with the terms thereof.

7. With respect to each DC2 Preferred Share,

a. The PUC in respect of each series of DC2 Preferred Shares immediately before the Proposed Transactions will not be less than the FMV of the consideration for which each DC2 Preferred Share of that series then outstanding was issued;

b. Under neither the terms and conditions of the DC2 Preferred Shares nor any agreement in respect of the DC2 Preferred Shares are the DC2 Preferred Shares convertible into or exchangeable for shares other than shares of a specified class;

c. No holder of a DC2 Preferred Share is entitled to receive on the redemption, cancellation or acquisition of the DC2 Preferred Share by DC2 an amount (other than a premium for early redemption) that is greater than the total of the FMV of the consideration for which the DC2 Preferred Share was issued and the amount of any unpaid dividends on the DC2 Preferred Share; and

d. Each DC2 Preferred Share is non-voting in respect of the election of the board of directors except in the event of a failure or default under the terms or conditions of the DC2 Preferred Share.

8. DC2 delivers a long-term incentive program in the form of the Stock Option Plan, RSU Plan, ESU Plan and allows directors to defer certain director fees under the DSU Plan.

9. Pursuant to the Stock Option Plan, DC2’s directors and executives are granted Stock Options. Each Stock Option entitles the holder, upon exercise, to acquire one DC2 Common Share at the option exercise price as set out in the terms of the award. As of XXXXXXXXXX, there were XXXXXXXXXX Stock Options outstanding.

10. Pursuant to the RSU Plan, RSUs are granted to eligible employees for their employment services. RSUs are settled in cash and not in DC2 Common Shares. An RSU liability is measured at fair value. For tax purpose, a deduction is claimed when the cash settlement amounts are paid. As of XXXXXXXXXX, there were XXXXXXXXXX RSUs outstanding to the credit of participants in the RSU Plan.

11. Pursuant to the DSU Plan, DSUs are granted to directors. DSUs are settled in cash on a deferred payment basis and not in DC2 Common Shares. A DSU liability is measured at fair value. For tax purposes, a deduction is claimed when the cash settlement amounts are paid. As of XXXXXXXXXX, there were XXXXXXXXXX DSUs outstanding to the credit of participants in the DSU Plan.

12. Pursuant to the ESU Plan, ESUs are granted to directors and executives. ESUs are settled in cash and not in DC2 Common Shares. An ESU liability is measured at fair value. For tax purposes, a deduction is claimed when the cash settlement amounts are paid. As of XXXXXXXXXX, there were XXXXXXXXXX ESUs outstanding to the credit of participants in the ESU Plan.

DC2 Shareholders

13. To the best of DC2’s knowledge, no person or non-arm’s length group of persons beneficially owns, directly or indirectly, XXXXXXXXXX% or more of the DC2 Common Shares.

14. Each DC2 Preferred Share is a share of a specified class, and, accordingly, there are no specified shareholders of DC2 in respect of the DC2 Preferred Shares.

15. [Reserved].

DC1

16. DC1 is a direct wholly-owned subsidiary of DC2.

17. The authorized share capital of DC1 includes the DC1 Common Shares and the DC1 Preferred Shares. DC1’s issued and outstanding shares consist solely of DC1 Common Shares.

18. As of XXXXXXXXXX, DC1 has XXXXXXXXXX DC1 Common Shares issued and outstanding, all of which are owned by DC2.

19. XXXXXXXXXX.

20. XXXXXXXXXX.

Group

21. Prior to the Effective Date, the Group includes DC2, DC1, Sub 2, Sub 3, Sub 4, Sub 5, Sub 6, Sub 7, Sub 8, Sub 9, Sub 10, Sub 11, Sub 12, Sub 13, Sub 14, Sub 15, Sub 16, Sub 17, Sub 18, Sub 19, Sub 20, Sub 21, Sub 22, Partnership A, Partnership B, Partnership C, Partnership D, Partnership E, Partnership F, Partnership G, Partnership H, Partnership I, Partnership J, Partnership K, Newco 1, Newco 2, Newco XXXXXXXXXX and Newco XXXXXXXXXX Sub.

a. XXXXXXXXXX.

b. XXXXXXXXXX.

c. XXXXXXXXXX.

d. XXXXXXXXXX.

e. XXXXXXXXXX.

f. XXXXXXXXXX.

g. XXXXXXXXXX.

h. XXXXXXXXXX.

i. XXXXXXXXXX.

j. XXXXXXXXXX.

k. XXXXXXXXXX.

l. XXXXXXXXXX.

m. XXXXXXXXXX.

n. XXXXXXXXXX.

o. XXXXXXXXXX.

p. XXXXXXXXXX.

q. XXXXXXXXXX.

r. XXXXXXXXXX.

s. XXXXXXXXXX.

t. XXXXXXXXXX.

u. XXXXXXXXXX:

XXXXXXXXXX.

v. XXXXXXXXXX:

XXXXXXXXXX.

w. XXXXXXXXXX:

XXXXXXXXXX.

x. XXXXXXXXXX:

XXXXXXXXXX.

y. XXXXXXXXXX:

XXXXXXXXXX.

z. XXXXXXXXXX:

XXXXXXXXXX.

aa. XXXXXXXXXX:

XXXXXXXXXX.

bb. XXXXXXXXXX:

XXXXXXXXXX.

cc. XXXXXXXXXX:

XXXXXXXXXX.

dd. XXXXXXXXXX:

XXXXXXXXXX.

ee. XXXXXXXXXX:

XXXXXXXXXX.

ff. Newco 1 is an entity formed under Act 1 to hold Newco 2 and Newco XXXXXXXXXX.

gg. Newco 2 is an entity formed under Act 1 to hold the Canadian XXXXXXXXXX Business.

hh. Newco XXXXXXXXXX is an entity formed under the XXXXXXXXXX to hold the XXXXXXXXXX Business.

ii. Newco XXXXXXXXXX Sub is an entity formed under the XXXXXXXXXX to provide employment services to Newco XXXXXXXXXX.

COMPLETED TRANSACTIONS

22. On XXXXXXXXXX, Newco XXXXXXXXXX was formed under XXXXXXXXXX as a XXXXXXXXXX company. Newco XXXXXXXXXX authorized capital consists of XXXXXXXXXX common units. On formation, Newco XXXXXXXXXX had XXXXXXXXXX common unit issued and outstanding, owned by Sub 2. Newco XXXXXXXXXX does not have any liabilities or assets other than the aggregate subscription price for the outstanding common units. XXXXXXXXXX. Newco XXXXXXXXXX is a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the Tax Treaty.

23. On XXXXXXXXXX, Newco 1 was incorporated under Act 1. Prior to the Completed Transactions described in Paragraphs 37 and 39, Newco 1 did not have any assets or liabilities and had not issued any shares.

24. Newco 1’s Articles provide that its authorized share capital consists of an unlimited number of Newco 1 Common Shares, each of which will be a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX vote per share at a meeting of shareholders of Newco 1 and otherwise having the same terms and conditions as the DC2 Common Shares.

25. On XXXXXXXXXX, Newco 2 was incorporated under Act 1. Prior to the Completed Transactions described in Paragraph 38 and 39, Newco 2 had XXXXXXXXXX Newco 2 Common Shares issued and outstanding, all of which are owned by DC1 and did not have any assets or liabilities other than the aggregate subscription price for the outstanding Newco 2 Common Shares.

26. Newco 2’s Articles provide that its authorized share capital consists of:

a. an unlimited number of Newco 2 Common Shares, each of which will be a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX vote per share at a meeting of shareholders of Newco 2 and otherwise having terms which parallel the DC2 Common Shares; and

b. an unlimited number of Newco 2 Preferred Shares, issuable in series.

27. XXXXXXXXXX.

The following Completed Transactions occurred on XXXXXXXXXX:

28. XXXXXXXXXX.

29. XXXXXXXXXX.

30. XXXXXXXXXX.

31. XXXXXXXXXX.

32. XXXXXXXXXX.

33. XXXXXXXXXX.

34. XXXXXXXXXX.

35. XXXXXXXXXX.

The following Completed Transactions occurred on XXXXXXXXXX:

36. Sub 2 distributed XXXXXXXXXX of Newco XXXXXXXXXX to DC1 with a FMV of XXXXXXXXXX.

37. DC1 made the following share transfers to Newco 1 pursuant to the provisions of subsection 85(1):

a. XXXXXXXXXX;

b. XXXXXXXXXX; and

c. XXXXXXXXXX.

38. DC1 made the following partnership interest transfers to Newco 2 pursuant to the provisions of subsection 85(1) in consideration for XXXXXXXXXX and XXXXXXXXXX Newco 2 Common Shares:

a. XXXXXXXXXX;

b. XXXXXXXXXX;

c. XXXXXXXXXX;

d. XXXXXXXXXX;

e. XXXXXXXXXX;

f. XXXXXXXXXX; and

g. XXXXXXXXXX.

39. DC1 transferred XXXXXXXXXX Newco 2 Common Shares to Newco 1 in consideration for XXXXXXXXXX Newco 1 Common Shares, pursuant to the provisions of subsection 85(1).

40. On XXXXXXXXXX, Newco XXXXXXXXXX Sub was formed under XXXXXXXXXX as a XXXXXXXXXX company. Newco XXXXXXXXXX Sub's authorized capital consists of XXXXXXXXXX common units which are owned by Newco XXXXXXXXXX. Newco XXXXXXXXXX Sub is a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the Tax Treaty.

41. On XXXXXXXXXX, DC2 incorporated SpinCo under Act 1. SpinCo did not issue any shares on incorporation. Prior to the DC2 Capital Reorganization, SpinCo will not have any assets or liabilities or have issued any shares.

42. SpinCo’s authorized share capital includes:

a. an unlimited number of SpinCo Common Shares, each of which will be a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX vote per share at a meeting of shareholders of SpinCo and otherwise having the same terms and conditions as the DC2 Common Shares;

b. an unlimited number of SpinCo Special Shares having the following attributes:

i. non-voting and limited to a single issuance;

ii. entitlement to receive, as and when declared by the board of directors, a fixed dividend at a rate per annum equal to XXXXXXXXXX payable annually and in preference to payment of dividends on the SpinCo Common Shares; and

iii. redeemable and retractable at any time on payment for each such share to be redeemed or retracted for an amount equal to the aggregate FMV of the consideration paid to SpinCo on issuance thereof, together with an amount equal to all declared and unpaid dividends thereon up to the date of redemption or retraction.

43. On XXXXXXXXXX, DC2 incorporated SpinCo Sub under Act 1. SpinCo Sub did not issue any shares on incorporation. Prior to the DC1 Capital Reorganization, SpinCo Sub will not have any assets or liabilities or have issued any shares.

44. SpinCo Sub’s authorized share capital includes:

a. an unlimited number of SpinCo Sub Common Shares, each of which will be a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX vote per share at a meeting of shareholders of SpinCo Sub and otherwise having the same terms and conditions as the DC2 Common Shares;

b. an unlimited number of SpinCo Sub Special Shares having the following attributes:

i. non-voting and limited to a single issuance;

ii. entitlement to receive, as and when declared by the board of directors, a fixed dividend at a rate per annum equal to XXXXXXXXXX payable annually and in preference to payment of dividends on the SpinCo Sub Common Shares; and

iii. redeemable and retractable at any time on payment for each such share to be redeemed or retracted for an amount equal to the aggregate FMV of the consideration paid to SpinCo Sub on issuance thereof, together with an amount equal to all declared and unpaid dividends thereon up to the date of redemption or retraction.

PROPOSED TRANSACTIONS

Unless otherwise indicated, the Proposed Transactions will take place in the following order:

DC1 Articles of Amendment

45. DC1 will amend its Articles to create and authorize the issuance (in addition to the shares that DC1 is authorized to issue immediately before such amendment) of the following:

a. an unlimited number of New DC1 Common Shares, each of which will be a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX vote per share at meetings of the shareholders of DC1; and

b. an unlimited number of New DC1 Special Shares having the following attributes:

i. non-voting and limited to a single issuance;

ii. entitlement to receive, as and when declared by the board of directors, a fixed dividend at a rate per annum equal to XXXXXXXXXX payable annually and in preference to payment of dividends on other classes of shares ranking junior to the New DC1 Special Shares; and

iii. redeemable and retractable at any time on payment for each such share to be redeemed or retracted for an amount equal to the FMV of all of DC1's issued and outstanding DC1 Common Shares, determined immediately before the DC1 Capital Reorganization, multiplied by the DC1 Spin-off Proportion, then divided by the number of New DC1 Special Shares issued on the DC1 Capital Reorganization, together with an amount equal to all declared and unpaid dividends thereon up to the date of redemption or retraction.

DC1 Spin-off Butterfly

46. DC2 will exchange each DC1 Common Share that it holds with DC1 for one New DC1 Common Share and one New DC1 Special Share, and the DC1 Common Shares so exchanged will be cancelled (the “DC1 Capital Reorganization”). In connection with the DC1 Capital Reorganization:

a. DC1 and DC2 will not make a joint election under the provisions of section 85.

b. The aggregate amount to be added by DC1, pursuant to the provisions of the applicable corporation law, to the stated capital of the New DC1 Common Shares and the New DC1 Special Shares will be an amount equal to the aggregate PUC of the DC1 Common Shares immediately before the share exchange, and such PUC will be allocated between the New DC1 Common Shares and the New DC1 Special Shares based on the proportion that the FMV of the New DC1 Common Shares and the New DC1 Special Shares, as the case may be, is of the aggregate FMV of all of the New DC1 Common Shares and New DC1 Special Shares issued on this share exchange.

47. DC2 will transfer to SpinCo Sub all of the New DC1 Special Shares held by DC2. DC2 will receive FMV consideration from SpinCo Sub in the form of one SpinCo Sub Common Share for every transferred New DC1 Special Share. In connection with this exchange:

a. DC2 and SpinCo Sub will jointly elect in prescribed form and manner within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the New DC1 Special Shares.

b. The agreed amount in respect of the disposition of the New DC1 Special Shares will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

c. The amount added by SpinCo Sub to the stated capital of the SpinCo Sub Common Shares so issued will be equal to such agreed amount. For greater certainty, the amount added to the stated capital of the SpinCo Sub Common Shares issued by SpinCo Sub as consideration for the New DC1 Special Shares it will receive will not exceed the maximum amount that could be added to the aggregate PUC of such shares without a reduction taking place pursuant to subsection 85(2.1).

48. DC1 will transfer to Spinco Sub all of the Newco 1 Common Shares that it holds in consideration for SpinCo Sub Special Shares (the “DC1 Distribution”). The FMV of the Newco 1 Common Shares received by SpinCo Sub will be equal to or approximate that proportion of the net FMV of all property owned by DC1 immediately before the DC1 Distribution that:

a. the aggregate FMV of the New DC1 Special Shares owned by SpinCo Sub immediately before the DC1 Distribution;

is of

b. the aggregate FMV of all of the issued and outstanding shares in the capital of DC1 immediately before the DC1 Distribution.

49. In connection with the DC1 Distribution:

a. DC1 and SpinCo Sub will jointly elect in prescribed form and manner within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the DC1 Distribution.

b. The agreed amount in respect of the disposition of the Newco 1 Common Shares will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

c. The amount added by SpinCo Sub to the stated capital of the SpinCo Sub Special Shares so issued will be equal to such agreed amount. For greater certainty, the amount added to the stated capital of the SpinCo Sub Special Shares issued by SpinCo Sub as consideration for the Newco 1 Common Shares it will receive will not exceed the maximum amount that could be added to the aggregate PUC of such shares without a reduction taking place pursuant to subsection 85(2.1).

50. DC1 will redeem for cancellation all of the outstanding New DC1 Special Shares held by SpinCo Sub and will issue to SpinCo Sub, as the sole consideration therefor, the DC1 Redemption Note. The amount of any deemed dividend resulting from the application of subsection 84(3) to the redemption of all of the outstanding New DC1 Special Shares will be designated by DC1, pursuant to subsection 89(14), to the extent permitted under the Act, to be treated as an eligible dividend.

51. SpinCo Sub will redeem for cancellation all of the outstanding SpinCo Sub Special Shares held by DC1 and will issue to DC1, as sole consideration therefor, the SpinCo Sub Redemption Note. The amount of any deemed dividend resulting from the application of subsection 84(3) to the redemption of all of the outstanding SpinCo Sub Special Shares will be designated by SpinCo Sub, pursuant to subsection 89(14), to the extent permitted under the Act, to be treated as an eligible dividend.

52. In order to settle the DC1 Redemption Note and the SpinCo Sub Redemption Note, the following transactions will occur simultaneously:

a. DC1 will satisfy its obligations under the DC1 Redemption Note by transferring the SpinCo Sub Redemption Note to SpinCo Sub, and SpinCo Sub will accept the SpinCo Sub Redemption Note in full satisfaction of DC1's obligations under the DC1 Redemption Note; and

b. SpinCo Sub will satisfy its obligations under the SpinCo Sub Redemption Note by transferring the DC1 Redemption Note to DC1 and DC1 will accept the DC1 Redemption Note in full satisfaction of SpinCo Sub's obligations under the SpinCo Sub Redemption Note.

The DC1 Redemption Note and SpinCo Sub Redemption Note will both be marked paid in full and cancelled.

Arrangement Agreement

53. DC2 and SpinCo will enter into an Arrangement Agreement. The Arrangement Agreement will include customary terms and conditions, and will permit holders of DC2 Common Shares to dissent from the Plan of Arrangement, and DC2 and SpinCo will:

a. covenant and agree with and in favour of each other that for a period of time after the Effective Date to be agreed upon, they will not (and they will ensure that their respective subsidiaries will not) take any action or enter into any transaction that could cause the transactions contemplated in the Plan of Arrangement or by the Arrangement Agreement to be taxed in a manner that is inconsistent with the rulings provided in this letter without obtaining another tax ruling or an opinion of a nationally recognized accounting firm or law firm that such action or transaction will not have such effect; and

b. agree to indemnify each other for losses suffered or incurred as a result of or in connection with a breach or non-compliance with the covenant described in item (a) above.

54. DC2 will prepare a Management Information Circular that will be distributed to all holders of DC2 Common Shares in contemplation of a meeting of those shareholders to approve the Plan of Arrangement.

Plan of Arrangement Transactions

55. Subject to the appropriate shareholder and court approvals, the Proposed Transactions described in Paragraphs 56 to 70 generally will be undertaken pursuant to the Plan of Arrangement. With the exception of the actual filing of elections under the Act, the transactions involving stock options, and the public listing of shares, the Proposed Transactions described in Paragraphs 56 to 70 will occur pursuant to the Plan of Arrangement and will be designated in the Plan of Arrangement to occur, and be completed, on the Effective Date in the order set out below (except as otherwise noted).

Dissenting Shareholders

56. Each Dissenting Shareholder who may be entitled to be paid fair value for the DC2 Common Shares held by a Dissenting Shareholder will be deemed to transfer such shares to DC2 and such shares will be cancelled by DC2.

DC2 Articles of Amendment

57. In connection with the Plan of Arrangement, DC2 will amend its Articles to create and authorize the issuance (in addition to the shares that DC2 is authorized to issue immediately before such amendment) of the following:

a. an unlimited number of New DC2 Common Shares, each of which will be a fully participating voting common share with the holder thereof entitled to XXXXXXXXXX vote per share at meetings of the shareholders of DC2; and

b. an unlimited number of New DC2 Special Shares having the following attributes:

i. non-voting and limited to a single issuance;

ii. entitlement to receive, as and when declared by the board of directors, a fixed dividend at a rate per annum equal to XXXXXXXXXX payable annually and in preference to payment of dividends on other classes of shares ranking junior to the DC2 Special Shares; and

iii. redeemable and retractable at any time on payment for each such share to be redeemed or retracted for an amount equal to the FMV of all of DC2's issued and outstanding DC2 Common Shares, determined immediately before the DC2 Capital Reorganization, multiplied by the DC2 Spin-off Proportion, then divided by the number of DC2 Special Shares issued on the DC2 Capital Reorganization, together with an amount equal to all declared and unpaid dividends thereon up to the date of redemption or retraction.

DC2 Spin-off Butterfly

58. Each Participant will exchange each DC2 Common Share that it holds with DC2 for one New DC2 Common Share and one New DC2 Special Share, and the DC2 Common Shares so exchanged will be cancelled (the “DC2 Capital Reorganization”). In connection with the DC2 Capital Reorganization:

a. DC2 will not make a joint election under the provisions of subsection 85(1) with any holder of a DC2 Common Share.

b. The aggregate amount to be added by DC2, pursuant to the provisions of the applicable corporation law, to the stated capital of the New DC2 Common Shares and the New DC2 Special Shares will be an amount equal to the aggregate PUC of the DC2 Common Shares immediately before the share exchange, and such PUC will be allocated between the New DC2 Common Shares and the New DC2 Special Shares based on the proportion that the FMV of the New DC2 Common Shares and the New DC2 Special Shares, as the case may be, is of the aggregate FMV of all of the New DC2 Common Shares and New DC2 Special Shares issued on the DC2 Capital Reorganization.

59. Concurrent with the DC2 Capital Reorganization, the New DC2 Common Shares will, outside of the Plan of Arrangement, be listed for trading on Exchange 1 and Exchange 2 (subject to standard listing conditions imposed by Exchange 1 and Exchange 2 in similar circumstances), and for greater certainty, such listing will be effective before the DC2 Distribution.

60. Concurrent with the DC2 Capital Reorganization, each holder of Stock Options who is not a XXXXXXXXXX Employee will exchange all of such holder's outstanding Stock Options for New DC2 Stock Options granting each respective holder the right to acquire an identical number of DC2 Common Shares for an exercise price that when compared to the exercise price under the holder's Stock Options, will reflect the FMV Reduction of a DC2 Common Share, and the Stock Options so exchanged will be cancelled. None of the New DC2 Stock Options will be exercisable until after the completion of the Plan of Arrangement.

For greater certainty, the aggregate In The Money Amount of a holder's New DC2 Stock Options will not exceed the aggregate In the Money Amount of such holder's Stock Options.

61. Concurrent with the DC2 Capital Reorganization, each holder of Stock Options who is a XXXXXXXXXX Employee will exchange all of such holder’s outstanding Stock Options for SpinCo Stock Options, granting each respective holder the right to acquire a number of SpinCo Common Shares equal to (rounded down to the nearest whole number):

a. the Exchange Ratio multiplied by

b. the number of DC2 Common Shares subject to such Stock Option immediately prior to the Effective Time.

The per share exercise price for the SpinCo Common Shares issuable upon exercise of each SpinCo Stock Option shall be (rounded up to the nearest whole cent) equal to:

a. the exercise price per DC2 Common Share of such Stock Option immediately prior to such time, divided by

b. the Exchange Ratio.

All other terms and conditions applicable to the SpinCo Stock Option, including the terms of expiry, vesting and conditions to and manner of exercising shall remain the same as the Stock Option for which it was exchanged. None of the SpinCo Stock Options will be exercisable until after the completion of the Plan of Arrangement.

For greater certainty, the aggregate In The Money Amount of a holder's SpinCo Stock Options will not exceed the aggregate In the Money Amount of such holder's Stock Options.

62. Concurrent with the DC2 Capital Reorganization, the number of RSUs, DSUs and ESUs recorded in the account of each participant who is not a XXXXXXXXXX Employee in the RSU Plan, DSU Plan and ESU Plan, respectively, will be proportionately increased to reflect the FMV Reduction of a DC2 Common Share.

Concurrent with the DC2 Capital Reorganization, the RSUs and ESUs recorded in the account of each participant who is a XXXXXXXXXX Employee in the RSU Plan and ESU Plan, respectively, shall be exchanged for SpinCo RSUs and SpinCo ESUs, respectively, equal to the number of RSUs and/or ESUs held by such holder, multiplied by the Exchange Ratio. All other terms and conditions applicable to the SpinCo RSU or SpinCo ESU, as applicable, including the terms of expiry and vesting shall remain the same as the RSU or ESU for which it was exchanged.

63. Each Participant will transfer to SpinCo all of the New DC2 Special Shares that it holds. Every Participant will receive FMV consideration from SpinCo in the form of one SpinCo Common Share for every transferred New DC2 Special Share. In connection with this exchange:

a. SpinCo will not make a joint election under the provisions of section 85 with any holder of a New DC2 Special Share.

b. The amount added by SpinCo, pursuant to the provisions of the applicable corporation law, to the stated capital of the SpinCo Common Shares will be an amount equal to the PUC of the New DC2 Special Shares immediately before this exchange.

c. The SpinCo Common Shares will, outside and not as part of the Plan of Arrangement, be listed and posted for trading on Exchange 1 and Exchange 2 (subject to standard listing conditions imposed by Exchange 1 and Exchange 2 in similar circumstances), and for greater certainty, such listing will be effective before the DC2 Distribution.

64. DC2 will transfer to SpinCo all of the SpinCo Sub Common Shares that it holds in consideration for SpinCo Special Shares (the “DC2 Distribution”). The net FMV of the SpinCo Sub Common Shares received by SpinCo will be equal to or approximate that proportion of the net FMV of all property owned by DC2 immediately before the DC2 Distribution that:

a. the aggregate FMV of the New DC2 Special Shares owned by SpinCo immediately before the DC2 Distribution;

is of

b. the aggregate FMV of all of the issued and outstanding shares in the capital of DC2 immediately before the DC2 Distribution.

65. In connection with the DC2 Distribution:

a. DC2 and SpinCo will jointly elect in prescribed form and manner within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the DC2 Distribution.

b. The agreed amount in respect of the disposition of the SpinCo Sub Common Shares will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

c. The amount added by SpinCo to the stated capital of the SpinCo Special Shares so issued will be equal to such agreed amount. For greater certainty, the amount added to the stated capital of the SpinCo Special Shares issued by SpinCo as consideration for the SpinCo Sub Common Shares it will receive will not exceed the maximum amount that could be added to the aggregate PUC of such shares without a reduction taking place pursuant to subsection 85(2.1).

66. DC2 will redeem for cancellation all of the outstanding New DC2 Special Shares held by SpinCo and will issue to SpinCo, as the sole consideration therefor, the DC2 Redemption Note. The amount of any deemed dividend resulting from the application of subsection 84(3) to the redemption of all of the outstanding New DC2 Special Shares will be designated by DC2, pursuant to subsection 89(14), to the extent permitted under the Act, to be treated as an eligible dividend.

67. SpinCo will redeem for cancellation all of the outstanding SpinCo Special Shares held by DC2 and will issue to DC2, as sole consideration therefor, the SpinCo Redemption Note. The amount of any deemed dividend resulting from the application of subsection 84(3) to the redemption of all of the outstanding SpinCo Special Shares will be designated by SpinCo, pursuant to subsection 89(14), to the extent permitted under the Act, to be treated as an eligible dividend.

68. In order to settle the DC2 Redemption Note and the SpinCo Redemption Note, the following transactions will occur simultaneously:

a. DC2 will satisfy its obligations under the DC2 Redemption Note by transferring the SpinCo Redemption Note to SpinCo, and SpinCo will accept the SpinCo Redemption Note in full satisfaction of DC2's obligations under the DC2 Redemption Note; and

b. SpinCo will satisfy its obligations under the SpinCo Redemption Note by transferring the DC2 Redemption Note to DC2 and DC2 will accept the DC2 Redemption Note in full satisfaction of SpinCo Sub's obligations under the SpinCo Redemption Note.

The DC2 Redemption Note and SpinCo Redemption Note will both be marked paid in full and cancelled.

Conversion of DC2 Shares

69. Each Participant will exchange each New DC2 Common Share held by the Participant with DC2 for one DC2 Common Share. In connection with this share exchange:

a. DC2 will not make a joint election under the provisions of section 85 with any holder of a New DC2 Common Share.

b. The aggregate amount to be added by DC2, pursuant to the provisions of the applicable corporation law, to the stated capital of the DC2 Common Shares will be an amount equal to the PUC of the New DC2 Common Shares immediately before this share exchange.

c. The DC2 Common Shares will, outside and not as part of the Plan of Arrangement, continue to be listed and posted for trading on Exchange 1 and Exchange 2 (subject to standard listing conditions imposed by Exchange 1 and Exchange 2 in similar circumstances).

Amendment to Articles of DC2

70. The Articles of DC2, as amended pursuant to Paragraph 57, will be further amended by deleting the New DC2 Common Shares and the New DC2 Special Shares as shares which DC2 is authorized to issue.

Post-Plan of Arrangement Transactions

71. Pursuant to the post-amble in the definition of “public corporation” in subsection 89(1), SpinCo will elect in its return of income for its first taxation year to have been a public corporation from the beginning of such year.

72. SpinCo will implement various stock-based compensation plans, including a stock option plan, a restricted share unit plan and an executive share unit plan.

73. DC2 and SpinCo, and/or their respective affiliates, will agree to provide the other, on a transitional basis, certain services in order to facilitate the orderly transfer of the XXXXXXXXXX Business assets to SpinCo.

ADDITIONAL INFORMATION

74. The Proposed Transactions will occur in the order presented unless otherwise indicated except that any election forms will be filed within the applicable due dates following the completion of the Proposed Transactions.

75. Neither DC1, DC2, SpinCo nor SpinCo Sub is or will be at the time of the Proposed Transactions, a “specified financial institution” as defined in subsection 248(1), a “financial intermediary corporation” as defined in subsection 191(1), or a “restricted financial institution” as defined in subsection 248(1).

76. DC2 and DC1 are not, and SpinCo and SpinCo Sub will not be, a “mortgage investment corporation” as defined in subsection 130.1(6).

77. There is no anticipated or expected acquisition of control of DC1, DC2, SpinCo or SpinCo Sub (or any successor) either through a direct or indirect acquisition of shares.

78. The acquisition of:

a. SpinCo Sub Special Shares by DC1 will occur outside the ordinary course of DC1's businesses;

b. New DC1 Special Shares by SpinCo Sub will occur outside the ordinary course of SpinCo Sub's businesses;

c. SpinCo Special Shares by DC2 will occur outside the ordinary course of DC2's businesses; and

d. New DC2 Special Shares by SpinCo will occur outside the ordinary course of SpinCo's businesses

as that phrase is interpreted for the purposes of subsection 112(2.1).

79. The New DC2 Special Shares, the SpinCo Special Shares, the New DC1 Special Shares and the SpinCo Sub Special Shares are not, and will not be, at any time during a series of transactions or events that includes the Proposed Transactions:

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

d. issued for consideration that is or includes:

i. an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)); or

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

e. issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).

80. For the purposes of subsection 191(4), the resolutions of the boards of directors of the entities will designate, at the time of the issue of the New DC2 Special Shares, New DC1 Special Shares, SpinCo Special Shares and SpinCo Sub Special Shares, an amount for which each share is to be redeemed, acquired or cancelled. The amount specified, for the purposes of subsection 191(4), in respect of each such share, at the time of issuance, will be expressed as a fixed dollar amount, will not be determined by a formula or be subject to change thereafter and will not exceed the FMV of the consideration for which the share will be issued.

81. Holders of Stock Options which have vested are free to exercise their options from time to time, and it is possible that holders of Stock Options may, based on individual investment considerations, exercise options and acquire DC2 Common Shares prior to the DC2 Spin-Off Butterfly.

82. DC2 and SpinCo are and will continue to deal at “arm's length” with each other for the purposes of section 55.

83. Within three years of the exchange described in Paragraph 47, DC1 will not undertake a distribution to a corporation that is not an acquiror within the meaning of paragraph (b) of the definition “specified corporation” and SpinCo Sub will not, within three years of the exchange described in Paragraph 47, undertake a distribution.

84. Within three years of the exchange described in Paragraph 63, DC2 will not undertake a distribution to a corporation that is not an acquiror within the meaning of paragraph (b) of the definition “specified corporation” and SpinCo will not, within three years of the exchange described in Paragraph 63, undertake a distribution.

85. There are no anticipated acquisitions of property, as part of the series of transactions or events that includes the receipt of the dividends referred to herein, that would result in those dividends not being excluded from the application of subsection 55(2) because of paragraph 55(3.1)(c) or (d).

PURPOSES OF THE PROPOSED TRANSACTIONS

86. DC2 plans to separate into two XXXXXXXXXX, publicly listed companies XXXXXXXXXX, as follows:

a. DC2: A XXXXXXXXXX, and

b. SpinCo: A XXXXXXXXXX.

87. DC2 wishes to complete the Proposed Transactions because XXXXXXXXXX.

RULINGS

Provided that the above statements of Facts, Proposed Transactions, Additional Information and Purpose of the Proposed Transactions are accurate and constitute a complete disclosure of all relevant information and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. With regard to the purchase by DC2 of existing DC2 Common Shares from a Dissenting Shareholder as described in Paragraph 56 and subject to the application of subsection 55(2):

a) DC2 will be deemed by paragraph 84(3)(a) to have paid, and each Dissenting Shareholder will be deemed by paragraph 84(3)(b) to have received, a dividend, equal to the amount by which any payment from DC2 to a Dissenting Shareholder in respect of the purchase for cancellation of such Dissenting Shareholder’s DC2 Common Shares exceeds the amount of PUC attributable to such shares immediately prior to their purchase for cancellation; and

b) paragraph (j) of the definition of “proceeds of disposition” in section 54 will apply to exclude the amount of such deemed dividend from the proceeds of disposition of the DC2 Common Shares recognized by the Dissenting Shareholder as a result of the purchase of such shares by DC2.

B. On the exchange of the DC2 Common Shares for New DC2 Common Shares and New DC2 Special Shares, as described in Paragraph 58, the provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the disposition of each DC2 Common Share for one (1) New DC2 Common Share and one (1) New DC2 Special Share, provided that:

a) the particular Participant holds the DC2 Common Share as capital property; and

b) the Participant and DC2 do not file an election under subsection 85(1) in respect of the particular share exchange,

such that:

c) the cost of the New DC2 Common Shares and the New DC2 Special Shares received on the exchange by each particular Participant will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB to the particular Participant, immediately before the exchange, of the DC2 Common Shares held that:

i. the FMV, immediately after the exchange, of the New DC2 Common Shares or the New DC2 Special Shares, as the case may be, received by the particular Participant

is of

ii. the FMV, immediately after the exchange, of all of the shares of DC2 received by the particular Participant for the DC2 Common Shares;

d) pursuant to paragraph 86(1)(c), such Participant will be deemed to have disposed of its DC2 Common Shares for aggregate proceeds of disposition equal to the aggregate cost to the Participant of the shares received by it as determined in item (c) above; and

e) pursuant to subsection 86(2.1), the aggregate PUC of the New DC2 Common Shares and New DC2 Special Shares will be equal to the aggregate PUC of the DC2 Common Shares which were exchanged for the New DC2 Common Shares and New DC2 Special Shares.

C. On the exchange of the DC1 Common Shares for New DC1 Common Shares and New DC1 Special Shares, as described in Paragraph 46, the provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the disposition of each DC1 Common Share for one (1) New DC1 Common Share and one (1) New DC1 Special Share, provided that:

a) DC2 holds the DC1 Common Share as capital property; and

b) DC2 and DC1 do not file an election under subsection 85(1) in respect of the particular share exchange,

such that:

c) the cost of the New DC1 Common Shares and the New DC1 Special Shares received on the exchange by DC2 will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB to DC2, immediately before the exchange, of the DC1 Common Shares held that:

i. the FMV, immediately after the exchange, of the New DC1 Common Shares or the New DC1 Special Shares, as the case may be, received by DC2

is of

ii. the FMV, immediately after the exchange, of all of the shares of DC1 received by DC2 for the DC1 Common Shares;

d) pursuant to paragraph 86(1)(c), DC2 will be deemed to have disposed of its DC1 Common Shares for aggregate proceeds of disposition equal to the aggregate cost to DC2 of the shares received by it as determined in item (c) above; and

e) pursuant to subsection 86(2.1), the aggregate PUC of the New DC1 Common Shares and New DC1 Special Shares will be equal to the aggregate PUC of the DC1 Common Shares which were exchanged for the New DC1 Common Shares and New DC1 Special Shares.

D. With regard to the exchange of New DC2 Special Shares for SpinCo Common Shares as described in Paragraph 63, provided that a Participant:

a) holds such New DC2 Special Shares as capital property immediately before the exchange;

b) does not receive any consideration, other than SpinCo Common Shares in exchange for the New DC2 Special Shares;

c) deals at arm’s length with SpinCo immediately before the exchange;

d) does not file an election under subsection 85(1) or (2) with respect to the exchange;

e) does not include any portion of the gain or loss, otherwise determined, in computing its income for that year; and

f) is not a person described in paragraph 85.1(2)(e) who has included any portion of the gain or loss in computing its foreign accrual property income (as defined in subsection 95(1)) for that year;

and further, provided that immediately after the exchange,

g) such Participant or persons with whom such Participant does not deal at arm’s length or such Participant together with any other person or persons with whom such Participant does not deal at arm’s length, will not control SpinCo or beneficially own shares in the capital of SpinCo having an aggregate fair market value representing more than 50% of the aggregate fair market value of all the outstanding shares in the capital of SpinCo;

then, pursuant to paragraph 85.1(1)(a) such Participant will be deemed,

h) to have disposed of such New DC2 Special Shares for proceeds of disposition equal to the aggregate ACB of such shares to the Participant immediately before the exchange; and

i) to have acquired such SpinCo Common Shares at an aggregate cost equal to the aggregate ACB of such Participant’s New DC2 Special Shares immediately before the exchange;

and pursuant to paragraph 85.1(1)(b),

j) the cost to SpinCo of each New DC2 Special Share acquired from such Participant will be deemed to be the lesser of its FMV immediately before the exchange and the PUC of such New DC2 Special Share immediately before the exchange.

E. Subject to the application of subsection 69(11), provided that the requisite section 85 elections are made in the prescribed form and manner within the time limit specified in subsection 85(6), and provided that each property so transferred is an eligible property in respect of which shares have been issued as full or partial consideration therefor, the provisions of subsection 85(1), other than paragraph 85(1)(e.2), will apply to the transfer by:

a) DC2 of New DC1 Special Shares to SpinCo Sub in exchange for SpinCo Sub Common Shares, as outlined in Paragraph 47, such that the agreed amount in respect of such transfer will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition for the particular transferred property of each transferor and the cost to each transferee for the particular transferred property.

b) DC1 of Newco 1 Common Shares to SpinCo Sub in exchange for SpinCo Sub Special Shares, as outlined in Paragraph 48, such that the agreed amount in respect of such transfer will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition for the particular transferred property of each transferor and the cost to each transferee for the particular transferred property.

c) DC2 of SpinCo Sub Common Shares to SpinCo in exchange for SpinCo Special Shares, as outlined in Paragraph 64, such that the agreed amount in respect of such transfer will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition for the particular transferred property of each transferor and the cost to each transferee for the particular transferred property.

F. Subsection 84(3) will apply to:

a) with respect to the DC1 Spin-off Butterfly:

i. the redemption of the SpinCo Sub Special Shares held by DC1, such that SpinCo Sub will be deemed to have paid and DC1 will be deemed to have received; and

ii. the redemption of the New DC1 Special Shares held by SpinCo Sub, such that DC1 will be deemed to have paid and SpinCo Sub will be deemed to have received; and

b) with respect to the DC2 Spin-off Butterfly:

i. the redemption of the SpinCo Special Shares held by DC2, such that SpinCo will be deemed to have paid and DC2 will be deemed to have received; and

ii. the redemption of the New DC2 Special Shares held by SpinCo, such that DC2 will be deemed to have paid and SpinCo will be deemed to have received; and

a dividend on the SpinCo Sub Special Shares, the New DC1 Special Shares, the SpinCo Special Shares and the New DC2 Special Shares, respectively, equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC, in respect of such shares redeemed, immediately before such redemption, and any such dividend will:

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

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

e) will, by virtue of paragraph (j) of the definition of “proceeds of disposition” in section 54, be excluded from the proceeds of disposition of the recipient in respect of the shares so redeemed;

f) reduce, by virtue of subsection 112(3), the loss, if any, in respect of the redemption of the shares on which the particular dividend is deemed to be received; and

g) not be subject to tax under Parts IV.1 and VI.1.

G. Provided that:

a) with respect to the DC1 Spin-off Butterfly there is not:

i. a distribution by DC1 to a corporation that is not an acquiror before the day that is three years after the Effective Date; and

ii. a distribution by SpinCo Sub or any acquiror in relation to DC1 and the DC1 Spin-off Butterfly before the day that is three years after the Effective Date; and

b) with respect to the DC2 Spin-off Butterfly there is not:

i. a distribution by DC2 to a corporation that is not an acquiror before the day that is three years after the Effective Date; and

ii. a distribution by SpinCo or any acquiror in relation to DC2 and the DC2 Spin-off Butterfly before the day that is three years after the Effective Date;

and as part of the series of transactions or events that includes the taxable dividends described in Ruling F there is not:

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

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

e) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii); or

f) an acquisition or disposition of property in the circumstances described in paragraphs 55(3.1)(c) or 55(3.1)(d);

which has not been described in this letter, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling F, and for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

H. The provisions of subsection 80(1) will not apply to the settlements and cancellation of:

a) the obligations under the SpinCo Sub Redemption Note and the DC1 Redemption Note described in Paragraph 52; and

b) the obligations under the SpinCo Redemption Note and the DC2 Redemption Note described in Paragraph 68;

and none of the parties to the foregoing notes will realize a gain or incur a loss as a result of the repayment and cancellation of such notes.

I. Pursuant to clause 256(7)(a)(i)(E) control of SpinCo Sub will be deemed not to have been acquired as a result of the transfer by DC2 of the SpinCo Sub Common Shares to SpinCo on the DC2 Distribution.

J. Provided that the New DC2 Common Shares represent capital property to a Participant, the provisions of subsection 51(1) will apply, and the provisions of subsection 51(2) will not apply, to the share exchange by the Participant of the New DC2 Common Shares for DC2 Common Shares, as described in Paragraph 69.

K. Provided that SpinCo makes the election to be a public corporation as described in Paragraph 71, the DC2 Common Shares, DC2 Preferred Shares, New DC2 Common Shares, New DC2 Special Shares, SpinCo Common Shares and SpinCo Special Shares, will be “qualified investments”:

a) for a deferred profit sharing plan by virtue of paragraph (h) of the definition “qualified investment” in section 204 and paragraph 4900(1)(b) of the Regulations;

b) for a registered disability savings plan by virtue of paragraph (d) of the definition “qualified investment” in subsection 146.4(1) and paragraph 4900(1)(b) of the Regulations;

c) for a registered education savings plan by virtue of paragraph (e) of the definition “qualified investment” in subsection 146.1(1) and paragraph 4900(1)(b) of the Regulations;

d) for a registered retirement income fund by virtue of paragraph (c) of the definition “qualified investment” in subsection 146.3(1) and paragraph 4900(1)(b) of the Regulations;

e) for a registered retirement savings plan by virtue of paragraph (d) of the definition “qualified investment” in subsection 146(1) and paragraph 4900(1)(b) of the Regulations;

f) for a tax-free savings account by virtue of paragraph (c) of the definition “qualified investment” in subsection 207.01(1) and paragraph 4900(1)(b) of the Regulations; and

g) for a first home savings account by virtue of paragraph (c) of the definition “qualified investment” in subsection 207.01(1) and paragraph 4900(1)(b) of the Regulations.

L. The provisions of subsection 7(1.4) will apply with respect to the exchange by a holder of their Stock Options, that are subject to the provisions of subsection 7(1), for New DC2 Stock Options as described in Paragraph 60, provided that the aggregate In the Money Amount of the New DC2 Stock Options received by the holder on the disposition does not exceed the aggregate In The Money Amount of the Stock Options that were so disposed of by the holder, with the result that for the purposes of section 7:

a) such holder will be deemed not to have disposed of such holder's Stock Options and not to have acquired such holder's New DC2 Stock Options; and

b) the New DC2 Stock Options will be deemed to be the same as, and a continuation of, the corresponding Stock Options.

M. New DC2 Stock Options issued by DC2 in exchange for Stock Options issued by DC2 prior to XXXXXXXXXX, and in an exchange where Ruling L applies, will not be subject to subsections 110(1.3) or (1.31).

N. The provisions of subsection 7(1.4) will apply with respect to the exchange by a holder of their Stock Options, that are subject to the provision of subsections 7(1), for SpinCo Stock Options as described in Paragraph 61, provided that the aggregate In the Money Amount of the SpinCo Stock Options received by the holder on the disposition does not exceed the aggregate In The Money Amount of the Stock Options that were so disposed of by the holder, with the result that for the purposes of section 7:

a) such holder will be deemed not to have disposed of such holder's Stock Options and not to have acquired such holder's SpinCo Stock Options; and

b) the SpinCo Stock Options will be deemed to be the same as, and a continuation of, the corresponding Stock Options.

O. SpinCo Stock Options issued by SpinCo in exchange for Stock Options issued by DC2 prior to XXXXXXXXXX, and in an exchange where Ruling N applies, will not be subject to subsections 110(1.3) or (1.31).

P. The adjustment to the number of DSUs credited to a participant's account, as described in Paragraph 62, will not, in and by itself, cause the DSU Plan to not be a prescribed plan or arrangement as described under paragraph 6801(d) of the Regulations.

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

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R12 issued on April 1, 2022, and are binding on the CRA provided that the Proposed Transactions are completed within six months of the date of this letter, except as otherwise specified. 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.

OPINION

Provided that (i) the preceding statements constitute a complete and accurate disclosure of all relevant facts, additional information, completed and Proposed Transactions and purpose of the proposed transactions; (ii) the Proposed Transactions are completed in the manner described above; and (iii) Bill C-59, the Fall Economic Statement Implementation Act, 2023, which received second reading in the House of Commons on March 18, 2024, is enacted:

A. Part II.2 tax will not apply to the Proposed Transactions.

B. Subsection 245(2), as amended, will not apply, as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences described in the rulings given above.

OTHER COMMENTS

Unless otherwise confirmed in the above rulings, 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 PUC of any share or the ACB or FMV of any property referred to herein;

b. the balance of the “general rate income pool” as defined in subsection 89(1) and the “low rate income pool” as defined in subsection 89(1); and

c. any other tax consequence relating to the Facts, Proposed Transactions, 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 and, specifically, whether any acquisition or disposition of the shares of DC1, DC2, SpinCo or SpinCo Sub following the Proposed Transactions would be part of a series of transactions or events that includes the taxable dividends to which Rulings F and G apply.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purposes of any of the rulings given above, any adjustment to the FMV of the properties transferred or 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. Furthermore, the operation of a price adjustment clause may invalidate one or more of the rulings given. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4 - F3 - C1 Price Adjustment Clauses.

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

Yours Truly,

XXXXXXXXXX
Manager, Reorganizations Section II
For Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch