Aaron Blumenfeld (LSUC #366260) Tel: (416)

Transcription

1 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) Court File No.: CV CL IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT, R.S.O. 1990, c. B.16, AS AMENDED, AND RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE, O.REG 194. AND IN THE MATTER OF A PROPOSED ARRANGEMENT INVOLVING NEXTBLOCK GLOBAL LIMITED, ITS SHAREHOLDERS AND ITS HOLDERS OF DEBENTURES NEXTBLOCK GLOBAL LIMITED Applicant FACTUM OF THE APPLICANT (Motion for Interim Order returnable May 23, 2018) May 22, 2018 BORDEN LADNER GERVAIS LLP Barristers and Solicitors 22 Adelaide Street West Bay Adelaide Centre, East Tower Toronto, Ontario M5H 4E3 Fax: (416) Aaron Blumenfeld (LSUC #366260) Tel: (416) ABlumenfeld@blg.com Veronica Sjolin (LSUC #733520) Tel: (416) VSjolin@b1g.com Lawyers for NextBlock Global Ltd.

2 CONTENTS PART I - OVERVIEW 1 PART II - THE FACTS 3 A. Background 3 B. The Proposed Plan was Supported by NextBlock's Shareholders, Directors, and a Special Majority of Holders 4 C. Claims Bar Process 5 D. Further Court orders 6 E. The Tax Opinion 7 F. The Effect of the Plan of Arrangement 9 G. Contingency Holdback 12 H. The Murthly Fee 13 I. The Considerations of the Officers and Directors of NextBlock 14 J. Conditions 15 K. The Meeting and Meeting Materials 15 L. Adoption of the Arrangement and Quorum 16 M. No Dissent Rights 17 N. No Notice to or Voting Rights of Others Final Order 17 PART III - ISSUES 18 PART IV - LAW AND SUBMISSIONS 18 The Court Should Approve the Arrangement 18 The Plan of Arrangement is substantially in the Form of the Model Interim Order 19 Holders are on Notice of the Plan of Arrangement 19 The Plan of Arrangement is in Furtherance of the Orderly Winding-Up of NextBlock 20 Motion for Advice and Directions Interim Order 20 PART V - RELIEF REQUESTED 22 SCHEDULE "A" AUTHORITIES 1 SCHEDULE "B" STATUTES AND REGULATIONS 1

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4 PART I - OVERVIEW 1. NextBlock Global Limited ("NextBlock" or the "Corporation"), brings this motion for advice and direction in connection with a proposed plan of arrangement (the "Plan of Arrangement" or the "Arrangement") under s. 182 of the Ontario Business Corporation Act (the "OBCA"). In short, the directors of NextBlock have determined that it is in the best interests of the stakeholders, being 114 debenture holders and five shareholders, to restructure NextBlock in a manner that addresses certain tax uncertainty. 2. The purpose of this interim motion is to seek the Court's advice and direction for NextBlock to: a. Call and hold a meeting on June 12, 2018 of Debenture Holders and Shareholders to consider a special resolution to approve the proposed Arrangement (the "Meeting"), and the terms on which NextBlock is to do so; b. Distribute the Notice of Meeting and various materials relating to the Plan of Arrangement to the Debenture Holders, and Shareholders (together with the Debenture Holders, the "Security Holders"), including a Management Information Circular (the "Circular")1 and proposed Plan of Arrangement and Letter of Transmittal; and Draft Management Information Circular, Exhibit "J" to the Affidavit of Alex Tapscott sworn May 16, 2018 ("Tapscott Affidavit"). c. providing for a mechanism to proceed with the application for final court approval of the Plan of Arrangement, if approved at the Meeting 3. The Single Representative, who has been representing the Debenture Holders in related wind-up proceedings supports the Application. Albert Gelman Inc., the Court appointed Monitor of NextBlock takes no position on the proposed Plan of Arrangement but has filed a Report with the Court concluding that: 1 Unless defined otherwise, the capitalized terms in this factum have the same meaning ascribed to them in the draft management information circular (the "Circular").

5 PART I - OVERVIEW 1. NextBlock Global Limited ("NextBlock" or the "Corporation"), brings this motion for advice and direction in connection with a proposed plan of arrangement (the "Plan of Arrangement" or the "Arrangement") under s. 182 of the Ontario Business Corporation Act (the "OBCA"). In short, the directors of NextBlock have determined that it is in the best interests of the stakeholders, being 114 debenture holders and five shareholders, to restructure NextBlock in a manner that addresses certain tax uncertainty. 2. NextBlock was capitalized in July 2017 by way of $19,935,000 invested by 114 Debenture Holders. In November 2017, NextBlock initiated wind-up proceedings before this Court under s. 207 of the OBCA. Pursuant to this Court's initial order, NextBlock paid all unsecured creditors and the face amount of the debentures in full in January As a result of successful investments, NextBlock now has approximately $50,000,000 in cash, and proposes to distribute a further $19,935,000 to Holders at the end of June 2018 if the proposed Arrangement is approved. 3. The purpose of this interim motion is to seek the Court's advice and direction for NextBlock to: a. Call and hold a meeting on June 12, 2018 of Debenture Holders and Shareholders to consider a special resolution to approve the proposed Arrangement (the "Meeting"), and the terms on which NextBlock is to do so; b. Distribute the Notice of Meeting and various materials relating to the Plan of Arrangement to the Debenture Holders, and Shareholders (together with the Debenture Holders, the "Security Holders"), including a Management Information Circular (the "Circular")1 and proposed Plan of Arrangement and Letter of Transmittal; and Draft Management Information Circular, Exhibit "J" to the Affidavit of Alex Tapscott sworn May 16, 2018 ("Tapscott Affidavit"). 1 Unless defined otherwise, the capitalized terms in this factum have the same meaning ascribed to them in the draft management information circular (the "Circular").

6 2 c. provide for a mechanism to proceed with the application for final court approval of the Plan of Arrangement, if approved at the Meeting. 4. The Single Representative, who has been representing the Debenture Holders in related wind-up proceedings, supports the Application. Albert Gelman Inc., the Court appointed Monitor of NextBlock takes no position on the proposed Plan of Arrangement but has filed a Report with the Court concluding that: "the process whereby the Meeting is being established to consider the matter and in particular the proposed Plan of Arrangement, as set out in the Notice of Motion, the Tapscott Affidavit, and the proposed Interim Order, also appears fair and reasonable and permits the Security Holders the opportunity to express their views via a democratic process." Second Report of the Court Appointment Monitor, Albert Gelman Inc., at para The form of Interim Order that NextBlock seeks, attached as Tab C to this factum, is largely consistent with the standard form of Interim Order granted by this Court. A blackline is provided at Tab D herein. 6. After its Motion Record was completed, NextBlock proposed further revisions to its proposed Circular appended as Exhibit "J" to Alex Tapscott's Affidavit sworn May 16, 2018 and the Plan of Arrangement appended as Exhibit "K" to Alex Tapscott's Affidavit sworn May 16, Revised copies of each of these documents are appended as Exhibits "A" and "B", respectively, to Alex Tapscott's Supplementary Affidavit sworn May 22, Blacklines against the previous versions of these documents are appended as Exhibits "C" and "D" to Alex Tapscott's Supplementary Affidavit sworn May 22, Further, revisions were made to Thorsteinssons LLP's Memorandum dated May 16, 2018 titled "Winding-Up of NextBlock Global Limited". A revised copy of this Memorandum is appended as Exhibit "A" to Paul J. Gibney's Supplementary Affidavit sworn May 22, 2018 in the Supplementary Motion Record.

7 3 PART II - THE FACTS A. Background 7. NextBlock was formed in June 2017 under the OBCA as a venture capital company which invests in blockchain companies and related digital assets. Blockchains are distributed ledgers that allow for the movement, storage and management of certain digital assets, such as cryptocurrencies, peer to peer, without the need for an intermediary such as a bank, brokerage or credit card company. A digital asset or "crypto" asset is an asset that exists in a digital form. Tapscott Affidavit, para. 3; Motion Record ("MR"), Tab On July 26, 2017, NextBlock completed an offering (the "Offering") by private placement of convertible debentures of the Corporation (the "Debentures") for gross proceeds of $19,935, from about 114 debenture holders (the "Debenture Holders" or "Holders") in total. Each of the Debentures was in a form of debenture substantially the same as each of the other Debentures. Tapscott Affidavit, para. 4; MR, Tab Entities associated with the founders, directors and officers of NextBlock collectively invested $2,783,000 in the Debentures (the "Related Holders"). The balance of the Debentures, totaling $17,152,000, were bought by third parties not personally involved in the management of NextBlock (the "External Holders"). Tapscott Affidavit, para. 5; MR, Tab All of the issued and outstanding shares of NextBlock, being common shares, are held directly and indirectly by five individuals, namely Dennis Bennie (33.3% interest), Ryan Roebuck (11.1% interest), Alex Tapscott (33.3% interest), Charles Morris (11.1% interest), and Don Tapscott (11.1% interest) (collectively the "Shareholders", and together with the Debenture Holders, the "Security Holders"). Tapscott Affidavit, para. 6; MR, Tab NextBlock had planned to complete a public offering through a reverse take-over ("RTO"). In September, 2017, NextBlock engaged Canaccord Genuity Group Inc. and CIBC World Markets

8 4 Inc. as lead underwriters in pursuit of that goal. NextBlock's plan was for the Debenture Holders to convert their interest in NextBlock to publicly tradeable shares following the Reverse Take- Over. However, the Corporation's effort to "go public" was unsuccessful, and did not proceed. Tapscott Affidavit, paras. 7-8; MR, Tab Following the unsuccessful attempt to "go public", management of the Corporation liaised with many of the Holders to arrive at a plan for disposing of the assets of NextBlock and distributing the proceeds, under the supervision of this Court. The proposed Plan, approved by Court Order dated December 4, 2017, provided for the Holders to receive the principal amounts of their Debentures and any profits after payment of all expenses and obligations of the Corporation and a carried interest to certain members of management. Tapscott Affidavit, paras ; MR, Tab 4. Schedule A to the Order of Justice Conway dated December 4, 2017, Exhibit H to the Tapscott Affidavit; MR, Tab 4. B. The Proposed Plan was Supported by NextBlock's Shareholders, Directors, and a Special Majority of Holders 13. On November 24, 2017, NextBlock's shareholders passed a special resolution approving, among other things, the voluntary winding-up of NextBlock pursuant to section 193 of the OBCA in accordance with the Plan. The directors of NextBlock affirmed the shareholders' resolution and adopted the Plan. Tapscott Affidavit, para. 15; MR, Tab Also on November 24, 2017, Debenture Management North America LLC was appointed as the Single Representative by a special majority of Holders (holding 73.5% of the Debentures by value) in accordance with section 5.6 of the Debentures, which provides in part as follows: Notwithstanding anything herein to the contrary, the Special Majority Debenture Holders may, on behalf of all the Holders, if acting together through a single representative, waive any default hereunder [...]; and grant extensions of time and other indulgences, accept compositions, compromise, settle, grant releases and discharges, and otherwise deal with the Company, debtors of the Company, surety and others as the Special Majority Debenture

9 5 Holders may see fit and such extensions, indulgences, compositions, compromises, settlements, releases and discharges shall be binding upon all Holders unless the effect thereof is to (i) subject any Holder to any additional material obligation, or (ii) provide for differential treatment of Holders. Tapscott Affidavit, paras. 9-12; MR, Tab Each Holder who appointed the Single Representative supported the implementation of the proposed Plan. The Single Representative entered into a Support Agreement with NextBlock under which the Single Representative agreed to support the implementation of the Plan and provided a release to NextBlock and related parties on the terms set out therein. In accordance with the terms of the Debentures, the Support Agreement was binding upon all Holders, subject only to the following exceptions: (i) where the Agreement subjects any Holder to any additional material obligation, or (ii) where the Agreement provides for differential treatment of Holders. Tapscott Affidavit, para. 11; MR, Tab The Single Representative is represented by independent counsel Ray Slattery of Minden Gross LLP. NextBlock has agreed to indemnify the Single Representative and reimburse his reasonable expenses. C. Claims Bar Process Tapscott Affidavit, para. 12; MR, Tab Pursuant to the Order dated December 4, 2017, NextBlock initiated a claims bar process completed on January 3, NextBlock did not receive any further claims after January 3, Tapscott Affidavit, para. 21; MR, Tab After the close of the claims-bar process, NextBlock paid all unsecured creditors on behalf of NextBlock. NextBlock then paid all External Holders the face amounts of their Debentures totalling $17,152,000 on January 16, 2018, and on January 25, 2018, paid all Related Holders the face amount of their Debentures in the amount of $2,783,000. Tapscott Affidavit, paras. 5, 21; MR, Tab 4.

10 6 D. Further Court orders 19. There has been a material change in circumstances in the blockchain market since the initial Order on December 4, Certain of NextBlock's assets have become liquid and are trading at a significantly higher value than initially anticipated before the Order. Tapscott Affidavit, para. 22; MR, Tab As a result of the changes in the market, NextBlock and the Single Representative agreed that it was in the best interests of the Security Holders to modify the existing sales plan approved by this Court for several reasons including: a. NextBlock's assets had and still have a significantly higher market value than initially expected; b. It was and is still unlikely that bidders will have enough funds to place "en bloc" bids which reflect the market value of NextBlock's liquid assets if sold gradually on digital exchanges; and c. Bearing in mind the peculiarities of the market, the liquidation of the Corporation's non-cash assets needed to be managed properly to permit them to be sold gradually in a commercially reasonable manner with a view to maximizing their value. Tapscott Affidavit, para. 23; MR, Tab On January 18, 2018, Justice Conway suspended the sale process for the illiquid assets of NextBlock. Exhibit H to the Tapscott Affidavit; MR, Tab NextBlock has been successfully employing the "new" sales strategy throughout 2018, generating over $50 million after paying the principal of all debentures, and paying all unsecured creditors. NextBlock currently has approximately $51,000,000 CAD in cash on hand. Tapscott Affidavit, para. 25; MR, Tab NextBlock had intended to seek Court approval sooner for a distribution to the Debenture Holders in accordance with the "waterfall" provision in this Court's Wind-up Order, subject to a

11 7 holdback for NextBlock's taxes and other expenses, and tax advice with respect to the distribution. Unfortunately, NextBlock's lead accountant had serious health issues, and it took longer than expected to obtain the required tax advice. Tapscott Affidavit, para. 25; MR, Tab Without a tax opinion, the directors of NextBlock deemed it premature for NextBlock to make any further distributions of the funds to Security Holders until proper tax advice could be obtained. On March 16, 2018, Justice Pattillo issued an order amending the Sales Procedure in the Wind-up order, and providing for the Sales Procedure to be completed by March 2019, unless varied by further order. NextBlock left the issue of distributions for a later date. Tapscott Affidavit, para. 27, MR, Tab 4. E. The Tax Opinion 25. NextBlock expects that by March 2019 it will have sold all of its non-cash assets. This process is time consuming due to limited liquidity for certain assets in the public market, as well as the fact that NextBlock is receiving digital tokens gradually from its investee companies. Due to the volatility of trading prices for cryptocurrency, it is impossible to determine the amount of the gain (if any) that will be realized by NextBlock on the sale of all of its assets. Tapscott Affidavit, para. 28; MR, Tab NextBlock retained Thorsteinssons LLP to provide it with tax advice on a plan for the wind-up of NextBlock. The substance of Thorsteinssons' tax advice is contained in the Thorsteinssons memo attached to the affidavit of Paul Gibney. Thorsteinssons LLP Memorandum dated May 18, 2018 "Winding-Up of NextBlock Global Limited"; Supplementary Motion Record ("SMR"), Tab 2 [the "May 18 Memorandum"' Affidavit of Paul J. Gibney, affirmed May 16, 2018, para. 1; MR, Tab 3 ["Gibney Affidavin. 27. The winding-up of NextBlock, as presented in Justice Conway's December 4, 2017 Order, raised difficult issues in connection with determining the appropriate tax treatment to the Holders in the circumstances. In particular, the requirement that NextBlock pay "the Principal Security Amount of the Debentures to the External Holders", as defined in the Order, raises difficult issues

12 8 as to how to treat such a payment for tax purposes. In addition, if the Principal Amount is paid in full, it also raises difficult questions as to how additional amounts which may be paid to the Holders would be treated for tax purposes. Thorsteinssons provided an opinion outlining recommendations to restructure NextBlock. Gibney Affidavit at para. 2; MR, Tab Thorsteinssons LLP's tax opinion concludes that the tax uncertainties associated with the winding-up of NextBlock would be clarified through the proposed restructuring. Gibney Affidavit at para. 3; MR, Tab 3 May 18 Tax Memorandum. Thorsteinssons LLP Memorandum dated May 16, 2018 "Winding-Up of NextBlock Global Limited"; MR, Tab 3 [the "May 16 Memorandum"] 29. In order to give effect to Thorsteinssons LLP's tax advice and to continue with the windingup of NextBlock, NextBlock proposes to enter into a Plan of Arrangement for the orderly and tax efficient wind-up of NextBlock. In addition to Mr. Gibney's affidavit, the structure of the Plan of Arrangement is described in the draft Information Circular, the proposed Plan of Arrangement, and the Letter of Transmittal and Acknowledgment. These documents have gone through various iterations and remain subject to change based on further feedback which may be received, including from the Court. NextBlock intends to serve the final versions at least ten days in advance of the Security Holders meeting on June 12. Tapscott Affidavit, para. 30; MR, Tab Dennis Bennie and Alex Tapscott, being the directors of NextBlock considered the recommendations of Thorsteinssons LLP and unanimously decided that, in order to bring greater certainty with regard to the tax treatment of distributions to NextBlock's Security Holders: (i) the Plan of Arrangement is in the best interests of NextBlock; and (ii) resolved to recommend that Security Holders vote in favour of the Arrangement Resolution. Tapscott Affidavit, para. 31; MR, Tab 4.

13 9 F. The Effect of the Plan of Arrangement 31. NextBlock currently holds approximately $51,000,000 in cash generated from the sale of investments to date. In order to make further distributions in a manner that allows for greater tax certainty, NextBlock proposes to have the Company and the Security Holders carry out a number transactional steps. These steps comprise certain transactions referred to as "Pre-Arrangement Transactions" and a number of further steps to be implemented pursuant to a Plan of Arrangement. Tapscott Affidavit, para. 32; MR, Tab As part of the Pre-Arrangement Transactions, the Company proposes to treat the initial distribution of $19,935,000 of cash to Debenture Holders as a limited recourse loan, subject to receiving the required approvals of this Court and approval of the Security Holders at the Meeting, and subject to Debenture Holders individually providing the required documentation to NextBlock as described herein and in the Plan of Arrangement. Further distributions from the proceeds of the sale of investments are proposed to be made to Security Holders periodically from time to time as the Board determines. Taspcott Affidavit, para. 33; MR, Tab Ultimately, each Debenture Holder will receive the sum of the Face Amount of its Debenture and its pro rata share of 91% of the Net Gains, taking into account the 3% payment to Murthly Holdings, described below. Tapscott Affidavit, para. 34; MR, Tab The Plan of Arrangement contemplates a series of steps which include the conversion of the Debentures into preferred shares, which a newly incorporated company ("Newco") will purchase, thereby ensuring greater certainty with respect to the treatment of the distributions to Debenture Holders. As advised by Thorsteinssons LLP, without the steps contemplated by the Plan of Arrangement, NextBlock's Security Holders face significant tax uncertainty. Tapscott Affidavit, para. 35; MR, Tab After the liquidation of NextBlock's assets is complete, NextBlock intends to complete the Plan of Arrangement.

14 10 Tapscott Affidavit, para. 35; MR, Tab Under the proposed Plan of Arrangement a number of steps, described below, are to take place in sequence commencing at the "Effective Time", which will take place soon after the noncash assets of NextBlock are liquidated. These steps are depicted in diagrams attached as Schedule "A" to the May 18 Memorandum attached to Mr. Gibney's affidavit. Graphic depiction of proposed steps in the Plan of Arrangement; SMR, Tab 3 at Schedule "A". 37. Prior to the Effective Time, the following is to occur: (a) Dennis Bennie, co-director of NextBlock, and Ryan Roebuck will directly or indirectly purchase all of the common shares held by Alex Tapscott, Charlie Morris, and Don Tapscott in the capital of NextBlock. As a result, Mr. Bennie will hold, directly or indirectly, 75% of the issued and outstanding common shares of NextBlock while Mr. Roebuck will hold, directly or indirectly, the remaining 25% of the shares; (b) Mr. Roebuck will incorporate a wholly-owned corporation under the OBCA ("Newco"); (c) The articles of NextBlock will be amended to create a new class of non-voting, redeemable preferred shares ("NextBlock Preferred Shares") as part of its authorized capital. The redemption amount of the preferred shares will be $1.00 per share; (d) Each Debenture Holder will be asked to execute and deliver a form of Acknowledgment in which the Debenture Holder confirms that all past and future distributions constitute a limited recourse loan made by NextBlock (the "Acknowledgment"); and (e) NextBlock will continue liquidating its investment assets and distributing proceeds to Debenture Holders who have delivered the Acknowledgment. Tapscott Affidavit, para. 37; MR, Tab 4.

15 Commencing at the Effective Time, the following matters are anticipated to be effected in connection with the Arrangement: (a) All distributions and amounts paid by NextBlock to the Security Holders will be deemed to constitute limited recourse loans made by NextBlock; (b) The terms of the Debentures will be amended to, among other things, remove any interest obligations, rights of the Debenture Holders to convert to NextBlock common shares, and the insertion of a new right to convert the Debentures into NextBlock preferred shares; (c) All of the Debenture Holders will be deemed to have delivered Conversion Notices to NextBlock in respect of all of their respective Debentures, at which time the NextBlock preferred shares will be issued to Debenture Holders and all Debentures will be deemed to be surrendered; (d) NextBlock will assign the limited recourse NextBlock loans and the NextBlock Debenture pledges to Newco together with any cash that remains undistributed, in exchange for a promissory note issued by Newco to NextBlock; (e) Newco will purchase the NextBlock Preferred Shares from the Debenture Holders. This offsets the limited recourse loans which will be deemed to have been repaid in full. At this time, the Debenture Holders are released from any obligations with respect to these loans; (1) Approximately 91% of the remaining cash in Newco will be paid pro rata to the Debenture Holders subject to a holdback for wind-down costs, as described below; and (g) NextBlock and Newco will amalgamate. Tapscott Affidavit, para. 38; MR, Tab In substance the Plan of Arrangement provides that the Debentures will be converted into shares, which Newco will then purchase, thereby ensuring a capital gains treatment in the hands

16 12 of the Debenture Holders. Without the structure of the Plan of Arrangement, NextBlock's Security Holders face significant tax uncertainty. Tapscott Affidavit, para. 35; MR, Tab 4. G. Contingency Holdback 40. Newco proposes to hold back $4,400,000 (the "Contingency Holdback") from the purchase price payable to the Debenture Holders for their NextBlock Preferred Shares and have these funds available to pay any costs, expenses, liabilities, obligations, indebtedness, commitments, and taxes of the Company that are unpaid as of the Effective Date and/or incurred after the Effective Time (the"wind-down Costs"). 41. The Circular has been amended to clarify that the Contingency Holdback will be available to satisfy, among other things, any legal and other costs associated with responding to regulatory inquiries, and any penalties, charges or fines that NextBlock may be required to pay to any securities regulatory authority, either directly or by way of its indemnification obligations to its directors and officers. While the Ontario Securities Commission (the "OSC") has contacted NextBlock with certain inquiries, no allegations have been made against NextBlock at this time and NextBlock is cooperating with the OSC in responding to the inquiries. Tapscott Affidavit, para. 39; MR, Tab 4. Circular; Exhibit A to Supplementary Affidavit of Alex Tapscott (the "Supplementary Tapscott Affidavit"), sworn May 22, 2018; SMR, Tab At the end of the three years following the Effective Time of the Plan of Arrangement or such earlier date as may be determined, any portion of the Contingency Holdback that has not been used to pay, or accrued for, in respect of the Wind-Down Costs will be distributed to Debenture Holders pro rata. Tapscott Affidavit, para. 40; MR, Tab Following payments to Debenture Holders, and payments on account of the Murthly Fee and in addition to the cash withheld on account of the Contingency Holdback, and the holdback from the Murthly Fee, described below, the Corporation will have cash equal to 9% of the Net Gains available for distribution to the Shareholders. The Shareholders are Delrina Consolidated

17 13 Limited, a corporation controlled by Dennis Bennie, and RR One Ltd., a corporation controlled by Ryan Roebuck. Distributions will be in the discretion of the Company's directors. Of the funds available for distribution to the Shareholders, the sum of $450,000 will be retained to contribute towards the Wind-Down Costs. Proposed Circular; Supplementary Tapscott Affidavit, para. X; SMR, Tab 1. H. The Murthly Fee 44. Charles Morris ("Mr. Morris") is the Chief Investment Officer of NextBlock. He is not a director of the Company. Mr. Morris has significant expertise in the relevant blockchain and cryptocurrency market, as well as a unique knowledge of NextBlock's investments, and is therefore integral to the orderly wind-up of NextBlock. The directors of NextBlock and the Single Representative concluded that it would be a loss to NextBlock and its stakeholders if he were not available to NextBlock. Tapscott Affidavit, para. 42; MR, Tab As Mr. Morris has played an important role in maximizing value for Debenture Holders through the extended wind-down process, the Single Representative proposed to provide Mr. Morris with a 3% share of the Net Gains, as defined in the Plan approved by this Court in the Wind-up Order, so long as Mr. Morris continues to play his role with the Company (this 3% share of Net Gains being the "Murthly Fee"). NextBlock's directors were agreeable to this proposal. Tapscott Affidavit, para. 43; MR, Tab Accordingly, NextBlock has agreed to pay the Murthly Fee to Mr. MolTis' company Murthly Holdings Ltd. ("Murthly") as follows: 50% of the accrued Murthly Fee will be paid to Murthly, concurrently with each Distribution to Debenture Holders who have duly completed a Letter of Transmittal and Acknowledgement, and the remaining 50% of the Murthly Fee will be paid pursuant to the Plan of Arrangement. Tapscott Affidavit, para. 44; MR, Tab 4.

18 The Murthly Fee will be subject to a proportionate withholding by the Company of $150,000 to be applied proportionately in payment of the Wind-Down Costs and the remaining balance of the amount withheld after payment of actual Wind-Down Costs will be paid to Murthly concurrently with the payment of the balance of the Contingency Holdback to the Debenture Holders. Tapscott Affidavit, para. 45; MR, Tab The Murthly Fee is to be calculated as 3% of the Liquidated Proceeds after deduction of Face Amounts of the Debentures and after all costs and expenses, but before taxes. In other words, the Murthly Fee is treated as an expense of NextBlock and deducted in calculating Net Gains. Accordingly, Debenture Holders will be entitled to 91% of the Net Gains, but they will be responsible for 88% of the Wind-Down Costs. Exhibit A to the Supplementary Tapscott Affidavit; SMR, Tab 1. I. The Considerations of the Officers and Directors of NextBlock 49. The directors of NextBlock concluded that the Arrangement and the transactions completed thereunder are fair and reasonable to the NextBlock Security Holders, and in the best interest of NextBlock. In arriving at its conclusion, NextBlock has considered, among other things: (a) The anticipated benefits of the Arrangement, including anticipated greater tax certainty for Debenture Holders; (b) The advice received from its tax and legal advisors; (c) Information concerning the business, property, assets and the prospects of the Company; (d) The limited liquidity for certain digital assets in public markets; (e) The specific terms of the Plan of Arrangement, including the elements of the proposed Arrangement that would provide protection to the interests of the Company and the Security Holders pursuant to the Arrangement; and

19 15 (f) The risks associated with completion and non-completion of the proposed Arrangement. Tapscott Affidavit, para. 46; MR, Tab NextBlock's Officers and Directors also considered risks and disadvantages associated with the Arrangement and transactions contemplated thereunder. If the Arrangement is not approved by Security Holders or this Court, the Company will not proceed with the tax Arrangement and the Debenture Holders may not receive the anticipated greater certainty of tax treatment of the Arrangement. Tapscott Affidavit, paras. 47; MR, Tab 4. J. Conditions 51. The Arrangement is subject to a number of specified conditions being met as of the Effective Time, as detailed in the Information Circular. These include but are not limited to the following: (a) NextBlock shall have obtained the requisite Security Holder approval; and (b) The Interim Order and the Final Order have each been obtained on terms consistent with the Arrangement and have not been set aside or modified in a manner unacceptable to NextBlock. Tapscott Affidavit, para. 48; MR, Tab 4. K. The Meeting and Meeting Materials 52. NextBlock proposes to hold a Meeting of Security Holders of NextBlock on June 12, 2018 at 11:00 a.m. at the offices of Borden Ladner Gervais LLP, Bay Adelaide Centre, East Tower, 22 Adelaide Street West, Suite 3400, Toronto, to consider, and if determined advisable, to pass a special resolution authorizing, adopting and approving the Arrangement. Tapscott Affidavit, para. 49; MR, Tab Pursuant to the provisions of the OBCA relating to the holding of meetings of shareholders, it is intended that notice (the "Notice") of the Meeting will be sent to all of the Security Holders

20 16 of NextBlock, as well as the directors of NextBlock. The Notice will be given to such persons at the respective addresses recorded on the applicable registers maintained by NextBlock as at the close of business (Toronto time) on May 31, Tapscott Affidavit, para. 50; MR, Tab In accordance with the provisions of applicable laws, NextBlock intends to send the following to registered Security Holders and Directors of NextBlock: (a) Information Circular; (b) the Notice of Application and the Interim Order; (c) Notice of Meeting; (d) Form of Proxy; and (e) Letter of Transmittal and Acknowledgment Form. Exhibits J, K and L of the Tapscott Affidavit, para. 51; MR, Tab For convenience, the Information Circular has been completed on the basis that the Interim Order sought by NextBlock will be granted substantially in the form requested. Directors of NextBlock will have the authority to amend and approve the final form of the Information Circular before being sent to the Security Holders and others entitled thereto. Tapscott Affidavit, para. 52; MR, Tab 4. L. Adoption of the Arrangement and Quorum 56. NextBlock requests the Court to order that for the Plan of Arrangement to be implemented, the Arrangement Resolution must be passed, with or without variation, at the Meeting by: (a) An affirmative vote of at least two-thirds (662/3%) of the votes cast in respect of the Arrangement Resolution by the Shareholders present or represented by proxy at the Meeting; and

21 17 (b) An affirmative vote of at least two-thirds 662/3%) of the votes cast in respect of the Arrangement Resolution by the Debenture Holders present or represented by proxy at the Meeting. Tapscott Affidavit, para. 54; MR, Tab Further, NextBlock proposes that a quorum for the meeting be (i) one or more Shareholders entitled to vote thereat and holding, or one or more duly appointed proxyholders representing, in aggregate a majority of the outstanding Common Shares, and (ii) one or more Debenture Holders holding, or one or more duly appointed proxyholders representing, Debentures with an aggregate of Face Amounts of no less than $4,983,750 (being 20% of the total of the Face Amounts of all Debentures). Tapscott Affidavit, para. 55; MR, Tab 4. M. No Dissent Rights 58. No dissent rights under section 185 of the OBCA will be provided to any Security Holder in connection with the Arrangement. N. No Notice to or Voting Rights of Others 59. Counsel to NextBlock has performed such reviews as are necessary to confirm that, other than the Security Holders of NextBlock, no other persons, corporations or others are entitled by statute, constating documents of NextBlock or any indenture governing any such securities of NextBlock, to receive notice of, to attend, vote, or exercise rights of dissent, at the Meeting. Tapscott Affidavit, para. 56; MR, Tab Final Order 60. NextBlock has scheduled June 19, 2018 as the return date for the hearing of the application for final approval of the Arrangement, assuming that Security Holders approve same at the Meeting. Tapscott Affidavit, para. 57; MR, Tab 4.

22 18 PART III - ISSUES 61. The issue to be determined on this motion is whether this Court should grant the Interim Order in the form sought by NextBlock. PART IV - LAW AND SUBMISSIONS The Court Should Approve the Arrangement 62. Arrangements are governed by section 182 of the OBCA. As the Supreme Court of Canada observed in the context of an arrangement brought under parallel statutory provisions in the Canada Business Corporations Action, the arrangement provisions of Canadian corporate statutes provide a flexible statutory framework that has been "interpreted broadly by the courts" in the context of a wide variety of corporate transactions. BCE Inc. v Debentureholders, [2008] S.C.R. 560 at paras The proposed Arrangement is an "arrangement" within the meaning of section 182(1) of the OBCA because: (a) NextBlock is a "corporation" governed by the OBCA; and (b) NextBlock and Newco will amalgamate; (c) NextBlock will liquidate its assets; and (d) NextBlock will convert Debentures into NextBlock preferred shares on the basis of one NextBlock preferred share for each whole $1.00 of Debenture Principal Amount. Sections 182(1)(c), (g), (h), and (i) of the OBCA. 64. Section 182(1) of the OBCA is a flexible statutory provision and is adaptable to the needs of a particular case for accomplishing restructuring. As Justice Campbell noted in such an application involving units in a fund subject to the terms of a trust, "the same property issues appear to arise in respect of preference shares and bonds as those that are involved in the issuance of units in the limited partnership sufficient to warrant describing the entire transaction as being within a Plan of Arrangement under s. 182 of the O.B.C.A." Brookfield Renewable Power Inc. (Re), 2011 ONSC 6416 at paras. 5-6.

23 19 DH Corporation Management Information Circular. The Plan of Arrangement is largely in the Form of the Model Interim Order 65. A blackline comparison between NextBlock's proposed Interim Order and the court's Model Interim Order is attached as Schedule "D" hereto. 66. The only material differences between the Model Interim Order and NextBlock's proposed Interim Order is that NextBlock's proposed Interim Order does not provide for dissent rights and that class counsel has been appointed for the Holders. 67. NextBlock respectfully submits that dissent rights are not necessary in this case. First, the corporation is liquidating its assets and will no longer be an operating business. Therefore, there can be no disagreement among Holders as to the future business of the corporation, which could be the case in an amalgamation or an amendment to a corporation's articles. Second, there can be no disagreement as to the value of the assets. All assets are being liquidated and each asset will only be worth what it realizes. All Debenture Holders are treated equally under the proposed Plan of Arrangement and funds will be distributed pro rata. 68. Minden Gross LLP is proposed to be appointed as class counsel for the Holders given the number of Holders involved, the complexities of the proposed Plan of Arrangement, and the fact that Holders' rights will be affected by the Plan of Arrangement. In this manner, the Holders as a class will have the benefit of independent legal advice. Minden Gross LLP has already been intimately involved in the related Wind-up proceedings as counsel to the Single Representative. Under the draft Order, Holders are not required to retain Minden Gross LLP, and it is open to each Holder to opt-out of this appointment. Holders are on Notice of the Plan of Arrangement 69. While the application for an Interim Order pursuant to section 182 of the OBCA for directions related to calling a special meeting normally proceeds ex parte, NextBlock has served all Holders with the Motion Record to provide advance notice of its intention to proceed with the proposed Plan of Arrangement. This gives Debenture Holders additional time in advance of the

24 20 June 12, 2018 to seek legal advice if so inclined. NextBlock has made every effort to ensure a transparent process for its Holders. First Marathon., Re 1999 CarswellOnt 2295 (ONSC) at para. 8. Epstein v. First Marathon Inc., 2000 CarswellOnt 346 (ONSC) at para. 11. The Plan of Arrangement is in Furtherance of the Orderly Winding-Up of NextBlock 70. The proposed Arrangement and ultimate wind-up of NextBlock involves multiple interlinked steps that are most efficiently conducted via a statutory plan of arrangement. The proposed Arrangement is in furtherance of the orderly and tax efficient winding-up of NextBlock pursuant to section 207 of the OBCA. 71. In the context of the practicability test for arrangements under the Alberta Business Corporations Act, Chief Justice Wittman in Enbridge Income Fund Holdings Inc. observed that the proposed arrangement was complex and required that a number of sequential steps be completed, holding that while it would have been possible to undertake all of the steps separately outside of an arrangement, it would be time consuming and costly to do so. Enbridge Income Fund Holdings Inc. (Re), 2010 ABQB 274 at para Similarly, in Innvest Real Estate Investment Trust, Justice Hoy, as she then was, found that the practicability requirement under section 192(3) of the CBCA was met as the REIT sought to use the arrangement procedure because of the large number of steps and complexity involved in the transaction and the importance of their sequencing for income tax purposes. Unlike in the CBCA, however, there are no "practicability" or "solvency" requirements under s. 182 of the OBCA. Innvest Real Estate Investment Trust, 2010 ONSC 4292 at para. 63. Motion for Advice and Directions Interim Order 73. In connection with an Application for court approval of a proposed arrangement under section 182 of the OBCA, the Court has the power to make such Interim Orders as it thinks fit. Under section 182(5) of the OBCA, the Court is authorized to grant:

25 21 (a) an order determining the notice to be given to any interested person or dispensing with notice to any person; (b) an order requiring a corporation to call, hold and conduct an additional meeting of, or to hold a separate vote of, all or any particular group of holders of any securities or warrants of the corporation in such manner as the court directs; (c) an order permitting a shareholder to dissent under section 185 if the arrangement is adopted; (d) an order appointing counsel, at the expense of the corporation, to represent the interests of shareholders; (e) an order that the arrangement or proposed arrangement shall be deemed not to have been adopted by the shareholders of the corporation unless it has been approved by a specified majority that is greater than two-thirds of the votes cast at a meeting of the holders, or any particular group of holders, of securities or warrants of the corporation; and (f) an order approving the arrangement as proposed by the corporation or as amended in any manner the court may direct, subject to compliance with such terms and conditions, if any, as the court thinks fit. Section 182(5), OBCA. 74. It is respectfully submitted that this Court should require steps to be taken pursuant to the proposed Interim Order so as to ensure that: (a) NextBlock Security Holders are properly notified of the Arrangement and have an opportunity to consider the Arrangement and its effects; (b) There is sufficient and appropriate approval of the Arrangement by Security Holders; and (c) Interested persons receive notice and have the opportunity to attend and make submissions on the return of the Application to consider whether the Arrangement is fair and reasonable and whether it should be approved.

26 It is respectfully submitted that the steps taken and proposed to be taken by NextBlock pursuant to the proposed Interim Order meet the foregoing requirements and will enable the Meeting to be called, held and conducted in a procedurally suitable fashion. 76. As stated by Blair, J., as he then was, in the First Marathon case: The purpose of such Orders is simply to set the wheels in motion for the application process relating to the arrangement and to establish the parameters for the holding of shareholder meetings to consider approval of the arrangement in accordance with the statute. [...] First, for the reasons I have articulated above, I do not think it is incumbent upon the judge being asked to grant the Interim Order to carry out a detailed examination of the Information Circular, which is to be distributed to the shareholders, for its sufficiency. Unless the Circular is obviously bereft of substance and detail, such considerations are better left to a later occasion where that issue can be determined either by the Court, or perhaps more appropriately by the Securities Commission (the tribunal with particular expertise in such matters) with the benefit of the input of those who have concerns. The Court does not "approve" or "authorize" the Circular. The Interim Order simply directs that the Circular prepared by management be distributed to the shareholders. Undoubtedly, if the Information Circular is clearly inadequate, that will be a factor bearing considerable weight at the time of the "fairness hearing" by the Court to determine whether the arrangement will be sanctioned and approved: see, for example, Imperial Trust Company and Taylor Assets (Dominion) Limited v. Canbra Foods Ltd. (1987), 50 Alta. L.E. (2d) 375 (Moore C.J.Q.B.) Re First Marathon Inc., [1999] O.J. No (S.C.J.) at paras. 9 and The question of whether the proposed Arrangement is procedurally and substantively fair and reasonable and meets all applicable statutory requirements will be determined at the return of the Application on June 19, 2018, at which time the results of the vote by the NextBlock Security Holders at the Meeting will be known. PART V - RELIEF REQUESTED 78. The Corporation respectfully requests an Interim Order substantially in the form attached as Appendix "C" to this factum.

27 23 ALL OF WHICH IS RESPECTFULLY SUBMITTED, May 22, 2018 Aaron A. Blumenfeld / Veronica Sjolin BORDEN LADNER GERVAIS LLP Lawyers for the Applicant, NextBlock Global Ltd

28 Tab A

29 SCHEDULE "A" AUTHORITIES 1. BCE Inc. v Debentureholders, [2008] S.C.R Brookfield Renewable Power Inc. (Re), 2011 ONSC First Marathon., Re 1999 CarswellOnt 2295 (ONSC) 4. Epstein v. First Marathon Inc., 2000 CarswellOnt 346 (ONSC) 5. Enbridge Income Fund Holdings Inc. (Re), 2010 ABQB Innvest Real Estate Investment Trust, 2010 ONSC 4292

30 Tab B

31 SCHEDULE "B" STATUTES AND REGULATIONS 1. Business Corporations Act, R.S.O. 1990, c. B (1) In this section, "arrangement", with respect to a corporation, includes, (d) an amalgamation of the corporation with another corporation, (g) a liquidation or dissolution of the corporation, (h) any other reorganization or scheme involving the business or affairs of the corporation or of any or all of the holders of its securities or of any options or rights to acquire any of its securities that is, at law, an arrangement, and (i) any combination of the foregoing. 182 (5) The corporation may, at any time, apply to the court for advice and directions in connection with an arrangement or proposed arrangement and the court may make such order as it considers appropriate, including, without limiting the generality of the foregoing, (a) an order determining the notice to be given to any interested person or dispensing with notice to any person; (b) an order requiring a corporation to call, hold and conduct an additional meeting of, or to hold a separate vote of, all or any particular group of holders of any securities or warrants of the corporation in such manner as the court directs; (c) an order permitting a shareholder to dissent under section 185 if the arrangement is adopted; (d) an order appointing counsel, at the expense of the corporation, to represent the interests of shareholders; (e) an order that the arrangement or proposed arrangement shall be deemed not to have been adopted by the shareholders of the corporation unless it has been approved by a specified majority that is greater than two-thirds of the votes cast at a meeting of the holders, or any particular group of holders, of securities or warrants of the corporation; and

32 2 (f) an order approving the arrangement as proposed by the corporation or as amended in any manner the court may direct, subject to compliance with such terms and conditions, if any, as the court thinks fit, and to the extent that any such order is inconsistent with this section such order shall prevail.

33 Tab C

34 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) Court File No.: CV CL THE HONOURABLE JUSTICE WEDNESDAY, THE 23RD DAY OF MAY, 2018 IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORP ORATIONS ACT, R.S.O. 1990, c. B.16, AS AMENDED, AND RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE, O.REG 194. AND IN THE MATTER OF A PROPOSED ARRANGEMENT INVOLVING NEXTBLOCK GLOBAL LIMITED, ITS SHAREHOLDERS AND ITS HOLDERS OF DEBENTURES NEXTBLOCK GLOBAL LIMITED Applicant INTERIM ORDER THIS MOTION made by the Applicant, NextBlock Global Limited ("NextBlock"), for an interim order for advice and directions pursuant to section 182 of the Business Corporations Act, R.S.O. 1990, c. B.16, as amended, (the "OBCA") was heard this day at 330 University Avenue, Toronto, Ontario, with this Court having ordered the winding up of NextBlock pursuant to the Winding-Up Order dated December 4, 2017 (the"winding-up Order") and, in furtherance of such Winding-Up Order, the Board of Directors of NextBlock (the "Board") believes that it is in the best interests of the holders (the"shareholders") of common shares (the"shares") and the holders (the "Debenture Holders") of debentures (the "Debentures") of NextBlock for NextBlock to distribute its assets to the Shareholders and Debenture Holders (together, the "Security Holders") pursuant to the proposed Plan of Arrangement;