Domtar CORP (Form: 10-K, Received: 02/25/2020 07:06:04)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-33164

Domtar Corporation

(Exact name of registrant as specified in its charter)

Delaware	20-5901152
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
234 Kingsley Park Drive Fort Mill, SC	29715
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (803) 802-7500

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the New York Stock Exchange; trading symbol UFS.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The New York Stock Exchange on June 30, 2019, was $2,801,211,465.

The number of shares of Registrant’s Common Stock outstanding as of February 17, 2020 was 56,273,429.

Portions of the Registrant’s Proxy Statement relating to the Annual Meeting of Shareholders, scheduled to be held on May 6, 2020, are incorporated by reference into Part III of this Report.

DOMTAR CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

			PAGE
PART I
ITEM 1	BUSINESS		4
		General	4
		Availability of Information	4
		Our Corporate Structure	4
		Our Business Segments	4
		Pulp and Paper	5
		Personal Care	9
		Our Strategic Initiatives and Financial Priorities	10
		Our Competition	10
		Our Employees	11
		Our Approach to Sustainability	11
		Our Environmental Compliance	11
		Our Intellectual Property	12
		Our Executive Officers	13
		Forward-looking Statements	14

ITEM 1A	RISK FACTORS		15

ITEM 1B	UNRESOLVED STAFF COMMENTS		23

ITEM 2	PROPERTIES		23

ITEM 3	LEGAL PROCEEDINGS		25

ITEM 4	MINE SAFETY DISCLOSURES		25

PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		26
		Market Information	26
		Holders	26
		Performance Graph	27

ITEM 6	SELECTED FINANCIAL DATA		28

ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		29
		Overview	29
		2019 Highlights	29
		Outlook	31
		Consolidated Results of Operations and Segment Review	31
		Liquidity and Capital Resources	35
		Recent Accounting Pronouncements and Critical Accounting Estimates and Policies	38

ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK		45

ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		47
		Management’s Reports to Shareholders of Domtar Corporation	47
		Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm	48
		Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss)	51
		Consolidated Balance Sheets	52
		Consolidated Statement of Shareholders’ Equity	53
		Consolidated Statements of Cash Flows	54
		Notes to Consolidated Financial Statements	55

ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		124

ITEM 9A	CONTROLS AND PROCEDURES		124

ITEM 9B	OTHER INFORMATION		124

PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		124

ITEM 11	EXECUTIVE COMPENSATION		124

ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		125

ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		125

ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES		125

PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		126
		Schedule II – Valuation and Qualifying Accounts	129

ITEM 16	FORM 10-K SUMMARY		130

	SIGNATURES		131

PART I

ITEM 1. BUSINESS

GENERAL

We design, manufacture, market and distribute a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of our business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. More than 50% of our pulp production is consumed internally to manufacture paper and other consumer products, with the balance sold as market pulp. We are the largest integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We are also a marketer and producer of a broad line of incontinence care products as well as infant diapers. To learn more, visit www.domtar.com.

We operate the following business segments: Pulp and Paper and Personal Care. We had revenues of $5.2 billion in 2019, of which approximately 82% was from the Pulp and Paper segment and approximately 18% was from the Personal Care segment.

Throughout this Annual Report on Form 10-K, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refer to Domtar Corporation, its subsidiaries, as well as its investments.

AVAILABILITY OF INFORMATION

In this Annual Report on Form 10-K, we incorporate by reference certain information contained in other documents filed with the Securities and Exchange Commission (“SEC”) and we refer you to such information. We file annual, quarterly and current reports and other information with the SEC. The SEC maintains a website at www.sec.gov that contains our quarterly and current reports, proxy and information statements, and other information we file electronically with the SEC. You may also access, free of charge, our reports filed with the SEC through our website. Reports filed or furnished to the SEC will be available through our website as soon as reasonably practicable after they are filed or furnished to the SEC. The information contained on or connected to our website, www.domtar.com, is not incorporated by reference into this Form 10-K and should in no way be construed as a part of this or any other report that we filed with or furnished to the SEC.

OUR CORPORATE STRUCTURE

At December 31, 2019, Domtar Corporation had a total of 56,880,910 shares of common stock issued and outstanding.

Our common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “UFS”.

Information regarding our common stock is included in Item 8, Financial Statements and Supplementary Data under Note 21 “Shareholders’ Equity”.

OUR BUSINESS SEGMENTS

We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments.

Pulp and Paper: Our Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

Personal Care: Our Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

Information regarding our reportable segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as Item 8, Financial Statements and Supplementary Data under Note 24 “Segment Disclosures”. Geographic information is also included under Note 24 of the Financial Statements and Supplementary Data.

PULP AND PAPER

Our Manufacturing Operations

We produce approximately 4 million metric tons of softwood, fluff and hardwood pulp at 12 of our 13 mills (Port Huron being a non-integrated paper mill). More than 50% of our pulp is consumed internally to manufacture paper, with the balance being sold as market pulp. We also purchase limited papergrade pulp from third parties for specific grades and to optimize the logistics of our pulp capacity while reducing transportation costs.

We are the largest integrated manufacturer and marketer of uncoated freesheet paper in North America. We have nine integrated pulp and paper mills and one non-integrated paper mill (eight in the United States and two in Canada), with an annual paper production capacity of approximately 2.9 million tons of uncoated freesheet paper. Our paper manufacturing operations are supported by 13 converting and forms manufacturing operations (including a network of 10 plants located offsite from our paper making operations). Approximately 76% of our paper production capacity is in the United States and 24% is located in Canada.

We produce market pulp in excess of our internal requirements at our pulp and paper mills in Ashdown, Espanola, Hawesville, Windsor, Marlboro and Nekoosa. We also produce papergrade, fluff and specialty pulps at our three stand-alone pulp mills in Kamloops, Dryden and Plymouth. We can sell approximately 1.9 million metric tons of pulp per year depending on market conditions. Approximately 54% of our trade pulp production capacity is in the U.S., and 46% is located in Canada.

The table below lists our operating pulp and paper mills and their annual production capacity:

					Saleable
Production Facility	Fiberline Pulp Capacity				Paper ⁽¹⁾
	# lines		('000 ADMT) ⁽²⁾		# machines		Category ⁽³⁾	('000 ST) ⁽²⁾
Uncoated freesheet
Ashdown, Arkansas		3		707		1	Communication		200
Windsor, Quebec		1		447		2	Communication		642
Hawesville, Kentucky		1		412		2	Communication		596
Kingsport, Tennessee		1		304		1	Communication		426
Marlboro, South Carolina		1		320		1	Specialty & Packaging		274
Johnsonburg, Pennsylvania		1		228		2	Communication		344
Nekoosa, Wisconsin		1		155		3	Specialty & Packaging		168
Rothschild, Wisconsin		1		65		1	Communication		131
Port Huron, Michigan		—		—		3	Specialty & Packaging		95
Espanola, Ontario		2		300		2	Specialty & Packaging		69
Total Uncoated freesheet		12		2,938		18			2,945
Pulp
Kamloops, British Columbia		1		408		—			—
Dryden, Ontario		1		327		—			—
Plymouth, North Carolina		1		390		—			—
Total Pulp		3		1,125		—			—
Total		15		4,063		18			2,945
Total Trade Pulp ⁽⁴⁾				1,922

⁽¹⁾	Paper capacity is based on an operating schedule of 360 days and the production at the winder.

⁽²⁾	ADMT refers to an air dry metric ton and ST refers to short ton.

⁽³⁾	Represents the majority of the capacity at each of these facilities.

⁽⁴⁾	Estimated third-party shipments dependent upon market conditions. This also includes shipments to our Personal Care segment.

Our Raw Materials

The manufacturing of pulp and paper requires wood fiber, chemicals and energy. We discuss these three major raw materials used in our manufacturing operations below.

Wood Fiber

United States pulp and paper mills

The fiber used by our pulp and paper mills in the U.S. is softwood and hardwood, both readily available in the market from multiple third-party sources. The mills obtain fiber from a variety of sources, depending on their location. These sources include a combination of supply contracts, wood lot management arrangements, advance stumpage purchases and spot market purchases.

Canadian pulp and paper mills

The fiber used at our Windsor pulp and paper mill is hardwood originating from a variety of sources, including purchases on the open market in Canada and the U.S., contracts with Quebec wood producers’ marketing boards, public land where we have wood supply allocations and from Domtar’s private lands. The softwood and hardwood fiber for our Espanola pulp and paper mill and the softwood fiber for our Dryden pulp mill, are obtained from third parties, directly or indirectly from public lands and through designated wood supply allocations. The fiber used at our Kamloops pulp mill is all softwood, originating mostly from third-party sawmill operations in the southern-interior part of British Columbia.

Cutting rights on public lands related to our pulp and paper mills in Canada represent about 1.5 million cubic meters of softwood and 1.0 million cubic meters of hardwood per year. Access to harvesting of fiber on public lands in Ontario and Quebec is subject to licenses and review by the respective governmental authorities.

During 2019, the cost of wood fiber relating to our Pulp and Paper segment comprised approximately 20% of the total consolidated cost of sales.

Chemicals

We use various chemical compounds in our pulp and paper manufacturing operations that we purchase, primarily on a centralized basis, through contracts varying between one and ten years in length to ensure product availability. Most of the contracts have pricing that fluctuates based on prevailing market conditions. For pulp manufacturing, we use numerous chemicals including caustic soda, sodium chlorate, sulfuric acid, lime and peroxide. For paper manufacturing, we also use several chemical products including starch, precipitated calcium carbonate, optical brighteners, dyes and aluminum sulfate.

During 2019, the cost of chemicals relating to our Pulp and Paper segment comprised approximately 11% of the total consolidated cost of sales.

Energy

Our operations produce and consume substantial amounts of energy. Our primary energy sources include: biomass, natural gas and electricity. Approximately 72% of the total energy required to manufacture our products comes from renewable fuels such as bark and spent pulping liquor, generated as byproducts from our manufacturing processes. The remainder of the energy comes from smaller amounts of other fossil fuels and purchased steam procured under supply contracts. Under most of these contracts, suppliers are committed to provide quantities within pre-determined ranges that provide us with our needs for a particular type of fuel at a specific facility. Most of these contracts have pricing that fluctuate based on prevailing market conditions. Biomass and fossil fuels are consumed primarily to produce steam that is used in the manufacturing process and, to a lesser extent, to provide direct heat used in the chemical recovery process.

We have cogenerating assets at all of our integrated pulp and paper mills, as well as hydro assets at three locations: Espanola, Nekoosa and Rothschild. These generating assets produce approximately 67% of the electricity requirements of this business segment, with the balance supplied from local utilities. Electricity is primarily used to drive motors, pumps and other equipment, as well as provide lighting.

During 2019, net energy costs relating to our Pulp and Paper segment comprised approximately 5% of the total consolidated cost of sales.

Our Transportation

Transportation of raw materials, wood fiber, chemicals and pulp into our mills is mostly done by rail and trucks, although barges are used in certain circumstances. We rely strictly on third parties for the transportation of our pulp and paper products between our mills, converting operations, distribution centers and customers. Our paper products are shipped mostly by truck and logistics are managed

centrally in collaboration with each location. Our pulp is either shipped by vessel, rail or truck depending on destination and customer preference. We work with all major railroads and approximately 300 trucking companies in the U.S. and Canada. Service agreements are typically negotiated on an annual basis. We pay diesel fuel surcharges which vary depending on the mode of transportation used and the cost of diesel fuel.

During 2019, outbound transportation costs relating to our Pulp and Paper segment comprised approximately 10% of the total consolidated cost of sales.

Our Product Offering and Go-to-Market Strategy

Paper

Our uncoated freesheet papers are categorized into both communication papers and specialty and packaging papers. Communication papers are further categorized into business papers and commercial printing and publishing papers.

Our business papers include copy and electronic imaging papers, which are used with inkjet and laser printers, photocopiers and plain-paper fax machines, as well as computer papers, preprinted forms and digital papers. These products are primarily for office and home use. Business papers accounted for approximately 51% of our shipments of paper products in 2019.

Our commercial printing and publishing papers include uncoated freesheet papers, such as offset papers and opaques. These uncoated freesheet grades are used in sheet and roll fed offset presses across the spectrum of commercial printing end-uses, including digital printing. Our publishing papers include tradebook and lightweight uncoated papers used primarily in book publishing applications such as textbooks, dictionaries, catalogs, magazines, hard cover novels and financial documents. These products also include converting papers, such as envelopes, tablets, business forms and data processing/computer forms. Commercial printing and publishing papers accounted for approximately 33% of our shipments of paper products in 2019.

Our specialty and packaging papers include papers used for thermal printing, flexible packaging, food packaging, medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, labels and other papers used for coating and laminating applications. We also manufacture papers for industrial and specialty applications including carrier papers, treated papers, security papers and specialized printing and converting applications. These specialty and packaging papers accounted for approximately 16% of our shipments of paper products in 2019. These grades of papers require a certain amount of innovation and agility in the manufacturing system.

The chart below illustrates our main uncoated freesheet paper products and their applications:

Communication Papers					Specialty and Packaging Papers
Category	Business Papers		Commercial Printing and Publishing Papers
Grade	Copy	Premium imaging	Offset	Opaques	Thermal papers
		Technology papers	Colors	Premium opaques	Food packaging
			Index	Lightweight	Bag stock
			Tag	Tradebook	Security papers
			Bristol		Imaging papers
					Label papers
					Medical disposables

Application	Photocopies	Presentations	Commercial printing	Stationery	Food & candy packaging
	Office documents	Reports	Direct mail	Brochures	Fast food takeout bag stock
	Presentations		Pamphlets	Annual reports	Check and security papers
			Brochures	Books	Surgical gowns
			Cards	Catalogs
			Posters	Forms & Envelopes

Our paper sales channels are aligned to efficiently bring a competitive and complete product offering to our varied customers. Our customer service personnel work closely with sales, marketing and production staff to provide service and support to merchants, converters, end-users, stationers, printers and retailers. We sell our products directly to end-users and others who influence paper

purchasing decisions in order to enhance brand recognition and increase product demand. In addition, our sales representatives work closely with mill-based product development personnel and undertake joint marketing initiatives with customers in order to better understand their business needs and to support their future requirements.

We sell business papers primarily to paper stationers, merchants, office equipment manufacturers and retail outlets. We distribute uncoated commercial printing and publishing papers to end-users and commercial printers, mainly through paper merchants, as well as selling directly to converters. We sell our specialty and packaging papers mainly to converters, who apply a further production process such as coating, laminating, folding or waxing to our papers before selling them to a variety of specialized end-users.

The chart below illustrates our channels of distribution for our paper products:

Communication Papers

Specialty and Packaging Papers

Category

Business Papers

Commercial Printing and Publishing Papers

Domtar sells to:

Retailers

↓

Merchants

↓

Office Equipment Manufacturers / Stationers

↓

Merchants

↓

Converters

↓

End-Users

Converters

↓

Customer sells to:

Printers /

Retailers /

Printers /

Merchants /

End-users

Retailers /

Stationers /

Converters /

Retailers

End-users

Pulp

Our pulp products are comprised of softwood, fluff and hardwood kraft. These grades are sold to customers in over 50 countries worldwide. Our pulp is used in a variety of end products, such as diapers and personal hygiene products, bathroom and facial tissue, specialty and packaging papers, customers who make printing and writing grades, building products and electrical insulating papers.

We sell market pulp to customers in North America mainly through a North American sales force while sales to most overseas customers are made directly or through commission agents. We maintain pulp supplies at strategically located warehouses, which allow us to respond to customer orders on short notice.

Our Customers

Our ten largest customers represented approximately 46% of our Pulp and Paper segment sales or approximately 37% of our total sales in 2019. In 2019, Staples, a customer of our Pulp and Paper segment, represented approximately 11% of our total sales. The majority of our customers purchase products through individual purchase orders. In 2019, approximately 75% of our Pulp and Paper segment sales were in the United States, 10% were in Canada, and 15% were in other countries.

PERSONAL CARE

Our Operations

Our Personal Care business consists of the design, manufacturing, marketing and distribution of absorbent hygiene products, including adult incontinence and infant diaper products. We are one of the leading suppliers of adult incontinence and infant diaper products sold into North America and Europe, servicing institutional and consumer channels, marketed primarily under our Attends^®, IncoPack^®, Indasec^®, Reassure^®, Chelino and Comfees^®brands, in addition to our customers’ brands.

We operate five manufacturing facilities located in the U.S. and Europe, with the ability to produce multiple product categories including our Jesup, Georgia facility, which manufactures high quality airlaid and ultrathin laminated absorbent cores. We have research and development capabilities across our manufacturing footprint to maintain quality assurance and drive product innovation. Our operations are supported by our divisional headquarters located in Raleigh, North Carolina.

Our Industry Dynamics

Aging population

We compete in an industry with fundamental drivers for long-term growth. The worldwide aging population suggests that adult incontinence will become much more prevalent over the next several decades, as baby boomers enter their senior years and medical advances continue to extend the average lifespan. By the year 2030, approximately one billion people worldwide are estimated to be 65 years old or older, representing 12% of the projected total world population.

Increased healthcare spending

While we are expected to benefit from the overall increase in healthcare spending due to an aging population, the pressure to limit public spending on healthcare may impact overall consumption or the channels in which consumption occurs.

Infant products

We compete mainly within the competitive store brand segment of infant diapers and training pants. Future unit demand growth based on birth rate and demographic trends is forecasted to be limited in North America and Europe. The focus is on driving category value by offering new benefits and by marketing to shift product mix to higher priced segments. The importance of the category to key retailers is expected to remain strong given the purchasing power and strategic importance of the infant diaper shopper. Today, our business is focused on securing multiyear contracts with large retailers that control the majority of volume, leading to intense competition with other manufacturers in the industry.

Our focus on insight and innovation provides our customers with competitive products and services at a scale required to meet their national distribution requirements.

Our Raw Materials

The primary raw materials used in our manufacturing process are fluff pulp, nonwovens and super absorbent polymers. A significant portion of the fluff pulp used in our Personal Care business is supplied internally from our Pulp and Paper business. The majority of our nonwoven and super absorbent polymers are purchased centrally based on multiyear contracts with pricing that fluctuates with market conditions. Other raw materials used in our manufacturing process include polypropylene film, elastics and adhesives which are also purchased with multiyear contracts.

Our Product Offering and Go-to-Market Strategy

We supply a variety of products, which include branded and private label briefs, bladder control pads, protective underwear, underpads and washcloths, as well as baby diapers, change mats, youth pants and training pants. They are available in a variety of sizes, differing performance levels and product attributes. Our broad product portfolio covers most price points across each category.

Our Product Development

We currently offer a comprehensive, full line of products, and we continue to focus on product development to improve comfort, dryness and leakage protection for our consumers. We continue to explore new materials, designs and processes that will allow us to improve future performance and value to meet global market needs.

OUR STRATEGIC INITIATIVES AND FINANCIAL PRIORITIES

As a leading fiber-based technology company, Domtar is focused on driving innovation, enhancing our operating platforms, and delivering high quality products. To further bolster our position and drive enhanced value for our stockholders, Domtar is focused on four key business objectives: (1) driving value in our Pulp and Paper business through strategic investment; (2) building on our core competencies in wood fiber to diversify and expand Domtar’s footprint in growth markets and industries; (3) maintaining a balanced and disciplined approach to capital allocation that allows for investments in growth opportunities and rewards stockholders with capital returns; and (4) operating with a focus on environmental responsibility and sustainability. We are confident that the continued focus on these objectives will bolster the competitive position of our business and drive value for our stakeholders, including stockholders, customers and employees.

Driving value in our Pulp and Paper business. Domtar’s Pulp and Paper business remains an important part of our growth plan, and we have strategies and operating priorities designed to maximize the value of the business. Our key priorities include: increasing productivity in our pulp business, pursuing new sources of paper consumption, pursuing asset repurposing opportunities and operating an optimal portfolio of strategic assets. We believe that execution on these priorities will enable Domtar to expand into complementary growth areas and protect its market position in Pulp and Paper.

Expanding into areas of growth and leveraging our fiber expertise. We are focused on optimizing and expanding our operations in markets with positive demand dynamics through investments for organic growth, the repurposing of assets and strategic acquisitions. Domtar has a history of proactively adapting to changing market conditions, and today, we are repositioning the Company towards areas of growth. We are well positioned to capitalize on new opportunities in the wood fiber market. The Company already has the financial resources, infrastructure, raw materials, technologies and expertise necessary to deliver new products. We believe that we have built a strong foundation for diversification and continue to make important, but disciplined, progress.

Maintaining a balanced and disciplined approach to capital allocation that allows for investments in growth opportunities and rewards stockholders with capital returns. We believe in a balanced and disciplined approach to capital allocation, and we are committed to deploying capital only to the areas that will achieve the best possible return for our stockholders. Domtar’s free cash flow allows us to invest in growth opportunities and maintain a strong and flexible financial position for operating and strategic initiatives, while still returning capital to our stockholders. To continue generating free cash flow, we are focused on assigning our capital expenditures effectively and minimizing working capital requirements by reducing discretionary spending, reviewing procurement costs and pursuing the balance of production and inventory control.

Operating responsibly on behalf of all of Domtar’s stakeholders. We try to make a positive difference every day by pursuing sustainable growth, valuing relationships, and responsibly managing our resources. We aim to care for our customers, end-users and stakeholders in the communities where we operate, all seeking assurances that resources are managed in a sustainable manner. We strive to provide these assurances by certifying our distribution and manufacturing operations and measuring our performance against internationally recognized benchmarks. Domtar is committed to the responsible use of forest resources across our operations, and we are enrolled in programs and initiatives to encourage landowners to pursue certification to improve their market access and increase their revenue opportunities. We believe that each of these initiatives also creates value for our stockholders and is part of our larger business strategy and commitment to environmental sustainability.

OUR COMPETITION

The markets in which our businesses operate are highly competitive with well-established domestic and foreign manufacturers.

In the paper business, our paper production does not rely on proprietary processes or formulas, except in highly specialized papers or customized products. In uncoated freesheet, we compete primarily on the basis of product quality, breadth of offering, service solutions and competitively priced paper products, which include an extensive offering of high quality Forest Stewardship Council (“FSC”)-certified paper products. While we have a leading position in the North American uncoated freesheet market, we also compete with other paper grades, including coated freesheet, and with electronic transmission and document storage alternatives. As the use of these alternative products continues to grow, we continue to see a decrease in the overall demand for paper products. All of our pulp and paper manufacturing facilities are located in the U.S. or in Canada where we sell approximately 85% of our products. The five largest manufacturers of uncoated freesheet papers in North America (including Domtar) represent approximately 82% of total production capacity. On a global basis, there are hundreds of manufacturers that produce and sell uncoated freesheet paper. The level of competitive pressures from foreign producers in the North American market is highly dependent upon exchange rates, particularly the rate between the U.S. dollar and the Euro as well as the U.S. dollar and the Brazilian real.

The market pulp we sell is fluff, softwood or hardwood pulp. The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively

priced pulp products. The fluff pulp we sell is used in absorbent products, incontinence products, diapers and feminine hygiene products. The softwood and hardwood pulp we sell is primarily slow growth northern bleached softwood and hardwood kraft, and we produce specialty engineered pulp grades with a pre-determined mix of wood species. Our softwood and hardwood pulps are sold to customers who make a variety of products for specialty paper, packaging, tissue and industrial applications, and customers who make printing and writing grades. We also seek product differentiation through the certification of our pulp mills to the FSC chain-of-custody standard and the procurement of FSC-certified virgin fiber. All of our market pulp production capacity is located in the U.S. or in Canada, and we sell approximately 58% of our pulp to other countries.

In the adult incontinence business, competition is primarily faced across four major product categories: protective underwear, pads, briefs and underpads, with customers served through the healthcare, retail (mass retailers, drug stores, dollar stores, supermarkets, warehouse clubs), and emerging direct to consumer channels. In North America, the market is split equally between retail and institutional/healthcare sectors. In Europe, approximately 68% of market demand is served through institutional/reimbursed channels, with the retail sector delivering lower sales through a more fragmented mix of players than in North America.

In the infant business, competition is primarily across three major product categories: diapers, training pants and youth pants with customers served through the retail (mass retailers, hypermarkets, drug stores, dollar stores, supermarkets, warehouse clubs) and direct to consumer channels. In North America, branded labels represent the majority of the infant market with the top two manufacturers supplying a significant portion of the branded demand. The remaining supply is represented by private label, and is split among the competition. In Europe, the top manufacturer supplies approximately half of the demand with branded labels, and the remainder is represented by private label and niche lifestyle brands.

In both the adult incontinence and infant diaper industries, the principal levers of competition remain brand loyalty, product innovation, quality, price and marketing and distribution capabilities. Competitive market pressures in both the healthcare and retail sectors have increased in recent years, including increased competition in the private label category, excess industry capacity and the pressure to limit public healthcare spending.

OUR EMPLOYEES

We have approximately 10,000 employees, of which approximately 60% are employed in the United States, 28% in Canada and 12% in Europe. Approximately 44% of our employees are covered by collective bargaining agreements, generally on a facility-by-facility basis. Certain agreements will expire in 2020 and others will expire between 2021 and 2022.

OUR APPROACH TO SUSTAINABILITY

Domtar aims to deliver value to our customers, employees, shareholders and communities by viewing our business decisions within the larger context of sustainability. We take a long-term view on managing natural resources for the future. We strive to minimize waste and encourage recycling. We aim to have the highest standards for ethical conduct, for caring about the health and safety of each other, and for maintaining the environmental quality in the communities where we live and work. We value the partnerships we have formed with non-governmental organizations and believe they make us a better company. We focus on agility to respond to new opportunities, and we are committed to turning innovation into value creation. By embracing sustainability as our operating philosophy, we seek to internalize the fact that the choices we have and the impact of the decisions we make on our stakeholders are all interconnected. We believe that our business and the people and communities who depend on us are better served as we weave this focus on sustainability into the things we do.

Domtar executes this commitment to sustainability at every level and every location across the company. With the support of the Board of Directors, our Management Committee empowers senior managers from manufacturing, technology, finance, sales and marketing and corporate staff functions to regularly come together and establish key sustainability performance metrics, and to routinely assess and report on progress. We have a vice-president position to help lead this effort, allowing the company’s organizational structure to better reflect the priority the company places on sustainable performance. We believe that weaving sustainability into our business better positions Domtar for the future.

OUR ENVIRONMENTAL COMPLIANCE

Our business is subject to a wide range of general and industry-specific laws and regulations in the U.S. and other countries where we have operations, relating to the protection of the environment, including those governing wood harvesting, air emissions, climate change, waste water discharges, storage, management and disposal of hazardous substances and wastes, contaminated sites, landfill operation and closure obligations and health and safety matters. Compliance with these laws and regulations is a significant factor in the operation of our business. We may encounter situations in which our operations fail to maintain full compliance with applicable environmental requirements, possibly leading to civil or criminal fines, penalties or enforcement actions, including those that could

result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures at substantial costs, such as the installation of additional pollution control equipment or other remedial actions.

Compliance with environmental laws and regulations involves capital expenditures as well as additional operating costs. Additional information regarding environmental matters is included in Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section of Critical accounting estimates and policies, caption “Environmental matters and asset retirement obligations.”

OUR INTELLECTUAL PROPERTY

Many of our brand name products are protected by registered trademarks. Our key trademarks include Cougar^®, Lynx^® Opaque Ultra, Husky^® Opaque Offset, First Choice^®, EarthChoice^®, Ariva^®,Attends^®, NovaThin^®, NovaZorb^®, IncoPack^®, Indasec^®,Reassure^®, Chelinoand Comfees^®. These brand names and trademarks are important to our business. Our numerous trademarks have been registered in the U.S. and/or in other countries where our products are sold. The current registrations of these trademarks are effective for various periods of time. These trademarks may be renewed periodically, provided that we, as the registered owner, and/or licensee comply with all applicable renewal requirements, including the continued use of the trademarks in connection with similar goods.

We own U.S. and foreign patents and have several pending patent applications. Our management regards these patents and patent applications as important but does not consider any single patent or group of patents to be materially important to our business as a whole.

OUR EXECUTIVE OFFICERS (“MANAGEMENT COMMITTEE”)

Name	Age	Position and Business Experience
John D. Williams	65	President and Chief Executive Officer of the Company since January 2009. He is also a member of the Board of Directors. Previously, Mr. Williams served as President of SCA Packaging Europe between 2005 and 2008. Prior to assuming his leadership position with SCA Packaging Europe, Mr. Williams held increasingly senior management and operational roles in the packaging business and related industries. Mr. Williams is Lead Independent Director of the Board of Directors of Owens Corning and the Non-Executive Chairman of Form Technologies, Inc., a privately-held leading global group of precision component manufacturers based in Charlotte, North Carolina.
Daniel Buron	56	Senior Vice President and Chief Financial Officer of the Company since March 2007. Mr. Buron was previously Senior Vice-President and Chief Financial Officer of Domtar Inc. since May 2004. He joined Domtar Inc. in 1999. Prior to May 2004, he was Vice-President, Finance, Pulp and Paper sales division and, prior to September 2002, he was Vice-President and Controller. He has over 30 years of experience in finance. Mr. Buron is a Director of the McGill University Health Centre Foundation and also serves on the Board of Directors of Semafo Inc. and Nouveau Monde Graphite Inc.
Michael D. Garcia	55	President, Pulp and Paper Division of the Company. Mr. Garcia joined Domtar in 2014. Prior to joining the Company, he was the chief executive officer at EVRAZ Highveld Steel & Vanadium Co., South Africa’s second largest steel producer. Mr. Garcia has more than 25 years of international management experience in paper, steel, and aluminum manufacturing and marketing. He has broad global experience, including executive assignments in Asia and Africa. Mr. Garcia is a Director of the Federal Reserve Bank of Richmond, Charlotte Branch, and of the USO of North Carolina. He also serves on the Board of Directors of Alliant Energy Corp.
Michael Fagan	58	President, Personal Care Division of the Company. Mr. Fagan joined Domtar in 2011, following the acquisition of Attends Healthcare Products, Inc. Mr. Fagan has been with Attends since 1999, when he was hired as Senior Vice-President of Sales and Marketing. He was promoted to President and CEO in 2006. Prior to joining Attends, Mr. Fagan held a variety of sales development roles with Procter & Gamble, the previous owners of the Attends line of products.
Zygmunt Jablonski	66	Senior Vice President and Chief Legal and Administrative Officer of the Company. Mr. Jablonski joined Domtar in 2008, after serving in various in-house counsel positions for major manufacturing and distribution companies in the paper industry for 13 years. From 1985 to 1994, he practiced law in Washington, DC.
Patrick Loulou	51	Senior Vice President, Corporate Development since he joined the Company in March 2007. Previously, he held a number of positions in the telecommunications sector as well as in management consulting. His over 20 year career has spanned a number of areas and functions such as corporate strategy, M&A, operations, business transformation and business development.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “aim,” “target,” “plan,” “continue,” “estimate,” “project,” “may,” “will,” “should” and similar expressions. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occur, what effect they will have on our results of operations or financial condition. These factors include, but are not limited to:

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continued decline in usage of fine paper products in our core North American market;

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our ability to implement our business diversification initiatives, including repurposing of assets and strategic acquisitions;

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product selling prices;

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raw material prices, including wood fiber, chemical and energy;

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conditions in the global capital and credit markets, and the economy generally, particularly in the U.S., Canada and Europe;

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performance of our manufacturing operations, including unexpected maintenance requirements;

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the level of competition from domestic and foreign producers;

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cyberattack or other security breaches;

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the effect of, or change in, forestry, land use, environmental and other governmental regulations and accounting regulations;

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the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters;

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transportation costs;

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the loss of current customers or the inability to obtain new customers;

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legal proceedings;

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changes in asset valuations, including impairment of property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons;

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changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar and European currencies;

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the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation;

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performance of pension fund investments and related derivatives, if any; and

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the other factors described under “Risk Factors,” Item 1A.

You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Annual Report on Form 10-K. Unless specifically required by law, Domtar Corporation disclaims any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below in addition to the other information presented in this Annual Report on Form 10-K.

The Company faces intense competition in its markets, and the failure to compete effectively could have a material adverse effect on its business and results of operations.

The Company competes with U.S., Canadian, European and Asian producers and, for many of its product lines with global producers, some of which may have greater financial resources and lower production costs than the Company. The principal basis for competition is selling price. The Company’s ability to maintain satisfactory margins depends largely on its ability to control its costs. Our industries also are particularly sensitive to other factors including innovation, design, quality and service, with varying emphasis on these factors depending on the product line. The Company cannot provide assurance that it will compete effectively and maintain current levels of sales and profitability. If the Company cannot compete effectively, such failure could have a material adverse effect on its business and results of operations.

Conditions in the global political and economic environment, including the global capital and credit markets, can adversely affect the Company’s business, results of operations and financial position.

A significant or prolonged downturn in the general economic environment may affect the Company’s sales and profitability. The Company has exposure to counterparties with which it routinely executes transactions. Such counterparties include commercial banks, insurance companies and other financial institutions, some of which may be exposed to bankruptcy or liquidity risks. A bankruptcy or illiquidity event by one of its significant counterparties may materially and adversely affect the Company’s access to capital, future business and results of operations. In addition, the Company’s customers and suppliers may be adversely affected by severe economic conditions. This could result in reduced demand for its products or its inability to obtain necessary supplies at reasonable costs, or at all.

The Company may be negatively impacted by political issues or crisis in individual countries or regions, including sovereign risk related to a default by or deterioration in the credit worthiness of local governments. Any of these effects, and others the Company cannot anticipate, may have a negative effect and may adversely affect the Company’s business.

Certain countries in Europe provide medicare coverage for adult incontinence products. The governments of these countries may decide to no longer reimburse part or all of the costs of adult incontinence products, and this may have a negative impact on the Company’s operating results in the future.

Failure to successfully implement the Company’s business diversification initiatives could have a material adverse effect on its business, results of operations and financial position.

The Company is pursuing strategic initiatives that management considers important to our long-term success. The intent of these initiatives is to help grow the business and counteract the secular decline in our North American paper business. These initiatives may involve organic growth, select joint ventures and strategic acquisitions. The success of these initiatives will depend on, among other things, our ability to identify potential strategic initiatives, understand the key trends and principal drivers affecting those businesses and to execute the initiatives in a cost effective manner. There are significant risks involved with the execution of such initiatives, including significant business, economic and competitive uncertainties, many of which are outside the Company’s control.

In addition, in the past we have converted paper mills to fluff pulp production facilities. If circumstances warrant, in the future we may again convert paper mills to produce pulp or other products. Conversions can be capital intensive and can involve the shutdown of a facility for an extended period of time, followed by an extended ramp-up and customer certification process. In addition, the success of a conversion depends upon demand over time for the new product relative to the previously produced paper products, as well as costs and other factors, and there can be no assurance that a conversion will be as successful as expected.

Strategic acquisitions may expose the Company to additional risks. The Company may have to compete for acquisition targets and any acquisition it makes may fail to accomplish our strategic objectives or may not perform as expected. In addition, the costs of integrating an acquired business may exceed our estimates and may require significant time and attention from senior management. Accordingly, the Company cannot predict whether it will succeed in implementing these strategic initiatives. If it fails to successfully diversify our business, it may have a material adverse effect on the Company’s competitive position, financial condition and operating results.

The Company’s paper products are vulnerable to long-term declines in demand due to competing technologies or materials.

The Company’s paper business competes with electronic transmission and document storage alternatives, as well as with paper grades it does not produce, such as uncoated groundwood. As a result of such competition, the Company is experiencing ongoing decreasing demand for most of its existing paper products. As the use of these alternatives grows, demand for paper products is likely to decline further. Declines in demand for our paper products may adversely affect the Company’s business, results of operations and financial position.

The pulp and paper industry is highly cyclical. Fluctuations in the prices of and the demand for the Company’s pulp and paper products could result in lower sales volumes and smaller profit margins.

The pulp and paper industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for the Company’s pulp and paper products. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Most of the Company’s paper products are commodities that are widely available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand.

The overall levels of demand for the pulp and paper products that the Company manufactures and distributes, and consequently its sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general macroeconomic conditions in North America and worldwide, the continuation of the current level of service and cost of postal services, as well as competition from electronic substitution. See “Conditions in the global political and economic environment, including the global capital and credit markets, can adversely affect the Company’s business, results of operations and financial position” and “The Company’s paper products are vulnerable to long-term declines in demand due to competing technologies or materials”.

Industry supply of pulp and paper products is also subject to fluctuation, as changing industry conditions can influence producers to idle or permanently close individual machines or entire mills. Such closures can result in significant cash and/or non-cash charges. In addition, to avoid substantial cash costs in connection with idling or closing a mill, some producers will choose to continue to operate at a loss, sometimes even a cash loss, which could prolong weak pricing environments due to oversupply. Oversupply can also result from producers introducing new capacity in response to favorable pricing trends.

Industry supply of pulp and paper products is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow.

As a result, prices for all of the Company’s pulp and paper products are driven by many factors outside of its control, and the Company has little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond the Company’s control determine the prices for its commodity products, the price for any one or more of these products may fall below its cash production costs, requiring the Company to either incur cash losses on product sales or cease production at one or more of its pulp and paper manufacturing facilities. The Company continuously evaluates potential adjustments to its production capacity, which may include additional closures of machines or entire mills, and the Company could recognize significant cash and/or non-cash charges relating to any such closures in future periods. Refer to Item 8, Financial Statements and Supplementary Data under Note 16 “Closure and restructuring costs and liability” for more details. Therefore, the Company’s profitability with respect to these products depends on managing its cost structure, particularly wood fiber, chemical, transportation and energy costs, which represent the largest components of its operating costs and can fluctuate based upon factors beyond its control. If the prices or demand for its pulp and paper products decline, or if its wood fiber, chemical, transportation or energy costs increase, or both, this could adversely affect the Company’s results of operations and financial position.

The Company is affected by changes in currency exchange rates.

The Company has manufacturing operations in the U.S., Canada, Sweden and Spain. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. As a result, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and of other European currencies relative to the U.S. dollar. The Company’s European subsidiaries are exposed to movements in foreign currency exchange rates on transactions denominated in a different currency than their Euro functional currency. Additionally, there has been, and may continue to be, volatility in currency exchange rates. The Company’s risk management policy allows hedging a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use foreign exchange derivative instruments to mitigate its exposure to

fluctuations in foreign currency exchange rates. There can be no assurance that the Company will be protected against substantial foreign currency fluctuations. Currency exchange rates could adversely affect the Company’s results of operations and financial position.

The Company relies heavily on a small number of significant customers, including one customer that represented approximately 11% of the Company’s sales in 2019. A significant change in customer relationships or in customer demand for our products could materially adversely affect the Company’s business, financial condition or results of operations.

The Company heavily relies on a small number of significant customers. The Company’s largest customer, Staples, represented approximately 11% of the Company’s sales in 2019. A significant reduction in sales to any of the Company’s key customers could materially adversely affect the Company’s business, financial condition or results of operations, could result from such customers further diversifying their product sourcing, or experiencing financial difficulty or consolidating with each other.

The Company’s operations require substantial capital, and it may not have adequate capital resources to provide for all of its capital requirements.

The Company’s businesses are capital intensive and require ongoing capital expenditures in order to maintain its equipment, increase its operating efficiency and comply with environmental laws. In 2019, the Company’s total capital expenditures were $255 million.

If the Company’s available cash resources and cash generated from operations are not sufficient to fund its operating needs and capital expenditures, the Company would have to obtain additional funds from borrowings or other available sources or reduce or delay its capital expenditures. The Company may not be able to obtain additional funds on favorable terms, or at all. In addition, the Company’s debt service obligations will reduce its available cash flows. If the Company cannot maintain or upgrade its equipment as it requires or allocate funds to ensure environmental compliance, it could be required to curtail or cease some of its manufacturing operations, or it may become unable to manufacture products that compete effectively in one or more of its product lines.

The Company and its subsidiaries may incur substantially more debt. This could increase risks associated with its leverage.

The Company and its subsidiaries may incur substantial additional indebtedness in the future. Although the revolving credit facility contains restrictions on the incurrence of additional indebtedness, including secured indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be substantial. Refer to Item 8, Financial Statements and Supplementary Data under Note 19 “Long-term debt” for more details.

The Company’s ability to generate the significant amount of cash needed to pay interest and principal on the Company’s unsecured long-term notes and service its other debt and financial obligations and its ability to refinance all or a portion of its indebtedness or obtain additional financing depends on many factors beyond the Company’s control.

In 2019, the Company paid approximately $47 million in interest and principal payments. The Company’s ability to make payments on and refinance its debt, including the Company’s unsecured long-term notes and amounts borrowed under its revolving credit facility and term loan, if any, and other financial obligations and to fund its operations will depend on its ability to generate substantial operating cash flow. The Company’s cash flow generation will depend on its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors, many of which are beyond its control.

The Company’s business may not generate sufficient cash flow from operations and future borrowings may not be available to the Company under its revolving credit facility or otherwise in amounts sufficient to enable the Company to service its indebtedness, including the Company’s unsecured long-term notes, and borrowings, if any, under its revolving credit facility and securitization or to fund its other liquidity needs. If the Company cannot service its debt, the Company will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing its debt or seek additional equity capital. Any of these remedies may not be executed on commercially reasonable terms, or at all, and may impede the implementation of its business strategy. Furthermore, the revolving credit facility may restrict the Company from adopting any of these alternatives. Because of these and other factors that may be beyond its control, the Company may be unable to service its indebtedness.

The Company could incur substantial costs as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations. It could also incur costs as a result of asbestos-related personal injury litigation.

The Company is subject to a wide range of general and industry-specific laws and regulations in the United States and other countries where we have operations, relating to the protection of the environment and natural resources, including those governing air emissions, greenhouse gases and climate change, wastewater discharges, harvesting, silvicultural activities, storage, management and

disposal of hazardous substances and wastes, the cleanup of contaminated sites, landfill operation and closure obligations, forestry operations and endangered species habitat, and health and safety matters. In particular, the pulp and paper industry in the U.S. is subject to the United States Environmental Protection Agency’s (“EPA”) Cluster Rules.

The Company has incurred, and expects that it will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations as a result of remedial obligations. The Company incurred $71 million of operating expenses and $19 million of capital expenditures in connection with environmental compliance and remediation in 2019. As of December 31, 2019, the Company had a provision of $35 million for environmental expenditures, including certain asset retirement obligations (such as for landfill capping).

The Company could also incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting its operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with its past and present properties may lead to future environmental investigations. Those efforts may result in the determination of additional environmental costs and liabilities which cannot be reasonably estimated at this time.

As the owner and operator of real estate, the Company may be liable under environmental laws for cleanup, closure and other damages resulting from the presence and release of hazardous substances, including asbestos, on or from its properties or operations, including properties that it no longer owns. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, the Company’s liability may be imposed without regard to contribution or to whether it knew of, or caused, the release of hazardous substances and may exceed forecasted amounts or the value of the property itself. The discovery of additional contamination or the imposition of additional cleanup obligations at the Company’s or third-party sites may result in significant additional costs. Any material liability the Company incurs could adversely impact its financial condition or preclude it from making capital expenditures that would otherwise benefit its business.

In addition, the Company may be subject to asbestos-related personal injury litigation arising out of exposure to asbestos on or from its properties or operations, and may incur substantial costs as a result of any defense, settlement, or adverse judgment in such litigation. The Company may not have access to insurance proceeds to cover costs associated with asbestos-related personal injury litigation.

Enactment of new environmental laws or regulations or changes in existing laws or regulations (such as changes in climate change regulation), or interpretation thereof, might require significant expenditures. For additional information, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies”. The Company may be unable to generate funds or other sources of liquidity and capital to fund environmental liabilities or expenditures.

Failure to comply with applicable laws and regulations could have a material adverse effect on our business, financial results or condition.

In addition to environmental laws, the Company’s business and operations are subject to a broad range of other laws and regulations in the U.S. and Canada as well as other jurisdictions in which the Company operates, including antitrust and competition laws, occupational health and safety laws, healthcare reimbursement laws, such as Medicare and Medicaid, and employment laws. Many of these laws and regulations are complex and subject to evolving and differing interpretation. If the Company is determined to have violated any such laws or regulations, whether inadvertently or willfully, it may be subject to civil and criminal penalties, including substantial fines, loss of authorizations to participate in or exclusion from government programs, claims for damages by third parties or fines or monetary penalties which may have a material adverse effect on the Company’s financial position, results of operations or cash flows. For additional information, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies.”

The Company’s financial results could be affected by changes in U.S. and foreign tax laws or in the mix of our U.S. and foreign earnings, as well as adjustments to our estimates of uncertain tax issues or results from audits by U.S. or foreign tax authorities.

The Company is subject to U.S. and foreign tax laws and regulations. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. International tax norms governing each country’s jurisdiction to tax cross-border international trade have evolved partly due to the Base Erosion and Profit Shifting project led by the Organization for Economic Cooperation and Development and supported by the G20. Changes in these laws and regulations, or any change in the position of tax authorities regarding their application, administration or interpretation could

adversely affect the Company’s financial results. In addition, a number of countries are actively pursuing changes to their tax laws applicable to multinational corporations, such as the U.S. Tax Cuts and Jobs Acts (“U.S. Tax Reform”), enacted in 2017. Finally, foreign governments may enact tax laws in response to the U.S. Tax Reform that could result in further changes to global taxation and materially impact the Company’s financial results.

The U.S. Tax Reform significantly changes how the U.S. taxes corporations. The U.S. Tax Reform requires complex computations to be performed that were not previously required under U.S. tax law, significant judgments to be made in interpretation of the provisions of the U.S Tax Reform and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the U.S. Tax Reform will be applied or otherwise administered that is different from the Company’s interpretation.

The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates or changes in the valuation of deferred tax assets and liabilities. The Company is also subject to the examination of its tax returns and other matters by tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes and as of December 31, 2019, has a reserve for liabilities relating to uncertain tax positions of $29 million. Taxing authorities may disagree with the positions the Company has taken regarding the tax treatment or characterization of its transactions. If any tax authorities were successful in challenging the tax treatment or characterization of any of the Company’s transactions, it could also adversely affect its financial results.

The Company’s Pulp and Paper business may have difficulty obtaining wood fiber at favorable prices, or at all.

Wood fiber is the principal raw material used by the Company’s Pulp and Paper business, comprising approximately 20% of the consolidated cost of sales in 2019. Wood fiber is a commodity, and prices historically have been impacted by a variety of factors. The primary source for wood fiber is timber. Environmental litigation and regulatory developments, alternative use for energy production and reduction in harvesting related to the housing market, have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in the U.S. and Canada. In addition, future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest health and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may be further limited by adverse weather, fire, insect infestation, disease, ice storms, wind storms, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. Wood fiber pricing is subject to regional market influences, and the Company’s cost of wood fiber may increase in particular regions due to market shifts in those regions. Any sustained increase in wood fiber prices would increase the Company’s operating costs, and the Company may be unable to increase prices for its products in response to increased wood fiber costs due to additional factors affecting the demand or supply of these products.

The Company currently meets its wood fiber requirements by purchasing wood fiber from third parties and by harvesting timber pursuant to its forest licenses and forest management agreements. If the Company’s cutting rights, pursuant to its forest licenses or forest management agreements are reduced, or any third-party supplier of wood fiber stops selling or is unable to sell wood fiber to the Company, its financial condition or results of operations could be materially and adversely affected.

An increase in the cost of the Company’s purchased energy or other raw materials would lead to higher manufacturing costs, thereby reducing its margins.

The Company’s operations consume substantial amounts of energy such as biomass, natural gas and electricity. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years. As a result, fluctuations in energy prices will impact the Company’s manufacturing costs and contribute to earnings volatility. While the Company purchases substantial portions of its energy under supply contracts, most of these contracts are based on market pricing.

Other raw materials the Company uses include various chemical compounds, such as precipitated calcium carbonate, sodium chlorate, sulfuric acid, dyes, peroxide, methanol and aluminum sulfate, super absorbent polymers and nonwovens. The costs of these other raw materials have been volatile historically, and they are influenced by capacity utilization, energy prices and other factors beyond the Company’s control.

Due to the commodity nature of the Company’s products, the relationship between supply and demand for these products, rather than changes in the cost of raw materials or purchased energy, will determine the Company’s ability to increase prices. Consequently, the Company may be unable to pass on increases in its operating costs to its customers. Any sustained increase in raw material or energy prices without any corresponding increase in product pricing would reduce the Company’s operating margins and may have a material adverse effect on its business and results of operations.

The Company depends on third parties for transportation services.

The Company relies primarily on third parties for transportation of the products it manufactures and/or distributes, as well as delivery of its raw materials. In particular, a significant portion of the goods it manufactures and raw materials it uses are transported by railroad or trucks, which are highly regulated. If any of its third-party transportation providers were to fail to deliver the goods that the Company manufactures or distributes in a timely manner, the Company may be unable to sell those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to the Company in a timely manner, it may be unable to manufacture its products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with the Company, it may be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm the Company’s reputation, negatively impact its customer relationships and may have a material adverse effect on its financial condition and results of operations.

The Company could experience disruptions in operations and/or increased labor costs due to labor disputes.

Employees at 17 of the Company’s facilities, representing approximately 44% of the Company’s employees, are represented by unions through collective bargaining agreements generally negotiated on a facility-by-facility basis. In the future, the Company may not be able to negotiate acceptable new collective bargaining agreements, which could result in strikes or work stoppages or other labor disputes by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. In addition, labor organizing activities could occur at any of the Company’s facilities. Therefore, the Company could experience a disruption of its operations or higher ongoing labor costs, which could have a material adverse effect on its business and results of operations.

A material disruption in the Company supply chain, manufacturing or distribution operations could prevent it from meeting customer demand, reduce its sales and/or negatively impact its results of operations.

The Company’s ability to manufacture, distribute and sell products is critical to its operations. These activities are subject to inherent risks such as:

•

unscheduled maintenance outages;

•

prolonged power failures;

•

equipment failure;

•

chemical spill or release;

•

malfunction of a boiler;

•

the effect of a drought or reduced rainfall on its water supply;

•

labor disputes;

•

government regulations;

•

disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

•

adverse weather, fires, floods, earthquakes, hurricanes or other catastrophes;

•

cyberattack or other security breaches;

•

failure of our IT systems, including any failure of our current systems and/or as a result of transitioning to additional or replacement IT system;

•

public health crises that impact trade or the general economy, including the COVID-19 and other viruses, diseases or illnesses;

•

terrorism or threats of terrorism; or

•

other operational problems, including those resulting from the risks described in this section.

Events such as those listed above could disrupt the Company’s supply chain and impair its ability to manufacture or sell its products and have resulted in operating losses in the past. Any interruption or facility damage could prevent the Company from meeting customer demand for its products as well as require additional resources and/or require unplanned expenditures. If one or more of these machines or facilities were to incur significant downtime, it may have a material adverse effect on the Company’s results of operations and financial position.

The efficiency of our operations could be adversely affected by disruptions to our Information Technology (IT) Services.

The Company’s IT systems, some of which are dependent on services provided by third parties, serve an important role in the efficient operation of its business. The protection of customers, employees and company data is critical to the Company’s business. This role includes ordering and managing materials from suppliers, managing its inventory, converting materials to finished products, facilitating order entry and fulfillment and processing of transactions, summarizing and reporting its financial results, facilitating internal and external communications, administering human resources functions, retaining certain personal information and providing other processes necessary to manage its business. The failure of the Company’s IT systems, including any failure of the Company’s current systems and/or as a result of transitioning to additional or replacement IT systems, as the case may be, to perform as the Company anticipates could disrupt the Company’s business and could result in, among other things, transactions errors, processing inefficiencies, disruption of production and/or deliveries, loss of data and the loss of sales and customers, which could have a material adverse effect on the Company’s business, financial position and results of operations and the effectiveness of our internal control over financial reporting could be negatively impact.

The Company is exposed to the risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional events. Like most companies, the Company's information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control, including, but not limited to, natural disasters, terrorist attacks, power and/or telecommunications failures, computer viruses, hackers and other security issues. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company's risk to these vulnerabilities, including protection of confidential or personal information, but these measures may not be adequate or implemented properly to ensure that the Company's operations are not disrupted. The Company’s IT systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access attempts, phishing and other cyber-incidents. The Company cannot guarantee that its security efforts will prevent breaches or breakdowns to its IT systems or those of its third party providers. Potential consequences of a material cyber incident, which could result in confidential or personal information being accessed, obtained, damaged or used by unauthorized or improper persons, include damage to the Company’s reputation, litigation, inefficiencies or production downtimes and increased cyber security protection and remediation costs. Such consequences could have a negative impact on the Company’s ability to meet customers’ orders, resulting in a delay or decrease to its revenue and a reduction to its operating margins.

The Company could encounter difficulties restructuring operations or closing or disposing of facilities.

The Company is continuously seeking the most cost-effective means and structure to serve our customers and to respond to changes in our markets. Accordingly, from time to time, the Company has, and is likely to again close facilities, sell non-core assets and otherwise restructure operations in an effort to improve cost competitiveness and profitability. As a result, restructuring and divesture costs have been, and are expected to be, a recurring component of our operating costs, and may vary significantly from year to year depending on the scope of such activities. Divestures and restructuring may also result in significant financial charges for the impairment of assets, including intangible assets. Furthermore, such activities may divert the attention of management, disrupt our ordinary operations, or result in a reduction in the volume of products produced and sold. There is no guarantee that any such activities will achieve its goal, and if the Company cannot successfully manage the associated risks, its financial condition and results of operations could be adversely affected.

The Company has liabilities with respect to its pension plans and the actual cost of its pension plan obligations could exceed current provisions. As of December 31, 2019, the Company’s defined benefit plans had a surplus of $141 million on certain plans and a deficit of $105 million on others.

Since pension fund obligations are primarily long-term in nature, losses in pension fund investments, if any, would result in increased contributions by the Company, to be paid over 5 year or 10 year periods, depending upon the applicable legislation for funding pension deficits. Losses, if any, would also impact the Company’s results over a longer period of time and immediately increase liabilities and reduce equity.

The Company’s future funding obligations for its defined benefit pension plans depend upon changes to the level of benefits provided by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum funding levels, actuarial data and experience, and any changes in government laws and regulations. As of December 31, 2019, the Company’s defined benefit pension plans held assets with a fair value of $1,475 million.

The Company’s intellectual property rights are valuable, and any inability to protect them could reduce the value of its products and its brands.

The Company relies on patent, trademark and other intellectual property laws of the U.S. and other countries to protect its intellectual property rights. However, the Company may be unable to prevent third parties from using its intellectual property without its

authorization, which may reduce any competitive advantage it has developed. If the Company had to litigate to protect these rights, any proceedings could be costly, and it may not prevail. The Company cannot guarantee that any U.S. or foreign patents, issued or pending, will provide it with any competitive advantage or will not be challenged by third parties. Additionally, the Company has obtained and applied for U.S. and foreign trademark registrations, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The Company cannot guarantee that any of its pending patent or trademark applications will be approved by the applicable governmental authorities and, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations. The failure to secure any pending patent or trademark applications may limit the Company’s ability to protect the intellectual property rights that these applications were intended to cover.

If the Company is unable to successfully retain and develop executive leadership and other key personnel, it may be unable to fully realize critical organizational strategies, goals and objectives.

The success of the Company is substantially dependent on the efforts and abilities of its key personnel, including its executive management team, to develop and implement its business strategies and manage its operations. The failure to retain key personnel or to develop successors with appropriate skills and experience for key positions in the Company could adversely affect the development and achievement of critical organizational strategies, goals and objectives. There can be no assurance that the Company will be able to retain or develop the key personnel it needs and the failure to do so may adversely affect its financial condition and results of operations.

The Company’s balance sheet includes a significant amount of intangible assets. The Company may be required to record a material charge to earnings due to impairment of intangible assets carried on its balance sheet.

As a result of business acquisitions in the past years, mostly in the Personal Care segment, the Company carries on its balance sheet intangible assets. As of December 31, 2019, the Company’s balance sheet included intangible assets of $573 million, of which $290 million related to definite-lived intangible assets subject to amortization and $283 million related to indefinite-lived intangible assets. The Company performs annual evaluations or more frequently if indicators arise, for potential impairment of the carrying value of its intangible assets. Impairment assessments inherently involve management judgment as to the assumptions used to estimate fair value of the intangible asset being evaluated. Changes in assumptions or estimates can materially affect the determination of fair value. The major factors that influence the analysis of fair value are the Company's assessment of industry and market conditions, estimates for future revenue growth rates, royalty rates, economic indicators, tax rates and the discount rate associated with the asset being tested.

In connection with the Company's annual impairment evaluation performed in the fourth quarter of 2019, the Company performed a quantitative assessment for each indefinite-lived intangible asset (trade names and catalog rights) of the Personal Care segment. The tests indicated that the indefinite-lived intangible assets had fair values that exceeded their carrying amounts. One Personal Care segment indefinite-lived intangible asset is considered to be at risk for future impairment given its respective fair values exceeded its respective carrying value by 18% at the time the test was performed. As of December 31, 2019, the carrying value of these indefinite-lived intangible assets was $115 million. If assumed revenue growth is not achieved in future periods and/or events occur that lead to a royalty rate decrease and/or there is an increase to the rate used to discount the estimated cash flows, there is the potential for partial or full impairment related to the indefinite-lived intangible assets. If the Company is required to impair all or a significant amount of the carrying value of related intangible assets, and consequently record a non-cash impairment charge, the Company’s net earnings could be materially and adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

A description of our mills and related properties is included in Item I, Business.

Production facilities

We own substantially all of our production facilities with the exception of some production facilities where a certain portion is subject to a lease in connection with an industrial development bond arrangement, or are leased with a third party or are fee-in-lieu-of-tax agreements, and lease substantially all of our sales offices, regional replenishment centers and warehouse facilities. We believe our properties are in good operating condition and are suitable and adequate for the operations for which they are used. We own substantially all of the equipment used in our facilities.

Forestlands

We efficiently manage approximately 5 million acres of forestlands that are directly licensed or owned by Domtar in Canada, through the application of certified sustainable forest management practices. We also have access to fiber from an additional 25 million acres of public forestlands in Canada that are licensed and managed by third parties. We believe that these forestlands will provide a continuous supply of wood for future needs.

Listing of facilities and locations

Corporate Offices

Fort Mill, South Carolina

Montreal, Quebec

Pulp & Paper

Division Headquarters

Fort Mill, South Carolina

Uncoated Freesheet

Ashdown, Arkansas

Espanola, Ontario

Hawesville, Kentucky

Johnsonburg, Pennsylvania

Kingsport, Tennessee

Marlboro (Bennettsville), South Carolina

Nekoosa, Wisconsin

Port Huron, Michigan

Rothschild, Wisconsin

Windsor, Quebec

Pulp

Dryden, Ontario

Kamloops, British Columbia

Plymouth, North Carolina

Chip Mills

Hawesville, Kentucky

Johnsonburg, Pennsylvania

Kingsport, Tennessee

Marlboro (Bennettsville), South Carolina

Converting and Distribution – Onsite

Ashdown, Arkansas

Rothschild, Wisconsin

Windsor, Quebec

Converting and Forms Manufacturing

Addison, Illinois

Brownsville, Tennessee

Dallas, Texas

DuBois, Pennsylvania

Griffin, Georgia

Owensboro, Kentucky

Ridgefields, Tennessee

Rock Hill, South Carolina

Tatum, South Carolina

Washington Court House, Ohio

Local Distribution Centers

Buffalo, New York

Cincinnati, Ohio

Cleveland, Ohio

Denver, Colorado

Des Moines, Iowa

Houston, Texas

Kansas City, Kansas

Minneapolis, Minnesota

Omaha, Nebraska

Phoenix, Arizona

Plain City, Ohio

Richmond, Virginia

Salt Lake City, Utah

San Antonio, Texas

San Lorenzo, California

St. Louis, Missouri

Vancouver, Washington

Walton, Kentucky

Wayne, Michigan

Wisconsin Rapids, Wisconsin

Regional Replenishment Centers – United States

Charlotte, North Carolina

Chicago, Illinois

Dallas, Texas

Delran, New Jersey

Indianapolis, Indiana

Jacksonville, Florida

Mira Loma, California

Seattle, Washington

Regional Replenishment Centers – Canada

Richmond, Quebec

Toronto, Ontario

Winnipeg, Manitoba

Representative Office – International

Hong Kong, China

Ariva – Canada

Halifax, Nova Scotia

Montreal, Quebec

Mount Pearl, Newfoundland and Labrador

Ottawa, Ontario

Quebec City, Quebec

Toronto, Ontario

Personal Care

Division Headquarters

Raleigh, North Carolina

Personal Care – Manufacturing and Distribution

NORTH AMERICA

Delaware, Ohio

Jesup, Georgia

Greenville, North Carolina

EUROPE

Aneby, Sweden

Toledo, Spain

Personal Care –

Sales offices

Bodö, Norway

Bourgoin Jallieu, France

Daytona Beach, Florida

Linz, Austria

Madrid, Spain

Olivette, Missouri

Oslo, Norway

Rheinfelden, Switzerland

Schwalbach am Taunus, Germany

Stockholm, Sweden

Texarkana, Arkansas

Tuitjenhorn, The Netherlands

Wakefield, United Kingdom

ITEM 3. LEGAL PROCEEDINGS

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. The Company periodically reviews the status of these proceedings and assesses the likelihood of any adverse judgments or outcomes of these legal proceedings, as well as analyzes probable losses. Although the final outcome of any legal proceeding is subject to a number of variables and cannot be predicted with any degree of certainty, management currently believes that the ultimate outcome of current legal proceedings will not have a material adverse effect on the Company’s long-term results of operations, cash flow or financial position. However, an adverse outcome in one or more of the significant legal proceedings could have a material adverse effect on the Company’s results, financial condition or cash flow in a given quarter or year.

For a discussion of commitments, legal proceedings and related contingencies, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” for more details.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Domtar Corporation’s common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “UFS”.

HOLDERS

At December 31, 2019, the number of shareholders of record (registered and non-registered) of Domtar Corporation common stock was approximately 27,362.

DIVIDENDS AND STOCK REPURCHASE PROGRAM

During 2019, the Company declared one quarterly dividend of $0.435 and three quarterly dividends of $0.455 per share, to holders of the Company’s common stock. Dividends aggregating $28 million, $28 million, $27 million and $26 million were paid on April 15, 2019, July 16, 2019, October 15, 2019 and January 15, 2020, respectively, to shareholders of record as of April 2, 2019, July 2, 2019, October 2, 2019 and January 2, 2020, respectively.

During 2018, the Company declared four quarterly dividends of $0.435 per share, to holders of the Company’s common stock. Dividends of $27 million, $28 million, $27 million and $27 million were paid on April 16, 2018, July 16, 2018, October 15, 2018 and January 15, 2019, respectively, to shareholders of record as of April 2, 2018, July 3, 2018, October 2, 2018 and January 2, 2019, respectively.

On February 18, 2020, the Company’s Board of Directors approved a quarterly dividend of $0.455 per share, to be paid to holders of the Company’s common stock. This dividend is to be paid on April 15, 2020 to shareholders of record on April 2, 2020.

The Company’s Board of Directors has authorized a stock repurchase program (“the Program”) of up to $1.3 billion. On November 5, 2019, the Company’s Board of Directors approved an increase to the Program from $1.3 billion to $1.6 billion. At December 31, 2019, the Company had approximately $403 million of remaining availability under the Program. Under the Program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of our stock options, awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

During 2019, the Company repurchased 6,220,658 shares at an average price of $35.29 for a total cost of $219 million.

During 2018, there were no shares repurchased under the Program.

Share repurchase activity under our share repurchase program was as follows during the year ended December 31, 2019:

							(d) Approximate
					(c) Total Number		Dollar Value of
					of Shares		Shares that May
					Purchased as		Yet be Purchased
	(a) Total Number		(b) Average		Part of Publicly		under the Plans
	of Shares		Price Paid		Announced Plans		or Programs
Period	Purchased		per Share		or Programs		(in 000s)
January 1 through March 31, 2019		—	$	—		—	$	322,572
April 1 through June 30, 2019		194,407	$	42.26		194,407	$	314,356
July 1 through September 30, 2019		3,882,316	$	35.13		3,882,316	$	177,968
October 1 through October 31, 2019		1,751,643	$	34.27		1,751,643	$	117,942
November 1 through November 30, 2019		391,792	$	37.98		391,792	$	403,061
December 1 through December 31, 2019		500	$	38.01		500	$	403,042
		6,220,658	$	35.29		6,220,658

PERFORMANCE GRAPH

This graph compares the return on a $100 investment in the Company’s common stock on December 31, 2014 with a $100 investment in an equally-weighted portfolio of a peer group⁽¹⁾, and a $100 investment in the S&P 400 MidCap Index. This graph assumes that returns are in local currencies and assumes quarterly reinvestment of dividends. The measurement dates are the last trading day of the period as shown.

(1)

On May 18, 2007, the Human Resources Committee of the Board of Directors established performance measures as part of the Performance Conditioned Restricted Stock Units (“PCRSUs”) Agreement including the achievement of a total shareholder return compared to a peer group.

The peer group includes: WestRock Company, Ontex Group NV, Glatfelter Corporation, International Paper Co., Kimberly-Clark Corporation, Neenah Paper, Inc., Packaging Corp. of America, Resolute Forest Products Inc., SCA, Sonoco Products Company, Stora Enso Oyj and UPM-Kymmene Corp.

ITEM 6. SELECTED FINANCIAL DATA

The following sets forth selected historical financial data of the Company for the periods and as of the dates indicated. The selected financial data as of and for the fiscal years then ended have been derived from the audited financial statements of Domtar Corporation.

The following table should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data.

	Year ended
FIVE YEAR FINANCIAL SUMMARY	December 31, 2019		December 31, 2018		December 31, 2017			December 31, 2016		December 31, 2015
(In millions of dollars, except per share figures)
Statement of Income Data:
Sales	$	5,220	$	5,455	$	5,148		$	5,090	$	5,257
Closure and restructuring costs and impairment of long-lived assets and goodwill ^1,2		100		15		580			61		81
Depreciation and amortization		293		308		321			348		359
Operating income (loss) ^1,2		163		386		(328	)		208		276
Net earnings (loss) ³		84		283		(258	)		128		142
Net earnings (loss) per common share - Basic	$	1.37	$	4.50	$	(4.11	)	$	2.04	$	2.24
Net earnings (loss) per common share - Diluted	$	1.37	$	4.48	$	(4.11	)	$	2.04	$	2.24
Cash dividends paid per common share	$	1.78	$	1.72	$	1.66		$	1.63	$	1.58
Balance Sheet Data:
Cash and cash equivalents	$	61	$	111	$	139		$	125	$	126
Property, plant and equipment, net		2,567		2,605		2,765			2,825		2,825
Total assets		4,903		4,925		5,212			5,680		5,654
Long-term debt due within one year		1		1		1			63		41
Long-term debt		938		853		1,129			1,218		1,210
Total shareholders' equity		2,376		2,538		2,483			2,676		2,652

In 2019, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets related to our decision to permanently close two paper machines in our Pulp and Paper segment and $26 million of accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets, related to our margin improvement plan in our Personal Care segment. In addition, we recorded $42 million of Closure and restructuring costs in 2019 related to the aforementioned. For additional information, refer to Item 8, Financial Statement and Supplementary Data under Note 4 “Impairment of Long-Lived Assets” and Note 16 “Closure and Restructuring Costs and Liability.”

²	In 2017, we recorded a non-cash goodwill impairment charge associated with our Personal Care segment of $578 million. For additional information, refer to Item 8, Financial Statement and Supplementary Data under Note 4 “Impairment of Long-Lived Assets.”

In 2017, we recorded a net tax benefit of $140 million related to the U.S. Tax Reform of 2017, which is composed of a benefit of $186 million for the remeasurement of deferred tax assets and liabilities and a charge of $46 million for the repatriation tax. During 2018, we recorded an additional tax benefit of $13 million, $7 million related to adjustments to the repatriation tax and $6 million related to the revaluation of net deferred tax liabilities. Also, the net earnings for 2018 included a tax expense of $10 million related to the U.S. Tax Reform. For additional information, refer to Item 8, Financial Statement and Supplementary Data under Note 10 “Income Taxes.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s audited consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.

The information contained on our website, www.domtar.com, is not incorporated by reference into this Form 10-K and should in no way be construed as a part of this or any other report that we file with or furnish to the SEC.

In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the twelve-month periods ended December 31, 2019 and 2018. The twelve month periods are also referred to as 2019 and 2018. References to notes refer to footnotes to the consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data.

This MD&A is intended to provide investors with an understanding of our recent performance, financial condition and outlook. Topics discussed and analyzed include:

•

Overview

•

2019 Highlights

•

Outlook

•

Consolidated Results of Operations and Segment Review

•

Liquidity and Capital Resources

•

Recent Accounting Pronouncements and Critical Accounting Estimates and Policies

For a discussion of the year ended December 31, 2018 compared to the year ended December 31, 2017, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018 (filed with the SEC on February 22, 2019).

OVERVIEW

Personal Care: Our Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

2019 HIGHLIGHTS

•

Operating income and net earnings decreased by 58% and 70%, respectively from 2018

•

Sales decreased by 4% from 2018. Net average selling prices for pulp were down while net average selling prices for paper were up from 2018. Our manufactured paper volume was down and our Personal Care business had lower volume when compared to 2018

•

Recognition of a closure and restructuring charge and accelerated depreciation associated with our decision to permanently close two paper machines within our Pulp and Paper segment of $22 million and $32 million, respectively. Recognition of a closure and restructuring charge and accelerated depreciation and impairment of operating lease right-of-use assets within our Personal Care segment of $20 million and $26 million, respectively related to our margin improvement plan

•

We repurchased $219 million of our common stock and paid $110 million in dividends

•

Non-cash pension settlement charge of $30 million related to partial settlement from annuity buy-out contracts

	Twelve months ended
	December 31,		December 31,		Variance 2019 vs. 2018
FINANCIAL HIGHLIGHTS	2019		2018		$			%
(In millions of dollars, unless otherwise noted)
Sales	$	5,220	$	5,455	$	(235	)		-4	%
Operating income ¹		163		386		(223	)		-58	%
Net earnings		84		283		(199	)		-70	%
Net earnings per common share (in dollars) ²:
Basic	$	1.37	$	4.50	$	(3.13	)
Diluted	$	1.37	$	4.48	$	(3.11	)

	At December 31,		At December 31,
	2019		2018
Total assets	$	4,903	$	4,925
Total long-term debt, including current portion	$	939	$	854

As a result of our decision to permanently close two paper machines within our Pulp and Paper segment, we recognized closure and restructuring charges and accelerated depreciation under Impairment of long-lived assets of $22 million and $32 million, respectively. We also recognized closure and restructuring charges and accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets of $20 million and $26 million, respectively related to the margin improvement plan within our Personal Care segment (2018 – $8 million and $7 million, respectively). See Item 8, Financial Statements and Supplementary Data under Note 16 “Closure and Restructuring Costs and Liability” and Note 4 “Impairment of Long-lived Assets”, for more information.

²	See Item 8, Financial Statements and Supplementary Data under Note 6 "Earnings (loss) per Common Share" for more information on the calculation of net earnings per common share.

OUTLOOK

In 2020, our paper volumes are expected to trend with market demand while pulp volumes will increase due to higher pulp productivity at our Espanola and Ashdown mills. Our Pulp and Paper business will benefit from lower planned maintenance costs. Personal Care is expected to benefit from their margin improvement plan and higher sales following new customer wins. Overall, we anticipate costs, including freight, labor and raw materials, to marginally increase.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

This section presents a discussion and analysis of our 2019 and 2018 sales, operating income (loss) and other information relevant to the understanding of our results of operations.

ANALYSIS OF NET SALES
By Business Segment	Twelve months ended
	December 31,			December 31,			Variance 2019 vs. 2018
	2019			2018			$			%
Pulp and Paper	$	4,332		$	4,523			(191	)		-4	%
Personal Care		953			1,000			(47	)		-5	%
Total for reportable segments		5,285			5,523			(238	)		-4	%
Intersegment sales		(65	)		(68	)		3
Consolidated		5,220			5,455			(235	)		-4	%
Shipments
Paper - manufactured (in thousands of ST)		2,745			2,971			(226	)		-8	%
Communication Papers		2,299			2,446			(147	)		-6	%
Specialty and Packaging papers		446			525			(79	)		-15	%
Paper - sourced from third parties (in thousands of ST)		93			109			(16	)		-15	%
Paper - total (in thousands of ST)		2,838			3,080			(242	)		-8	%
Pulp (in thousands of ADMT)		1,539			1,536			3			—	%

ANALYSIS OF CHANGE IN SALES
	2019 vs. 2018
	% Change in Net Sales due to
				Volume /
	Net Price			Mix			Currency			Total
Pulp and Paper		1	%		-5	%		—	%		-4	%
Personal Care		—	%		-3	%		-2	%		-5	%
Consolidated sales		1	%		-5	%		—	%		-4	%

ANALYSIS OF OPERATING INCOME (LOSS)
	Twelve months ended
By Business Segment	December 31,			December 31,			2019 vs. 2018 Variance
	2019 ^(a)			2018 ^(b)			$			%
Operating income (loss)
Pulp and Paper	$	225		$	438			(213	)		-49	%
Personal Care	$	(15	)	$	(5	)		(10	)		-200	%
Corporate	$	(47	)	$	(47	)		—			—	%
Consolidated operating income (loss)	$	163		$	386			(223	)		-58	%

(a)

Includes closure and restructuring charges as well as accelerated depreciation under Impairment of long-lived assets, related to our paper machine closures within our Pulp and Paper segment, of $22 million and $32 million, respectively. Includes closure and restructuring charges as well as accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets, related to our announced margin improvement plan within our Personal Care segment, of $20 million and $26 million, respectively.

(b)

Includes closure and restructuring charges as well as accelerated depreciation under Impairment of long-lived asset, related to our announced margin improvement plan within our Personal Care segment of $8 million and $7 million, respectively.

2019 VS. 2018
	$ Change in Segmented Operating Income (Loss) due to
	Volume/								Operating ^(b)						Depreciation/						Other Income/
	Mix			Net Price		Input Costs ^(a)			Expenses			Currency			Impairment ^(c)			Restructuring ^(d)			Expense ^(e)			Total
Pulp and Paper		(43	)		52		(46	)		(128	)		8			(23	)		(22	)		(11	)		(213	)
Personal Care		(3	)		3		16			3			(1	)		(16	)		(12	)		—			(10	)
Corporate		—			—		—			(6	)		—			—			—			6			—
Consolidated operating income (loss)		(46	)		55		(30	)		(131	)		7			(39	)		(34	)		(5	)		(223	)

(a)	Includes raw materials (such as fiber, chemicals, nonwovens and super absorbent polymers) and energy costs.

(b)	Includes maintenance, freight costs, selling, general and administrative (“SG&A”) expenses and other costs.

(c)

Depreciation charges were lower by $12 million in 2019, excluding foreign currency impact. In our Pulp and Paper segment, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets related to our decision to permanently close two paper machines (2018 – nil). In our Personal Care segment, in 2019, we recorded $26 million of accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets, related to our margin improvement plan (2018 – $7 million).

(d)

2019 restructuring charges relate to:

2018 restructuring charges relate to:

-Severance and termination costs ($21 million)

-Inventory write-down ($6 million)

-Asset relocation and other costs ($15 million)

-Inventory write-down ($4 million)

-Severance and termination costs ($3 million)

-Other costs ($1 million)

(e)

2019 operating expenses/income includes:

2018 operating expenses/income includes:

- Foreign exchange loss ($3 million)

- Environmental provision ($4 million)

- Bad debt expense ($2 million)

- Other income ($4 million)

- Net gain on sale of property, plant and equipment

($4 million)

- Foreign exchange gain ($2 million)

- Environmental provision ($5 million)

- Bad debt expense ($2 million)

- Other income ($1 million)

Commentary - 2019 vs. 2018

Interest Expense, net

We incurred $52 million of net interest expense in 2019, a decrease of $10 million compared to net interest expense of $62 million in 2018. The net interest expense was impacted by the repayment of the $300 million Term Loan in the fourth quarter of 2018.

Income Taxes

We recorded an income tax expense of $2 million in 2019 compared to an income tax expense of $57 million in 2018, which yielded an effective tax rate of 2% and 17% for 2019 and 2018, respectively.

During 2019, we recorded $20 million of tax credits, mainly research and experimentation credits, which impacted the effective tax rate. Arkansas legislation changes were passed in 2019 which reduced the state tax rate and changed how the apportionment factor is calculated. This resulted in a deferred state tax benefit of $4 million. Additionally, a valuation allowance of $5 million was recorded on state attributes we do not expect to utilize before they expire.

During 2018, we recorded $19 million of tax credits, mainly research and experimentation credits, which impacted our effective tax rate. The effective tax rate was also impacted by the cancellation of $9 million, after-tax, of net operating losses in a foreign jurisdiction. This was offset by the reversal of $9 million of valuation allowance on these same net operating losses. Additionally, a valuation allowance of $1 million was recorded on new operating losses in 2018 for a net benefit pertaining to valuation allowance movement of $8 million.

2018, implementing a territorial tax system, and imposing a one-time deemed repatriation tax on accumulated foreign earnings. As a result of the U.S. Tax Reform, we recorded a net tax benefit of $140 million in 2017 when the legislation was enacted. This consisted of a provisional tax benefit of $186 million relating to the revaluation of our ending net deferred tax liabilities and a provisional expense of $46 million related to the deemed repatriation tax. Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application in situations when a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the U.S. Tax Reform. The end of the measurement period for SAB 118 purposes was December 22, 2018. We completed our analysis, including currently available legislative updates, and recorded an additional tax benefit of $13 million for the year ended December 31, 2018. Of this benefit, $7 million related to adjustments to the deemed mandatory repatriation tax and $6 million related to the revaluation of our net deferred tax liabilities. Both of these amounts impacted the effective tax rate for 2018.

As a result of the deemed mandatory repatriation tax requirement of the U.S. Tax Reform, we have taxed our undistributed foreign earnings as of December 31, 2017, at reduced tax rates. After completing our evaluation of the U.S. Tax Reform’s impact on business operations, we have determined that we are no longer indefinitely reinvested in these undistributed foreign earnings as well as foreign earnings after December 31, 2017. Therefore, as of December 31, 2019, we have recorded a deferred tax liability of $12 million ($10 million as December 31, 2018) for foreign withholding tax and various state income taxes associated with future repatriation of these earnings. This additional $2 million of tax expense impacted the effective tax rate for 2019. We have not provided for deferred taxes on outside basis differences in our investments in foreign subsidiaries that are unrelated to unremitted earnings as we estimate that the deferred tax liability recorded in 2019 in combination with the repatriation tax amount covers all tax liabilities with foreign investments to date. We remain indefinitely reinvested in the outside basis differences of our foreign subsidiaries.

The U.S. Tax Reform also includes a base erosion provision for Global Intangible Low-Taxed Income (“GILTI”). Beginning in 2018, the GILTI provisions require us to include in our U.S. income tax return, earnings of foreign subsidiaries that are in excess of an allowable return on the tangible assets of the foreign subsidiaries. We are required to make an accounting policy election to either (1) treat taxes due related to GILTI as a current-period expense when incurred or (2) factor such amounts into the measurement of deferred taxes. We have elected to account for any taxes associated with GILTI in accordance with the current-period expense method.

Commentary – Segment Review

Pulp and Paper Segment

2019 vs. 2018

Sales in our Pulp and Paper segment decreased by $191 million, or 4% when compared to sales in 2018. This decrease in sales is mostly due to a decrease in our paper sales volumes and a decrease in net average selling price for pulp. This decrease was partially offset by an increase in net average selling price for paper as well as an increase in our pulp sales volumes.

Operating income in our Pulp and Paper segment amounted to $225 million in 2019, a decrease of $213 million, when compared to operating income of $438 million in 2018. Our results were negatively impacted by:

•

Higher operating expenses ($128 million) mostly due to lower production as well as higher maintenance and fixed costs due to timing of major maintenance

•

Higher input costs ($46 million) mostly related to higher costs of fiber due mostly to severe weather conditions as well as unfavorable market conditions, partially offset by lower costs of chemicals and energy

•

Lower volume and mix ($43 million) mostly related to lower volume of paper, partially offset by higher volume of pulp

•

Higher depreciation/impairment charges ($23 million) mostly due to our decision to permanently close two paper machines

•

Higher restructuring charges ($22 million) due to our decision to permanently close two paper machines

•

Higher other income/expense ($11 million)

These decreases were partially offset by:

•

Higher average selling prices for paper partially offset by lower average selling prices for pulp ($52 million)

•

Positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($8 million)

Our Espanola pulp and specialty paper mill underwent an extensive audit and inspection of major components during its outage in June 2019. Following the inspection and given the cyclically low pulp prices, we made the decision to fast-track some maintenance work that was originally planned for 2020 in order to address some reliability risks. This extended shutdown impacted mostly our

second half of 2019 by adding approximately $36 million of maintenance costs and lowering our total production by approximately 60,000 tonnes.

Paper machine closures

On September 27, 2019, our Board of Directors approved the decision to permanently shut down two paper machines, which was announced on October 3, 2019. The closures took place at our Ashdown, Arkansas pulp and paper mill and at our Port Huron, Michigan paper mill. These measures reduced our annual uncoated freesheet paper capacity by approximately 204,000 short tons, and resulted in a workforce reduction of approximately 100 employees.

Our Ashdown mill continues to operate one paper machine with an annual uncoated freesheet paper production capacity of 200,000 ST. Additionally, the mill operates a fluff pulp machine with the flexibility to produce softwood pulp depending on market conditions. As a result of the closure of the paper machine, the mill will produce an incremental 70,000 ADMT of softwood and fluff pulp, which will ramp up over the course of 2020.

The Port Huron mill continues to produce a variety of technical and specialty papers for a broad range of customers utilizing three machines with a total annual production capacity of 95,000 ST.

Concurrently, with the Ashdown paper machine closure and related workforce reduction, management negotiated a voluntary early retirement program to reduce costs and put the mill in a stronger cost position in the long-term. We additionally recorded $13 million of severance and termination costs under Closure and restructuring costs.

The markets in which our pulp and paper business operate are highly competitive with well-established domestic and foreign manufacturers. Most of our products are commodities that are widely available from other producers as well. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. We also compete on the basis of product quality, breadth of offering and service solutions. Further, we compete against electronic transmission and document storage alternatives. As a result of such competition, we are experiencing ongoing decreasing demand for most of our existing paper products.

The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively priced pulp products.

Personal Care

2019 vs. 2018

Sales in our Personal Care segment decreased by $47 million, or 5% when compared to sales in 2018. This decrease in sales was driven by lower volume and unfavorable foreign currency exchange, partly offset by favorable mix.

Operating income decreased by $10 million compared to 2018. Our results were negatively impacted by:

•

Higher depreciation/impairment charges ($16 million) mostly related to our margin improvement plan

•

Higher closure and restructuring charges ($12 million) related to our margin improvement plan

•

Lower volume partially offset by favorable mix ($3 million)

•

Unfavorable foreign exchange ($1 million), mostly between the Euro and the U.S. dollar, net of our hedging program

These decreases were partially offset by:

•

Lower input costs ($16 million) mostly due to lower raw materials pricing

•

Favorable average net selling prices ($3 million)

•

Lower operating expenses mostly due to favorable SG&A expenses ($3 million)

In our absorbent hygiene products business, we compete in an industry with fundamental drivers for long-term growth; however, competitive market pressures in the healthcare and retail markets have grown significantly in recent years.

While we are expected to benefit from the overall increase in healthcare spending due to an aging population, the pressures to limit public spending on healthcare may impact overall consumption or the channels in which consumption occurs. Additionally, excess industry capacity has increased pricing pressure in all markets and instigated a shift in the infant and adult private label retail space as competitors that were historically almost absent in our markets have increased their presence in such markets.

The principal levers of competition remain brand loyalty, product innovation, quality, price and marketing and distribution capabilities.

In 2020, we expect to benefit from our margin improvement plan and higher sales following new customer wins.

Margin Improvement Plan

On November 1, 2018, we announced a margin improvement plan within our Personal Care segment. As part of this plan, our Board of Directors approved the permanent closure of our Waco, Texas manufacturing and distribution facility, the relocation of certain of our manufacturing assets and a workforce reduction across the division. The Waco, Texas facility ceased operations during the second quarter of 2019.

In 2019, we recorded $26 million of accelerated depreciation and impairment of operating lease right-of-use, under Impairment of long-lived assets on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) compared to $7 million of accelerated depreciation in 2018. We also recorded $5 million of severance and termination costs (2018 – $3 million); $2 million of inventory obsolescence (2018 – $4 million); $13 million of asset relocation and other costs (2018 – $1 million of other costs), under Closure and restructuring costs.

STOCK-BASED COMPENSATION EXPENSE

Under the Omnibus Plan, we may award to key employees and non-employee directors, at the discretion of the Human Resources Committee of the Board of Directors, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance-conditioned restricted stock units, performance share units, deferred share units (“DSUs”) and other stock-based awards. The non-employee directors only receive DSUs. We generally grant awards annually and use, when available, treasury stock to fulfill awards settled in common stock and options exercised.

For the year ended December 31, 2019, stock-based compensation expense recognized in our results of operations was $22 million (2018 – $10 million) for all of the outstanding awards. Compensation costs not yet recognized amounted to $16 million (2018 – $17 million) and will be recognized over the remaining service period of approximately 14 months. The aggregate value of liability awards settled in 2019 was $12 million (2018 – $8 million). The total fair value of equity awards settled in 2019 was $11 million (2018 – $6 million), representing the fair value at the time of settlement. The fair value at the grant date for these settled equity awards was $6 million (2018 – $7 million). Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt and income tax payments. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed $700 million credit facility, of which $620 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which $25 million is currently undrawn and available. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See “Capital Resources” below.

Our ability to make payments on the requirements mentioned above will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit and receivable securitization facilities and debt indentures impose various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

A portion of our cash is held outside the U.S. by foreign subsidiaries. The earnings of the foreign subsidiaries reflect full provision for local income taxes. The U.S. Tax Reform includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries for

which we recorded a provisional repatriation tax amount of $46 million in 2017 and adjusted by $7 million in 2018. After completing our evaluation of the U.S. Tax Reform’s impact on the business operations, we have determined that we are no longer indefinitely reinvested in these undistributed foreign earnings as well as foreign earnings after December 31, 2017. We remain indefinitely reinvested in the outside basis differences of our foreign subsidiaries.

Operating Activities

Our operating cash flow requirements are primarily for salaries and benefits, the purchase of raw materials, including fiber and energy, and other expenses such as income tax and property taxes.

Cash flows from operating activities totaled $442 million in 2019, a $112 million decrease compared to cash flows from operating activities of $554 million in 2018. This decrease in cash flows from operating activities is primarily due to a decrease in profitability as well as an increase in cash flow from working capital elements in 2019 when compared to 2018. We made income tax payments, net of refunds, of $59 million in 2019 compared to income tax payments, net of refunds of $71 million in 2018. We paid $1 million of employer pension and other post-retirement contributions in excess of pension and other post-retirement expense when excluding our non-cash pension settlement loss of $30 million in 2019 compared to 2018 when we paid $46 million of employer pension and other post-retirement contributions in excess of pension and other post-retirement expense.

Investing Activities

Cash flows used for investing activities in 2019 amounted to $254 million, a $58 million increase compared to cash flows used for investing activities of $196 million in 2018.

The use of cash in 2019 was attributable to additions to property, plant and equipment of $255 million. This use of cash was partially offset by the proceeds from disposal of property, plant and equipment of $1 million.

The use of cash in 2018 was attributable to additions to property, plant and equipment of $195 million. Also, in 2018, we made an additional investment of $4 million in our joint venture CelluForce (a company that develops and manufactures nanocrystalline cellulose, a recyclable and renewable nanomaterial) and a $2 million investment in Prisma Renewable Composites, LLC (a company focused on developing advanced materials from lignin and other natural resources). These uses of cash were partially offset by the proceeds from disposal of property, plant and equipment of $5 million.

Our annual capital expenditures for 2020 are expected to be between $230 million and $260 million.

Financing Activities

Cash flows used for financing activities totaled $237 million in 2019 compared to cash flows used for financing activities of $382 million in 2018.

The use of cash in 2019 was primarily the result of the repurchase of our common stock ($219 million) and dividend payments ($110 million). This was partially offset by the net increase of borrowings under our credit facilities (revolver and receivables securitization) ($85 million).

The use of cash in 2018 was primarily the result of the repayment of our term loan ($300 million) and dividend payments ($108 million), partially offset by the net proceeds of borrowings under our receivables securitization ($25 million).

Capital Resources

Net indebtedness, consisting of long-term debt, net of cash and cash equivalents, was $887 million as of December 31, 2019 compared to $743 million as of December 31, 2018.

Revolving Credit Facility

In August 2018, we amended and restated our unsecured $700 million revolving credit facility (the “Credit Agreement”) with certain domestic and foreign banks, extending the Credit Agreement’s maturity date from August 18, 2021 to August 22, 2023.

Borrowings by the Company under the Credit Agreement are guaranteed by our significant domestic subsidiaries. Borrowings by certain foreign subsidiaries under the Credit Agreement are guaranteed by the Company, our significant domestic subsidiaries and certain of our significant foreign subsidiaries.

Borrowings under the Credit Agreement bear interest at LIBOR, EURIBOR, Canadian bankers' acceptance or prime rate, as applicable, plus a margin linked to our credit rating. In addition, we pay facility fees quarterly at rates dependent on our credit ratings.

The Credit Agreement contains customary covenants and events of default for transactions of this type, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not greater than 3.75 to 1 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). At December 31, 2019, we were in compliance with these financial covenants, and borrowings under the Credit Agreement amounted to $80 million (December 31, 2018 – nil). At December 31, 2019, we had no outstanding letters of credit (December 31, 2018 – nil), leaving $620 million unused and available under this facility.

Receivables Securitization

We have a $150 million receivables securitization facility that matures in November 2021.

At December 31, 2019, borrowings under the receivables securitization facility amounted to $55 million and we had $53 million of letters of credit under the program (December 31, 2018 – $50 million and $52 million, respectively). The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the Credit Agreement or our failure to repay or satisfy material obligations. At December 31, 2019, we had $25 million unused and available under this facility.

Term Loan

In the fourth quarter of 2018, we repaid the $300 million unsecured Term Loan that had been entered into in 2015 by a wholly-owned subsidiary of Domtar with certain domestic banks.

Common Stock

During 2019, we declared one quarterly dividend of $0.435 and three quarterly dividends of $0.455 per share, to holders of our common stock. Dividends aggregating $28 million, $28 million, $27 million and $26 million were paid on April 15, 2019, July 16, 2019, October 15, 2019 and January 15, 2020, respectively, to shareholders of record as of April 2, 2019, July 2, 2019, October 2, 2019 and January 2, 2020, respectively.

During 2018, we declared four quarterly dividends of $0.435 per share, to holders of our common stock. Dividends of $27 million, $28 million, $27 million and $27 million were paid on April 16, 2018, July 16, 2018, October 15, 2018 and January 15, 2019, respectively, to shareholders of record as of April 2, 2018, July 3, 2018, October 2, 2018 and January 2, 2019, respectively.

On February 18, 2020, our Board of Directors approved a quarterly dividend of $0.455 per share, to be paid to holders of our common stock. This dividend is to be paid on April 15, 2020 to shareholders of record on April 2, 2020.

GUARANTEES

Indemnifications

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At December 31, 2019, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

Pension Plans

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At December 31, 2019, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

In the normal course of business, we enter into certain contractual obligations and commercial commitments. The following tables provide our obligations and commitments at December 31, 2019:

CONTRACT TYPE	2020		2021		2022		2023		2024		THEREAFTER		TOTAL
(in millions of dollars)
Long-term debt (excluding interest)		—		55		300		80		—	$	500	$	935
Finance leases and other (including interest)		1		2		2		2		2		6		15
Operating leases		29		24		19		14		8		14		108
Long-term income taxes payable ⁽¹⁾		3		3		3		6		8		10		33
Total obligations	$	33	$	84	$	324	$	102	$	18	$	530		1,091

COMMITMENT TYPE	2020		2021		2022		2023		2024		THEREAFTER		TOTAL
(in millions of dollars)
Other commercial commitments ⁽²⁾	$	117	$	16	$	9		6		5		2	$	155

⁽¹⁾	In connection with the U.S. Tax Reform, we have remaining liabilities of $33 million in repatriation tax to pay through 2025. See Note 10 “Income Taxes” for additional information on the U.S. Tax Reform.

⁽²⁾	Includes commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are excluded.

In addition, we expect to contribute a minimum total amount of $11 million to the pension plans in 2020 and a minimum total amount of $4 million in 2020 to the other post-retirement benefits plans.

For 2020 and the foreseeable future, we expect cash flows from operations and from our various sources of financing to be sufficient to meet our contractual obligations and commercial commitments.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Item 8, Financial Statements and Supplementary Data under Note 2 “Recent Accounting Pronouncements”.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our principal accounting policies are described in Item 8, Financial Statements and Supplementary Data under Note 1 “Summary of Significant Accounting Policies”. Notes referenced in this section are included in Item 8, Financial Statements and Supplementary Data.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and choices amongst acceptable accounting methods that affect our reported results of operations and financial position. Critical accounting estimates pertain to matters that contain a significant level of management estimates about future events, encompass the most complex and subjective judgments and are subject to a fair degree of measurement uncertainty. On an ongoing basis, management reviews its estimates, including those related to environmental matters and asset retirement obligations, impairment and useful lives of long-lived assets, closure and restructuring costs, intangible assets impairment, pension and other post-retirement benefit plans, income taxes and contingencies related to legal claims. These critical accounting estimates and policies have been reviewed with the Audit Committee of our Board of Directors. We believe these accounting policies, and others as set forth in Note 1 “Summary of Significant Accounting Policies”, should be reviewed as they are essential to understanding our results of operations, cash flows and financial condition. Actual results could differ from those estimates.

Environmental Matters and Asset Retirement Obligations

We maintain provisions for estimated environmental costs when remedial efforts are probable and can be reasonably estimated. Environmental provisions relate mainly to air emissions, effluent treatment, silvicultural activities and site remediation (together referred to as “environmental matters”). The environmental cost estimates reflect assumptions and judgments as to probable nature, magnitude and timing of required investigation, remediation and monitoring activities, as well as contribution by other responsible parties. Additional information regarding environmental matters is available in Note 22 “Commitments and Contingencies”.

While we believe that we have determined the costs for environmental matters likely to be incurred, based on known information, our ongoing efforts to identify potential environmental concerns that may be associated with the properties may lead to future environmental investigations. These efforts may result in the determination of additional environmental costs and liabilities, which cannot be reasonably estimated at this time. In addition, environmental laws and regulations and interpretation by regulatory authorities could change which could result in significant changes to our estimates. For further details on “Climate change regulation” and other environmental matters refer to Note 22 “Commitments and Contingencies”.

Asset retirement obligations are mainly associated with landfill operation and closure, dredging of settling ponds and bark pile management. We recognize asset retirement obligations, at fair value, in the period in which we incur a legal obligation associated with the retirement of an asset. The fair value is based on the expected cash flow approach, in which multiple cash flow scenarios that reflect a range of possible outcomes are considered. Probabilities are applied to each of the cash flow scenarios to arrive at an expected cash flow. The estimated cash flows are then discounted using a credit adjusted risk-free interest rate in combination with business-specific and other relevant risks to discount the cash flow. The rates used vary between 4.7% and 12.0%.

Cash flow estimates incorporate assumptions that marketplace participants would use in their estimates of fair value, whenever that information is available without undue cost and effort. If unavailable, assumptions are based on internal experts, third-party engineers’ studies and historical experience in remediation work. As at December 31, 2019, we had an asset retirement obligation provision of $13 million for 12 locations (2018 – $12 million).

As at December 31, 2019, we had a total provision of $35 million for environmental matters and asset retirement obligations (2018 – $37 million). Certain of these amounts have been discounted due to more certainty of the timing of expenditures using the credit adjusted risk-free interest rate for the corresponding period until the settlement date. The rates used vary, based on the prevailing rate at the moment of recognition of the liability and on its settlement period. Additional costs, not known or identified, could be incurred for remediation efforts. Based on policies and procedures in place to monitor environmental exposure, management believes that such additional remediation costs would not have a material adverse effect on our financial position, result of operations or cash flows.

Impairment of Property Plant and Equipment, Operating lease right-of-use assets and Definite-Lived Intangible Assets

Property, plant and equipment, operating lease right-of-use assets and definite-lived intangible assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of the assets may not be recoverable. Step I of the impairment test assesses if the carrying value of the assets exceeds their estimated undiscounted future cash flows in order to assess if the property, plant and equipment, operating lease right-of-use assets and definite-lived intangible assets are impaired. In the event the estimated undiscounted future cash flows are lower than the net book value of the assets, a Step II impairment test must be carried out to determine the impairment charge. In Step II, the assets are written down to their estimated fair values. Given that there is generally no readily available quoted value for our property, plant, operating lease right-of-use assets and equipment and definite-lived intangible assets, we determine fair value of our assets based on the present value of estimated future cash flows expected from their use and eventual disposition, and by using the liquidation or salvage value in the case of idled assets. The fair value estimate in Step II is based on the undiscounted cash flows used in Step I.

Estimates of undiscounted future cash flows used to test the recoverability of the property, plant and equipment, operating lease right-of use assets and definite-lived intangible assets includes key assumptions related to selling prices, inflation-adjusted cost projections, forecasted exchange rates (when applicable) and estimated useful life. Changes in our assumptions and estimates may affect our forecasts and may lead to an outcome where impairment charges would be required. In addition, actual results may vary from our forecasts, and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where our conclusions may differ in reflection of prevailing market conditions.

Useful Lives

On a regular basis, we review the estimated useful lives of our property, plant and equipment and our definite-lived intangible assets. Assessing the reasonableness of the estimated useful lives of property, plant and equipment and definite-lived intangible assets requires judgment and is based on currently available information. Changes in circumstances such as technological advances, changes to our business strategy, changes to our capital strategy or changes in regulation can result in useful lives differing from our estimates. Revisions to the estimated useful lives of property, plant and equipment and definite-lived intangible assets constitute a change in accounting estimate and are dealt with prospectively by amending depreciation and amortization rates.

A change in the remaining estimated useful life of a group of assets, or their estimated net salvage value, will affect the depreciation or amortization rate used to depreciate or amortize the group of assets and thus affect depreciation or amortization expense as reported in our results of operations. In 2019, we recorded depreciation and amortization expense of $293 million compared to $308 million in

2018. At December 31, 2019, we had property, plant and equipment with a net book value of $2,567 million (2018 – $2,605 million) and definite-lived intangible assets, net of amortization, of $290 million (2018 – $311 million).

In the third quarter of 2019, we announced the permanent closure of two paper machines. These closures took place at our Ashdown, Arkansas pulp and paper mill and our Port Huron, Michigan paper mill. As a result, we recognized $32 million of accelerated depreciation in 2019 (2018 – nil).

In the fourth quarter of 2018, we announced the permanent closure of our Waco, Texas Personal Care manufacturing and distribution facility, the relocation of certain of our manufacturing assets and a workforce reduction across the division. As a result, we recognized $26 million of accelerated depreciation in 2019 (2018 – $7 million).

Closure and Restructuring Costs

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and are measured at their fair value. For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These provisions may require an estimation of costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also require an evaluation of any remaining assets to determine required impairments, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructuring require judgment. Closure and restructuring liabilities are based on management’s best estimates of future events. Although we do not anticipate significant changes, actual costs may differ from these estimates due to subsequent business developments. As such, additional costs and further impairment charges may be required in future periods.

During 2019, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets and $1 million of accelerated depreciation under Depreciation and amortization, on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, we recorded $3 million of severance and termination costs, $4 million of inventory obsolescence and $2 million of other costs, under Closure and restructuring costs in relation to the paper machine closures. Concurrently, with the Ashdown paper machine closure and related workforce reduction, management negotiated a voluntary early retirement program to reduce costs and put the mill in a stronger cost position in the long-term. We additionally recorded $13 million of severance and termination costs under Closure and restructuring costs. In 2019, in connection with our 2018 announced plan to permanently close our Waco, Texas Personal Care manufacturing and distribution facility, we recognized a $2 million of inventory obsolescence (2018 – $4 million), $5 million of severance and termination costs (2018 – $3 million) and $13 million of assets relocation and other costs (2018 – $1 million of other costs) under Closure and restructuring costs.

Additional information can be found under Note 16 “Closure and Restructuring Costs and Liability”.

Indefinite-lived intangible assets impairment assessment

Indefinite-lived intangible assets consist of trade names ($235 million) and catalog rights ($38 million) following the business acquisitions in the Personal Care segment, license rights ($6 million) and water rights ($4 million) in our Pulp and Paper segment.

We test indefinite-lived intangible assets at the asset level. Indefinite-lived intangible assets are not amortized and are evaluated at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. In connection with the Company's annual impairment testing in the fourth quarter of 2019, we performed a quantitative assessment for each indefinite-lived intangible asset (trade names and catalog rights) of the Personal Care segment.

In performing the quantitative assessment, fair value of the indefinite-lived intangible assets is derived using an income approach. Under this approach, we estimate the fair value of indefinite-lived intangible assets based on the present value of estimated future cash flows (a relief from royalty model). Considerable management judgment is necessary to estimate future cash flows used to measure the fair value. Key estimates supporting the cash flow projections include, but are not limited to, management's assessment of industry and market conditions as well as estimates of revenue growth rates, royalty rates and tax rates. Financial forecasts are consistent with our operating plans and are prepared for each indefinite-lived intangible asset assessment.

The discount rate assumptions used are based on the weighted-average cost of capital adjusted for business-specific and other relevant risks. If the carrying amounts of the indefinite-lived intangible assets exceed their respective fair values, an impairment loss is recognized in an amount equal to that excess.

The quantitative assessments performed in the fourth quarter of 2019 indicated that the indefinite-lived intangible assets had fair values that exceeded their carrying amounts. One Personal Care segment indefinite-lived intangible asset is considered to be at risk for future impairment given its respective fair value exceeded its respective carrying value by 18% at the time the test was performed. As of December 31, 2019, the carrying value of this indefinite-lived intangible asset was $115 million.

Variations in our assumptions and estimates, particularly in the expected growth rates and royalty rates embedded in our cash flow projections, and the discount rate could have a significant impact on fair value. Specifically, regarding the indefinite-lived intangible asset noted above with a carrying value of $115 million and a fair value that exceeded the carrying value by 18%, either a 418 basis points (“bps”) decrease in expected growth rates, a 83 bps decrease in royalty rate or a 141 bps increase in the discount rate would have the effect of making the fair value equal to the carrying value. A significant reduction in the estimated fair values could result in significant non-cash impairment charges in the future.

Pension Plans and Other Post-Retirement Benefit Plans

We have several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to our contribution. Defined contribution pension expense was $42 million for the year ended December 31, 2019 (2018 – $50 million).

We sponsor both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. We also sponsor a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. In addition, we provide supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.

We account for pensions and other post-retirement benefits in accordance with Compensation-Retirement Benefits Topic of the Financial Accounting Standards Board-Accounting Standards Committee which requires employers to recognize the overfunded or underfunded status of defined benefit pension plans as an asset or liability in its Consolidated Balance Sheets. Pension and other post-retirement benefit charges require assumptions in order to estimate the projected and accumulated benefit obligations. These assumptions require considerable management judgment and include:

-	Expected long-term rate of return on plan assets – used to estimate the growth and expected return on assets

-	Discount rate – used to determine interest costs and the net present value of our obligations

-	Rate of compensation increase – used to calculate the impact of future increases on our obligations

-	Health care cost trends – used to calculate the impact of future health care costs on our obligations

-	Employee related factors, such as mortality rates, turnover, retirement age and disabilities – used to determine the extent of our obligations

Changes in these assumptions result in actuarial gains or losses, which are amortized over the expected average remaining service life of the active employee group covered by the plans, only to the extent that the unrecognized net actuarial gains and losses are in excess of 10% of the greater of the projected benefit obligation and the market value of assets, over the average remaining service period of approximately ten years of the active employee group covered by the pension plans, and 12 years of the active employee group covered by the other post-retirement benefits plans.

An expected rate of return on plan assets of 5.2% was considered appropriate by management for the determination of pension expense for 2019. Effective January 1, 2020, we will use 4.8% as the expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on management’s best estimate of the long-term returns of the major asset classes (cash and cash equivalents, equities and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a value-added premium for the contribution to returns from active management. The sources used to determine management's best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts' or governments' expectations, as applicable.

We set our discount rate assumption annually to reflect the rates available on high-quality, fixed income debt instruments, with a duration that is expected to match the timing and amount of expected benefit payments. High-quality debt instruments are corporate bonds with a rating of AA or better. The discount rates at December 31, 2019 for pension plans were estimated at 3.1% for the projected benefit obligation and 3.8% for the net periodic benefit cost for 2019 and for post-retirement benefit plans were estimated at 3.1% for the projected benefit obligation and 3.7% for the net periodic benefit cost for 2019.

We used a full yield curve approach to estimate the current service and interest cost components of net periodic benefit cost for Canadian pension plans and U.S. funded pension plans. The estimate of these components is made by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We used this approach to provide a more precise measurement of current service and interest cost components by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates.

The rate of compensation increase is another significant assumption in the actuarial model for pension (set at 2.7% for the projected benefit obligation and 2.6% for the net periodic benefit cost) and for post-retirement benefit plans (set at 2.8% for the projected benefit obligation and 2.7% for the net periodic benefit cost) and is determined based upon our long-term plans for such increases.

For employee related factors, mortality rate tables tailored to our industry were used and the other factors reflect our historical experience and management’s best estimate regarding future expectations.

For measurement purposes, a 3.4% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2019.

The following table provides a sensitivity analysis of the key weighted average economic assumptions used in measuring the projected pension benefit obligation, the accrued other post-retirement benefit obligation and related net periodic benefit cost for 2019. The sensitivity analysis should be used with caution as it is hypothetical and changes in each key assumption may not be linear. The sensitivities in each key variable have been calculated independently of each other.

Pension

OTHER POST-RETIREMENT BENEFIT PLANS

The Company recognizes the unfunded status of other post-retirement benefit plans (other than multiemployer plans) as a liability in the Consolidated Balance Sheets. These benefits, which are funded by Domtar as they become due, include life insurance programs, medical and dental benefits and short-term and long-term disability programs. The Company amortizes the cumulative net actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation and the market value of assets over the average remaining service period of approximately 12 years of the active employee group covered by the plans.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GUARANTEES

A guarantee is a contract or an indemnification agreement that contingently requires Domtar to make payments to the other party of the contract or agreement, based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party or on a third party’s failure to perform under an obligating agreement. It could also be an indirect guarantee of the indebtedness of another party, even though the payment to the other party may not be based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party. Guarantees, when applicable, are accounted for at fair value.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 2.

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

LEASES

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires lessees to recognize right-of-use assets and lease liabilities for all of their operating leases while continuing to recognize expenses in the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) in a manner similar to previous accounting standards. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

The Company elected to initially apply the new leases standard as of January 1, 2019 with certain available practical expedients which are discussed below. No cumulative-effect adjustments on retained earnings were necessary as of January 1, 2019. The most significant impact of adopting the new standard was the recognition of right-of-use assets and lease liabilities for operating leases. The accounting for finance leases remains substantially unchanged.

In transitioning to the new standard, the Company elected to use the practical expedient package. Accordingly, the Company did not reassess the following:

•

Whether existing or expired contracts are, or contained, a lease (including executory contracts).

•

The lease classification of existing or expired leases previously made by management.

•

Whether initial direct costs for existing leases would qualify under the new standard.

Furthermore, the Company elected to use the hindsight practical expedient in determining the lease term and assessing impairment of the right-of-use assets.

For all comparative periods prior to the adoption of the new leases standard, the Company will continue to report operating leases in the consolidated financial statements under ASC 840 “Leases” and provide the related required disclosures.

COMPREHENSIVE INCOME

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, regarding the reclassification of certain income tax effects reported in accumulated other comprehensive income (loss) in response to the U.S. Tax Cuts and Jobs Acts (“U.S. Tax Reform”) enacted on December 22, 2017. For businesses, one of the main provisions of the U.S. Tax Reform was the reduction in the corporate federal income tax rate to 21% from 35%. Under current income tax accounting requirements, an entity was required to remeasure applicable U.S. deferred tax assets and deferred tax liabilities at the 21% tax rate effective on the U.S. Tax Reform enactment date. This remeasurement was required to be recognized in an entity’s income tax provision in its income statement. However, certain of these deferred tax assets and deferred tax liabilities relate to income tax effects initially recognized at the 35% tax rate through other comprehensive income (loss) on items reported within accumulated other comprehensive income (loss) on an entity’s balance sheet. Consequently, an entity’s financial statements will reflect an inconsistency between the deferred tax assets and deferred tax liabilities measured at 21% and the related income tax effects in accumulated other comprehensive income (loss) recorded at 35%. Accordingly, this guidance provides a one-time option to remeasure the income tax effects within accumulated other comprehensive income (loss) at the 21% income tax rate. The impact from this remeasurement is to be recorded directly in retained earnings on an entity’s balance sheet.

This guidance became effective for the Company on January 1, 2019. The Company has decided not to elect this option, as permitted in the new guidance.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

FUTURE ACCOUNTING CHANGES

IMPLEMENTATION COSTS FOR CLOUD COMPUTING ARRANGEMENTS

In August 2018, the FASB issued ASU 2018-15 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. Under the guidance, implementation costs for cloud computing arrangements (“CCA”) should be evaluated for capitalization using the same approach as implementation costs associated with internal-use software and expensed over the term of the hosting arrangement. The ASU also provides the following guidance on presentation and disclosure:

•	Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted CCA service, if any (generally as an “other asset”).

•

The amortization of capitalized implementation costs should be presented in the same statement of earnings line item as the fees associated with the hosted CCA service. Accordingly, the amortization of capitalized implementation costs should not be included with depreciation or amortization expense related to property, plant, and equipment or intangible assets.

•	Cash flows related to capitalized implementation costs should be presented as operating activities, consistent with the presentation of cash flows for the fees related to the hosted CCA service.

•	Entities are required to disclose the nature of the hosting arrangements that are service contracts and significant judgments made when applying the guidance. Additionally, companies are required to provide quantitative disclosures, including amounts capitalized, amortized, and impaired.

This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

The Company does not expect this new guidance to have a material impact on the consolidated financial statements.

RECEIVABLES

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. These changes become effective on January 1, 2020.

The Company does not expect a material impact from the adoption of this guidance, as the current loss models used by the Company incorporate both historic and forward-looking information.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3.

ACQUISITION OF BUSINESS

Acquisition of Home Delivery Incontinent Supplies Co.

On October 1, 2016, Domtar completed the acquisition of 100% of the outstanding shares of Home Delivery Incontinent Supplies Co. (“HDIS”). HDIS is a leading national direct-to-consumer provider of adult incontinence and related products. Based in Olivette, Missouri, HDIS provides customers with high-quality products and a personalized service for all of their incontinence needs. HDIS operates a distribution center in Olivette, Missouri, as well as two retail locations, in Texarkana, Arkansas and Daytona Beach, Florida and has approximately 240 employees. The results of HDIS’s operations are included in the Personal Care reportable segment starting on October 1, 2016. The purchase price was $52 million, net of cash acquired of $3 million and included a potential earn-out payment of up to $10 million to be settled after the first anniversary of the acquisition. The final amount of the earn-out was $8 million and was paid in the last quarter of 2017.

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value, which were based on information available at that time.

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	4
Inventory			4
Property, plant and equipment			1
Intangible assets
Customer relationships⁽¹⁾	21
Trade names ⁽²⁾	13
			34
Goodwill			17
Deferred income tax assets			2
Total assets			62

Less: Liabilities
Trade and other payables			10
Total liabilities			10

Fair value of net assets acquired at the date of acquisition			52

⁽¹⁾	The useful life of the Customer relationships acquired is estimated at 10 years (as of the date of acquisition).

⁽²⁾	Indefinite useful life.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 4.

IMPAIRMENT OF LONG-LIVED ASSETS

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, AND OPERATING LEASE RIGHT-OF-USE ASSETS

The Company reviews property, plant and equipment for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of the asset group may not be recoverable.

Estimates of undiscounted future cash flows used to test the recoverability of the asset group includes key assumptions related to selling prices, inflation-adjusted cost projections, forecasted exchange rates when applicable and the estimated useful life of the asset group.

Waco, Texas facility

On November 1, 2018, the Company announced a margin improvement plan within the Personal Care Division. As part of this plan, the Board of Directors approved the permanent closure of its Waco, Texas Personal Care manufacturing and distribution facility, the relocation of certain of its manufacturing assets and a workforce reduction across the division. The Waco, Texas facility ceased operations during the second quarter of 2019.

Ashdown, Arkansas mill and Port Huron, Michigan mill

On September 27, 2019, the Company’s Board of Directors approved the decision to permanently shut down two paper machines, which was announced on October 3, 2019. The closures took place at the Ashdown, Arkansas pulp and paper mill and the Port Huron, Michigan paper mill. These measures will reduce the Company’s annual uncoated freesheet paper capacity by approximately 204,000 short tons, and will result in a workforce reduction of approximately 100 employees.

The closure of the Ashdown paper machine took effect immediately. The Ashdown mill will continue to operate one paper machine with an annual uncoated freesheet paper production capacity of 200,000 short tons. Additionally, the mill operates a fluff pulp machine with the flexibility to produce softwood pulp depending on market conditions. As a result of the closure of the paper machine, the mill will produce an incremental 70,000 ADMT of softwood and fluff pulp, which will ramp up over the course of 2020.

The closure of the Port Huron paper machine took effect mid-November. The Port Huron mill will continue to produce a variety of technical and specialty papers for a broad range of customers utilizing three machines with a total annual production capacity of 95,000 short tons.

For the year ended December 31, 2019, the Company recorded $32 million of accelerated depreciation under Impairment of long-lived assets on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

IMPAIRMENT OF GOODWILL

In 2017, the Company performed its annual goodwill impairment testing at October 1. At that date, total goodwill amounting to $578 million resided in the Personal Care reporting unit. Management proceeded directly to the quantitative impairment test for the Personal Care reporting unit. The estimated fair value, determined by the present value of estimated future cash flows was lower than the reporting unit’s carrying value and as such the Company recognized a non-cash impairment charge of $578 million, representing the entire amount of goodwill related to the Personal Care reporting unit.

Growing competitive market pressures in the healthcare and retail markets throughout 2017, including the entry of new competitors in the private label category, excess industry capacity and the pressure to limit healthcare spending by governmental agencies, resulted in lower than previously anticipated sales and operating margin. In light of this weakened market outlook, the Company’s business forecast was not sufficient to derive a fair value able to support the carrying value of the goodwill associated with the Personal Care reporting unit, leading to the impairment of goodwill.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5.

STOCK-BASED COMPENSATION

OMNIBUS PLAN

Under the Omnibus Plan, the Company may award to key employees and non-employee directors, at the discretion of the Human Resources Committee of the Board of Directors, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance-conditioned restricted stock units, performance share units, deferred share units (“DSUs”) and other stock-based awards. The non-employee directors only receive DSUs. The Company generally grants awards annually and uses, when available, treasury stock to fulfill awards settled in common stock and option exercises.

PERFORMANCE SHARE UNITS (“PSUs”)

PSUs are granted to Management Committee and non-Management Committee members. These awards will be settled in shares for Management Committee members and in cash for non-Management Committee members, based on market conditions and/or performance and service conditions. These awards have an additional feature where the ultimate number of units that vest will be determined by the Company’s performance results or shareholder return in relation to a predetermined target over the vesting period. No awards vest when the minimum thresholds are not achieved. The performance measurement date will vary depending on the specific award. These awards will cliff vest at various dates up to February 19, 2022.

				Weighted
				average grant
PSUs	Number of units			date fair value
				$
Vested and non-vested at December 31, 2016		517,281			38.98
Granted		256,078			39.04
Forfeited		(24,581	)		37.59
Cancelled		(75,710	)		38.78
Vested and settled		(50,600	)		54.95
Vested and non-vested at December 31, 2017		622,468			37.78
Granted		238,537			41.39
Forfeited		(36,932	)		38.09
Issued		52,563			41.05
Vested and settled		(154,178	)		44.22
Vested and non-vested at December 31, 2018		722,458			37.82
Granted		192,261			61.46
Forfeited		(24,980	)		45.54
Cancelled		(41,399	)		57.09
Vested and settled		(222,019	)		32.39
Vested and non-vested at December 31, 2019		626,321			45.42

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

The fair value of PSUs granted in 2019, 2018 and 2017 was estimated at the grant date using the Monte Carlo simulation methodology. The Monte Carlo simulation creates artificial futures by generating numerous sample paths of potential outcomes. The following assumptions were used in calculating the fair value of the units granted:

	2019			2018			2017
Dividend yield		4.707	%		3.800	%		4.130	%
Expected volatility 1 year		29	%		22	%		28	%
Expected volatility 3 years		28	%		26	%		28	%
Risk-free interest rate December 31, 2017		—			—			1.614	%
Risk-free interest rate December 31, 2018		—			2.233	%		1.606	%
Risk-free interest rate December 31, 2019		2.849	%		2.461	%		1.751	%
Risk-free interest rate December 31, 2020		2.646	%		2.607	%		—
Risk-free interest rate December 31, 2021		2.561	%		—			—

At December 31, 2019, of the total vested and non-vested PSUs, 316,468 are expected to be settled in shares and 309,853 will be settled in cash.

RESTRICTED STOCK UNITS (“RSUs”)

RSUs are granted to Management Committee and non-Management Committee members. These awards will be settled in shares for Management Committee members and in cash for non-Management Committee members, upon completing service conditions. The awards cliff vest after a service period of approximately three years. Additionally, the RSUs are credited with dividend equivalents in the form of additional RSUs when cash dividends are paid on the Company’s stock. The grant date fair value of RSUs is equal to the market value of the Company’s stock on the date the awards are granted.

				Weighted
				average grant
RSUs	Number of units			date fair value
				$
Non-vested at December 31, 2016		418,670			40.90
Granted/issued		182,937			39.83
Forfeited		(19,194	)		37.97
Vested and settled		(121,750	)		48.72
Non-vested at December 31, 2017		460,663			38.56
Granted/issued		157,502			44.04
Forfeited		(27,251	)		39.91
Vested and settled		(135,323	)		42.54
Non-vested at December 31, 2018		455,591			39.16
Granted/issued		156,417			51.07
Forfeited		(21,203	)		42.86
Vested and settled		(174,353	)		34.96
Non-vested at December 31, 2019		416,452			45.20

At December 31, 2019, of the total non-vested RSUs, 187,322 are expected to be settled in shares and 229,130 will be settled in cash.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

DEFERRED SHARE UNITS

DSUs are granted to the Company’s Directors. The DSUs granted to the Directors vest immediately on the grant date. The DSUs are credited with dividend equivalents in the form of additional DSUs when cash dividends are paid on the Company’s stock. For Directors’ DSUs, the Company will deliver at the option of the holder either one share of common stock or the cash equivalent of the fair market value on settlement of each outstanding DSU (including dividend equivalents accumulated) upon termination of service. Directors who attained the share ownership requirements may elect to receive the equity component of their annual retainer in DSUs that may be settled in either cash or stock one year after the grant date. The grant date fair value of DSU awards is equal to the market value of the Company’s stock on the date the awards are granted.

Management Committee members may elect to defer awards earned under another program into DSUs. In 2019, no vested awards were deferred to DSUs (2018 – nil; 2017 – nil).

				Weighted
				average grant
DSUs	Number of units			date fair value
				$
Vested at December 31, 2016		321,074			29.01
Granted/issued		36,215			40.68
Settled		(85,055	)		32.27
Vested at December 31, 2017		272,234			29.55
Granted/issued		31,691			44.64
Settled		(9,752	)		40.95
Vested at December 31, 2018		294,173			30.79
Granted/issued		35,596			41.32
Settled		(12,606	)		43.90
Vested at December 31, 2019		317,163			31.45

NON-QUALIFIED STOCK OPTIONS

Stock options are granted to Management Committee and non-Management Committee members. The stock options vest at various dates up to February 20, 2021 subject to service conditions. The options expire at various dates no later than seven years from the date of grant. In 2019, no stock options were granted.

The fair value of the stock options granted in 2018 and 2017 was estimated at the grant date using a Black-Scholes based option pricing model or an option pricing model that incorporated the market conditions when applicable. The following assumptions were used in calculating the fair value of the options granted:

	2018			2017
Dividend yield		3.27	%		3.48	%
Expected volatility		29	%		28	%
Risk-free interest rate		2.62	%		1.86	%
Expected life	4.5 years			4.5 years
Strike price	$	43.66		$	39.81

The grant date fair value of the non-qualified options granted in 2018 and 2017 was $8.65 and $7.05, respectively.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

				Weighted average		Weighted average		Aggregate intrinsic
	Number			exercise		remaining life		value
OPTIONS	of options			price		(in years)		(in millions)
				$				$
Outstanding at December 31, 2016		522,227			44.39		4.5		0.7
Granted		106,268			39.81		6.2		—
Exercised		(65,430	)		36.33		—		—
Outstanding at December 31, 2017		563,065			44.46		4.1		3.6
Options exercisable at December 31, 2017		359,960			48.02		3.2		1.3
Outstanding at December 31, 2017		563,065			44.46		4.1		3.6
Granted		104,086			43.66		6.2		—
Exercised		(147,397	)		39.42		—		—
Forfeited/expired		(6,102	)		50.05		—		—
Outstanding at December 31, 2018		513,652			45.68		3.6		0.1
Options exercisable at December 31, 2018		303,055			49.15		2.3		—
Outstanding at December 31, 2018		513,652			45.68		3.6		0.1
Exercised		(88,682	)		39.46		—		—
Forfeited/expired		(3,616	)		53.13		—		—
Outstanding at December 31, 2019		421,354			46.92		2.5		0.1
Options exercisable at December 31, 2019		316,530			48.44		1.8		0.1

The total intrinsic value of options exercised in 2019 was $1 million (2018 – $1 million; 2017 – nil). Based on the Company’s closing year-end stock price of $38.24 (2018 – $35.13; 2017 – $49.52), the aggregate intrinsic value of options outstanding and options exercisable is nil.

For the year ended December 31, 2019, stock-based compensation expense recognized in the Company’s results of operations was $22 million (2018 – $10 million; 2017 – $20 million) for all of the outstanding awards. Compensation costs not yet recognized amounted to $16 million (2018 – $17 million; 2017 – $20 million) and will be recognized over the remaining service period of approximately 14 months. The aggregate value of liability awards settled in 2019 was $12 million (2018 – $8 million; 2017 –$7 million). The total fair value of equity awards settled in 2019 was $11 million (2018 – $6 million), representing the fair value at the time of settlement. The fair value at the grant date for these settled equity awards was $6 million (2018 – $7 million). Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

CLAWBACK FOR FINANCIAL REPORTING MISCONDUCT

If a participant in the Omnibus Plan knowingly or grossly negligently engages in financial reporting misconduct, then all awards and gains from the exercise of options in the 12 months prior to the date the misleading financial statements were issued as well as any awards that vested based on the misleading financial statements will be disgorged to the Company. In addition, the Company may cancel or reduce, or require a participant to forfeit and disgorge to the Company or reimburse the Company for, any awards granted or vested, and bonus granted or paid, and any gains earned or accrued, due to the exercise, vesting or settlement of awards or sale of any common stock, to the extent permitted or required by, or pursuant to any Company policy implemented as required by applicable law, regulation or stock exchange rule as may from time to time be in effect.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 6.

EARNINGS (LOSS) PER COMMON SHARE

The calculation of basic earnings (loss) per common share is based on the weighted average number of Domtar common shares outstanding during the year. The calculation for diluted earnings (loss) per common share recognizes the effect of all potential dilutive common securities.

The following table provides the reconciliation between basic and diluted earnings (loss) per common share:

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2019		2018		2017
Net earnings (loss)	$	84	$	283	$	(258	)
Weighted average number of common shares outstanding (millions)		61.2		62.9		62.7
Effect of dilutive securities (millions)		0.2		0.2		—
Weighted average number of diluted common shares outstanding (millions)		61.4		63.1		62.7
Basic net earnings (loss) per common share (in dollars)	$	1.37	$	4.50	$	(4.11	)
Diluted net earnings (loss) per common share (in dollars)	$	1.37	$	4.48	$	(4.11	)

The following table provides the securities that could potentially dilute basic earnings (loss) per common share in the future, but were not included in the computation of diluted earnings (loss) per common share because to do so would have been anti-dilutive:

	December 31,		December 31,		December 31,
	2019		2018		2017
Options to purchase common shares		324,413		227,221		312,893

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7.

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

The Company has several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the year ended December 31, 2019, the related pension expense was $42 million (2018 – $50 million; 2017 – $39 million).

DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

The Company sponsors both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. Non-unionized employees in Canada joining the Company after January 1, 1998 participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. Unionized and non-union hourly employees in the U.S. that are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.

Related pension and other post-retirement plan expenses and the corresponding obligations are actuarially determined using management’s most probable assumptions.

The Company’s pension plan funding policy is to contribute annually the amount required to provide for benefits earned in the year and to fund solvency deficiencies, funding shortfalls and past service obligations over periods not exceeding those permitted by the applicable regulatory authorities. Past service obligations primarily arise from improvements to plan benefits. The other post-retirement benefit plans are not funded and contributions are made annually to cover benefit payments.

The Company expects to contribute a minimum total amount of $11 million in 2020 compared to $18 million in 2019 (2018 – $57 million; 2017 – $47 million) to the pension plans. The Company expects to contribute a minimum total amount of $4 million in 2020 compared to $4 million in 2019 (2018 – $4 million; 2017 – $3 million) to the other post-retirement benefit plans.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

CHANGE IN PROJECTED BENEFIT OBLIGATION

The following table represents the change in the projected benefit obligation as of December 31, 2019 and December 31, 2018, the measurement date for each year:

	December 31, 2019						December 31, 2018

	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Projected benefit obligation at beginning of year		1,569			62			1,764			76
Service cost for the year		29			1			34			1
Interest expense		57			2			53			2
Plan participants' contributions		6			—			6			—
Actuarial loss (gain)		171			(1	)		(80	)		(8	)
Benefits paid		(96	)		—			(101	)		—
Direct benefit payments		(4	)		(4	)		(3	)		(4	)
Settlement ⁽¹⁾		(348	)		—			—			—
Effect of foreign currency exchange rate change		55			3			(104	)		(5	)
Projected benefit obligation at end of year		1,439			63			1,569			62

CHANGE IN FAIR VALUE OF ASSETS

The following table represents the change in the fair value of assets, as of December 31, 2019 and December 31, 2018, reflecting the actual return on plan assets, the contributions and the benefits paid for each year:

	December 31, 2019			December 31, 2018
	Pension plans			Pension plans
	$			$
Fair value of assets at beginning of year		1,588			1,765
Actual return on plan assets		253			(27	)
Employer contributions		18			57
Plan participants' contributions		6			6
Benefits paid		(100	)		(104	)
Settlement ⁽¹⁾		(348	)		—
Effect of foreign currency exchange rate change		58			(109	)
Fair value of assets at end of year		1,475			1,588

⁽¹⁾

On November 26, 2019, the Company entered into agreements with Sun Life Assurance Company of Canada to purchase group annuity buy-out contracts and transfer approximately $272 million (CDN $360 million) of its Ontario, Canada defined benefit plans’ projected benefit obligations. The transactions closed on December 5, 2019 and were funded with pension plan assets. Additionally, the Company entered into agreements with existing insurers to convert $76 million (CDN $101 million) of existing buy-in annuity contracts to buy-out annuity contracts to complete the full transfer of these obligations. These annuity buy-out transactions transferred responsibility for pension benefits for approximately 1,265 retirees and their beneficiaries. Settlement accounting rules required a remeasurement of the plans as of November 26, 2019 and the Company recognized a non-cash pension settlement charge of $30 million before tax in the fourth quarter of 2019.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

INVESTMENT POLICIES AND STRATEGIES OF THE PLAN ASSETS

The assets of the pension plans are held by a number of independent trustees and are accounted for separately in the Company’s pension funds. The investment strategy for the assets in the pension plans is to maintain a diversified portfolio of assets, invested in a prudent manner to maintain the security of funds while maximizing returns within the guidelines provided in the investment policy. Diversification of the pension plans’ holdings is maintained in order to reduce the pension plans’ annual return variability, reduce market and credit exposure to any single asset and to any single component of the capital markets, reduce exposure to unexpected inflation, enhance the long-term risk-adjusted return potential of the pension plans and reduce funding risk.

Over the long-term, the performance of the pension plans is primarily determined by the long-term asset mix decisions. To manage the long-term risk of not having sufficient funds to match the obligations of the pension plans, the Company conducts asset/liability studies. These studies lead to the recommendation and adoption of a long-term asset mix target that sets the expected rate of return and reduces the risk of adverse consequences to the plans from increases in liabilities and decreases in assets. In identifying the asset mix target that would best meet the investment objectives, consideration is given to various factors, including (a) each plan’s characteristics, (b) the duration of each plan’s liabilities, (c) the solvency and going concern financial position of each plan and their sensitivity to changes in interest rates and inflation, and (d) the long-term return and risk expectations for key asset classes.

The investments of each plan can be done directly through cash investments in equities or bonds or indirectly through derivatives or pooled funds. The use of derivatives must be in accordance with an approved mandate and cannot be used for speculative purposes.

The Company’s pension funds are not permitted to directly own any of the Company’s shares or debt instruments.

The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for 2019:

		Percentage of			Percentage of
		plan assets at			plan assets at
		December 31,			December 31,
	Target allocation	2019			2018
Fixed income
Cash and cash equivalents	0% – 9%		2	%		2	%
Bonds	49% – 58%		53	%		52	%
Insurance contracts	1%		1	%		5	%
Equity
Canadian Equity	3% – 10%		6	%		6	%
U.S. Equity	9% – 19%		15	%		13	%
International Equity	18% – 29%		23	%		22	%
Total ⁽¹⁾			100	%		100	%

⁽¹⁾	Approximately 71% of the pension plans' assets relate to Canadian plans, 28% relate to U.S. plans and 1% relate to European plans.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

RECONCILIATION OF FUNDED STATUS TO AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS

The following table presents the difference between the fair value of assets and the actuarially determined projected benefit obligation. This difference is also referred to as either the deficit or surplus, as the case may be, or the funded status of the plans. The table further reconciles the amount of the surplus or deficit (funded status) to the net amount recognized in the Consolidated Balance Sheets.

	December 31, 2019						December 31, 2018

	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Projected benefit obligation at end of year		(1,439	)		(63	)		(1,569	)		(62	)
Fair value of assets at end of year		1,475			—			1,588			—
Funded status		36			(63	)		19			(62	)

The funded status includes $55 million of projected benefit obligation ($49 million at December 31, 2018) related to supplemental unfunded defined benefit and defined contribution plans.

	December 31, 2019						December 31, 2018

	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Trade and other payables (Note 17)		—			(5	)		—			(5	)
Other liabilities and deferred credits (Note 20)		(105	)		(58	)		(88	)		(57	)
Other assets (Note 15)		141			—			107			—
Net amount recognized in the Consolidated Balance Sheets		36			(63	)		19			(62	)

The following table presents the pre-tax amounts included in Other comprehensive income (loss):

	Year ended					Year ended						Year ended
	December 31, 2019					December 31, 2018						December 31, 2017
			Other post-						Other post-						Other post-
	Pension		retirement			Pension			retirement			Pension			retirement
	plans		benefit plans			plans			benefit plans			plans			benefit plans
	$		$			$			$			$			$
Prior service (cost) credit		—		—			—			—			(1	)		5
Amortization of prior year service cost (credit)		5		(1	)		5			—			5			—
Net gain (loss)		3		1			(31	)		8			(10	)		17
Amortization of net actuarial loss (gain)⁽¹⁾		40		(1	)		8			(1	)		9			—
Net amount recognized in other comprehensive income (loss) (pre-tax)		48		(1	)		(18	)		7			3			22

An estimated gain of $10 million for pension plans and loss of $2 million for other post-retirement benefit plans will be amortized from Accumulated other comprehensive loss into net periodic benefit cost in 2020.

⁽¹⁾

Includes the non-cash pension settlement charge of $30 million recognized in the fourth quarter of 2019.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

At December 31, 2019, the projected benefit obligation and the fair value of plan assets with a projected benefit obligation in excess of fair value of plan assets were $846 million and $742 million, respectively (2018 – $731 million and $643 million, respectively).

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
Components of net periodic benefit cost for pension plans	2019			2018			2017
	$			$			$
Service cost for the year		29			34			30
Interest expense		57			53			52
Expected return on plan assets		(79	)		(85	)		(81	)
Amortization of net actuarial loss		10			8			9
Settlement loss		30			—			—
Amortization of prior year service cost		5			5			5
Net periodic benefit cost		52			15			15


Components of net periodic benefit cost for other post-retirement	Year ended December 31,			Year ended December 31,			Year ended December 31,
benefit plans	2019			2018			2017
	$			$			$
Service cost for the year		1			1			2
Interest expense		2			2			4
Amortization of net actuarial gain		(1	)		(1	)		—
Amortization of prior year service credit		(1	)		—			—
Net periodic benefit cost		1			2			6

WEIGHTED-AVERAGE ASSUMPTIONS

The Company used the following key assumptions to measure the projected benefit obligation and the net periodic benefit cost. These assumptions are long-term, which is consistent with the nature of employee future benefits.

	December 31,			December 31,			December 31,
Pension plans	2019			2018			2017
Projected benefit obligation
Discount rate		3.1	%		3.8	%		3.5	%
Rate of compensation increase		2.7	%		2.7	%		2.7	%
Net periodic benefit cost
Discount rate		3.8	%		3.5	%		3.9	%
Rate of compensation increase		2.6	%		2.8	%		2.8	%
Expected long-term rate of return on plan assets		5.2	%		5.2	%		5.3	%

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

The Company used a full yield curve approach to estimate the current service and interest cost components of net periodic benefit cost for Canadian pension plans and U.S. funded pension plans. The estimate of these components is made by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

For the U.S. unfunded pension plan and other post-retirement benefits, given materiality, the current service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve for each unfunded pension plan or based on each post-retirement plans’ projected cash flows. The discount rate of 4.2% for U.S. unfunded plans is obtained by incorporating the plans’ expected cash flows in the Mercer Yield Curve.

For Canadian plans, short-term yields to maturity are derived from actual AA rated corporate bond yield data. For longer terms, extrapolated data is used. The extrapolated data are created by adding a term-based spread over long provincial bond yields. For U.S. funded plans, the rates are taken from the Mercer Yield Curve which is based on bonds rated AA by Moody’s or Standard & Poor’s, excluding callable bonds, bonds of less than a minimum issue size, and certain other bonds. The universe of bonds also includes private placement (traded in reliance on Rule 144A and which are at least two years from issuance), make whole, and foreign corporation (denominated in U.S. dollars) bonds.

Effective January 1, 2020, the Company will use 4.8% (2019 – 5.2%; 2018 – 5.2%) as the expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on management's best estimate of the long-term returns of the major asset classes (cash and cash equivalents, equities, and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a value-added premium for the contribution to returns from active management. The sources used to determine management's best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts' or governments' expectations, as applicable.

	December 31,			December 31,			December 31,
Other post-retirement benefit plans	2019			2018			2017
Projected benefit obligation
Discount rate		3.1	%		3.8	%		3.5	%
Rate of compensation increase		2.8	%		2.8	%		2.8	%
Net periodic benefit cost
Discount rate		3.7	%		3.5	%		3.8	%
Rate of compensation increase		2.7	%		2.7	%		2.8	%

For measurement purposes, a 3.4% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2019. An increase or decrease of 1% of this rate would have the following impact:

	Increase of 1%		Decrease of 1%
	$		$
Impact on net periodic benefit cost for other post-retirement benefit plans		—		—
Impact on accrued benefit obligation		3		(3	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

FAIR VALUE MEASUREMENT

Fair Value Measurements and Disclosures Topic of FASB ASC 820 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the assets or liabilities.

The following table presents the fair value of the plan assets at December 31, 2019, by asset category:

	Fair Value Measurements at
	December 31, 2019
			Quoted Prices
			in Active		Significant		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)
	$		$		$		$
Cash and short-term investments		66		24		42		—
Canadian provincial government bonds		454		453		1		—
Canadian corporate debt securities		119		91		28		—
U.S. corporate debt securities		21		21		—		—
International corporate debt securities		13		13		—		—
Bond fund ^{(1 & 2)}		167		—		167		—
Canadian equities ⁽³⁾		93		93		—		—
U.S. equities ⁽⁴⁾		86		86		—		—
International equities ⁽⁵⁾		231		231		—		—
U.S. stock index funds ^{(2 & 6)}		215		—		215		—
Insurance contracts ⁽⁷⁾		10		—		—		10
Total		1,475		1,012		453		10

⁽¹⁾	This category represents a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽²⁾	The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽³⁾	This category represents an active segregated large capitalization Canadian equity portfolio with the ability to purchase small and medium capitalized companies and the Canadian equity portion of an active segregated global equity portfolio.

⁽⁴⁾	This category represents U.S. equities held within an active segregated global equity portfolio and an active international equity portfolio.

⁽⁵⁾	This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁶⁾	This category represents two equity index funds, not actively managed, that track the Russell 3000 index.

⁽⁷⁾	This category includes insurance contracts with a minimum guarantee rate.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

The following table presents the fair value of the plan assets at December 31, 2018, by asset category:

	Fair Value Measurements at December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)
	$		$		$		$
Cash and short-term investments		68		23		45		—
Canadian provincial government bonds		493		492		1		—
Canadian corporate debt securities		123		100		23		—
U.S. corporate debt securities		37		37		—		—
International corporate debt securities		9		9		—		—
Bond fund ^{(1 & 2)}		156		—		156		—
Canadian equities ⁽³⁾		94		94		—		—
U.S. equities ⁽⁴⁾		91		91		—		—
International equities ⁽⁵⁾		233		233		—		—
U.S. stock index funds ^{(2 & 6)}		200		—		200		—
Insurance contracts ⁽⁷⁾		84		—		—		84
Total		1,588		1,079		425		84

In the above presentation of the fair value of plan assets at December 31, 2018, the Company has decreased the Level 1 cash and short-term investments by $45 million and increased the Level 2 cash and short-term investments by a corresponding $45 million to correct the classification of these investments from what was previously presented.

⁽¹⁾	This category represents a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽²⁾	The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽³⁾	This category represents an active segregated large capitalization Canadian equity portfolio with the ability to purchase small and medium capitalized companies and the Canadian equity portion of an active segregated global equity portfolio.

⁽⁴⁾	This category represents U.S. equities held within an active segregated global equity portfolio and an active international equity portfolio.

⁽⁵⁾	This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁶⁾	This category represents equity two equity index funds, not actively managed, that track the Russell 3000 index.

⁽⁷⁾

This category includes: 1) two group annuity contracts totaling $75 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $9 million of insurance contracts with a minimum guarantee rate.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

The following table presents changes during the period for Level 3 fair value measurements of plan assets:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Insurance contracts			Other			TOTAL
	$			$			$
Balance at December 31, 2017		94			1			95
Settlements		(5	)		(1	)		(6	)
Return on plan assets		2			—			2
Effect of foreign currency exchange rate change		(7	)		—			(7	)
Balance at December 31, 2018		84			—			84
Settlements		(83	)		—			(83	)
Return on plan assets		7			—			7
Effect of foreign currency exchange rate change		2			—			2
Balance at December 31, 2019		10			—			10

ESTIMATED FUTURE BENEFIT PAYMENTS FROM THE PLANS

Estimated future benefit payments from the plans for the next 10 years at December 31, 2019 are as follows:

.	Pension plans		Other post-retirement benefit plans
	$		$
2020		88		4
2021		87		4
2022		86		4
2023		87		4
2024		89		4
2025 – 2029		439		20

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 8.

OTHER OPERATING LOSS (INCOME), NET

Other operating loss (income), net is an aggregate of both recurring and non-recurring loss or income items and, as a result, can fluctuate from year to year. The Company’s other operating loss (income), net includes the following:

	Year ended December 31, 2019			Year ended December 31, 2018			Year ended December 31, 2017
	$			$			$
Environmental provision		4			5			3
Foreign exchange loss (gain)		3			(2	)		1
Bad debt expense		2			2			1
Net gain on sale of property, plant and equipment		—			(4	)		(13	)
Reversal of contingent consideration		—			—			(2	)
Other		(4	)		(1	)		(4	)
Other operating loss (income), net		5			—			(14	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 9.

INTEREST EXPENSE, NET

The following table presents the components of interest expense, net:

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2019		2018		2017
	$		$		$
Interest on long-term debt ⁽¹⁾		45		56		59
Interest on receivables securitization		2		1		2
Interest on withdrawal liabilities for multiemployer plans		3		2		3
Amortization of debt issuance costs and other		2		3		2
		52		62		66

⁽¹⁾	The Company capitalized $3 million of interest expense in 2019 (2018 – $1 million; 2017 – $1 million).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10.

INCOME TAXES

The Company’s earnings (loss) before income taxes by taxing jurisdiction were:

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2019		2018		2017
	$		$		$
U.S. earnings (loss)		32		216		(209	)
Foreign earnings (loss)		56		126		(174	)
Earnings (loss) before income taxes		88		342		(383	)

Provisions for income taxes include the following:

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2019			2018			2017
	$			$			$
U.S. Federal and State:
Current		11			32			73
Deferred		(15	)		(6	)		(208	)
Foreign:
Current		7			12			9
Deferred		(1	)		19			1
Income tax expense (benefit)		2			57			(125	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

The Company’s provision for income taxes differs from the amounts computed by applying the statutory income tax rate of 21%, for 2019 and 2018, (35% for December 31, 2017) to earnings (loss) before income taxes due to the following:

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2019			2018			2017
	$			$			$
U.S. federal statutory income tax		18			72			(134	)
Reconciling Items:
State and local income taxes, net of federal income tax benefit		3			8			2
Foreign income tax rate differential		(2	)		1			(16	)
Tax credits and special deductions		(20	)		(19	)		(24	)
Goodwill impairment		—			—			200
Tax rate changes		(4	)		(9	)		(188	)
Deemed mandatory repatriation tax		—			(7	)		46
Uncertain tax positions		(3	)		(4	)		(6	)
U.S. manufacturing deduction		—			—			(4	)
Deferred taxes on foreign earnings		2			10			—
Net operating loss cancellation		—			9			—
Valuation allowance on deferred tax assets		5			(8	)		3
Nondeductible expenses		3			—			—
Other		—			4			(4	)
Income tax expense (benefit)		2			57			(125	)

During 2019, the Company recorded $20 million of tax credits, mainly research and experimentation credits, which impacted the effective tax rate. Arkansas legislation changes were passed in 2019 which reduced the state tax rate and changed how the apportionment factor is calculated. This resulted in a deferred state tax benefit of $4 million for the Company. Additionally, a valuation allowance of $5 million was recorded on state attributes the Company does not expect to utilize before they expire.

As a result of the deemed mandatory repatriation tax requirement of the U.S. Tax Reform, the Company has taxed its undistributed foreign earnings as of December 31, 2017, at reduced tax rates. After completing its evaluation of the U.S. Tax Reform’s impact on its business operations, the Company has determined that it is no longer indefinitely reinvested in these undistributed foreign earnings as well as foreign earnings after December 31, 2017. As such, as of December 31, 2019, the Company has recorded a deferred tax liability of $12 million ($10 million at December 31, 2018) for foreign withholding tax and various state income taxes associated with future repatriation of these earnings. This additional $2 million tax expense impacted the effective tax rate for 2019 ($10 million for 2018).

During 2018, the Company recorded $19 million of tax credits, mainly research and experimentation credits, which impacted the effective tax rate. The effective tax rate was also impacted by the cancellation of $9 million, after-tax, of net operating losses in a foreign jurisdiction. This was offset by the reversal of $9 million of valuation allowance on these same net operating losses. Additionally, a valuation allowance of $1 million was recorded on new operating losses in 2018 for a net benefit pertaining to valuation allowance movements of $8 million.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

On December 22, 2017, the U.S. Tax Reform was signed into law. The U.S. Tax Reform significantly changed U.S. tax law for businesses by, among other things, lowering the maximum federal corporate income tax rate from 35% to 21% effective January 1, 2018, implementing a territorial tax system, and imposing a one-time deemed repatriation tax on accumulated foreign earnings. As a result of the U.S. Tax Reform, the Company recorded a net tax benefit of $140 million in 2017 when the legislation was enacted. This consisted of a provisional tax benefit of $186 million relating to the revaluation of the Company’s ending net deferred tax liabilities and a provisional expense of $46 million related to the deemed repatriation tax, which the Company elected to pay over eight years. Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the U.S. Tax Reform. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company completed its analysis, including currently available legislative updates, and recorded an additional tax benefit of $13 million for the year ended December 31, 2018. Of this benefit, $7 million related to adjustments to the deemed mandatory repatriation tax and $6 million related to the revaluation of the Company’s net deferred tax liabilities. The $6 million benefit for the revaluation of the net deferred tax liabilities is included in the “Tax rate changes” above, along with $3 million of additional tax benefits relating to 2018 law changes in Sweden and various U.S. states.

During 2017, the Company recorded a goodwill impairment of $578 million with minimal tax benefit which impacted the effective tax rate by $200 million. The effective tax rate for 2017 was also significantly impacted by the Company’s foreign operations being taxed at lower statutory tax rates and by the Company recording $24 million of current tax credits, mainly research and experimentation credits.

As a result of the corporate tax rate reduction, from 35% to 21%, due to the U.S. Tax Reform, the Company revalued its ending net deferred tax liabilities, and recognized a provisional tax benefit of $186 million in the Company’s Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) for the year ended December 31, 2017. This, combined with a $2 million tax benefit from other changes in law in certain U.S. states earlier in the year, impacted the effective tax rate for 2017.

On December 22, 2017, the SEC staff issued SAB 118 to address the application in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the U.S. Tax Reform. SAB 118 provides guidance which allows companies to use a measurement period, similar to that used in business combinations, to account for the impacts of the U.S. Tax Reform. The U.S. Tax Reform provides for a mandatory one-time deemed repatriation tax on the Company’s undistributed foreign earnings and profits. The Company recorded a provisional repatriation tax amount of $46 million, which impacted the 2017 tax rate.

Deferred tax assets and liabilities are based on tax rates that are expected to be in effect in future periods when deferred items are expected to reverse. Changes in tax rates or tax laws affect the expected future benefit or expense. The effect of such changes that occurred during each of the last three fiscal years is included in “Tax rate changes” disclosed under the effective income tax rate reconciliation shown above.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

DEFERRED TAX ASSETS AND LIABILITIES

The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 2019 and December 31, 2018 are comprised of the following:

	December 31,			December 31,
	2019			2018
	$			$
Accounting provisions		31			38
Net operating loss carryforwards and other deductions		38			36
Pension and other employee future benefit plans		17			22
Inventory		13			10
Tax credits		24			21
Gross deferred tax assets		123			127
Valuation allowance		(21	)		(16	)
Net deferred tax assets		102			111
Property, plant and equipment		(416	)		(422	)
Intangible assets		(117	)		(122	)
Other		(18	)		(10	)
Total deferred tax liabilities		(551	)		(554	)
Net deferred tax liabilities		(449	)		(443	)
Included in:
Other assets (Note 15)		1			1
Deferred income taxes and other		(450	)		(444	)
Total		(449	)		(443	)

At December 31, 2019, the Company has no federal net operating loss carryforwards remaining. The Company has other foreign net operating losses and deduction limitations of $195 million which may be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible.

The Company evaluates the realization of deferred tax assets on a quarterly basis. Evaluating the need for an amount of a valuation allowance for deferred tax assets often requires significant judgment. All available evidence, both positive and negative, is considered when determining whether, based on the weight of that evidence, a valuation allowance is needed. Specifically, the Company evaluated the following items:

•

Historical income / (losses) – particularly the most recent three-year period

•

Reversals of future taxable temporary differences

•

Projected future income / (losses)

•

Tax planning strategies

•

Divestitures

Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, with the exception of certain state credits for which a valuation allowance of $11 million exists at December 31, 2019, and certain foreign loss carryforwards for which a valuation allowance of $10 million exists at December 31, 2019. Of this amount, $5 million unfavorably impacted tax expense and the effective tax rate for 2019 (2018 – $(8) million; 2017 – $3 million).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

As of December 31, 2019, the Company has recorded a deferred tax liability of $12 million for foreign withholding tax and various state income taxes associated with the repatriation of earnings subject to the repatriation tax as well as future repatriation of its unremitted foreign earnings. The Company has not provided for deferred taxes on the outside basis differences in its investments in its foreign subsidiaries that are unrelated to unremitted earnings as it estimates that the deferred tax liability, in combination with the repatriation tax amount, covers all tax liabilities with foreign investments to date. The Company remains indefinitely reinvested in the outside basis differences of its foreign subsidiaries.

The U.S. Tax Reform also includes a base erosion provision for GILTI. Beginning in 2018, the GILTI provisions require the Company to include in its U.S. income tax return, earnings of foreign subsidiaries that are in excess of an allowable return on the tangible assets of the foreign subsidiaries. The Company is required to make an accounting policy election to either (1) treat taxes due related to GILTI as a current period expense when incurred or (2) factor such amounts into the measurement of deferred taxes. The Company has elected to account for any taxes associated with GILTI as a period cost.

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

At December 31, 2019, the Company had gross unrecognized tax benefits of approximately $29 million ($32 million and $37 million for 2018 and 2017, respectively). If recognized in 2020, these tax benefits would impact the effective tax rate. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were sustained, such as federal deduction that could be realized if an unrecognized state deduction was not sustained. These amounts are included in Deferred income taxes and other on the Consolidated Balance Sheets.

	December 31,			December 31,			December 31,
	2019			2018			2017
	$			$			$
Balance at beginning of year		32			37			43
Additions based on tax positions related to current year		3			3			3
Additions for tax positions of prior years		2			4			4
Reductions related to settlements with taxing authorities		—			—			(1	)
Expirations of statutes of limitations		(9	)		(12	)		(13	)
Interest		1			1			1
Foreign exchange impact		—			(1	)		—
Balance at end of year		29			32			37

The Company recorded $1 million of accrued interest associated with unrecognized tax benefits for the period ending December 31, 2019 ($1 million and $1 million for 2018 and 2017, respectively). The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of tax expense. The Company believes it is reasonably possible that up to $6 million of its unrecognized tax benefits may be recognized by December 31, 2020, which could significantly impact the effective tax rate. However, the amount and timing of the recognition of these benefits is subject to some uncertainty.

The major jurisdictions where the Company and its subsidiaries will file tax returns for 2019, in addition to filing one consolidated U.S. federal income tax return, are Canada, Sweden and Spain. The Company and its subsidiaries will also file returns in various other countries in Europe and Asia as well as various U.S. states and Canadian provinces. At December 31, 2019, the Company’s subsidiaries are subject to foreign federal income tax examinations for the tax years 2008 through 2018, with federal years prior to 2016 being closed from a cash tax liability standpoint in the U.S., but the loss carryforwards can be adjusted in any open year where the loss has been utilized. The Company does not anticipate that adjustments stemming from these audits would result in a significant change to the results of its operations and financial condition.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 11.

INVENTORIES

The following table presents the components of inventories:

	December 31,		December 31,
	2019		2018
	$		$
Work in process and finished goods		401		410
Raw materials		153		126
Operating and maintenance supplies		232		226
		786		762

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 12.

PROPERTY, PLANT AND EQUIPMENT

The following table presents the components of property, plant and equipment:

	Range of useful lives		December 31,			December 31,
	(in years)		2019			2018
			$			$
Machinery and equipment	3 – 20			7,872			7,655
Buildings and improvements	10 – 40			1,060			1,043
Timberlands	⁽¹⁾			200			193
Assets under construction		—		178			131
				9,310			9,022
Less: Accumulated depreciation				(6,743	)		(6,417	)
				2,567			2,605

⁽¹⁾

Amortization is calculated using the unit of production method.

Depreciation expense related to property, plant and equipment for the year ended December 31, 2019 was $274 million (2018 – $289 million; 2017 – $302 million).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 13.

LEASES

In the normal course of business, the Company enters into operating and finance leases mainly for manufacturing and warehousing facilities, corporate offices, motor vehicles, mobile equipment and manufacturing equipment.

While the Company’s lease payments are generally fixed over the lease term, some leases may include price escalation terms that are fixed at the lease commencement date.

The Company has remaining lease terms ranging from 1 year to 14 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year.

During the year ended December 31, 2019, the Company recorded $9 million of impairment of operating lease right-of-use assets under Impairment of long-lived assets on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

The components of lease expense were as follows:

	Year ended
	December 31,
	2019
	$
Operating lease expense		30

Finance lease expense:
Amortization of right-of-use assets		1
Interest on lease liabilities		—
Total finance lease expense		1

For the years ended December 31, 2018 and 2017, total operating lease expense amounted to $29 million and $31 million, respectively.

Supplemental cash flow information related to leases was as follows:

		Year ended
		December 31,
		2019
		$
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases		32
	Operating cash flows from finance leases		1
	Financing cash flows from finance leases		1

Right-of-use assets obtained in exchange for lease liabilities:
	Operating leases		34
	Finance leases		—

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 13. LEASES (CONTINUED)

Supplemental balance sheet information related to leases was as follows:

			December 31,
			2019
			$
Operating leases
	Operating leases right-of-use assets			81

	Lease liabilities due within one year			28
	Operating lease liabilities			69
				97

Finance leases
	Property, plant and equipment			15
	Accumulated depreciation			(7	)
				8

	Long-term debt due within one year			1
	Long-term debt			9
				10

	Weighted-average remaining lease term
		Operating leases	4.9 years
		Finance leases	10 years

	Weighted-average discount rate
		Operating leases		4.6	%
		Finance leases		6.7	%

Maturities of lease liabilities at December 31, 2019 were as follows:

	Operating leases
	$
2020		29
2021		24
2022		19
2023		14
2024		8
Thereafter		14
Total lease payments		108

Less: Imputed interest		11

Total lease liabilities		97

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 14.

INTANGIBLE ASSETS

The following table presents the components of intangible assets:

	Estimated useful lives		December 31,							December 31,
	(in years)		2019							2018
			Gross carrying		Accumulated					Gross carrying		Accumulated
			amount		amortization			Net		amount		amortization			Net
Definite-lived intangible assets subject to amortization			$		$			$		$		$			$
Water rights		40		3		(1	)		2		3		(1	)		2
Customer relationships	10 – 40			380		(108	)		272		384		(94	)		290
Technology	7 – 20			8		(5	)		3		8		(4	)		4
Non-Compete		9		1		(1	)		—		1		(1	)		—
License rights		12		29		(16	)		13		28		(13	)		15
				421		(131	)		290		424		(113	)		311
Indefinite-lived intangible assets not subject to amortization
Water rights				4		—			4		4		—			4
Trade names				235		—			235		238		—			238
License rights				6		—			6		6		—			6
Catalog rights				38		—			38		38		—			38
Total				704		(131	)		573		710		(113	)		597

Amortization expense related to intangible assets for the year ended December 31, 2019 was $19 million ($19 million in 2018 and 2017, respectively).

Amortization expense for the next five years related to intangible assets is expected to be as follows:

	2020		2021		2022		2023		2024
	$		$		$		$		$
Amortization expense related to intangible assets		21		21		21		20		20

The Company performed its annual impairment test on its indefinite-lived intangible assets at October 1, 2019, 2018 and 2017, using a quantitative approach, except for the license rights and water rights, where the Company used a qualitative approach, and determined that the estimated fair values of its indefinite-lived intangible assets exceeded their carrying amounts. No impairment charge was recorded for indefinite-lived intangible assets during 2019, 2018 or 2017.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 15.

OTHER ASSETS

The following table presents the components of other assets:

	December 31,		December 31,
	2019		2018
	$		$
Pension asset - defined benefit pension plans (Note 7)		141		107
Investment tax credits receivable		5		5
Unamortized debt issuance costs		3		4
Deferred income tax assets (Note 10)		1		1
Investments and advances		5		6
Other		9		11
		164		134

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 16.

CLOSURE AND RESTRUCTURING COSTS AND LIABILITY

At December 31, 2019, the Company’s total provision for the withdrawal liabilities of its U.S. multiemployer plans was $44 million.

Ashdown, Arkansas mill and Port Huron, Michigan mill

On September 27, 2019, the Company’s Board of Directors approved the decision to permanently shut down two paper machines, which was announced on October 3, 2019. The closures took place at the Ashdown, Arkansas pulp and paper mill and the Port Huron, Michigan paper mill. These measures will reduce the Company’s annual uncoated freesheet paper capacity by approximately 204,000 short tons, and resulted in a workforce reduction of approximately 100 employees.

For the year ended December 31, 2019, the Company recorded $32 million of accelerated depreciation under Impairment of long-lived assets and $1 million of accelerated depreciation under Depreciation and amortization, on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, the Company recorded $3 million of severance and termination costs, $4 million of inventory obsolescence, and $2 million of other costs, under Closure and restructuring costs.

Concurrently, with the Ashdown paper machine closure and related workforce reduction, management negotiated a voluntary early retirement program to reduce costs and put the mill in a stronger cost position in the long-term. The Company additionally recorded $13 million of severance and termination costs under Closure and restructuring costs.

Waco, Texas facility

For the year ended December 31, 2019, the Company recorded $26 million of accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2018 – $7 million of accelerated depreciation). For the year ended December 31, 2019, the Company also recorded $5 million of severance and termination costs (2018 – $3 million); $2 million of inventory obsolescence (2018 – $4 million); and $13 million of asset relocation and other costs (2018 – $1 million of other costs), under Closure and restructuring costs.

Other costs

During 2019 and 2018, there were no other costs related to previous and ongoing closures and restructuring (severance and termination costs of $2 million in 2017).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 16. CLOSURE AND RESTRUCTURING COSTS AND LIABILITY (CONTINUED)

The following tables provide the components of closure and restructuring costs by segment:

	Year ended
	December 31, 2019
	Pulp and Paper		Personal Care		Total
	$		$		$
Severance and termination costs		16		5		21
Inventory write-down		4		2		6
Asset relocation and other costs		2		13		15
Closure and restructuring costs		22		20		42

	Year ended
	December 31, 2018
	Pulp and Paper		Personal Care		Total
	$		$		$
Severance and termination costs		—		3		3
Inventory write-down		—		4		4
Other		—		1		1
Closure and restructuring costs		—		8		8

	Year Ended
	December 31, 2017
	Pulp and Paper		Personal Care		Total
	$		$		$
Severance and termination costs		—		2		2
Closure and restructuring costs		—		2		2

The following table provides the activity in the closure and restructuring liability:

	December 31,			December 31,
	2019			2018
	$			$
Balance at beginning of year		6			7
Additions		15			4
Payments		(6	)		(5	)
Reversal		(1	)		—
Balance at end of year		14			6

The $14 million provision is comprised of severance and termination costs, of which $12 million and $2 million relate to the Pulp and Paper segment and Personal Care segment, respectively.

Closure and restructuring costs are based on management’s best estimates at December 31, 2019. Actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further impairment charges may be required in future periods.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 17.

TRADE AND OTHER PAYABLES

The following table presents the components of trade and other payables:

	December 31,		December 31,
	2019		2018
	$		$
Trade payables		406		404
Payroll-related accruals		118		173
Accrued interest		16		16
Payables on capital projects		30		21
Rebate accruals		58		64
Liability - pension and other post-retirement benefit plans (Note 7)		5		5
Liability - multiemployer plan withdrawal		2		2
Provision for environment and other asset retirement obligations (Note 22)		8		10
Closure and restructuring costs liability (Note 16)		14		6
Derivative financial instruments (Note 23)		11		21
Dividends payable (Note 21)		26		27
Stock-based compensation - liability awards (Note 23)		7		6
Other		4		2
		705		757

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 18.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾for the period ended December 31, 2019 and 2018.

	Net derivative
	gains (losses) on						Post-retirement			Foreign currency
	cash flow hedges			Pension items⁽²⁾			benefit items⁽²⁾			items			Total
	$			$			$			$			$
Balance at December 31, 2017		8			(218	)		6			(132	)		(336	)
Natural gas swap contracts		1		N/A			N/A			N/A				1
Currency options		(12	)	N/A			N/A			N/A				(12	)
Foreign exchange forward contracts		(19	)	N/A			N/A			N/A				(19	)
Net (loss) gain	N/A				(23	)		6		N/A				(17	)
Foreign currency items	N/A			N/A			N/A				(91	)		(91	)
Other comprehensive (loss) income before reclassifications		(30	)		(23	)		6			(91	)		(138	)
Amounts reclassified from Accumulated other comprehensive loss		(2	)		10			(1	)		—			7
Net current period other comprehensive (loss) income		(32	)		(13	)		5			(91	)		(131	)
Balance at December 31, 2018		(24	)		(231	)		11			(223	)		(467	)
Natural gas swap contracts		(10	)	N/A			N/A			N/A				(10	)
Currency options		5		N/A			N/A			N/A				5
Foreign exchange forward contracts		16		N/A			N/A			N/A				16
Net gain	N/A				1			1		N/A				2
Foreign currency items	N/A			N/A			N/A				21			21
Other comprehensive income before reclassifications		11			1			1			21			34
Amounts reclassified from Accumulated other comprehensive loss		8			33			(1	)		—			40
Net current period other comprehensive income		19			34			—			21			74
Balance at December 31, 2019		(5	)		(197	)		11			(202	)		(393	)

⁽¹⁾	All amounts are after tax. Amounts in parentheses indicate losses.

⁽²⁾	The projected benefit obligation is actuarially determined on an annual basis as of December 31.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 18. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

The following table presents reclassifications out of Accumulated other comprehensive loss:



Details about Accumulated other comprehensive loss components	Amount reclassified from Accumulated other comprehensive loss
	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2019			2018			2017
	$			$			$
Net derivative (losses) gains on cash flow hedge
Natural gas swap contracts ⁽¹⁾		(4	)		2			—
Currency options and forwards ⁽¹⁾		(7	)		1			14
Total before tax		(11	)		3			14
Tax benefit (expense)		3			(1	)		(5	)
Net of tax		(8	)		2			9

Amortization of defined benefit pension items
Amortization of net actuarial loss ⁽²⁾⁽³⁾		(40	)		(8	)		(9	)
Amortization of prior year service cost ⁽²⁾		(5	)		(5	)		(5	)
Total before tax		(45	)		(13	)		(14	)
Tax benefit		12			3			5
Net of tax		(33	)		(10	)		(9	)

Amortization of other post-retirement benefit items
Amortization of net actuarial gain ⁽²⁾		1			1			—
Amortization of prior year service credit ⁽²⁾		1			—			—
Total before tax		2			1			—
Tax expense		(1	)		—			—
Net of tax		1			1			—

⁽¹⁾	These amounts are included in Cost of sales in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss).

⁽²⁾	These amounts are included in the computation of net periodic benefit cost (see Note 7 "Pension Plans and Other Post-Retirement Benefit Plans" for more details).

⁽³⁾	Includes the non-cash pension settlement charge of $30 million recognized in the fourth quarter of 2019.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19.

LONG-TERM DEBT

		Par			December 31,		December 31,
	Maturity	Amount		Currency	2019		2018
		$			$		$
Unsecured notes
4.4% Notes	2022		300	US		300		300
6.25% Notes	2042		250	US		249		249
6.75% Notes	2044		250	US		249		249
Revolving Credit Facility	2023		80	US		80		—
Securitization	2021		55	US		55		50
Finance lease obligations and other	2020 - 2032					11		11
						944		859

Less: Unamortized debt issuance costs						5		5

Less: Due within one year						1		1
						938		853

Principal long-term debt repayments, including finance lease obligations, in each of the next five years will amount to:

	Long-term debt		Finance leases and other
	$		$
2020		—		1
2021		55		2
2022		300		2
2023		80		2
2024		—		2
Thereafter		500		6
		935		15
Less: Amounts representing interest		—		4
Total payments		935		11

UNSECURED NOTES

The Company’s 10.75% Notes, in the aggregate principal amount of $63 million, matured on June 1, 2017.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19. LONG-TERM DEBT (CONTINUED)

REVOLVING CREDIT FACILITY

In August 2018, the Company amended and restated its $700 million unsecured revolving credit facility (the “Credit Agreement”) with certain domestic and foreign banks. The amendment extended the Credit Agreement’s maturity date from August 18, 2021 to August 22, 2023. The maturity date of the facility may be extended by one year and the lender commitments may be increased by up to $400 million, subject to lender approval and customary requirements.

Borrowings by the Company under the Credit Agreement are guaranteed by its significant domestic subsidiaries. Borrowings by certain foreign subsidiaries under the Credit Agreement are guaranteed by the Company, the Company’s significant domestic subsidiaries and certain of the Company’s significant foreign subsidiaries.

Borrowings under the Credit Agreement bear interest at LIBOR, EURIBOR, Canadian bankers' acceptance or prime rate, as applicable, plus a margin linked to the Company’s credit rating. In addition, the Company pays facility fees quarterly at rates dependent on the Company's credit ratings.

The Credit Agreement contains customary covenants and events of default for transactions of this type, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not greater than 3.75 to 1 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). At December 31, 2019, the Company was in compliance with these financial covenants, and had $80 million of borrowings outstanding under this facility (December 31, 2018 – nil), leaving $620 million available under this facility.

TERM LOAN

In the third quarter of 2015, a wholly-owned subsidiary of Domtar borrowed $300 million under an unsecured 10 year Term Loan Agreement with certain domestic banks.

In the fourth quarter of 2018, the Term Loan was fully repaid.

RECEIVABLES SECURITIZATION

The Company has a $150 million receivables securitization facility. This facility was amended in November 2018 to extend the maturity date from March 2019 to November 2021. This facility provides additional liquidity to the Company to fund its operations or issue letters of credit. The costs under the program vary based on changes in interest rates and amounts utilized.

Sales of receivables under this program are accounted for as secured borrowings. The program consists of the ongoing sale of most of the receivables of its domestic subsidiaries to a bankruptcy remote consolidated subsidiary which, in turn, transfers a senior beneficial interest in them to a special purpose entity managed by a financial institution for multiple sellers of receivables to support borrowings or the issue of letters of credit by the Company.

The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the Credit Agreement, or the failure by Domtar to satisfy material obligations.

At December 31, 2019, $55 million was borrowed and $53 million of letters of credit were outstanding under this facility (2018 – $50 million and $52 million, respectively). At December 31, 2019, the Company had $25 million unused and available under this facility.

In 2019, a net charge of $2 million (2018 – $1 million; 2017 – $2 million) resulted from the program described above and was included in Interest expense, net in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss).

100

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 20.

OTHER LIABILITIES AND DEFERRED CREDITS

The following table presents the components of other liabilities and deferred credits:

.	December 31,		December 31,
	2019		2018
	$		$
Liability - other post-retirement benefit plans (Note 7)		58		57
Pension liability - defined benefit pension plans (Note 7)		105		88
Pension liability - multiemployer plan withdrawal		42		45
Long-term income taxes payable		9		9
Provision for environmental and asset retirement obligations (Note 22)		27		27
Stock-based compensation - liability awards (Note 23)		18		17
Derivative financial instruments (Note 23)		8		16
Other		8		16
		275		275

ASSET RETIREMENT OBLIGATIONS

The asset retirement obligations are principally linked to landfill capping obligations and demolition of certain abandoned buildings. At December 31, 2019, Domtar estimated the net present value of its asset retirement obligations to be $13 million (2018 – $12 million); the present value is based on probability weighted undiscounted cash outflows of $58 million (2018 – $59 million). The majority of the asset retirement obligations are estimated to be settled prior to December 31, 2059. Domtar’s credit adjusted risk-free rates were used to calculate the net present value of the asset retirement obligations. The rates used vary between 4.7% and 12.0%, based on the prevailing rate at the moment of recognition of the liability and on its settlement period.

The following table reconciles Domtar’s asset retirement obligations:

	December 31,		December 31,
	2019		2018
	$		$
Asset retirement obligations, beginning of year		12		15
Asset retirement obligation payments		—		(3	)
Accretion expense		1		1
Effect of foreign currency exchange rate change		—		(1	)
Asset retirement obligations, end of year		13		12

101

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21.

SHAREHOLDERS’ EQUITY

DIVIDENDS

STOCK REPURCHASE PROGRAM

The Company’s Board of Directors has authorized a stock repurchase program (“the Program”) of up to $1.3 billion. On November 5, 2019, the Company’s Board of Directors approved an increase to the Program from $1.3 billion to $1.6 billion. At December 31, 2019, the Company had approximately $403 million of remaining availability under the Program. Under the Program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions, which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

During 2019, the Company repurchased 6,220,658 shares at an average price of $35.29 for a total cost of $219 million.

During 2018, there were no shares repurchased under the Program.

102

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21. SHAREHOLDERS’ EQUITY (CONTINUED)

The authorized stated capital consists of the following:

PREFERRED SHARES

The Company is authorized to issue 20 million preferred shares, par value $0.01 per share. The Board of Directors of the Company will determine the voting powers (if any) of the shares, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares at the time of issuance. No preferred shares were outstanding at December 31, 2019 or December 31, 2018.

COMMON STOCK

The Company is authorized to issue two billion shares of common stock, par value $0.01 per share. Holders of the Company’s common stock are entitled to one vote per share.

The changes in the number of outstanding common stock and their aggregate stated value during the years ended December 31, 2019 and December 31, 2018, were as follows:

	December 31,					December 31,
	2019					2018
	Number					Number
Common stock	of shares			$		of shares		$
Balance at beginning of year		62,914,569			1		62,695,685		1
Shares issued
Treasury stock ⁽¹⁾		(6,033,659	)		—		218,884		—
Balance at end of year		56,880,910			1		62,914,569		1

⁽¹⁾

During 2019, the Company repurchased 6,220,658, and issued 186,999 shares out of Treasury stock in conjunction with the exercise of stock-based compensation awards.

103

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22.

COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS

The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities. The Company may also incur substantial costs in relation to enforcement actions (including orders requiring corrective measures, installation of pollution control equipment or other remedial actions) as a result of violations of, or liabilities under, environmental laws and regulations applicable to its past and present properties. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with such properties may result in additional environmental costs and liabilities which cannot be reasonably estimated at this time.

In 2019, the Company’s operating expenses for environmental matters amounted to $71 million (2018 – $68 million; 2017 – $67 million).

The Company made capital expenditures for environmental matters of $19 million in 2019 (2018 – $8 million; 2017 – $2 million).

In connection with contamination of a site bordering Burrard Inlet in North Vancouver, on February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan International Ltd. and the Company, in order to define and implement an action plan to address soil, sediment and groundwater issues. Construction began in January 2017 and was completed in the first quarter of 2019. The Company previously recorded an environmental reserve to address its estimated exposure.

A former owner of the Company’s Dryden, Ontario manufacturing site (the "Dryden Property") operated a chlor-alkali plant during the 1960s and 1970s, during which time, mercury and other pollutants were used or generated and discharged into the environment. In conjunction with the sale and redevelopment of the Dryden Property, the Province of Ontario (the “Province”) provided a broad indemnity (the "Indemnity") in 1985 to the then purchaser of the Dryden Property and its successors and assigns with respect to the discharge of any pollutants, including mercury, by the historical operators of the Dryden Property. This Indemnity subsequently was assigned to Domtar in connection with its 2007 purchase of the Dryden Property.

As the current owner of the Dryden Property, Domtar is actively engaged with the Province with respect to the management of the historical contamination.

The Province issued a Director's order under environmental laws to certain prior owners of the Dryden Property in connection with a nearby waste disposal site that never has been owned by Domtar. The Director's order required certain work to be conducted by those prior owners. The prior owners asserted that the Indemnity covered the work required by the Director’s order. Following extensive litigation, the Supreme Court of Canada recently found, among other things, that the Indemnity covered third-party claims, but not first-party claims, such as the Director's order.

In the future, the Province may challenge whether Domtar has the benefit of the Indemnity. In addition to the Indemnity, Domtar has other recourses relating to the historical contamination as well.

The situation involving the historical contamination is continuing to develop, and Domtar cannot predict its outcome. While Domtar currently does not believe that it will be required to incur costs that would have a material impact on its results of operations or financial condition, there is no certainty that this is in fact the case.

104

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The following table reflects changes in the reserve for environmental remediation and asset retirement obligations:

	December 31,			December 31,
	2019			2018
	$			$
Balance at beginning of year		37			44
Additions and other changes		4			4
Environmental spending		(7	)		(9	)
Effect of foreign currency exchange rate change		1			(2	)
Balance at end of year ⁽¹⁾		35			37

⁽¹⁾

At December 31, 2019, $8 million is shown in Trade and other payables (see Note 17) and $27 million is shown in Other liabilities and deferred credits (see Note 20).

At December 31, 2019, anticipated undiscounted payments in each of the next five years are as follows:

2020

2021

2022

2023

2024

Thereafter

Total

Environmental provision and asset

retirement obligations

The U.S. Environmental Protection Agency (the “EPA”) and/or various state agencies have notified the Company that it may be a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as “Superfund,” and similar state laws with respect to other hazardous waste sites as to which no proceedings have been instituted against the Company. The Company continues to take remedial action under its Care and Control Program at its former wood preserving sites, and at a number of former operating sites due to possible soil, sediment or groundwater contamination.

Climate change regulation

Various national and local laws and regulations relating to climate change have been established or are emerging in jurisdictions where the Company currently has, or may have in the future, manufacturing facilities or investments.

The EPA has repealed the Clean Power Plan and replaced it with the “Affordable Clean Energy” (“ACE”) rule. Unlike the Clean Power Plan, which would have required significant changes across the entire power sector, ACE only requires states to develop plans for efficiency improvements at coal-fired electric utility generating units. The rule has been challenged in the U.S. Court of Appeals for the D.C. Circuit. Regardless of the outcome for the ACE rule, the Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates.

The province of Quebec has a greenhouse gases (“GHG”) cap-and-trade systems with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. The Company does not expect its facilities to be disproportionately affected by these measures compared to the other pulp and paper producers located in these provinces.

The Government of Canada has established a federal carbon pricing system in provinces that do not already impose a cost on carbon emissions. The Government of Canada has imposed its carbon pricing program for regulating GHG emissions in Ontario which took effect on January 1, 2019. To reduce GHG emissions and recognize the unique circumstances of the province’s diverse economy, Ontario finalized its own GHG Emission Performance Standards regulation. The Ontario Government is in discussions with the Canadian Government to replace the federal program in Ontario with its provincial program. Additional environmental costs may result from this effort which cannot be reasonably estimated at this time.

105

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

CONTINGENCIES

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at December 31, 2019, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

OTHER COMMERCIAL COMMITMENTS

The Company has commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are excluded from the table below. Any amounts for which the Company is liable under purchase orders are reflected in the Consolidated Balance Sheets as Trade and other payables. Minimum future payments under these other commercial commitments, determined at December 31, 2019, were as follows:

	2020		2021		2022		2023		2024		Thereafter		Total
	$		$		$		$		$		$		$
Other commercial commitments		117		16		9		6		5		2		155

INDEMNIFICATIONS

In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At December 31, 2019, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

Pension Plans

The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At December 31, 2019 the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

106

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23.

DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

HEDGING PROGRAMS

The Company is exposed to market risk, such as changes in currency exchange rates, commodity prices, interest rates and prices of the Company’s common stock with regard to the Company’s stock-based compensation program. To the extent the Company decides to manage the volatility related to these exposures, the Company may enter into various financial derivatives that are accounted for under the derivatives and hedging guidance. These transactions are governed by the Company's hedging policies which provide direction on acceptable hedging activities, including instrument type and acceptable counterparty exposure.

Upon inception, the Company formally documents the relationship between hedging instruments and hedged items. At inception and quarterly thereafter, the Company formally assesses whether the financial instruments used in hedging transactions are effective at offsetting changes in either the cash flow or the fair value of the underlying exposures. The Company does not hold derivative financial instruments for trading purposes.

CREDIT RISK

The Company is exposed to credit risk on accounts receivables from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of December 31, 2019, two of Domtar’s Pulp and Paper segment customers located in the U.S. represented 11% or $66 million, and 11% or $65 million, respectively, of the Company’s receivables (December 31, 2018 – one Pulp and Paper segment customer located in the U.S. represented 10% or $67 million).

The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored.

INTEREST RATE RISK

The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, revolving credit facility and securitization, term loan and long-term debt. The Company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts, whereby it agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.

107

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

COST RISK

Cash flow hedges:

The Company is exposed to price volatility for raw materials and energy used in its manufacturing process. The Company manages its exposure to cost risk primarily through the use of supplier contracts. The Company purchases natural gas at the prevailing market price at the time of delivery. To reduce the impact on cash flow and earnings due to pricing volatility, the Company may utilize derivatives to fix the price of forecasted natural gas purchases. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Cost of sales in the period during which the hedged transaction affects earnings. Current contracts are used to hedge a portion of forecasted purchases over the next 48 months.

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of December 31, 2019 to hedge forecasted purchases:



Commodity	Notional contractual quantity under derivative contracts MMBtu⁽¹⁾		Notional contractual value under derivative contracts (in millions of dollars)			Percentage of forecasted purchases under derivative contracts
Natural gas
2020		11,165,000		$	34	44%
2021		9,270,000		$	27	36%
2022		9,270,000		$	25	36%
2023		4,210,000		$	12	16%

⁽¹⁾	MMBtu: Millions of British thermal units

The natural gas derivative contracts were effective as of December 31, 2019.

FOREIGN CURRENCY RISK

Cash flow hedges:

The Company has manufacturing operations in the United States, Canada and Europe. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. Accordingly, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and European currencies. The Company’s European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates.

Derivatives are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian subsidiary over the next 24 months. Such derivatives are designated as cash flow hedges. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Sales or Cost of sales in the period during which the hedged transaction affects earnings.

108

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following table presents the currency values under significant currency positions pursuant to currency derivatives outstanding as of December 31, 2019 to hedge forecasted purchases and sales:

Percentage of

Notional

forecasted net

Business

Year of

contractual

exposures under

Average

Currency exposure hedged

Segment

maturity

value

contracts

Protection rate

Obligation rate

CAD/USD

Pulp and Paper

2020

653 CAD

69%

1 USD = 1.2969

1 USD = 1.3186

CAD/USD

Pulp and Paper

2021

335 CAD

35%

1 USD = 1.3201

The foreign exchange derivative contracts were effective as of December 31, 2019.

FAIR VALUE MEASUREMENT

The accounting standards for fair value measurements and disclosures, establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Level 3

Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

109

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (b) below) at December 31, 2019 and December 31, 2018, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

			Quoted prices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2019		(Level 1)		(Level 2)		(Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		4		—		4		—	(a)	Prepaid expenses
Currency derivatives		4		—		4		—	(a)	Other assets
Total Assets		8		—		8		—

Liabilities derivatives
Currency derivatives		2		—		2		—	(a)	Trade and other payables
Natural gas swap contracts		9		—		9		—	(a)	Trade and other payables
Natural gas swap contracts		8		—		8		—	(a)	Other liabilities and deferred credits
Total Liabilities		19		—		19		—

Other Instruments:
Stock-based compensation - liability awards		7		7		—		—		Trade and other payables
Stock-based compensation - liability awards		18		18		—		—		Other liabilities and deferred credits
Long-term debt		1,030		—		1,030		—	(b)	Long-term debt

The net cumulative loss recorded in Accumulated other comprehensive loss relating to natural gas contracts is $17 million at December 31, 2019, of which a loss of $9 million will be recognized in Cost of sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at December 31, 2019.

110

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The net cumulative gain recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases is $6 million at December 31, 2019, of which a gain of $2 million will be recognized in Cost of sales or Sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at December 31, 2019.

			Quoted prices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2018		(Level 1)		(Level 2)		(Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		1		—		1		—	(a)	Prepaid expenses
Natural gas swap contracts		1		—		1		—	(a)	Prepaid expenses
Total Assets		2		—		2		—

Liabilities derivatives
Currency derivatives		19		—		19		—	(a)	Trade and other payables
Natural gas swap contracts		2		—		2		—	(a)	Trade and other payables
Currency derivatives		11		—		11		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		5		—		5		—	(a)	Other liabilities and deferred credits
Total Liabilities		37		—		37		—

Other Instruments:
Stock-based compensation - liability awards		6		6		—		—		Trade and other payables
Stock-based compensation - liability awards		17		17		—		—		Other liabilities and deferred credits
Long-term debt		858		—		858		—	(b)	Long-term debt

^(a)

Fair value of the Company’s derivatives is classified under Level 2 (inputs that are observable; directly or indirectly) as it is measured as follows:

For currency derivatives: Fair value is measured using techniques derived from the Black-Scholes pricing model. Interest rates, forward market rates and volatility are used as inputs for such valuation techniques.

For natural gas contracts: Fair value is measured using the discounted difference between contractual rates and quoted market future rates.

^(b)

Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at December 31, 2019 and December 31, 2018. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $939 million and $854 million at December 31, 2019 and December 31, 2018, respectively.

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, receivables, bank indebtedness, trade and other payables and income and other taxes approximate their fair values.

111

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24.

SEGMENT DISCLOSURES

The Company’s two reportable segments described below also represent its two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of the Company’s reportable segments:

•	Pulp and Paper – consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

•	Personal Care – consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates segment performance based on operating income. Transfer prices between segments are based on market prices. Certain Corporate general and administrative costs are allocated to the segments. Corporate costs that are not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, are presented on the Corporate line. The Company does not allocate interest expense and income taxes to the segments. Segment assets are those directly used in segment operations.

The Company attributes sales to customers in different geographical areas on the basis of the location of the customer.

Long-lived assets consist of property, plant and equipment, operating lease right-of-use assets and intangible assets used in the generation of sales in the different geographical areas.

112

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24. SEGMENT DISCLOSURES (CONTINUED)

An analysis and reconciliation of the Company’s business segment information to the respective information in the financial statements is as follows:

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
SEGMENT DATA	2019			2018			2017
	$			$			$
Sales
Pulp and Paper		4,332			4,523			4,216
Personal Care		953			1,000			996
Total for reportable segments		5,285			5,523			5,212
Intersegment sales		(65	)		(68	)		(64	)
Consolidated sales ⁽¹⁾		5,220			5,455			5,148
Sales by product group
Communication papers		2,571			2,548			2,382
Specialty and packaging papers		637			710			651
Market pulp		1,059			1,197			1,119
Absorbent hygiene products		953			1,000			996
Consolidated sales ⁽¹⁾		5,220			5,455			5,148
Depreciation and amortization
Pulp and Paper		228			238			254
Personal Care		65			70			67
Total for reportable segments		293			308			321
Impairment of long-lived assets - Pulp and Paper		32			—			—
Impairment of long-lived assets - Personal Care		26			7			578
Consolidated depreciation and amortization and impairment of long-lived assets		351			315			899
Operating income (loss)
Pulp and Paper		225			438			237
Personal Care		(15	)		(5	)		(527	)
Corporate		(47	)		(47	)		(38	)
Consolidated operating income (loss)		163			386			(328	)
Interest expense, net		52			62			66
Non-service components of net periodic benefit cost		23			(18	)		(11	)
Earnings (loss) before income taxes and equity loss		88			342			(383	)
Income tax expense (benefit)		2			57			(125	)
Equity loss, net of taxes		2			2			—
Net earnings (loss)		84			283			(258	)

⁽¹⁾	In 2019 and 2018, Staples, one of the Company’s largest customers in the Pulp and Paper segment, represented approximately 11% (2018 – 10%) of the total sales.

113

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24. SEGMENT DISCLOSURES (CONTINUED)

	December 31,		December 31,
	2019		2018
	$		$
Segment assets
Pulp and Paper		3,507		3,475
Personal Care		1,258		1,331
Total for reportable segments		4,765		4,806
Corporate		138		119
Consolidated assets		4,903		4,925

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2019			2018			2017
	$			$			$
Additions to property, plant and equipment
Pulp and Paper		220			164			128
Personal Care		41			37			48
Total for reportable segments		261			201			176
Corporate		3			2			4
Consolidated additions to property, plant and equipment		264			203			180
Add: Change in payables on capital projects		(9	)		(8	)		2
Consolidated additions to property, plant and equipment per Consolidated Statements of Cash Flows		255			195			182

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2019		2018		2017
	$		$		$
Geographic information
Sales
United States		3,717		3,669		3,486
Canada		419		480		474
Europe		583		682		610
Asia		370		489		444
Other foreign countries		131		135		134
		5,220		5,455		5,148

	December 31,		December 31,
	2019		2018
	$		$
Long-lived assets
United States		2,004		2,056
Canada		691		604
Europe		526		542
		3,221		3,202

114

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The following information is presented as required under Rule 3-10 of Regulation S-X, in connection with the Company’s issuance of debt securities that are fully and unconditionally guaranteed by Domtar’s significant 100% owned domestic subsidiaries, including Domtar Paper Company, LLC, Domtar Industries LLC (and subsidiaries, excluding Domtar Funding LLC), Domtar A.W. LLC, Attends Healthcare Products Inc., EAM Corporation, Associated Hygienic Products LLC and Home Delivery Incontinent Supplies Co., (“Guarantor Subsidiaries”), on a joint and several basis. The Guaranteed Debt is not guaranteed by certain of Domtar’s foreign and non-significant domestic subsidiaries, all 100% owned, (collectively the “Non-Guarantor Subsidiaries”). A subsidiary’s guarantee may be released in certain customary circumstances, such as if the subsidiary is sold or sells all of its assets, if the subsidiary’s guarantee of the Credit Agreement is terminated or released and if the requirements for legal defeasance to discharge the indenture have been satisfied.

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at December 31, 2019 and 2018 and the Statements of Earnings (Loss) and Comprehensive Income (Loss) and Cash Flows for the years ended December 31, 2019, 2018 and 2017 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME	December 31, 2019
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,292			1,944			(1,016	)		5,220
Operating expenses
Cost of sales, excluding depreciation and amortization		1			3,650			1,590			(1,016	)		4,225
Depreciation and amortization		—			207			86			—			293
Selling, general and administrative		9			244			181			—			434
Impairment of long-lived assets		—			58			—			—			58
Closure and restructuring costs		—			40			2			—			42
Other operating (income) loss, net		—			(3	)		8			—			5
		10			4,196			1,867			(1,016	)		5,057
Operating (loss) income		(10	)		96			77			—			163
Interest expense (income), net		69			80			(97	)		—			52
Non-service components of net periodic benefit cost		—			2			21			—			23
(Loss) earnings before income taxes and equity loss		(79	)		14			153			—			88
Income tax (benefit) expense		(17	)		(12	)		31			—			2
Equity loss, net of taxes		—			1			1			—			2
Share in earnings of equity accounted investees		146			121			—			(267	)		—
Net earnings		84			146			121			(267	)		84
Other comprehensive income		74			81			49			(130	)		74
Comprehensive income		158			227			170			(397	)		158

115

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME	December 31, 2018
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,411			2,226			(1,182	)		5,455
Operating expenses
Cost of sales, excluding depreciation and amortization		—			3,782			1,703			(1,182	)		4,303
Depreciation and amortization		—			216			92			—			308
Selling, general and administrative		11			108			324			—			443
Impairment of long-lived assets		—			7			—			—			7
Closure and restructuring costs		—			6			2			—			8
Other operating (income) loss, net		—			(1	)		1			—			—
		11			4,118			2,122			(1,182	)		5,069
Operating (loss) income		(11	)		293			104			—			386
Interest expense (income), net		62			91			(91	)		—			62
Non-service components of net periodic benefit cost		—			1			(19	)		—			(18	)
(Loss) earnings before income taxes and equity loss		(73	)		201			214			—			342
Income tax (benefit) expense		(20	)		30			47			—			57
Equity loss, net of taxes		—			1			1			—			2
Share in earnings of equity accounted investees		336			166			—			(502	)		—
Net earnings		283			336			166			(502	)		283
Other comprehensive loss		(131	)		(133	)		(110	)		243			(131	)
Comprehensive income		152			203			56			(259	)		152

116

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF LOSS	Year ended
AND COMPREHENSIVE INCOME (LOSS)	December 31, 2017
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,243			2,053			(1,148	)		5,148
Operating expenses
Cost of sales, excluding depreciation and amortization		—			3,688			1,605			(1,148	)		4,145
Depreciation and amortization		—			233			88			—			321
Selling, general and administrative		9			142			293			—			444
Impairment of long-lived assets		—			313			265			—			578
Closure and restructuring costs		—			2			—			—			2
Other operating loss (income), net		—			1			(15	)		—			(14	)
		9			4,379			2,236			(1,148	)		5,476
Operating loss		(9	)		(136	)		(183	)		—			(328	)
Interest expense (income), net		63			86			(83	)		—			66
Non-service components of net periodic benefit cost		—			1			(12	)		—			(11	)
Loss before income taxes		(72	)		(223	)		(88	)		—			(383	)
Income tax expense (benefit)		9			(179	)		45			—			(125	)
Share in earnings of equity accounted investees		(177	)		(133	)		—			310			—
Net loss		(258	)		(177	)		(133	)		310			(258	)
Other comprehensive income		163			175			170			(345	)		163
Comprehensive (loss) income		(95	)		(2	)		37			(35	)		(95	)

117

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET	December 31, 2019
					Non-
			Guarantor		Guarantor		Consolidating
	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		1		11		49		—			61
Receivables		—		146		431		—			577
Inventories		—		543		243		—			786
Prepaid expenses		5		17		11		—			33
Income and other taxes receivable		34		—		27		—			61
Intercompany accounts		538		547		237		(1,322	)		—
Total current assets		578		1,264		998		(1,322	)		1,518
Property, plant and equipment, net		—		1,689		878		—			2,567
Operating lease right-of-use assets		—		63		18		—			81
Intangible assets, net		—		245		328		—			573
Investments in affiliates		3,627		2,493		—		(6,120	)		—
Intercompany long-term advances		5		1		1,482		(1,488	)		—
Other assets		14		30		131		(11	)		164
Total assets		4,224		5,785		3,835		(8,941	)		4,903

Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—		9		—		—			9
Trade and other payables		57		390		258		—			705
Intercompany accounts		344		299		679		(1,322	)		—
Income and other taxes payable		1		12		10		—			23
Operating lease liabilities due within one year		—		21		7		—			28
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		402		731		955		(1,322	)		766
Long-term debt		873		—		65		—			938
Operating lease liabilities		—		58		11		—			69
Intercompany long-term loans		541		946		1		(1,488	)		—
Deferred income taxes and other		—		324		166		(11	)		479
Other liabilities and deferred credits		32		99		144		—			275
Shareholders' equity		2,376		3,627		2,493		(6,120	)		2,376
Total liabilities and shareholders' equity		4,224		5,785		3,835		(8,941	)		4,903

118

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET	December 31, 2018
					Non-
			Guarantor		Guarantor		Consolidating
	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		—		—		111		—			111
Receivables		—		146		524		—			670
Inventories		—		525		237		—			762
Prepaid expenses		6		12		6		—			24
Income and other taxes receivable		1		3		18		—			22
Intercompany accounts		498		392		35		(925	)		—
Total current assets		505		1,078		931		(925	)		1,589
Property, plant and equipment, net		—		1,802		803		—			2,605
Intangible assets, net		—		256		341		—			597
Investments in affiliates		3,645		2,611		—		(6,256	)		—
Intercompany long-term advances		5		1		1,569		(1,575	)		—
Other assets		18		26		104		(14	)		134
Total assets		4,173		5,774		3,748		(8,770	)		4,925

Liabilities and shareholders' equity
Current liabilities
Trade and other payables		52		464		241		—			757
Intercompany accounts		125		264		536		(925	)		—
Income and other taxes payable		1		12		12		—			25
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		178		740		790		(925	)		783
Long-term debt		793		—		60		—			853
Intercompany long-term loans		636		938		1		(1,575	)		—
Deferred income taxes and other		—		335		155		(14	)		476
Other liabilities and deferred credits		28		116		131		—			275
Shareholders' equity		2,538		3,645		2,611		(6,256	)		2,538
Total liabilities and shareholders' equity		4,173		5,774		3,748		(8,770	)		4,925

The Company has revised the Receivables balance within the December 31, 2018 Guarantor Subsidiaries column (decreased) and Non-Guarantor Subsidiaries column (increased) by $198 million, respectively, as receivables from third parties for the Guarantor Subsidiaries were netted with intercompany receivables.

119

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Year ended December 31, 2019
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		84			146			121			(267	)		84
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		32			(93	)		152			267			358
Cash flows provided from operating activities		116			53			273			—			442
Investing activities
Additions to property, plant and equipment		—			(137	)		(118	)		—			(255	)
Proceeds from disposals of property, plant and equipment		—			1			—			—			1
Cash flows used for investing activities		—			(136	)		(118	)		—			(254	)
Financing activities
Dividend payments		(110	)		—			—			—			(110	)
Stock repurchase		(219	)		—			—			—			(219	)
Net change in bank indebtedness		—			9			—			—			9
Change in revolving credit facility		80			—			—			—			80
Proceeds from receivables securitization facilities		—			—			205			—			205
Repayments of receivables securitization facilities		—			—			(200	)		—			(200	)
Repayments of long-term debt		—			—			(1	)		—			(1	)
Increase in long-term advances to related parties		—			—			(220	)		220			—
Decrease in long-term advances to related parties		135			85			—			(220	)		—
Other		(1	)		—			—			—			(1	)
Cash flows (used for) provided from financing activities		(115	)		94			(216	)		—			(237	)
Net increase (decrease) in cash and cash equivalents		1			11			(61	)		—			(49	)
Impact of foreign exchange on cash		—			—			(1	)		—			(1	)
Cash and cash equivalents at beginning of year		—			—			111			—			111
Cash and cash equivalents at end of year		1			11			49			—			61

120

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Year ended December 31, 2018
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		283			336			166			(502	)		283
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		(557	)		434			(108	)		502			271
Cash flows (used for) provided from operating activities		(274	)		770			58			—			554
Investing activities
Additions to property, plant and equipment		—			(142	)		(53	)		—			(195	)
Proceeds from disposals of property, plant and equipment		—			1			4			—			5
Other		—			(2	)		(4	)		—			(6	)
Cash flows used for investing activities		—			(143	)		(53	)		—			(196	)
Financing activities
Dividend payments		(108	)		—			—			—			(108	)
Proceeds from receivables securitization facilities		—			—			85			—			85
Repayments of receivables securitization facilities		—			—			(60	)		—			(60	)
Repayments of long-term debt		—			(300	)		(1	)		—			(301	)
Increase in long-term advances to related parties		—			(341	)		(36	)		377			—
Decrease in long-term advances to related parties		377			—			—			(377	)		—
Other		2			—			—			—			2
Cash flows provided from (used for) financing activities		271			(641	)		(12	)		—			(382	)
Net decrease in cash and cash equivalents		(3	)		(14	)		(7	)		—			(24	)
Impact of foreign exchange on cash		—			—			(4	)		—			(4	)
Cash and cash equivalents at beginning of year		3			14			122			—			139
Cash and cash equivalents at end of year		—			—			111			—			111

121

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Year ended December 31, 2017
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net loss		(258	)		(177	)		(133	)		310			(258	)
Changes in operating and intercompany assets and liabilities and non-cash items, included in net loss		287			259			471			(310	)		707
Cash flows provided from operating activities		29			82			338			—			449
Investing activities
Additions to property, plant and equipment		—			(99	)		(83	)		—			(182	)
Proceeds from disposals of property, plant and equipment and sale of business		—			—			19			—			19
Acquisition of business, net of cash acquired		—			—			(8	)		—			(8	)
Cash flows used for investing activities		—			(99	)		(72	)		—			(171	)
Financing activities
Dividend payments		(104	)		—			—			—			(104	)
Net change in bank indebtedness		—			(12	)		—			—			(12	)
Change in revolving credit facility		(50	)		—			—			—			(50	)
Proceeds from receivables securitization facilities		—			—			45			—			45
Repayments of receivables securitization facilities		—			—			(90	)		—			(90	)
Repayments of long-term debt		(63	)		—			(1	)		—			(64	)
Increase in long-term advances to related parties		—			—			(202	)		202			—
Decrease in long-term advances to related parties		173			29			—			(202	)		—
Other		1			—			—			—			1
Cash flows (used for) provided from financing activities		(43	)		17			(248	)		—			(274	)
Net (decrease) increase in cash and cash equivalents		(14	)		—			18			—			4
Impact of foreign exchange on cash		—			—			10			—			10
Cash and cash equivalents at beginning of year		17			14			94			—			125
Cash and cash equivalents at end of year		3			14			122			—			139

122

Domtar Corporation

Interim Financial Results (Unaudited)

(In millions of dollars, unless otherwise noted)

2019	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter				Year
Sales	$	1,376		$	1,317		$	1,283		$	1,244			$	5,220
Operating income (loss)		115	^(a)		34	^(b)		29	^(c)		(15	)	^(d)		163
Earnings (loss) before income taxes and equity loss		105			23			19			(59	)	^(e)		88
Net earnings (loss)		80			18			20			(34	)			84
Basic net earnings (loss) per common share		1.27			0.29			0.33			(0.59	)			1.37
Diluted net earnings (loss) per common share		1.27			0.28			0.32			(0.59	)			1.37

2018	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
Sales	$	1,345		$	1,353		$	1,367		$	1,390		$	5,455
Operating income		77	^(f)		62	^(g)		114			133	⁽ⁱ⁾		386
Earnings before income taxes and equity loss		65			51			103			123			342
Net earnings		54			43			99	^(h)		87	^(j)		283
Basic net earnings per common share		0.86			0.68			1.57			1.38			4.50
Diluted net earnings per common share		0.86			0.68			1.57			1.38			4.48

(a)	The operating income for the first Quarter of 2019 included closure and restructuring costs of $4 million and impairment of long-lived assets of $10 million, both related to our Personal Care segment.

(b)	The operating income for the second Quarter of 2019 included closure and restructuring costs of $8 million and impairment of long-lived assets of $15 million, both related to our Personal Care segment.

(c)	The operating income for the third Quarter of 2019 included closure and restructuring costs of $5 million and impairment of long-lived assets of $32 million, both related to our Pulp and Paper segment.

The Company also recorded closure and restructuring costs of $6 million and impairment of long-lived assets of $1 million, both related to our Personal Care segment.

(d)	The operating loss for the fourth Quarter of 2019 included closure and restructuring costs of $17 million related to our Pulp and Paper segment.

The Company also recorded closure and restructuring costs of $2 million related to our Personal Care segment.

(e)	The loss before income taxes and equity loss for the fourth Quarter of 2019 included a pension settlement loss of $30 million related to our Pulp and Paper segment.

(f)	The operating income for the first Quarter of 2018 included a gain on disposal of property, plant and equipment of $1 million related to our Pulp and Paper segment.

The Company also recorded a litigation settlement of $2 million related to our Corporate segment.

(g)	The operating income for the second Quarter of 2018 included a gain on disposal of property, plant and equipment of $3 million related to our Pulp and Paper segment.

(h)	The net earnings for the third Quarter of 2018 included a tax benefit of $7 million related to the U.S. Tax Reform.

(i)	The operating income for the fourth Quarter of 2018 included closure and restructuring costs of $8 million and impairment of long-lived assets of $7 million, both related to our Personal Care segment.

(j)	The net earnings for the fourth Quarter of 2018 included a tax expense of $10 million related to the U.S. Tax Reform.

123

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company has nothing to report under this item.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2019, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as at December 31, 2019, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

The information called for by this item is incorporated herein by reference to “Management’s Report on Internal Control Over Financial Reporting”, and the attestation regarding internal controls over financial reporting included in the “Report of Independent Registered Public Accounting Firm” included in Item 8 of this Report.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the fourth quarter ended December 31, 2019.

ITEM 9B. OTHER INFORMATION

The Company has nothing to report under this item.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information included under the captions “Governance of the Corporation” and “Election of Directors” in our Proxy Statement for the 2020 Annual Meeting of Stockholders, to be filed on or about April 6, 2020, is incorporated herein by reference.

Information regarding our executive officers is presented in Item 1, Business, under the caption “Our Executive Officers”.

ITEM 11. EXECUTIVE COMPENSATION

The information appearing under the caption “Compensation Discussion and Analysis”, “Executive Compensation” and “Director Compensation” in our Proxy Statement for the 2020 Annual Meeting of Stockholders, to be filed on or about April 6, 2020, is incorporated herein by reference.

124

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information appearing under the caption “Security Ownership of Certain Beneficial Owners, Directors and Officers” in our Proxy Statement for the 2020 Annual Meeting of Stockholders, to be filed on or about April 6, 2020, is incorporated herein by reference.

The following table sets forth the number of shares of our stock reserved for issuance under our equity compensation plans as of December 31, 2019:

Number of securities remaining

Number of securities to

available for future issuance under

be issued upon exercise

Weighted average exercise price

equity compensation

of outstanding options,

of outstanding

plans (excluding securities reflected

Plan Category

warrants and rights (#)

options, warrants and rights ($)

in column (a) (#)

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,561,152

⁽¹

⁾

46.93

⁽²

⁾

1,112,295

⁽³

⁾

Equity compensation plans not approved by security holders

N/A

Total

1,561,152

46.93

1,112,295

⁽¹⁾

Represents the total number of shares associated with options, restricted stock units ("RSUs"), performance share units ("PSUs"), deferred share units ("DSUs") and dividends equivalent units ("DEUs") outstanding as of December 31, 2019 that may or will be settled in equity. This number assumes that PSUs will vest at the “maximum” performance level, and that any performance requirements applicable to options will be satisfied.

⁽²⁾	Represents the weighted average exercise price of options disclosed in column (a).

⁽³⁾	Represents the number of shares remaining available for issuance in settlement of future awards under the Omnibus Incentive Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information appearing under the captions “Governance of the Corporation – Board Independence and Other Determinations” in our Proxy Statement for the 2020 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information appearing under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” and “Independent Registered Public Accounting Firm Fees” in our Proxy Statement for the 2020 Annual Meeting of Stockholders is incorporated herein by reference.

125

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	1. Financial Statements – See Item 8, Financial Statements and Supplementary Data.

2. Schedule II – Valuation and Qualifying Accounts

All other schedules are omitted as the information required is either included elsewhere in the consolidated financial statements in Item 8, Financial Statements and Supplementary Data – or is not applicable.

3. Exhibits:

		Incorporated by reference to:
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date

3.1	Amended and Restated Certificate of Incorporation	10-Q	3.1	08/08/2008

3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation	8-K	3.1	06/08/2009

3.3	Amended and Restated By-Laws	8-K	3.1	02/24/2016

4.1	Form of Indenture between Domtar Corp. and the Bank of New York, as trustee, relating to Domtar Corp.’s (i) 7.125% Notes due 2015, (ii) 5.375% Notes due 2013, (iii) 7.875% Notes due 2011, (iv) 9.5% Notes due 2016 to be issued as part of a debt exchange	S-4	4.1	10/16/2007

4.2	Supplemental Indenture, dated February 15, 2008, among Domtar Corp., Domtar Paper Company LLC, The Bank of New York, as Trustee, and the new subsidiary guarantors as parties thereto, relating to the guarantee by the new subsidiary guarantors of the obligations under the Indenture	8-K	4.1	02/21/2008


4.3	Supplemental Indenture, dated September 7, 2011, among Domtar Corporation, Attends Healthcare Products Inc., and The Bank of New York Mellon (formerly the Bank of New York), as trustee, relating to the guarantee by Attends Healthcare Products Inc. of the obligations under the Indenture	10-Q	4.1	11/04/2011

4.4	Supplemental Indenture, dated as of March 16, 2012, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee, providing for Domtar Corporation’s 4.40% Notes due 2022	8-K	4.1	03/16/2012

4.5	Supplemental Indenture, dated May 21, 2012, among Domtar Corporation, EAM Corporation, and The Bank of New York Mellon, as trustee, relating to EAM Corporation’s guarantee of the obligations under the Indenture	S-3	4.8	08/20/2012

4.6	Supplemental Indenture, dated as of August 23, 2012, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly the Bank of New York), as trustee, providing for Domtar Corporation’s 6.25% Notes due 2042	8-K	4.1	08/23/2012

4.7	Supplemental Indenture, dated as of July 31, 2013, among Domtar Corporation, Associated Hygienic Products LLC, and The Bank of New York Mellon (formerly the Bank of New York), as trustee, relating to the guarantee by Associated Hygienic Products LLC of the obligations under the Indenture	S-3ASR	4.10	10/01/2013

4.8	Supplemental Indenture, dated as of November 26, 2013, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly the Bank of New York), as trustee, providing for Domtar Corporation’s 6.75% Notes due 2044	8-K	4.1	11/26/2013

126

		Incorporated by reference to:
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date



4.9	Supplemental Indenture, dated as of January 23, 2017, among Home Delivery Incontinent Supplies Co, Domtar Corporation and The Bank of New York Mellon, as trustee, relating to Home Delivery Incontinent Supplies Co’s guarantee of the obligations under the Indenture	10-Q	4.1	05/05/2017

10.1*	Domtar Corporation Deferred Share Unit Plan for Outside Directors (for former directors of Domtar Inc.)	10-K	10.30	02/27/2009


10.2*	Director Deferred Stock Unit Agreement	8-K	10.1	05/24/2007

10.3*	Non-Qualified Stock Option Agreement	10-K	10.4	02/22/2019

10.4*	Restricted Stock Unit Agreement

10.5*	Performance Share Unit Agreement

10.6*	Amended and Restated Severance Program for Management Committee Members


10.7*	Amended and Restated DB SERP for Management Committee Members of Domtar	10-Q	10.1	08/04/2017

10.8*	Amended and Restated DC SERP for Designated Executives of Domtar

10.9*	Form of Indemnification Agreement for members of Pension Administration Committee of Domtar Corporation	10-K	10.50	02/27/2009

10.10	Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan

10.11	Domtar Corporation Annual Incentive Plan for Members of the Management Committee

10.12*	Employment agreement of Mr. Michael Fagan	10-K	10.48	02/28/2013

10.13*	Amended and Restated Supplementary Pension Plan for Designated Managers of Domtar Inc.	10-Q	10.3	08/04/2017

10.14*	Amended and Restated Employment Agreement of Mr. John D. Williams	10-Q	10.1	08/02/2013



10.15*	Amended and Restated DC SERP for Designated Executives of Domtar Personal Care

10.16*	Employment agreement of Mr. Michael D. Garcia	10-Q	10.1	08/01/2014

10.17	Third Amended and Restated Credit Agreement dated as of August 22, 2018.	10-Q	10.1	11/08/2018

21	Subsidiaries of Domtar Corporation

23	Consent of Independent Registered Public Accounting Firm

24.1	Powers of Attorney (included in signature page)

31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

127

		Incorporated by reference to:
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date

31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase

101.PRE	Inline XBRL Extension Presentation Linkbase

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

^*	Indicates management contract or compensatory arrangement

128

FINANCIAL STATEMENT SCHEDULE

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the three years ended:

	Balance at		Charged to		Deductions from			Balance at end
	beginning of year		income		reserve			of year
	$		$		$			$
Allowances deducted from related asset accounts:
Doubtful accounts - Accounts receivable
2019		6		2		(2	)		6
2018		7		2		(3	)		6
2017		7		1		(1	)		7

	Balance at		Charged to			Deductions from			Balance at end
	beginning of year		income			reserve			of year
	$		$			$			$
Valuation Allowance on Deferred Tax Assets
2019		16		5			—			21
2018		25		(8	)		(1	)		16
2017		22		3			—			25

129

ITEM 16. FORM 10-K SUMMARY

None.

130

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fort Mill, South Carolina, United States, on February 25, 2020

	DOMTAR CORPORATION

by		/s/ John D. Williams
Name:		John D. Williams
Title:		President and Chief Executive Officer

We, the undersigned directors and officers of Domtar Corporation, hereby severally constitute Zygmunt Jablonski and Razvan L. Theodoru, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ John D. Williams	President and Chief Executive Officer (Principal Executive Officer) and Director	February 25, 2020
John D. Williams

/s/ Daniel Buron	Senior Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 25, 2020
Daniel Buron

/s/Giannella Alvarez	Director	February 25, 2020
Giannella Alvarez

/s/ Robert E. Apple	Director	February 25, 2020
Robert E. Apple

/s/ David J. Illingworth	Director	February 25, 2020
David J. Illingworth

/s/ Brian M. Levitt	Director	February 25, 2020
Brian M. Levitt

/s/ David G. Maffucci	Director	February 25, 2020
David G. Maffucci

/s/ Pamela B. Strobel	Director	February 25, 2020
Pamela B. Strobel

/s/ Denis Turcotte	Director	February 25, 2020
Denis Turcotte

/s/ Mary A. Winston	Director	February 25, 2020
Mary A. Winston

131

Exhibit 10.4

RESTRICTED STOCK UNIT AGREEMENT

FOR AWARDS GRANTED IN 2019

RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”) dated as of the Grant Date set forth in the Notice of Grant (as defined below), by and between Domtar Corporation, a Delaware corporation (the “Company”), and the participant whose name appears in the Notice of Grant (the “Participant”).

1. Grant of Restricted Stock Units. The Company hereby evidences and confirms its grant to the Participant, effective as of the Grant Date, of the number of restricted stock units (the “Restricted Stock Units”) specified in the Domtar Corporation 2007 Omnibus Incentive Plan Restricted Stock Unit Grant Notice delivered by the Company to the Participant (the “Notice of Grant”). This Agreement is subordinate to, and the terms and conditions of the Restricted Stock Units granted hereunder are subject to, the terms and conditions of the Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan (the “Plan”), which are incorporated by reference herein. If there is any inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall govern. Any capitalized terms used herein without definition shall have the meanings set forth in the Plan. The Restricted Stock Units shall be considered Service Awards under the Plan.

2. Vesting of Restricted Stock Units.

(a) Vesting. Except as otherwise provided in this Section 2, the Restricted Stock Units shall become vested, if at all, on the vesting date(s) set forth in the Notice of Grant (each, a “Vesting Date”), subject to the continued employment of the Participant by the Company or any Subsidiary thereof through such date.

(b) Termination of Employment.

(i) Death or Disability. If the Participant’s employment is terminated due to death or Disability prior to the Vesting Date, 100% of the Restricted Stock Units shall become fully vested and non-forfeitable and shall be paid as provided in Section 3.

(ii) Retirement. If the Participant’s employment is terminated due to Retirement prior to the Vesting Date, the Participant shall be deemed vested to the extent of the number of Restricted Stock Units that would have vested had the Participant’s Service continued until the Vesting Date, multiplied by a fraction, the numerator of which is the number of days elapsed from the Grant Date through the date of the Participant’s Retirement and the denominator of which is the number of days from the Grant Date to the Vesting Date, and any remaining Restricted Stock Units shall be forfeited and canceled as of the date of such Retirement. Vested Restricted Stock Units shall be settled as set forth in Section 3.

(iii) Any Other Reason. If the Participant’s employment is terminated prior to the Vesting Date for any reason other than death, Disability or Retirement, all Restricted Stock Units shall immediately be forfeited and canceled effective as of the date of the Participant’s termination.

(c) Change in Control. In the event of a Change in Control, then the Restricted Stock Units shall vest or continue as set forth in the Plan.

(d) Committee Discretion. Notwithstanding anything contained in this Agreement to the contrary, the Committee, in its sole discretion, may accelerate the vesting with respect to any Restricted Stock Units under this Agreement, at such times and upon such terms and conditions as the Committee shall determine.

3. Settlement of Restricted Stock Units. Subject to Section 7(d), the Company shall deliver to the Participant the value of one share of Stock in settlement of each outstanding Restricted Stock Unit that has vested as provided in Section 2 on the first to occur of (i) the Vesting Date, (ii) in the event of a Termination of Service due to death, Disability or Retirement, (A) as soon as reasonably practicable after such Termination of Service or (B) notwithstanding the preceding clause (A), if the Participant is a United States citizen or resident or the Participant’s Restricted Stock Units are otherwise subject to United States federal income tax, on the later of (1) January 31 of the year following the Participant’s Termination of Service and (2) if the Participant is a Specified Employee and the Restricted Stock Units are a Specified Award, to the extent necessary to comply with, and avoid imposition on the Participant of any additional tax or interest imposed under, Section 409A of the Code, on the first business day following the six-month anniversary of the Participant’s Termination of Service (or, if earlier, upon the Participant’s death), or as soon thereafter as practicable (but no later than 90 days thereafter) (iii) with respect to Restricted Stock Units that are not a Specified Award, a Change in Control in which the Restricted Stock Units do not continue, and (iv) with respect to Restricted Stock Units that are a Specified Award, a Specified Change in Control, in each case (A) by a cash payment equal to the Fair Market Value of the Stock on the settlement date or (B) if the Participant is a member of the Management Committee, at the Company’s sole discretion, in Stock, by either (y) issuing one or more certificates evidencing the Stock to the Participant or (z) registering the issuance of the Stock in the name of the Participant through a book entry credit in the records of the Company’s transfer agent or (C) in the event of settlement upon a Change in Control or Specified Change in Control, as applicable, a cash payment equal to the Change in Control Price, multiplied by the number of vested Restricted Stock Units. No fractional shares of Stock shall be issued in settlement of Restricted Stock Units. Fractional Restricted Stock Units shall be settled through a cash payment equal to the Fair Market Value of the Stock on the settlement date.

4. Securities Law Compliance. Notwithstanding any other provision of this Agreement, the Participant may not sell the shares of Stock acquired upon vesting of the

Restricted Stock Units unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act. The sale of such shares must also comply with other applicable laws and regulations governing the shares and Participant may not sell the shares of Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.

5. Participant’s Rights with Respect to the Restricted Stock Units.

(a) Restrictions on Transferability. The Restricted Stock Units granted hereby are not assignable or transferable, in whole or in part, and may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including without limitation by gift, operation of law or otherwise) other than by will or by the laws of descent and distribution to the estate of the Participant upon the Participant’s death; provided that the deceased Participant’s beneficiary or representative of the Participant’s estate shall acknowledge and agree in writing, in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were the Participant.

(b) No Rights as Stockholder. The Participant shall not have any rights as a stockholder including any voting, dividend or other rights or privileges as a stockholder of the Company with respect to any Stock corresponding to the Restricted Stock Units granted hereby unless and until shares of Stock are issued to the Participant in respect thereof.

(c) Dividend Equivalents. The Participant shall be credited with Dividend Equivalents in the form of additional Restricted Stock Units when cash dividends are paid on the Stock. Such Dividend Equivalents shall be computed by dividing: (i) the amount obtained by multiplying the amount of the dividend declared and paid for each share of Stock by the number of Restricted Stock Units held by the Participant on the record date, by (ii) the Fair Market Value of the Stock on the dividend payment date for such dividend, with fractions computed to four decimal places. Such additional Restricted Stock Units shall vest and be settled in the same manner as the Restricted Stock Units to which they relate.

6. Adjustment in Capitalization. The number, class or other terms of any outstanding Restricted Stock Units shall be adjusted by the Board to reflect any extraordinary dividend, stock dividend, stock split or share combination or any recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting the Stock in such manner as it determines in its sole discretion.

7. Miscellaneous.

(a) Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(b) No Right to Continued Employment. Nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate the Participant’s employment at any time, or confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries.

(c) Interpretation. The Committee shall have full power and discretion to construe and interpret the Plan (and any rules and regulations issued thereunder) and this Award. Any determination or interpretation by the Committee under or pursuant to the Plan or this Award shall be final and binding and conclusive on all persons affected hereby.

(d) Tax Withholding. The Company and its Subsidiaries shall have the right to deduct from all amounts paid to the Participant in cash (whether under the Plan or otherwise) any amount of taxes required by law to be withheld in respect of settlement of the Restricted Stock Units under the Plan as may be necessary in the opinion of the Employer to satisfy tax withholding required under the laws of any country, state, province, city or other jurisdiction, including but not limited to income taxes, capital gains taxes, transfer taxes, and social security contributions that are required by law to be withheld. The Company may require the recipient of the cash or shares of Stock, as applicable, to remit to the Company an amount in cash sufficient to satisfy the amount of taxes required to be withheld as a condition to the payment of cash or issuance of shares in settlement of the Restricted Stock Units. The Committee may, in its discretion, require the Participant, or permit the Participant to elect, subject to such conditions as the Committee shall impose, to meet such obligations by having the Company withhold from the cash payment in settlement of the Restricted Stock Units or withhold or sell the least number of whole shares of Stock having a Fair Market Value sufficient to satisfy all or part of the amount required to be withheld. The Company may defer settlement until such requirements are satisfied.

vested and all gains earned or accrued due to the sale of any Stock received in settlement of the Restricted Stock Units during the 12-month period following the filing of the financial document embodying such financial reporting requirement and (ii) any Stock and cash received in respect of Restricted Stock Units that vested based on the materially non- complying financial reporting. The Company may also cancel or reduce, or require a Participant to forfeit and disgorge to the Company or reimburse the Company for, any Restricted Stock Units granted or vested and any gains earned or accrued, due to the vesting or settlement of Restricted Stock Units or sale of any Stock acquired in settlement of a Restricted Stock Unit, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act).

(f) Applicable Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware regardless of the application of rules of conflict of law that would apply the laws of any other jurisdiction.

(g) Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation. By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, the Participant acknowledges: (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the Award does not create any contractual or other right to receive future grants of Awards; (c) that participation in the Plan is voluntary; (d) that the value of the Restricted Stock Units is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; and (e) that the future value of the Stock is unknown and cannot be predicted with certainty.

(h) Employee Data Privacy. By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, the Participant: (a) authorizes the Company and the Participant’s employer, if different, any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its affiliates any information and data the Company requests in order to facilitate the grant of the Award and the administration of the Plan; (b) waives any data privacy rights the Participant may have with respect to such information; and (c) authorizes the Company and its agents to store and transmit such information in electronic form.

(i) Consent to Electronic Delivery. By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Restricted Stock Units via Company web site or other electronic delivery.

(j) Headings and Captions. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(k) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

Exhibit 10.5

PERFORMANCE SHARE UNIT AGREEMENT

FOR AWARDS GRANTED IN 2019

PERFORMANCE SHARE UNIT AGREEMENT (the “Agreement”) dated as of the Grant Date set forth in the Notice of Grant (as defined below), by and between Domtar Corporation, a Delaware corporation (the “Company”), and the participant whose name appears in the Notice of Grant (the “Participant”).

1. Grant of Performance Share Units. The Company hereby evidences and confirms its grant to the Participant, effective as of the Grant Date, of the number of performance-based restricted stock units (the “Performance Share Units”) specified in the Domtar Corporation 2007 Omnibus Incentive Plan Performance Share Unit Grant Notice delivered by the Company to the Participant (the “Notice of Grant”). This Agreement is subordinate to, and the terms and conditions of the Performance Share Units granted hereunder are subject to, the terms and conditions of the Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan (the “Plan”), which are incorporated by reference herein. If there is any inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall govern. Any capitalized terms used herein without definition shall have the meanings set forth in the Plan. The Performance Share Units shall be considered Performance Awards under the Plan.

2. Vesting of Performance Share Units.

(a) Vesting. Except as otherwise provided in this Section 2, the Performance Share Units shall become vested, if at all, on the vesting date(s) set forth in the Notice of Grant (each, a “Vesting Date”), subject to the continued employment of the Participant by the Company or any Subsidiary thereof through such date, and to the achievement of the Performance Goals (the “Goals”) established by the Committee pursuant to the Plan for the Performance Share Units for the performance period(s) (each a “Performance Period”) set forth in the Notice of Grant. As soon as feasible after the end of each Performance Period, the Committee will determine whether the Goals have been satisfied, in whole or in part. Based upon the foregoing determination, the number of Performance Share Units will vest on the Vesting Date on a percentage basis, as set forth in the Notice of Grant. Performance Share Units that have not vested by the Vesting Date in accordance with this Section 2 shall be forfeited.

(b) Termination of Employment.

(i) Death. If the Participant’s employment is terminated due to death prior to the end of a Performance Period, 100% of the Performance Share Units relating to such Performance Period, multiplied by a fraction, the numerator of which is the number of days elapsed from the commencement of the Performance Period through the date of the Participant’s death and the denominator of which is the number of days in the Performance Period, shall become fully vested and nonforfeitable and shall be paid as provided in Section 3. If the Participant’s

employment is terminated due to death after the end of any Performance Period but prior to the settlement date, the Participant shall be entitled to receive, and such Performance Share Units shall be deemed vested to the extent of, the number of shares of Stock that would have been payable with respect to the Performance Share Units relating to such Performance Period had the Participant’s Service continued until the settlement date, subject to achievement of the Goals, and the remainder of such Performance Share Units shall be forfeited and canceled as of the date of termination.

(ii) Disability or Retirement. If the Participant’s employment is terminated due to Disability or Retirement prior to the Vesting Date, then, on the Vesting Date the Participant shall be deemed vested to the extent of the number of Performance Share Units that would have vested had the Participant’s Service continued until the Vesting Date, subject to achievement of the Goals, multiplied by a fraction, the numerator of which is the number of days elapsed from the commencement of the Performance Period through the date of the Participant’s termination due to Disability or Retirement, as applicable, and the denominator of which is the number of days in the Performance Period, and the remainder of the Performance Share Units shall be forfeited and canceled as of the date of such termination due to Disability or Retirement, as applicable. Vested Performance Share Units shall be settled as set forth in Section 3.

(iii) Any Other Reason. If the Participant’s employment is terminated prior to the Vesting Date for any reason other than death, Disability or Retirement, all Performance Share Units shall immediately be forfeited and canceled effective as of the date of the Participant’s termination.

(c) Change in Control. In the event of a Change in Control, then the Performance Share Units shall vest or continue as set forth in the Plan.

(d) Committee Discretion. Notwithstanding anything contained in this Agreement to the contrary, the Committee, in its sole discretion, may accelerate the vesting with respect to any Performance Share Units under this Agreement, at such times and upon such terms and conditions as the Committee shall determine.

3. Settlement of Performance Share Units. Subject to Section 7(d), the Company shall deliver to the Participant the value of one share of Stock in settlement of each outstanding Performance Share Unit that has vested as provided in Section 2 on the first to occur of (i) as soon as practicable after the date (the “Committee Determination Date”) that the Committee determines that the Goals for the last Performance Period(s) have been satisfied, but in no event later than 2½ months after the end of the Performance Period; (ii) in the event of a Termination of Service due to death, January 31 of the year following the Participant’s Termination of Service, (iii) with respect to Performance Share Units that are not a Specified Award, a Change in Control in which the Performance Share Units do not continue, and (iv) with respect to Performance Share

Units that are a Specified Award, a Specified Change in Control, in each case (A) by a cash payment equal to the Fair Market Value of the Stock on the Committee Determination Date or (B) if the Participant is a member of the Management Committee, at the Company’s sole discretion, in Stock, by either (1) issuing one or more certificates evidencing the Stock to the Participant or (2) registering the issuance of the Stock in the name of the Participant through a book entry credit in the records of the Company’s transfer agent or (C) in the event of settlement upon a Change in Control or a Specified Change in Control, as applicable, a cash payment equal to the Change in Control Price, in each case, multiplied by the number of vested Performance Share Units. With respect to Specified Awards, in the event of a Change in Control that is not a Specified Change in Control, if no Alternative Awards are available, or Alternative Awards may not be issued in a manner that complies with Section 409A of the Code or without the imposition of any additional taxes or interest under Section 409A of the Code, the Committee, as constituted immediately prior to the Change in Control, may determine that Specified Awards shall be settled through a cash payment equal to the Change in Control Price multiplied by the number of vested Specified Awards plus interest from the later of the Vesting Date and the Change in Control through the date of payment at a rate determined by the Committee as constituted immediately prior to the Change in Control to the extent that such settlement shall not subject the Participant to any additional taxes or interest under Section 409A of the Code or in such other manner that shall comply with Section 409A of the Code. No fractional shares of Stock shall be issued in settlement of Performance Share Units. Fractional Performance Share Units shall be settled through a cash payment equal to the Fair Market Value of the Stock on the Committee Determination Date.

4. Securities Law Compliance. Notwithstanding any other provision of this Agreement, the Participant may not sell the shares of Stock acquired upon vesting of the Performance Share Units unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act. The sale of such shares must also comply with other applicable laws and regulations governing the shares and Participant may not sell the shares of Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.

5. Participant’s Rights with Respect to the Performance Share Units.

(a) Restrictions on Transferability. The Performance Share Units granted hereby are not assignable or transferable, in whole or in part, and may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including without limitation by gift, operation of law or otherwise) other than by will or by the laws of descent and distribution to the estate of the Participant upon the Participant’s death; provided that the deceased Participant’s beneficiary or representative of the Participant’s estate shall acknowledge and agree in

writing, in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were the Participant.

(b) No Rights as Stockholder. The Participant shall not have any rights as a stockholder including any voting, dividend or other rights or privileges as a stockholder of the Company with respect to any Stock corresponding to the Performance Share Units granted hereby unless and until shares of Stock are issued to the Participant in respect thereof.

6. Adjustment in Capitalization. The number, class, Performance Goals or other terms of any outstanding Performance Share Units shall be adjusted by the Board to reflect any extraordinary dividend, stock dividend, stock split or share combination or any recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting the Stock in such manner as it determines in its sole discretion.

7. Miscellaneous.

taxes required to be withheld as a condition to the payment of cash or issuance of shares in settlement of the Performance Share Units. The Committee may, in its discretion, require the Participant, or permit the Participant to elect, subject to such conditions as the Committee shall impose, to meet such obligations by having the Company withhold from the cash payment in settlement of the Performance Share Units or withhold or sell the least number of whole shares of Stock having a Fair Market Value sufficient to satisfy all or part of the amount required to be withheld. The Company may defer settlement until such requirements are satisfied.

(e) Forfeiture for Financial Reporting Misconduct. If the Company is required to prepare an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws, and if the Participant knowingly or grossly negligently engaged in the misconduct or knowingly or grossly negligently failed to prevent the misconduct as determined by the Committee, or if the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, then the Participant shall forfeit and disgorge to the Company (i) any Stock and cash received in respect of Performance Share Units granted or vested and all gains earned or accrued due to the sale of any Stock received in settlement of the Performance Share Units during the 12-month period following the filing of the financial document embodying such financial reporting requirement and (ii) any Stock and cash received in respect of Performance Share Units that vested based on the materially non- complying financial reporting. The Company may also cancel or reduce, or require a Participant to forfeit and disgorge to the Company or reimburse the Company for, any Performance Share Units granted or vested and any gains earned or accrued, due to the vesting or settlement of Performance Share Units or sale of any Stock acquired in settlement of a Performance Share Unit, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act).

(g) Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation. By entering into this Agreement and accepting the Performance Share Units evidenced hereby, the Participant acknowledges: (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the Award does not create any contractual or other right to receive future grants of Awards; (c) that participation in the Plan is voluntary; (d) that the value of the Performance Share Units is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service

awards, pension or retirement benefits or similar payments; and (e) that the future value of the Stock is unknown and cannot be predicted with certainty.

(h) Employee Data Privacy. By entering into this Agreement and accepting the Performance Share Units evidenced hereby, the Participant: (a) authorizes the Company and the Participant’s employer, if different, any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its affiliates any information and data the Company requests in order to facilitate the grant of the Award and the administration of the Plan; (b) waives any data privacy rights the Participant may have with respect to such information; and (c) authorizes the Company and its agents to store and transmit such information in electronic form.

(i) Consent to Electronic Delivery. By entering into this Agreement and accepting the Performance Share Units evidenced hereby, Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Performance Share Units via Company web site or other electronic delivery.

(j) Specified Employee Delay. Notwithstanding anything to the contrary in this Agreement, if settlement is to occur upon a Termination of Service other than due to death or Disability and the Participant is a Specified Employee and the Performance Share Units are a Specified Award, to the extent necessary to comply with, and avoid imposition on the Participant of any additional tax or interest imposed under, Section 409A of the Code, settlement shall instead occur on the first business day following the six-month anniversary of the Participant’s Termination of Service (or, if earlier, upon the Participant’s death), or as soon thereafter as practicable (but no later than 90 days thereafter).

(k) Headings and Captions. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(l) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

Exhibit 10.6


	AMENDED AND RESTATED SEVERANCE PROGRAM FOR MANAGEMENT COMMITTEE MEMBERS

Purpose

1.1

This severance program is designed to provide Eligible Executives (as defined below) with guidelines relative to the benefits they would receive upon an involuntary termination of employment for business reasons whether or not in connection with the occurrence of a Change in Control in order to allow for equitable, objective and uniform treatment of similar situations.

Key Elements

2.1	This severance program is composed of the following key elements which will be offered in whole or in part by Domtar Corporation or its subsidiaries (the “Corporation”), depending on each situation:

•

Severance allowance;

•

Maintenance of medical and dental benefits;

•

Outplacement services.

Any entitlement to payments or benefits other than those specifically addressed in this severance program shall be determined in accordance with the applicable plan or policy.

Eligible Executives

3.1

An executive is eligible for this severance program if he or she is a member of the Management Committee of the Corporation (as duly appointed by the Board of Directors of the Corporation (the “Board”) upon recommendation of the Corporation’s Chief Executive Officer, each an “Eligible Executive”), if the Eligible Executive’s employment (a) is involuntarily terminated for business reasons by the Corporation or (b) in connection with a Change in Control is involuntarily terminated by the Corporation without Cause or is terminated by the Eligible Executive due to Good Reason, and in all cases the Eligible Executive executes, delivers and does not revoke within the applicable statutory time period, a written release (a “Release”) in a form satisfactory to the Administrator; provided that, except as provided in Section 6.3 below, this severance program does not apply to those Eligible Executives for whom another program, agreement or arrangement is applicable. Except as provided otherwise in Section 3.2 below, an Eligible Executive will no longer be eligible for this severance program upon cessation of his or her service as a member of the Management Committee for reasons other than those listed in this paragraph.

3.2	Any individual who is an Eligible Executive at the commencement of the Protection Period or becomes an Eligible Executive during the Protection Period and prior to the Change in Control will continue to be an Eligible Executive for the duration of the Protection Period.

3.3	This severance program will not be offered if the Eligible Executive:

•

is dismissed for Cause;

•

terminates employment voluntarily (other than for Good Reason in connection with a Change in Control as contemplated by Section 7.5); or

•

is offered continuous employment in a comparable position with comparable terms and conditions of employment by a purchaser of a business from the Corporation (and provided that the Eligible Executive does not have Good Reason as a result).

Effective Date of Program

4.1	This amended and restated severance program will take effect [Date].

Restriction

5.1

If on the date an Eligible Executive’s employment is terminated the Eligible Executive is receiving benefits under the Corporation’s Short-Term or Long-Term Disability Plans, the Eligible Executive will not be entitled to a severance allowance under this severance program. However, if the Eligible Executive ceases to be eligible for those benefits for reasons other than retirement, the Eligible Executive will be entitled to the severance program if he or she regains the ability to carry out his or her duties prior to the effective date of his or her termination of employment.

Administration

6.1	This severance program will be administered by the Administrator, whose actions and decisions will be conclusive and binding on the Eligible Executive and on the Corporation.

6.2	Subject to Section 6.3, the Corporation reserves the right to terminate, delete, amend or add to this severance program or any of its provisions at any time and from time to time.

6.3

Notwithstanding anything in this severance program to the contrary, during the Protection Period, the Corporation may not amend, modify, suspend or terminate this severance program, in whole or in part, in a manner that is materially adverse to any Eligible Executive (including but not limited to the removal of an individual as an Eligible Executive or any reduction in the applicable severance allowance) without the written consent of such Eligible Executive or, prior to the consummation of a Change in Control, the Administrator. With respect to any program, agreement, or arrangement adopted, established, or entered into during the Protection Period, no such program, agreement, or arrangement shall replace this severance program and the severance program shall continue to apply to each Eligible Executive, except to the extent such Eligible Executive expressly agrees in writing that this severance program does not apply to such Eligible Executive or as expressly approved by the Administrator prior to the consummation of a Change in Control.

Severance Allowance

7.1

An Eligible Executive shall be entitled to a severance allowance of 12 months of base salary, plus an additional 3 months of base salary for each full year of continuous service as a member of the Management Committee, up to a maximum of 24 months of base salary (the “Severance Period”), unless otherwise determined by the Administrator, upon recommendation of the Corporation’s Chief Executive Officer.

7.2

The base salary used to calculate an Eligible Executive’s severance allowance will be the Eligible Executive’s base salary on the date his or her employment is terminated. The minimum payments as outlined by the different provincial legislations will be paid within the time limit prescribed by the applicable legislation. The remaining balance will be paid in a lump sum, except if the Eligible Executive’s severance allowance is subject to taxation in the United States, the severance allowance shall be paid as described below under the heading “Provisions Applicable to U.S. Taxpayers.”

7.3	The severance allowance pursuant to this severance program shall not be less than that required by the applicable legislation. However, this severance program shall not be interpreted or applied as a minimum severance allowance.

7.4	The severance allowance pursuant to this severance program includes any pay in lieu of notice and severance pay required by law.

7.5

Notwithstanding the allowance amounts described above, if[, within 3 months prior to or] 24 months following the occurrence of a Change in Control, an Eligible Executive’s employment is involuntarily terminated without Cause or the Eligible Executive voluntarily terminates his or her employment for Good Reason, such termination shall be deemed to be in connection with a Change in Control, and the severance allowance will be equal to the sum of (A) 24 months of base salary and (B) two (2) times the Eligible Executive’s target bonus award under the Domtar Corporation Annual Incentive Plan (such plan and any successor or additional annual incentive plan, “AIP”), regardless of the employee’s actual continuous service as a member of the Management Committee. For this purpose, the Severance Period will be equal to 24 months, and base salary and target bonus award shall be as of

the date of termination or the occurrence of the Change in Control, whichever is greater, and, subject to Section 7.2, shall be paid within sixty (60), but in no event later than March 15 of the year after, after the termination date.

The following definitions apply:

(1)

“Administrator” means the Human Resources Committee of the Board (the “HR Committee”), or such other committee as shall be designated by the Board to administer this severance program.

(2)

“Cause” will have the same definition as in the Domtar Corporation 2007 Omnibus Incentive Plan (“Omnibus Plan”), disregarding any amendments to such plan effected during the Protection Period.

(3)

“Change in Control” will have the same definition as in the Omnibus Plan, disregarding any amendments to such plan effected during the Protection Period.

(4)

“Good Reason” means the occurrence of any of the following after a Change in Control:

(a)

a material reduction by the Corporation in the Eligible Executive’s base salary or target annual bonus, as in effect immediately prior to the Change in Control or as increased from time to time. Eligible Executive shall not have a basis to resign for Good Reason if (i) such reduction is part of an across-the-board reduction in base salary rate or target annual incentive opportunity similarly affecting other Management Committee members or (ii) no bonus is paid, or the amount of the bonus is reduced as a result of the failure of the Eligible Executive or the Corporation to achieve the applicable performance goals;

(b)

a material diminution in the Eligible Executive’s position, duties or responsibilities (including due to the assignment to the Eligible Executive of duties materially inconsistent with his or her position, duties or responsibilities as in effect immediately prior to Change in Control), excluding for this purpose (i) a change in title or reporting relationship alone, and (ii) an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Corporation promptly after receipt of notice thereof given by the Eligible Executive;

(c)

a requirement that the Eligible Executive move his or her principal place of business to a location that is (i) more than 50 miles from the location at which the Eligible Executive was stationed immediately prior to a Change in Control, and (ii) farther from the Eligible Executive’s primary residence than was the location at which the Eligible Executive was stationed immediately prior to the Change in Control; and

(d)

a material breach by the Corporation of any agreement under which the Eligible Executive provides services in each case, provided that the Eligible Executive provides written notice to the Corporation of the condition giving rise to Good Reason within 90 days of the initial existence of the condition, such condition is not remedied within 30 days of receipt of such notice, and the Eligible Executive terminates employment within two years of the occurrence of the Change in Control.

(5)

The term “Corporation” as used in this severance program shall mean the Corporation as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this severance program.

(6)

The term “Protection Period” means period that begins on the earlier of the date the Corporation enters into a definitive written agreement pursuant to which it will effect a transaction that will result in a Change in Control or the date of a Change in Control through the second anniversary of the consummation of the Change in Control (as extended as provided below, the “Protection Period”), provided that, with respect to any Eligible Executive whose employment is terminated in a manner described in Section 3.1 during such Protection Period, the Protection Period with respect to such Eligible Executive shall extend until the date all benefits under this severance program have been paid or provided to such Eligible Executive.

Annual Incentive Plan

8.1

An Eligible Executive who has been involuntarily terminated by the Corporation for business reasons, whether or not in connection with a Change in Control, or who in the three months prior to or 24 months following a Change in Control has terminated his or her employment for Good Reason or has been terminated by the Corporation without Cause will be eligible for a prorated bonus under the AIP for the year in which the termination of employment

occurred. Payment will be based on the pre-established goals under the AIP for the applicable plan year accrued on the books and records of the Company as at the end of the fiscal quarter ended immediately prior to such termination (or such greater amount as is payable under the AIP) and the Eligible Executive’s performance. It will be calculated prorated on base salary earned during the year of termination. Payment will be made at the same time as the severance allowance is payable and in any event no later than March 15 of the calendar year following the year of termination. In situations where an Eligible Executive is terminated prior to the payment of the previous year’s AIP, he or she will also be eligible for payment of the previous year’s AIP, which will also be paid at the same time payment is made to all other employees under the AIP and in any event no later than March 15 of the year following the year in which the related services were performed.

Other Benefits

9.1

A terminated Eligible Executive’s coverage under the Corporation’s medical and dental insurance policies will remain in effect until the last day of the Severance Period, except if the Eligible Executive’s benefits are subject to taxation in the United States, as described below under the heading “Provisions Applicable to U.S. Taxpayers.” In the event that the Eligible Executive obtains equivalent or better coverage elsewhere, this coverage will terminate.

9.2	Notwithstanding Section 9.1 above, the group insurance coverage to which the Eligible Executive was subject immediately prior to his or her termination will be maintained, to the extent provided by applicable law.

9.3	A terminated Eligible Executive will be entitled to reasonable outplacement services. This benefit will terminate in the event the Eligible Executive obtains new employment. In no event will this benefit continue beyond December 31 of the second year beginning after the date of termination.

Successors

10.1

Any successor of or to the Corporation, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), shall assume the obligations under this severance program in the same manner and to the same extent that the Corporation would be obligated under this severance program if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this severance program, the Corporation shall require such successor expressly and unconditionally to assume and agree to perform the Corporation’s obligations under this severance program, in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.

Provisions Applicable to U.S. Taxpayers

11.1

Any payment or benefit provided under this severance program that is subject to U.S. taxation and section 409A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and the applicable rules, regulations and guidance promulgated thereunder (“Section 409A”), will only be paid or provided if the termination of an Eligible Executive’s employment for business reasons by the Corporation or other termination entitling the Eligible Executive to benefits under this severance program constitutes a “Separation from Service” within the meaning of Section 409A.

11.2	Payments or benefits subject to U.S. taxation shall be administered and paid as follows:

Subject to the execution and delivery by the Eligible Executive of a Release within 45 days of the date of his or her Separation from Service and such Release becoming irrevocable (such execution and revocation period, the “Release Period”):

•

The Eligible Executive’s severance allowance will be paid in a lump sum within 90 days of the date of the Eligible Executive’s Separation from Service, but in no event later than March 15 of the calendar year following the calendar year in which the Eligible Executive’s Separation from Service takes place provided that, if such 90-day period spans more than one calendar year, the payment shall be made in the second calendar year.

•

If the Eligible Executive would otherwise be eligible to elect continued health coverage under Section 4980B of the Code (“COBRA”) (i) if permitted by the applicable plan and applicable law, the Eligible Executive’s coverage under the applicable health insurance policies maintained by the Corporation will remain in effect or (ii) if not so permitted, the Corporation shall pay or reimburse the Eligible Executive for the excess of the cost of COBRA coverage over what would have been the Eligible Executive’s cost for continued coverage under the applicable health insurance policies had he or she been permitted to continue coverage, in each case until

the earlier to occur of the last day of the Severance Period and the last day on which the Eligible Executive would otherwise be eligible for COBRA coverage if he or she had elected such coverage and paid the applicable premiums. In the event that the Eligible Executive obtains equivalent or better coverage elsewhere, this coverage will terminate.

•

If the Eligible Executive would not otherwise be eligible to elect COBRA coverage, the Eligible Executive’s coverage under the applicable health insurance policies maintained by the Corporation will remain in effect until the earlier to occur of the last day of the Severance Period and the 18-month anniversary of the date of the Eligible Executive’s Separation from Service. In the event that the Eligible Executive obtains equivalent or better coverage elsewhere, this coverage will terminate.

11.3

The amount of any reimbursement or in-kind benefit provided under this severance program in one taxable year shall not affect the amount of any reimbursement or in-kind benefit provided in any other taxable year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid). Any reimbursement shall be paid to the Eligible Executive on or before the last day of the taxable year following the taxable year in which the expense was incurred. No entitlement to any reimbursement or in-kind benefit provided under this severance program shall be subject to liquidation or exchange for any other benefit.

11.4

Notwithstanding anything to the contrary contained herein, if an Eligible Executive is a “specified employee” within the meaning of any specified employee policy of the Corporation or, if no such policy is in effect at the time of termination, Section 409A, (i) any portion of an Eligible Executive’s severance allowance under this severance program that is subject to Section 409A (after taking into account all exclusions applicable to the Eligible Executive’s severance allowance under Section 409A) and that would otherwise be payable or provided within six months following the date of the Eligible Executive’s Separation from Service will be accumulated and paid on the first payroll date following the six-month anniversary of the date of the Eligible Executive’s Separation from Service and (ii) the Eligible Executive will pay the full cost of any non-COBRA health care benefits provided to him or her under Section 9.1 that are subject to Section 409A for the six-month period following the date of his or her Separation from Service, with the full amount of such costs to be reimbursed to the Eligible Executive on the first payroll date following the six-month anniversary of the date of his or her Separation from Service, in each case to the extent necessary to comply with Section 409A.

11.5

Neither the Corporation nor any of its directors, officers or employees shall have any liability to an Eligible Executive in the event Section 409A applies to any benefit provided pursuant to this severance program in a manner that results in adverse tax consequences for such Eligible Executive or any of his or her beneficiaries or transferees. The Administrator may unilaterally amend, modify or terminate any benefit provided under this severance program if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

Additional Administrative Matters

12.1

The Administrator shall have complete discretion to interpret where necessary all provisions of the severance program (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the severance program), to make factual findings with respect to any issue arising under the severance program, to determine the rights and status under the severance program of Eligible Executive or other persons, to resolve questions (including factual questions) or disputes arising under the severance program and to make any determinations with respect to the benefits payable under the severance program and the persons entitled thereto as may be necessary for the purposes of the severance program. Without limiting the generality of the foregoing, the Administrator is hereby granted the authority (i) to determine whether a particular employee is an Eligible Executive, and (ii) to determine if a person is entitled to benefits hereunder and, if so, the amount and duration of such benefits. The Administrator may delegate, subject to such terms as the Administrator shall determine, any of its authority hereunder to such person or persons from time to time as it may designate. In the event of such delegation, all references to the Administrator in the severance program shall be deemed references to such delegates as it relates to those aspects of the severance program that have been delegated. The Administrator’s determination of the rights of any person hereunder shall be final and binding on all persons.

12.2

All benefits payable hereunder that are subject to U.S. taxation and Section 409A of the Code shall be unfunded for purposes of section 83 of the Code and Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The severance program constitutes a mere promise by the Corporation to make such benefit payments in the future.

12.3

Notwithstanding any provision of the severance program to the contrary, in the event that it shall be determined by the Accounting Firm that any Payment to an Eligible Executive would be subject to the Excise Tax, the Accounting Firm shall determine whether to reduce the aggregate amount of the Payments payable to such Eligible Executive under this severance program (the “Severance Payments”) to the Reduced Amount. The Severance Payments shall be reduced to the Reduced Amount only if the Accounting Firm determines that the Eligible Executive would have a greater Net After-Tax Benefit if the Eligible Executive’s Severance Payments were reduced to the Reduced Amount. If instead the Accounting Firm determines that the Eligible Executive would have a greater Net After-Tax Benefit if the Eligible Executive’s Severance Payments were not reduced to the Reduced Amount, the Eligible Executive shall receive all Severance Payments to which the Eligible Executive is entitled under this severance program. For the avoidance of doubt, nothing in this severance program obligates the Corporation to pay, and the Corporation shall not pay, any Excise Tax imposed on any Eligible Executive.

If the Accounting Firm determines that the aggregate Severance Payments otherwise payable to an Eligible Executive should be reduced to the Reduced Amount pursuant to this Section 12.3, the Corporation shall promptly give the Eligible Executive notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Accounting Firm under this Section 12.3 shall be binding upon the Corporation and the Eligible Executive and shall be made within fifteen (15) days after the Eligible Executive’s termination date. The reduction of the Severance Payments to the Reduced Amount, if applicable, shall be made by first reducing, on a pro-rata basis, the cash payments under Section 8.1 and Section 7.5, then reducing the cash payments and benefits under Section 9.1, and then reducing, on a pro-rata basis, any benefits under Sections 9.2 and 9.3. All fees and expenses of the Accounting Firm shall be borne solely by the Corporation.

The following definitions apply for purposes of this Section 12.3.

(1)

“Accounting Firm” shall mean the Corporation’s then current independent outside auditors, or such other nationally recognized certified public accounting firm as may be designated by the Administrator.

(2)

“Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

(3)

“Net After-Tax Benefit” shall mean the aggregate Value of all Payments to an Eligible Executive, net of all taxes imposed on the Eligible Executive with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, as determined by the Accounting Firm.

(4)

“Payment” shall mean any payment, benefit or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Eligible Executive, whether paid or payable pursuant to the severance program or otherwise.

(5)

“Reduced Amount” shall mean the greatest amount of Severance Payments that can be paid that would not result in the imposition of the Excise Tax upon an Eligible Executive if the Accounting Firm determines to reduce Severance Payments pursuant to this Section 12.3.

(6)

“Value” of a Payment shall mean the economic present value of a Payment, as determined by the Accounting Firm for purposes of Section 280G of the Code.

12.4

Each person who is or shall have been a member of the HR Committee or other Administrator and each delegate of such Committee or Administrator shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be made a party or in which he or she may be involved in by reason of any action taken or failure to act under this severance program and against and from any and all amounts paid by him or her in settlement thereof, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided that the Corporation is given an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it personally. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Corporation’s articles of incorporation or by-laws, by contract, as a matter of law, or otherwise.

Claims for Benefits

13.1

Each terminated Eligible Executive or other person who has been determined to be eligible to receive benefits under this severance program may contest the administration of the benefits by completing and filing a written claim for reconsideration with the Administrator (“claimant”). If the Administrator denies a claim in whole or in part, the Administrator will provide notice to the claimant, in writing, within 90 days after the claim is filed, unless the

Administrator determines that an extension of time for processing is required. In the event that the Administrator determines that such an extension is required, written notice of the extension will be furnished to the claimant prior to the termination of the initial 90-day period. The extension will not exceed a period of 90 days from the end of the initial period of time and the extension notice will indicate the special circumstances requiring an extension of time and the date by which the Administrator expects to render the benefit decision.

The written notice of a denial of a claim will set forth, in a manner calculated to be understood by the claimant:

•

the specific reason or reasons for the denial;

•

reference to the specific severance program provisions on which the denial is based;

•

a description of any additional material or information necessary for the terminated claimant to perfect the claim and an explanation as to why such information is necessary; and

•

an explanation of the severance program’s claims procedure and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on appeal.

13.2	The claimant or his or her duly authorized representative will have an opportunity to appeal a claim denial to the Administrator for a full and fair review. The Eligible Executive or his or her duly authorized representative may:

•

request a review upon written notice to the Administrator within 60 days after receipt of a notice of the denial of a claim for benefits;

•

submit written comments, documents, records, and other information relating to the claim for benefits; and

•

examine the severance program and obtain, upon request and without charge, copies of all documents, records, and other information relevant to the claimant’s claim for benefits.

The Administrator’s review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered by the Administrator in the initial benefit determination. A determination on the review by the Administrator will be made not later than 60 days after receipt of a request for review, unless the Administrator determines that an extension of time for processing is required. In the event that the Administrator determines that such an extension is required, written notice of the extension will be furnished to the claimant prior to the termination of the initial 60-day period. The extension will not exceed a period of 60 days from the end of the initial period and the extension notice will indicate the special circumstances requiring an extension of time and the date on which the Administrator expects to render the determination on review.

The written determination of the Administrator will set forth, in a manner calculated to be understood by the claimant:

•

the specific reason or reasons for the decision;

•

reference to the specific severance program provisions on which the decision is based;

•

the claimant’s right to receive, upon request and without charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits; and

•

a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA.

A claim or action (i) to recover benefits allegedly due under the severance program or by reason of any law, (ii) to enforce rights under the severance program, (iii) to clarify rights to future benefits under the severance program, or (iv) that relates to the severance program and seeks a remedy, ruling or judgment of any kind against the severance program or a severance program fiduciary or party in interest (collectively, a “Judicial Claim”), may not be commenced in any court or forum until after the claimant has exhausted the severance program’s claims and appeals procedures set forth above (an “Administrative Claim”). A claimant must raise every argument and/or produce all evidence the claimant believes supports the claim or action in the Administrative Claim and shall be

deemed to have waived any argument and/or the right to produce any evidence not submitted to the Administrator as part of the Administrative Claim.

13.3

Any Judicial Claim must be commenced in the appropriate court or forum no later than 18 months from the earliest of (i) the date the first benefit payment was made or allegedly due; (ii) the date the Administrator first denied the claimant’s request or (iii) the first date the claimant knew or should have known the principal facts on which such claim or action is based; provided, however, that, if the claimant commences an Administrative Claim before the expiration of such 18 month period, the period for commencing a Judicial Claim shall expire on the later of the end of the 18 month period and the date that is three months after the claimant’s appeal of the initial denial of his or her Administrative Claim is finally denied, such that the claimant has exhausted the severance program’s claims and appeals procedures. Any claim or action that is commenced, filed or raised, whether a Judicial Claim or an Administrative Claim, after expiration of such 18-month period (or, if applicable, expiration of the three-month period following exhaustion of the severance program’s claims and appeals procedures) shall be time-barred. Filing or commencing a Judicial Claim before the claimant exhausts the Administrative Claim requirements shall not toll the 18-month limitations period (or, if applicable, the three month limitations period).

December 11, 2019

Exhibit 10.8

Amended and Restated
DC SERP for Designated
executives of Domtar

As in effect on March 7, 2007, amended and restated on September 1, 2012,
July 30, 2013, December 7, 2014, December 7, 2016 and further on January 1, 2019

Table of Contents

Introduction1

Definitions1

Retirement10

Non-Vested Termination of Employment10

Vested Termination10

Death10

Disability11

Administration11

Funding11

10.

Non-Alienation of Benefits13

11.

Conflicts or Inconsistencies13

12.

Amendments13

13.

General Provisions13

Appendix

1.	Introduction

1.1	The present document constitutes the DC SERP for Designated Executives of Domtar, hereinafter called the “DC SERP”.

1.2	The purpose of the DC SERP is to provide designated executives of the Company with additional retirement benefits in excess of those that may be payable in accordance with the provisions of the Base Plans, as defined below.

1.3	The DC SERP effective date is March 7, 2007.

1.4	On September 1, 2012, the DC SERP was amended and restated in order to allow designated employees transferred to Attends Healthcare Products, Inc. to continue participation in the DC SERP.

1.5	On July 30, 2013, the DC SERP was amended and restated in order to clarify the treatment of employees with service both in Canada and the US and to clarify the treatment of employees no longer meeting the Member criteria.

1.6	On December 7, 2014, the DC SERP was amended and restated in order to exclude employees transferred to the DC SERP for Designated Executives of Domtar Personal Care.

1.7	On December 7, 2016, the DC SERP was amended and restated in order to provide funding for Members other than U.S. Taxpayers in the form of a Letter of Credit held in a retirement compensation arrangement, and to adopt claims procedures for U.S. Taxpayers.

1.8	On January 1, 2019, the DC SERP is being amended and restated in order to reflect changes in the record-keeping arrangement and in the definition of Notional Return.

2.	Definitions

2.1	Annual Contribution Credit: for a given calendar year, and subject to Section 2.31,

For a Member employed in Canada: the excess, if any, of eleven percent (11%) of the Member’s Earnings during the calendar year over:

For a member of the DC Option under the Base Canadian Pension Plan: Company’s contribution to the Base Canadian Pension Plan with respect to the period of that calendar year as a Member of the DC SERP, assuming that the Member would have elected to contribute to the Base Canadian Pension Plan such amount that would result in the maximum Company contribution; and

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

ii)

For a member of the DB Option under the Base Canadian Pension Plan: the Pension Adjustment of the Member, reduced by the Member’s contribution to the DB Option of the Base Canadian Pension Plan, both with respect to the period of that calendar year as a Member of the DC SERP.

For a Member employed in the United States: the excess, if any, of the percentage of the Member’s Earnings applicable under the Base U.S. Savings Plan for an employee of the same age joining that plan on or after January 1, 2008, as may be amended from time to time, over the sum of Company’s contribution to the Base U.S. Savings Plan and of the credit to the Member for the calendar year under the Base U.S. Pension Plan, if any, in respect of the period of the calendar year as a Member of the DC SERP. For the purposes of this paragraph, a Member who is a U.S. Taxpayer is assumed to contribute to the Base U.S. Savings Plan such amount that would result in the maximum Company contribution.

Notwithstanding the above, the Annual Contribution Credit for 2007, for executives who were promoted to salary level 26 or over before March 7, 2007 and who became Members of the DC SERP on March 7, 2007, shall be equal to 10/12ths of the amount that would have been calculated above if the DC SERP had been in effect for the entire calendar year.

Annual Contribution Credits are credited by the Company to the DC SERP Notional Account at the end of the calendar year for which they have been determined, or upon Separation from Service if earlier. Commencing in 2009, Annual Contribution Credits shall only be credited in respect of periods of time in which the executive is earning benefits under the applicable Base Plans, depending on country of employment. For each calendar year after 2012, the Annual Contribution Credit for the year shall only be determined with respect to the period of that calendar year throughout which the DC SERP Member meets the eligibility requirements as defined in Section 2.15.

Annual Contribution Credits are invested in the Notional Investment Options in accordance with Section 2.15.

2.2	Base Canadian Pension Plan: the Domtar Pension Plan for Non-Negotiated Employees, as may be amended from time to time.

2.3Base Plans: subject to Section 2.31,

a)For a Member employed in Canada: the Base Canadian Pension Plan

For a Member employed in the United States: the Base U.S. Pension Plan and the Base U.S. Savings Plan.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

2.4	Base U.S. Pension Plan: the Domtar U.S. Salaried Pension Plan, as may be amended from time to time.

2.5	Base U.S. Savings Plan: the Domtar U.S. Salaried 401(k) Plan, as may be amended from time to time.

2.6Board: the Board of Directors of Domtar Corporation.

2.7Code: the U.S. Internal Revenue Code of 1986, as amended.

2.8	Company: means Domtar Paper Company LLC, Domtar Inc., Domtar Industries LLC, E.B. Eddy Paper Inc., Domtar A.W. LLC and Ariva Distribution Inc.

2.9	DC SERP Notional Account: shall, at any date whatsoever, be the sum of the notional Annual Contribution Credits and of the Notional Returns in the name of the Member under the DC SERP.

Notwithstanding the above, the DC SERP Notional Account for a Transfer Member shall be transferred to the DC SERP for Designated Executives of Domtar Personal Care as at the end of the year of the Transfer Date. However in the event of a Separation of Service and payment of benefits prior to the end of the year of the Transfer Date, the transfer shall occur as of the date of the payment of benefits. For greater certainty, the amount transferred shall include the Annual Contribution Credit for the calendar year. Upon such transfer, the Transfer Member shall have no more entitlement under the DC SERP.

2.10Default: shall have the meaning given to it in the Trust Agreement.

2.11Earnings: subject to Section 2.31,

For a Member employed in Canada: Earnings as defined under the Base Canadian Pension Plan in respect of periods in which the executive is a Member of the DC SERP.

For a Member employed in the United States: Compensation as defined under the Base U.S. Savings Plan in respect of periods in which the executive is a Member of the DC SERP.

For a Member with employment periods in Canada and the United States: with respect to an Annual Contribution Credit to be contributed or deemed contributed based on the Base Canadian Pension Plan, Earnings as defined under the Base Canadian Pension Plan, and with respect to an Annual Contribution Credit to be contributed or deemed contributed based on the Base U.S. Pension Plan or the Base U.S. Savings Plan, Compensation as defined under the Base U.S. Savings Plan.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

Notwithstanding the above, Earnings for 2007 for executives who were promoted to salary level 26 or over before March 7, 2007 and who became Members on March 7, 2007 shall be equal to the amount that would have been determined above if the DC SERP had been in effect for the entire calendar year.

2.12HR Committee: the Human Resources Committee of the Board.

2.13	Management Committee: means the management committee of Domtar Corporation.

2.14Member:

A U.S. or Canadian executive of the Company from the date his salary grade is 26 or above in accordance with the Company’s compensation scales, but not before March 7, 2007, and who is accruing benefits under the DC SERP; or

Any other U.S. or Canadian executives of Domtar Corporation and any of its subsidiaries or affiliated companies as recommended by the Management Committee or its designee.

Notwithstanding the above, an executive covered under a grandfathered SERP arrangement is not a Member of the DC SERP. For convenience, a list of such executives covered under a grandfathered SERP arrangement as of March 7, 2007 is included in the Appendix. Transfer Member will cease to be a Member of the DC SERP as of his Transfer Date.

2.15	Notional Investment Options: unless not administratively feasible, the Company shall provide the same notional investment options to Members as are provided under the Base Plans.

On January 1, 2019, the Member’s DC SERP Notional Account shall be notionally invested by the Record-keeper in the notional investment option selected by the Member for the 2018 plan year. Thereafter, the Member may elect to change how the Member’s DC SERP Notional Account is notionally invested by the Record-keeper by making an election as to the proportional allocation between the Notional Investment Options made available by the Company, subject to the terms of the Record-keeping Agreements and any rules prescribed by the Company. The Company shall not be responsible for the performance of the Notional Investment Options offered.

The Company reserves the right to change the Notional Investment Options offered under the DC SERP at any time, and from time to time, at its sole discretion.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

A Member’s investment directions shall be made on-line, in writing, by phone or in such other manner as may be acceptable to the Company and the Record-keeper, and within the time frame prescribed by the Company. Such directions will continue to be in force until changed by the Member.

In the absence of direction provided by the Member or if the direction does not fully address the entirety of the Member’s DC SERP Notional Account, the balance of the Member’s DC SERP Notional Account shall, pending receipt of such direction, be notionally invested in the Notional Investment Option that is the same as the default fund under the applicable Base Plan.

2.16	Normal Retirement Date: with respect to a Member, the first day of the month coinciding with or immediately following the Member’s sixty-fifth (65th) birthday.

2.17	Notional Return: for a given calendar year prior to 2019, the Annual Credited Notional Return as defined in the DC SERP prior to the January 1, 2019 restatement.

For a given calendar year beginning on or after January 1, 2019, and subject to Section 2.31, for all Members, Notional Return means, with respect to each DC SERP Notional Account, the notional interest, notional dividends, notional gains or losses allocated to the DC SERP Notional Account during the year based on the Members’ notional investment options. Notional Returns will be allocated through the last day of the month preceding the month in which the value of the DC SERP Notional Account is paid.

Notional Returns will be net of all reasonable fees and expenses.

2.18	Pension Adjustment: shall mean the pension adjustment as defined under the Income Tax Act (Canada), for purposes of determining a deemed value to the DB Option of the Base Canadian Pension Plan.

2.19	Record-keeper: means a licensed annuity provider, a trust company or an investment management company, including any combination or successors thereof appointed by the Company to administer the DC SERP Notional Accounts.

2.20	Record-keeping Agreements: means any agreement or agreements now or hereafter executed between the Company and the Record-keeper for purposes of this DC SERP.

2.21	Refundable Tax: shall have the meaning given to it in the Trust Agreement.

2.22	Section 409A: section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

2.23Separation from Service: occurs (or a Member Separates from Service) when

For a U.S. Taxpayer: the Member ceases to be employed by the Company and all entities considered a single employer with the Company under Code Sections 414(b) and (c) as a result of the Member’s death, retirement, or other termination of employment. Whether a Separation from Service takes place is based on all the relevant facts and circumstances and determined in accordance with U.S. Treas. Reg. 1.409A-1(h)(1);

For a Member other than a U.S. Taxpayer: the Member ceases to be employed by the Company and any of its subsidiaries or affiliated companies as a result of the Member’s death, retirement, or other termination of employment.

2.24	Transfer Date: the date a Member becomes covered under the DC SERP for Designated Executives of Domtar Personal Care.

2.25	Transfer Member: a Member who becomes covered under the DC SERP for Designated Executives of Domtar Personal Care.

2.26	Trust Agreement: the agreement between the Company or a subsidiary or affiliated company and a Trustee, as may be entered into in accordance with Section 9 of the DC SERP.

2.27Trust Fund: shall have the meaning given to it in the Trust Agreement.

2.28Trustee: the trustee party to the Trust Agreement.

2.29U.S. Taxpayer: a Member who

a)Is a U.S. citizen; or

b)Is a foreign national/U.S. permanent resident (“green card” holder); or

Is a foreign national who meets the “substantial physical presence” test during an applicable calendar year; or

Is a “dual status” individual and either

Who declares that he is a U.S. Taxpayer (under a), b), or c) above); or

ii)

Who the Company determines is a U.S. Taxpayer (under a), b), or c) above).

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

Is subject to U.S. federal income tax under the terms of the Canada-United States Tax Convention (1980) and the Protocols in effect thereunder; or

Whose benefits under this DC SERP are otherwise subject to taxation in the U.S.

Notwithstanding the foreign Member’s declaration of U.S. Taxpayer status, and unless proven otherwise, if the Company’s payroll, human resources, or other records indicate that the Member is a U.S. Taxpayer, then the Member shall be deemed to be a U.S. Taxpayer for the purposes of the DC SERP.

2.30	For the purposes of the present document, the terms DB Option and DC Option shall have the meaning given to them in the Base Canadian Pension Plan.

2.31For the purposes of the present document:

If a Member has periods of employment in both Canada and the United States, then, except as expressly provided otherwise, the provisions of the present document with respect to Members employed in Canada shall apply with respect to such periods as the Member is employed in Canada and the provisions of the present document with respect to Members employed in the United States shall apply with respect to such periods as the Member is employed in the United States;

A Member shall be considered to be employed in the country of the Member’s primary payroll location unless the Member and the Company agree otherwise;

In no event shall a Member be deemed to be employed in two locations simultaneously;

Except as provided in Section 2.31e) below, a Member shall accrue an Annual Contribution Credit in a calendar year determined on the basis of the provisions applicable in respect of employment in the country of the Member’s primary payroll location at the commencement of the applicable calendar year; and

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

In the event that a Member who is not a U.S. Taxpayer as of the commencement of the applicable calendar year and for the three years prior to that year (i) has periods of employment in both Canada and the United States during that year, (ii) accrues benefits in the Base Plans of the two countries during that year, (iii) is entitled to make an initial deferral election in that year under U.S. Treas. Reg. § 1.409A-2(c), and (iv) the actual aggregate Company contributions to the Base Plans of the two countries for the Member with respect to that year are greater than the maximum Company contribution that would have been made had the Member remained in the country of the Member’s primary payroll location at the commencement of that year, then that year’s Annual Contribution Credit for such Member shall be the excess, if any (such excess, the "Transition Contribution"), of (A) the sum of (i) eleven percent (11%) of the Member’s Earnings from employment in Canada during the calendar year and (ii) the percentage of the Member’s Earnings from employment in the United States during the calendar year applicable under the Base U.S. Savings Plan (as amended from time to time) for an employee of the same age joining that plan on or after January 1, 2008, over (B) the sum of (i) for a member of the DC Option under the Base Canadian Pension Plan: the Company’s contribution to the Base Canadian Pension Plan with respect to the period of that calendar year as a Member of the DC SERP while employed in Canada, (ii) for a member of the DB Option under the Base Canadian Pension Plan: the Pension Adjustment of the Member for the year with respect to the Company, reduced by the Member’s contribution to the DB Option of the Base Canadian Pension Plan, both with respect to the period of that calendar year as a Member of the DC SERP while employed in Canada and (iii) the sum of Company’s contribution to the Base U.S. Savings Plan and of the credit to the Member for the calendar year under the Base U.S. Pension Plan, if any, with respect to the period of the calendar year as a Member of the DC SERP while employed in the United States. For the purposes of Section 2.11 (c) and with respect to the applicable calendar year referred to in this Section 2.31 (e), the Annual Contribution Credit deemed contributed for the year based on the Base Canadian Pension Plan shall equal the Applicable Canadian Percentage of the Transition Contribution and the Annual Contribution Credit deemed contributed for the year based on the Base U.S. Pension Plan and the Base U.S. Savings Plan shall equal the Applicable U.S. Percentage of the Transition Contribution. For purposes of this Section 2.31 (e), the “Applicable Canadian Percentage” shall mean the percentage obtained by dividing (i) the Company’s actual contributions to the Base Canadian Pension Plan for the Member in the applicable calendar year by (ii) the Company’s aggregate contributions to the Base Plans of the two countries for the Member in that year, and the “Applicable U.S. Percentage” shall mean the percentage obtained by dividing (i) the Company’s actual contributions to the Base U.S. Pension Plan and the Base U.S. Savings Plan for the Member in the applicable calendar year by (ii) the Company’s contributions to the Base Plans of the two countries for the Member in that year.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

3.	Retirement

A Member who Separates from Service on or after age 55, after completing two (2) years of service as a Member shall receive as soon as practicable from the Company in accordance with the DC SERP, a lump sum payment equal to his DC SERP Notional Account. For a U.S. Taxpayer, such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid to the U.S. Taxpayer, if any.

A Member, other than a U.S. Taxpayer, may instead irrevocably elect in writing, prior to the first payment of his benefits, to receive the payment of his DC SERP Notional Account over a period not exceeding 10 years in annual installments. The first payment is due upon his retirement date and is equal to his DC SERP Notional Account divided by the number of payments he has elected. Subsequent payments are made on each anniversary of the retirement of the Member in an amount equal to the remaining DC SERP Notional Account value as at the end of the month that is one month preceding the next anniversary, divided by the number of remaining payments he has elected. For more certainty, this paragraph does not apply to a U.S. Taxpayer.

4.	Non-Vested Termination of Employment

A Member who Separates from Service, for a reason other than death, before completing two (2) years of service as a Member is not entitled to any benefit under the DC SERP.

5.	Vested Termination

A Member who Separates from Service, for a reason other than death, prior to age 55 after completing two (2) years of service as a Member shall receive as soon as practicable from the Company in accordance with the DC SERP, a lump sum payment equal to his DC SERP Notional Account. For a U.S. Taxpayer, such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid to the U.S. Taxpayer, if any.

Death

If a Member Separates from Service by reason of death, his estate shall receive from the Company, in accordance with the DC SERP, a lump sum payment equal to his DC SERP Notional Account. Any such payment shall be made within 90 days of the date of the Member’s death.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

7.	Disability

A Member who is considered disabled under the Base Plans, and who continues, on that basis, to accrue credited service, pension credits, or company contributions under such Base Plans, as the case may be, shall continue to accrue Annual Contribution Credits for the purposes of the DC SERP, on the basis of his salary rate at the time his disability began.

Benefits will only be paid from the DC SERP upon the Member’s actual Separation from Service, as described in Sections 3, 4, 5 or 6 above, as applicable.

8.	Administration

The HR Committee is responsible for the administration of the DC SERP, the supervision of its application and the interpretation of its provisions.

With respect to a Member other than a U.S. Taxpayer, the HR Committee may, at its discretion, approve other settlement options of benefits payable under this DC SERP. For more certainty, this paragraph does not apply to a U.S. Taxpayer.

Funding

This Section 9 does not apply to U.S. Taxpayers.

The Company shall arrange for the issuance of a new Letter of Credit, or the renewal of an existing Letter of Credit, in accordance with this Section 9, and in accordance with the Trust Agreement, in respect of benefits payable under the DC SERP on behalf of persons who were Members and were actively employed by the Company on the effective date of the Trust Agreement or who become Members thereafter, provided such persons or their survivors who are entitled to benefits under the DC SERP are not U.S. Taxpayers. On the effective date of the Trust Agreement, the DC SERP shall become a retirement compensation arrangement within the meaning of the Income Tax Act.

Coverage in respect of benefits under the DC SERP by the Letter of Credit shall cease once all benefits payable under the DC SERP on behalf of a person have been paid. Coverage in respect of benefits under the DC SERP by the Letter of Credit shall also cease with respect to all benefits when a Member becomes a U.S. Taxpayer.

The amount of the Letter of Credit shall be determined in accordance with an actuarial valuation performed in accordance with the Trust Agreement.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

Coverage by the Letter of Credit for benefits payable under the DC SERP may be combined with coverage for benefits payable under the DB SERP for Management Committee Members of Domtar and the Supplementary Pension Plan for Designated Managers of Domtar Inc.

If an event of Default occurs, benefits covered by the Letter of Credit shall be settled in a lump sum amount and the 10 annual instalments option provided in Section 3 shall no longer apply. Subject to the terms of the Trust Agreement, the lump sum amount shall correspond to the DC SERP Notional Account if the Member had completed two years of service as a Member at the date of Default, and shall be nil otherwise.

b)	Where a Letter of Credit is issued or renewed in accordance with this Section 9, the Company shall arrange with the issuer thereof to issue or renew, as the case may be, the Letter of Credit in the name of the Trustee, to be held by the Trustee as part of the Trust Fund.

To secure the issuance or renewal of a Letter of Credit, the Company shall contribute to the Trust Fund the amount that, after withholding and payment of the Refundable Tax therefrom, is required by the issuer of the Letter of Credit for the issuance or renewal of the Letter of Credit, as the case may be.

d)	On or before the Renewal Date of a particular Letter of Credit held by the Trustee, the Company shall either:

cause the issuer of the particular Letter of Credit to renew it on the same terms and conditions as applied before the renewal;

ii)

substitute for the particular Letter of Credit another Letter of Credit on the same terms and conditions as the particular Letter of Credit; or

iii)

contribute to the Trust Fund the face amount of the Letter of Credit or such other amount required in accordance with the last actuarial valuation report.

e)	Where the Company does not comply with paragraph d) of this Section 9 or where there occurs a Default, the Trustee shall forthwith demand payment under the Letter of Credit.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

f)	In this Section 9,

“Letter of Credit” means an irrevocable, standby, unsecured letter of credit obtained from a Schedule 1 Canadian Bank or other lender with a term of one year which names the Trustee as beneficiary permitted to draw down (an amount up to the face amount) on the Letter of Credit on the occurrence of a Default or a failure by the Company to comply with paragraph d) of this Section 9, and which shall require the issuing bank or lender to withhold and remit to the Receiver General the appropriate amount of Refundable Tax (provided that, notwithstanding the foregoing, the first Letter of Credit issued in connection with this DC SERP may have a term of less than one year);

“Renewal Date”, in relation to a Letter of Credit, means the date that is thirty (30) days before the Letter of Credit is to expire.

For more certainty, in the event that, for whatever reason, the assets of the Trust Fund are insufficient to settle in full the benefits payable under the DC SERP as and when they become due, notwithstanding any other provision of this Section 9, the Company shall remain responsible for the payment of such remaining benefits.

10.	Non-Alienation of Benefits

No benefit payable under the provisions of the DC SERP shall be in any manner capable of anticipation, surrender, commutation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; nor shall any such benefit be in any manner subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in any applicable legislation.

11.	Conflicts or Inconsistencies

In the event of any conflict or inconsistency between the provisions of the DC SERP and the provisions of the Base Plans, the provisions of the DC SERP shall prevail.

12.	Amendments

The Company reserves the right to amend or terminate the DC SERP at any time. Subject to Section 13.6, no change or termination shall adversely affect any benefits that have accrued up to the effective date of such change, which effective date shall not precede the date on which the change is communicated to the Member. Notwithstanding the foregoing, any amendment to this DC SERP which is the result of a change to the Base Plans shall take effect as of the same date as applicable in respect of the amendment to the Base Plans.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

13.	General Provisions

13.1

Currency

Notwithstanding anything to the contrary herein, all payments under the DC SERP shall be in Canadian currency for Members employed in Canada, and in U.S. currency for Members employed in the United States, in each case as of the last date of employment with the Company. Any Annual Contribution Credit and any future Notional Returns on such Annual Contribution Credit shall be in the currency of the applicable Base Plan used for the determination of such Annual Contribution Credit.

13.2	Withholding and reporting

All payments under the DC SERP are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to applicable legislation.

13.3	Interpretation

The DC SERP shall be interpreted, with respect to a Member, in accordance with the laws of the same jurisdiction as applicable for purposes of the Member’s employment agreement with the Company, which is in force at the relevant time, or in the absence of an employment agreement, with the law of the Province of Québec for a Member employed in Canada, and with the law of the State of South Carolina for a Member employed in the United States.

13.4

Entire Agreement

Except to the extent expressly contemplated by the HR Committee at the time of adoption of the DC SERP, the DC SERP supersedes and replaces any and all prior plans, agreements, arrangements or understandings between the Company and the Member regarding any retirement benefits to be provided to the Member in excess of those that may be payable in accordance with the provisions of the Base Plans.

13.5	Severability

Should any of the provisions of the DC SERP and/or conditions be illegal or not enforceable, it or they shall be considered severable and the DC SERP and the remaining conditions shall remain in full force and effect and be binding upon the parties as though the said provision or provisions had never been included.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

13.6

Enurement

The DC SERP shall enure to the benefit of and be binding upon the respective successors of the parties hereto, and the heirs, administrators and legal representatives of the Member.

13.7	Section 409A

Neither the Company nor any of its directors, officers or employees shall have any liability to a Member in the event Section 409A applies to any benefit paid or provided pursuant to the DC SERP in a manner that results in adverse tax consequences for the Member or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under the DC SERP if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

13.8Claims Procedure

The HR Committee shall adopt claims procedures, with respect to Members who are U.S. Taxpayers, in accordance with Department of Labor Regulations Section 2560.503-1.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

APPENDIX

Executives covered under a grandfathered SERP arrangement as at March 7, 2007

Steven Barker
Kevin Bélanger
Guy Boucher
Roger Brear
Gerald Gray
Timothy Houle
Gérard Lacombe
James Lenhoff
Martin Lorrion
Dominic Maiorino
Stewart Marcoux
Gildas Minville
Gilles Pharand
Raymond Royer
Louis Schiavone
Ross Stairs

Nicholas Willis

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
December 7, 2016, and further on January 1, 2019

Exhibit 10.10

THE AMENDED AND RESTATED DOMTAR CORPORATION

2007 OMNIBUS INCENTIVE PLAN

SECTION 1. PURPOSE

The purposes of The Domtar Corporation 2007 Omnibus Incentive Plan (the “Plan”) are to promote the interests of Domtar Corporation and its shareholders by (i) attracting and retaining executive personnel and other key employees and directors of outstanding ability; (ii) motivating executive personnel and other key employees and directors by means of performance-related incentives, to achieve longer-range performance goals; and (iii) enabling such individuals to participate in the long-term growth and financial success of Domtar Corporation.

SECTION 2. DEFINITIONS

(a) Certain Definitions. Capitalized terms used herein without definition shall have the respective meanings set forth below:

“Act” means the Securities Exchange Act of 1934, as amended.

“Adjustment Event” has the meaning given in Section 4(d).

“Affiliate” means, (i) for purposes of Incentive Stock Options, any corporation that is a “parent corporation” (as defined in Section 424(e) of the Code) or a “subsidiary corporation” (as defined in Section 424(e) of the Code) of the Company, and (ii) for all other purposes, with respect to any person, any other person that (directly or indirectly) is controlled by, controlling or under common control with such person.

“Award” means any grant or award made pursuant to Sections 5 through 10 inclusive.

“Award Agreement” means an agreement between the Company and a Participant, setting out the terms and conditions relating to an Award granted under the Plan.

“Board of Directors” means the Board of Directors of the Company.

“Canadian Taxpayer” means a Participant liable to pay income taxes in Canada pursuant to the receipt of an Award under the Plan.

“Cause” means (i) the willful failure by the Participant to perform substantially his duties as an Employee of the Company or any Subsidiary (other than due to physical or mental illness), (ii) the Participant’s engaging in willful or serious misconduct that has caused or could reasonably be expected to be injurious to the Company or any Subsidiary in any way, including, but not limited to, by way of damage to their respective reputations or standings in their respective industries, (iii) the Participant’s breach of fiduciary duty or fraud with respect to the Company or any Affiliate of the Company, (iv) the Participant’s having been indicted for or convicted of, or entered a plea of guilty or nolo contendere to, a crime that constitutes a felony or (v) the breach by the Participant of any written covenant or agreement with the Company or any Subsidiary not to disclose or misuse any information pertaining to, or misuse any property of, the Company or any Subsidiary or not to compete or interfere with the company or any Subsidiary; (vi) violation of any written policy, program or code of the Company or any Subsidiary or (vii) the commission by the Participant of an act of fraud or embezzlement against the Company or any of its Subsidiaries; provided that if a Participant is a party to an employment or individual severance agreement with an Employer that defines the term “Cause” then, with respect to any Award made to such Participant, “Cause” shall have the meaning set forth in such employment or severance agreement. In addition, a Participant’s service shall be deemed to have terminated for Cause if, after a Participant’s

service has terminated (for a reason other than Cause), facts and circumstances are discovered that would have justified a termination for Cause.

“Change in Control” shall be deemed to have occurred if:

(i) any person (within the meaning of Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), including any group (within the meaning of Rule 13d-5(b) under the Exchange Act), but excluding any of the Company, any Subsidiary or any employee benefit plan sponsored or maintained by the Company or any Subsidiary, acquires “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined Voting Power (as defined below) of the Company’s securities;

(ii) within any 12-month period, the persons who were directors of the Company at the beginning of such period (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office shall be deemed to be an Incumbent Director for purposes of this subclause (ii); or

(iii) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company which has been approved by the shareholders of the Company (a “Corporate Event”), and immediately following the consummation of which the stockholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than one-half of the gross fair market value of the consolidated assets of the Company immediately prior to such Corporate Event; provided, that if a Participant is a party to an employment or individual severance agreement with an Employer that defines the term “Change in Control” then, with respect to any Award made to such Participant, “Change in Control” shall have the meaning set forth in such employment or severance agreement.

“Change in Control Price” means the highest price per share of Stock offered in conjunction with any transaction resulting in a Change in Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) or, in the case of a Change in Control occurring solely by reason of a change in the composition of the Board, the highest Fair Market Value of the Stock on any of the 30 trading days immediately preceding the date on which a Change in Control occurs.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Committee” means the Human Resources Committee of the Board or such other committee of the Board as the Board shall designate from time to time, consisting of two or more members, each of whom is an “independent” director under New York Stock Exchange Listing requirements, a “Non-Employee Director” within the meaning of Rule 16b-3, as promulgated under the Act, and an “outside director” within the meaning of section 162(m) of the Code and the Treasury Regulations promulgated thereunder.

“Company” means Domtar Corporation, a Delaware corporation, and any successor thereto.

“Covered Employee” means any “covered employee” as defined in Section 162(m)(3) of the Code.

“Deferred Share Unit” means a unit credited to a participant’s account in the books of the Company under Section 9 that represents the right to receive cash or Stock equal to the Fair Market Value of one share of Stock on settlement of the account.

“Designated Beneficiary” means the beneficiary designated by the Participant, in a manner determined by the Committee, to receive amounts due the Participant in the event of the Participant’s death. In the absence of an effective designation by the Participant, Designated Beneficiary shall mean the Participant’s estate.

“Disability” means, unless another definition is incorporated into the applicable Award Agreement, Disability as specified under the Company’s long-term disability insurance policy and any other termination of a Participant’s employment or service under such circumstances that the Committee determines to qualify as a Disability for purposes of this Plan; provided, that if a Participant is a party to an employment or individual severance agreement with an Employer that defines the term “Disability” then, with respect to any Award made to such Participant, “Disability” shall have the meaning set forth in such agreement; provided, further, that in the case of any award subject to Section 409A of the Code, Disability shall have the meaning set forth in Section 409A of the Code.

“Dividend Equivalent” means the right, granted under Section 11 of the Plan, to receive payments in cash or in shares of Stock, based on dividends with respect to shares of Stock.

“Elective Deferred Share Unit” shall have the meaning set forth in Section 9(a).

“Eligible Director” means a member of the Board who is not an Employee.

“Effective Date” means the date, following adoption of this Plan by the Board of Directors, on which this Plan is approved by a majority of the votes cast at a duly constituted meeting of the shareholders of the Company.

Employee” means any officer or employee of the Company or any Subsidiary (as determined by the Committee in its sole discretion).

“Employer” means the Company and any Subsidiary, and, in the discretion of the Committee, may also mean any business organization that is an Affiliate (i.e., an Affiliate corporation at least 20% of whose outstanding voting securities are owned by the Company and its Subsidiaries).

“Executive Officer” means any “officer” within the meaning of Rule 16(a)-1(f) promulgated under the Act or any Covered Employee.

“Fair Market Value” means, on any date, the closing price of the Stock as reported on the consolidated tape of the New York Stock Exchange (or on such other recognized quotation system on which the trading prices of the Stock are quoted at the relevant time) on such date. In the event that there are no Stock transactions reported on such tape (or such other system) on such date, Fair Market Value shall mean the closing price on the immediately preceding date on which Stock transactions were so reported.

“Freestanding SAR” means a stock appreciation right granted independently of any Options.

“Incentive Stock Option” means a stock option granted under Section 7 of the Plan that is designated as an Incentive Stock Option that is intended to meet the requirements of Section 422 of the Code.

“New Employer” means, after a Change in Control, a Participant’s employer, or any direct or indirect parent or any direct or indirect majority-owned subsidiary of such employer.

“Non-statutory Stock Option” means a stock option granted under Section 7 of the Plan that is not intended to be an Incentive Stock Option.

“Non-U.S. Award” has the meaning given in Section 3(f).

“Option” means an Incentive Stock Option or a Non-statutory Stock Option.

“Participant” means an Employee or Eligible Director who is selected by the Committee to receive an Award under the Plan.

“Performance Award” means Performance Shares, Performance Units and all other Awards that vest (in whole or in part) upon the achievement of specified Performance Goals.

“Performance Cycle” means the period of time selected by the Committee during which performance is measured for the purpose of determining the extent to which a Performance Award has been earned or vested.

“Performance Goals” means the objectives established by the Committee for a Performance Cycle pursuant to Section 5(c) for the purpose of determining the extent to which a Performance Award has been earned or vested.

“Performance Share” means an Award granted pursuant to Section 5 of the Plan of a contractual right to receive a share of Stock (or the cash equivalent thereof) upon the achievement, in whole or in part, of the applicable Performance Goals.

“Performance Unit” means a dollar denominated unit (or a unit denominated in the Participant’s local currency) granted pursuant to Section 5 of the Plan, payable upon the achievement, in whole or in part, of the applicable Performance Goals.

“Restriction Period” means the period of time selected by the Committee during which a grant of Restricted Stock, Restricted Stock Units and Deferred Share Units, as the case may be, is subject to forfeiture and/or restrictions on transfer pursuant to the terms of the Plan.

“Restricted Stock” means shares of Stock contingently granted to a Participant under Section 6 of the Plan.

“Restricted Stock Unit” means a stock denominated unit contingently awarded under Section 6 of the Plan.

“Retirement” means, unless another definition is incorporated into the applicable Award Agreement, a termination of the Participant’s employment or service at or after the Participant reaches age 65 or the Participant reaches age 55 with at least 10 years of service; provided that if a Participant is a party to an employment or individual severance agreement with an Employer that defines the term “Retirement” then, with respect to any Award made to such Participant, “Retirement” shall have the meaning set forth in such employment or severance agreement.

“Section 409A of the Code” Section 409A of the Code and the applicable rules, regulations and guidance promulgated thereunder.

“Service” means, with respect to Employees, continued employment with the Company and its Subsidiaries or, with respect to Eligible Directors, service on the Board of Directors.

“Service Award” means an Award that vests solely based on the passage of time or continued Service over a fixed period of time.

“Specified Award” means an Award of non-qualified deferred compensation within the meaning of and that is subject to Section 409A of the Code.

“Specified Change in Control” means (i) a Corporate Event in which the stockholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, at least 25% of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or

(z) in the case of a division or a sale or other disposition of assets, the surviving, resulting or acquiring corporations which, immediately following the relevant Corporate Event, hold more than one-half of the gross fair market value of the consolidated assets of the Company immediately prior to such Corporate Event; or (ii) the direct or indirect acquisition by any person (within the meaning of Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), including any group (within the meaning of Rule 13d-5(b) under the Exchange Act), but excluding any of the Company, any Subsidiary or any employee benefit plan sponsored or maintained by the Company or any Subsidiary, of “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 75% or more of the combined Voting Power of the Company’s securities; in each case which is (x) a Change in Control and (y) a “change in control” within the meaning of Section 409A of the Code.

“Specified Employee” means (i) if the Company has not adopted a specified employee policy, any Participant qualifying, on the date of such Participant’s Termination of Service, as a “specified employee” as defined in Section 409A of the Code and (ii) if the Company has in place a specified employee policy, any Participant qualifying as a “specified employee” under such policy as in effect on the date of such Participant’s Termination of Service.

“Stock” means the common stock of the Company, par value $0.01 per share.

“Stock Appreciation Right” or “SAR” means the right to receive a payment from the Company in cash and/or shares of Stock equal to the product of (i) the excess, if any, of the Fair Market Value of one share of Stock on the exercise date over a specified price fixed by the Committee on the grant date, multiplied by (ii) a stated number of shares of Stock.

“Subplan” has the meaning given in Section 3(f).

“Subsidiary” means any business entity in which the Company owns, directly or indirectly, fifty percent (50%) or more of the total combined voting power of all classes of stock entitled to vote, and any other business organization, regardless of form, in which the Company possesses, directly or indirectly, 50% or more of the total combined equity interests in such organization.

“Termination for Business Reasons” means (i) termination of a Participant’s employment or service by the Participant’s Employer or New Employer due to the fact that (x) the Employer or New Employer has ceased or intends to cease (A) to carry on the business or function for the purpose of which the Participant was employed or otherwise provided services, or (B) to carry on that business or function in the place the Participant was employed or otherwise provided services or (y) the requirements of that business (A) for employees to carry out work of a particular kind, or (B) to carry out the work in the place where the Participant was employed or otherwise provided services, have ceased or diminished or are expected to cease or diminish, and, in each case, which is beyond the Participant’s control (other than a termination for Cause or by reason of death, Retirement or Disability); (ii) termination of employment or service by the Participant as a result of (x) the Employer or New Employer requiring the Participant to work in an office which is more than 75 miles from the location of the Employer’s current principal executive office or the location where the Participant is employed or otherwise provides services immediately prior to such termination (subject to such reasonable travel as the performance of Participant’s duties and the business of the Employer may require), or (y) a material diminution in Participant’s compensation or duties; or (iii) in the case of a Participant who is a non-employee director, a termination of such Participant’s service as a director of the Company or any successor entity thereto by the Company or any successor entity thereto (other than a termination by reason of death, Retirement or Disability) in connection with a Change in Control.

“Termination of Service” means with respect to an Eligible Director, the date upon which such Eligible Director ceases to be a member of the Board and, with respect to an Employee, the date the Participant ceases to be an Employee, including, with respect to the provisions of Section 9 applicable to a Canadian Taxpayer, due to a Termination for Business Reasons; provided, that, with respect to any Specified Award, Termination of Service shall mean “separation from service”, as defined in Section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

“Voting Power” when used in the definition of Change in Control shall mean such specified number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors and “Voting Securities” shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors.

(b) Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.

(a) Eligibility. Each Employee (including any officer of the Company) and Eligible Director who, in the opinion of the Committee, has the capacity to contribute to the successful performance of the Company, is eligible to be a Participant in the Plan.

(b) Power to Grant and Establish Terms of Awards. The Committee shall have the discretionary authority, subject to the terms of the Plan, to determine the Employees and Eligible Directors, if any, to whom Awards shall be granted, the type or types of Awards to be granted, and the terms and conditions of any and all Awards including, without limitation, the number of shares of Stock subject to an Award, the time or times at which Awards shall be granted, and the terms and conditions of applicable Award Agreements. The Committee may establish different terms and conditions for different types of Awards, for different Participants receiving the same type of Award, and for the same Participant for each type of Award such Participant may receive, whether or not granted at the same or different times.

(c) Administration. The Plan shall be administered by the Committee. The Committee shall have sole and complete authority and discretion to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time deem advisable, and to interpret the terms and provisions of the Plan. The Committee’s decisions (including any failure to make decisions) shall be binding upon all persons, including the Company, shareholders, Employers and each Employee, Director, Participant or Designated Beneficiary, and shall be given deference in any proceeding with respect thereto.

(d) Delegation by the Committee. The Committee may delegate to the Chief Executive Officer of the Company the power and authority to make Awards to Participants who are not “insiders” subject to Section 16(b) of the Act, pursuant to such conditions and limitations as the Committee may establish. The Committee may also appoint agents (who may be officers or employees of the Company) to assist in the administration of the Plan and may grant authority to such persons to execute agreements, including Award Agreements, or other documents on its behalf. All expenses incurred in the administration of the Plan, including, without limitation, for the engagement of any counsel, consultant or agent, shall be paid by the Company.

(e) Restrictive Covenants and Other Conditions. Without limiting the generality of the foregoing, the Committee may condition the grant of any Award under the Plan upon the Participant to whom such Award would be granted agreeing in writing to certain conditions (such as restrictions on the ability to transfer the underlying shares of Stock) or covenants in favor of the

Company and/or one or more Affiliates thereof (including, without limitation, covenants not to compete, not to solicit employees and customers and not to disclose confidential information, that may have effect following the Termination of Service and after the Stock subject to the Award has been transferred to the Participant), including, without limitation, the requirement that the Participant disgorge any profit, gain or other benefit received in respect of the Award prior to any breach of any such covenant.

(f) Participants Based Outside the United States. To conform with the provisions of local laws and regulations, or with local compensation practices and policies, in foreign countries in which the Company or any of its Subsidiaries or Affiliates operate, but subject to the limitations set forth herein regarding the maximum number of shares issuable hereunder and the maximum award to any single Participant, the Committee may (i) modify the terms and conditions of Awards granted to Participants employed outside the United States (“Non-US Awards”), (ii) establish subplans with modified exercise procedures and such other modifications as may be necessary or advisable under the circumstances (“Subplans”), and (iii) take any action which it deems advisable to obtain, comply with or otherwise reflect any necessary governmental regulatory procedures, exemptions or approvals with respect to the Plan. The Committee’s decision to grant Non-US Awards or to establish Subplans is entirely voluntary, and at the complete discretion of the Committee. The Committee may amend, modify or terminate any Subplans at any time, and such amendment, modification or termination may be made without prior notice to the Participants. The Company, Subsidiaries, Affiliates and members of the Committee shall not incur any liability of any kind to any Participant as a result of any change, amendment or termination of any Subplan at any time. The benefits and rights provided under any Subplan or by any Non-US Award (i) are wholly discretionary and, although provided by either the Company, a Subsidiary or Affiliate, do not constitute regular or periodic payments and (ii) are not to be considered part of the Participant’s salary or compensation under the Participant’s employment with the Participant’s local employer for purposes of calculating any severance, resignation, redundancy or other end of service payments, vacation, bonuses, long-term service awards, indemnification, pension or retirement benefits, or any other payments, benefits or rights of any kind. If a Subplan is terminated, the Committee may direct the payment of Non-US Awards (or direct the deferral of payments whose amount shall be determined) prior to the dates on which payments would otherwise have been made, and, in the Committee’s discretion, such payments may be made in a lump sum or in installments.

(a) Number. Subject in all cases to the provisions of this Section 4, the maximum number of shares of Stock that are available for Awards shall be 4,000,000 shares of Stock. Notwithstanding the provisions of Section 4(b), the maximum number of shares of Stock that may be issued in respect of Incentive Stock Options shall not exceed 4,000,000 shares. Shares of Stock may be made available from Stock held in treasury or authorized but unissued shares of the Company not reserved for any other purpose.

(b) Canceled, Terminated, or Forfeited Awards, etc. Any shares of Stock subject to an Award which for any reason expires without having been exercised, is canceled or terminated or otherwise is settled without the issuance of any Stock shall again be available for grant under the Plan. If a Stock Appreciation Right is granted in tandem with an Option so that only one may be exercised with the other being surrendered in such exercise in accordance with Section 8(b), the number of shares subject to the tandem Option and Stock Appreciation Right shall only be taken into account once (and not as to both awards). Shares of Stock subject to Awards that are assumed, converted or substituted pursuant to an Adjustment Event will not further reduce the maximum limitation set forth in Section 4(a).

(i) No Participant may receive the right to more than 400,000 Performance Shares, shares of performance-based Restricted Stock and Restricted Stock Units and performance-based Deferred Share Units under the Plan in any one year.

(ii) No Participant may receive the right to Performance Units under the Plan in any one year with a value of more than $10 million (or the equivalent of such amount denominated in the Participant’s local currency).

(iii) No Participant may receive Options, SARs or any other Award based solely on the increase in value of Stock on more than 800,000 shares of Stock under the Plan in any one year.

(iv) The aggregate Fair Market Value of the shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000.

(v) No Eligible Director many receive Deferred Share Units, other than Elective Deferred Share Units, under the Plan in any one year with a value of more than $500,000 (based upon the Fair Market Value of the underlying shares of Stock on the date of award).

(d) Adjustment in Capitalization. The number and kind of shares of Stock available for issuance under the Plan and the number, class, exercise price, Performance Goals or other terms of any outstanding Award shall be adjusted by the Board to reflect any extraordinary dividend, stock dividend, stock split or share combination or any recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting the Stock (any such transaction or event, an “Adjustment Event”) in such manner as it determines in its sole discretion.

(e) Prohibition Against Repricing. Except to the extent (i) approved in advance by holders of a majority of the shares of the Company entitled to vote generally in the election of directors or (ii) as a result of any Adjustment Event, the Committee shall not have the power or authority to reduce, whether through amendment or otherwise, the exercise price of any outstanding Option or base price of any outstanding Stock Appreciation Right or to grant any new Award, or make any cash payment, in substitution for or upon the cancellation of Options or Stock Appreciation Rights previously granted.

SECTION 5. PERFORMANCE SHARES AND PERFORMANCE UNITS

(a) Generally. The Committee shall have the authority to determine the Participants who shall receive Performance Shares and Performance Units, the number of Performance Shares and the number and value of Performance Units each Participant receives for each or any Performance Cycle, and the Performance Goals applicable in respect of such Performance Shares and Performance Units for each Performance Cycle. Any adjustments to such Performance Goals shall be approved by the Committee. The Committee shall determine the duration of each Performance Cycle (the duration of Performance Cycles may differ from each other), and there may be more than one Performance Cycle in existence at any one time. Unless otherwise determined by the Committee, the Performance Cycle for Performance Shares and Performance Units shall be three years. Performance Shares and Performance Units shall be evidenced by an Award Agreement that shall specify the number of Performance Shares and the number and value of Performance Units awarded to the Participant, the Performance Goals applicable thereto, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine. No shares of Stock will be issued at the time an

Award of Performance Shares is made, and the Company shall not be required to set aside a fund for the payment of Performance Shares or Performance Units. No dividends shall be paid on unearned Performance Shares.

(b) Earned Performance Shares and Performance Units. Performance Shares and Performance Units shall become earned, in whole or in part, based upon the attainment of specified Performance Goals or the occurrence of any event or events, including a Change in Control, as the Committee shall determine, either at or after the grant date. In addition to the achievement of the specified Performance Goals, the Committee may, at the grant date, condition payment of Performance Shares and Performance Units on such conditions as the Committee shall specify. The Committee may also require the completion of a minimum period of service (in addition to the achievement of any applicable Performance Goals) as a condition to the vesting of any Performance Share or Performance Unit Award.

(c) Performance Goals. At the discretion of the Committee, Performance Goals may be based on the total return to the Company’s shareholders, inclusive of dividends paid, during the applicable Performance Cycle (determined either in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies), or upon the relative or comparative attainment of one or more of the following criteria, whether in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies: operating earnings, net earnings, income, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, return on the Company’s assets, increase in the Company’s earnings or earnings per share, revenue growth, share price performance, return on invested capital, operating income, pre- or post-tax, income, net income, economic value added, cash flow, improvement in or attainment of expense levels, improvement in or attainment of working capital levels, return on equity, debt reduction, gross profit, market share, cost reductions, workplace safety goals, workforce satisfaction and diversity goals, employee retention, completion of key projects, strategic plan development and implementation and achievement of synergy targets, and, in the case of persons who are not Executive Officers, such other criteria as may be determined by the Committee. Performance Goals may be established on a Company-wide basis or with respect to one or more business units, divisions, Subsidiaries, or products. When establishing Performance Goals for a Performance Cycle, the Committee may exclude any or all “unusual or infrequently occurring items” as determined under U.S. generally accepted accounting principles and as identified in the financial statements, notes to the financial statements or management’s discussion and analysis in the annual report, including, without limitation, the charges or costs associated with closures and restructurings of the Company or any Employer, discontinued operations, unusual or infrequently occurring items, capital gains and losses, dividends, share repurchase, other unusual, infrequently occurring or non-recurring items, and the cumulative effects of accounting changes. Except in the case of Awards to Executive Officers intended to be “other performance-based compensation” under Section 162(m)(4) of the Code, the Committee may also adjust the Performance Goals for any Performance Cycle as it deems equitable in recognition of unusual, infrequently occurring or non-recurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine (including, without limitation, any adjustments that would result in the Company paying non-deductible compensation to a Participant).

(d) Special Rule for Performance Goals. If, at the time of grant, the Committee intends a Performance Share Award, Performance Unit or other Performance Award to qualify as “other performance based compensation” within the meaning of Section 162(m)(4) of the Code, the Committee must establish Performance Goals for the applicable Performance Cycle no later

than the 90^th day after the Performance Cycle begins (or by such other date as may be required under Section 162(m) of the Code) but not later than the date on which 25% of the performance period has lapsed.

(e) Negative Discretion. Notwithstanding anything in this Section 5 to the contrary, the Committee shall have the right, in its absolute discretion, (i) to reduce or eliminate the amount otherwise payable to any Participant under Section 5(h) based on individual performance or any other factors that the Committee, in its discretion, shall deem appropriate and (ii) to establish rules or procedures that have the effect of limiting the amount payable to each Participant to an amount that is less than the maximum amount otherwise authorized.

(f) Affirmative Discretion. Notwithstanding any other provision in the Plan to the contrary, (including, without limitation, the maximum amounts payable under Section 4(c)), but subject to the maximum number of shares available for issuance under Section 4(a) of the Plan, the Committee shall have the right, in its discretion, to grant a bonus or Award in cash, in shares of Stock or in any combination thereof, to any Participant who is not a Covered Employee for the year in which the amount paid would ordinarily be deductible by the Company for federal income tax purposes in an amount up to the maximum bonus payable, based on individual performance or any other criteria that the Committee deems appropriate.

(g) Certification of Attainment of Performance Goals. As soon as practicable after the end of a Performance Cycle and prior to any payment or vesting in respect of such Performance Cycle, the Committee shall certify in writing the number of Performance Shares or other Performance Awards and the number and value of Performance Units which have been earned or vested on the basis of performance in relation to the established Performance Goals.

(h) Payment of Awards. Payment or delivery of Stock with respect to earned Performance Shares and earned Performance Units shall be distributed to the Participant or, if the Participant has died, to the Participant’s Designated Beneficiary, as soon as practicable after the expiration of the Performance Cycle and the Committee’s certification under paragraph 5(g) above, provided that payment or delivery of Stock with respect to earned Performance Shares and earned Performance Units shall not be distributed to a Participant until any other conditions on payment of such Awards established by the Committee have been satisfied. The Committee shall determine whether earned Performance Shares and the value of earned Performance Units are to be distributed in the form of cash, shares of Stock or in a combination thereof, with the value or number of shares payable to be determined based on the Fair Market Value of the Stock on the date of the Committee’s certification under paragraph 5(g) above. The Committee shall have the right to impose whatever conditions it deems appropriate with respect to the award or delivery of shares of Stock, including conditioning the vesting of such shares on the performance of additional service.

(i) Newly Eligible Participants. Notwithstanding anything in this Section 5 to the contrary, the Committee shall be entitled to make such rules, determinations and adjustments as it deems appropriate with respect to any Participant who becomes eligible to receive Performance Shares, Performance Units or other Performance Awards after the commencement of a Performance Cycle.

SECTION 6. RESTRICTED STOCK AND RESTRICTED STOCK UNITS

(a) Grant. Restricted Stock and Restricted Stock Units may be granted to Participants at such time or times as shall be determined by the Committee. The grant date of any Restricted Stock or Restricted Stock Units under the Plan will be the date on which such Restricted Stock or

Restricted Stock Units are awarded by the Committee, or on such other date as the Committee shall determine. Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement that shall specify (i) the number of shares of Restricted Stock and the number of Restricted Stock Units to be granted to each Participant, (ii) the Restriction Period(s) and (iii) such other terms and conditions, including rights to dividends or Dividend Equivalents, not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters. Grants of Restricted Stock shall be evidenced by a bookkeeping entry in the Company’s records (or by such other reasonable method as the Company shall determine from time to time). No shares of Stock will be issued at the time an Award of Restricted Stock Units is made and the Company shall not be required to set aside a fund for the payment of any such Awards.

(b) Vesting. Restricted Stock and Restricted Stock Units granted to Participants under the Plan shall be subject to a Restriction Period. Except as otherwise determined by the Committee at or after grant, and subject to the Participant’s continued employment or service with his or her Employer on such date, the Restriction Period with respect to Restricted Stock and Restricted Stock Units that vest solely based on the passage of time shall lapse in four approximately equal installments on the first through fourth anniversaries of the grant date and the Restriction Period with respect to performance-based Restricted Stock and Restricted Stock Units shall lapse, to the extent performance goals have been achieved, three years after the grant date, in each case in accordance with the schedule provided in Participant’s restricted stock agreement. The Restriction Period may lapse with respect to portions of Restricted Stock and Restricted Stock Units on a pro rata basis, or it may lapse at one time with respect to all Restricted Stock and Restricted Stock Units in an Award. The Restriction Period shall also lapse, in whole or in part, upon the occurrence of any event or events, including a Change in Control, specified in the Plan, or specified by the Committee, in its discretion, either at or after the grant date of the applicable Award. In its discretion, the Committee may also establish performance-based vesting conditions with respect to Awards of Restricted Stock and Restricted Stock Units (in lieu of, or in addition to, time-based vesting) based on one or more of the Performance Goals listed in Section 5(c); provided that any Award of Restricted Stock or Restricted Stock Units made to any Executive Officer that is intended to qualify as “other performance based compensation” under Section 162(m) of the Code shall be subject to the same restrictions and limitations applicable to Awards of Performance Shares and Performance Units under Sections 5(d) and 5(g), during a Performance Cycle selected by the Committee. In no case shall the vesting periods applicable to a Participant who is a Canadian Taxpayer exceed the restricted period under the Income Tax Act (Canada).

(c) Settlement of Restricted Stock and Restricted Stock Units. At the expiration of the Restriction Period for any Restricted Stock Awards, the Company shall remove the restrictions applicable to the bookkeeping entry evidencing the Restricted Stock Awards, and shall, upon request, deliver the stock certificates evidencing such Restricted Stock Awards to the Participant or the Participant’s legal representative (or otherwise evidence the issuance of such shares free of any restrictions imposed under the Plan). At the expiration of the Restriction Period for any Restricted Stock Units, for each such Restricted Stock Unit, the Participant shall receive, in the Committee’s discretion, (i) a cash payment equal to the Fair Market Value of one share of Stock as of such payment date, (ii) one share of Stock or (iii) any combination of cash and shares of Stock.

SECTION 7. STOCK OPTIONS

(a) Grant. Options may be granted to Participants at such time or times as shall be determined by the Committee. Except as otherwise provided herein, the Committee shall have complete

discretion in determining the number of Options, if any, to be granted to a Participant. The grant date of an Option under the Plan will be the date on which the Option is awarded by the Committee, or such other date as the Committee shall determine in its sole discretion. Each Option shall be evidenced by an Award Agreement that shall specify the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, the conditions upon which the Option or any portion thereof shall become vested or exercisable and such other terms and conditions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters.

(b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which price shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. Notwithstanding the foregoing, if an Incentive Stock Option is granted to an Employee who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Affiliate thereof, the exercise price shall be at least 110% of the Fair Market Value of the Stock on the grant date.

(c) Vesting and Exercisability. Except as otherwise determined by the Committee at or after grant, and subject to the Participant’s continued employment or service with his or her Employer on such date, each Option awarded to a Participant under the Plan shall become vested and exercisable in accordance with the vesting schedule provided in the Participant’s option agreement, but in no event later than ten years from the date of grant. Options awarded under the Plan may vest either on a cliff-vesting or a pro rata basis. Unless otherwise determined by the Committee and specified in the Award Agreement evidencing the grant of Options, each Option shall become vested and exercisable in four approximately equal installments on the first four anniversaries of the date of grant. Options may also become exercisable, in whole or in part, upon the occurrence of any event or events, including a Change in Control, specified in the Plan, or specified by the Committee, in its discretion, either at or after the grant date of the applicable Option. In its discretion, the Committee may also establish performance conditions (in lieu of, or in addition to, time-based vesting) with respect to the exercisability of any Option. No Option shall be exercisable on or after the tenth anniversary of its grant date. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable.

d) Payment. No Stock shall be delivered pursuant to any exercise of an Option until payment in full of the exercise price therefor is received by the Company. Such payment may be made (i) in cash or its equivalent, (ii) by exchanging shares of Stock owned by the optionee which are not the subject of any pledge or other security interest, (iii) by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Stock so tendered to the Company, valued as of the date of such tender, is at least equal to such exercise price, (iv) to the extent permitted by the Committee, through an arrangement with a broker approved by the Company (or through an arrangement directly with the Company) whereby payment of the exercise price is accomplished with the proceeds of the sale of Stock or (v) to the extent permitted by the Committee, through net settlement in Stock. The Company may not make a loan to a Participant to facilitate such Participant’s exercise of any of his or her Options or payment of taxes.

(e) Incentive Stock Option Status. Notwithstanding anything in this Plan to the contrary, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code.

SECTION 8. STOCK APPRECIATION RIGHTS

(a) Grant. Stock Appreciation Rights may be granted to Participants at such time or times as shall be determined by the Committee. Stock Appreciation Rights may be granted in tandem with Options which, unless otherwise determined by the Committee at or after the grant date, shall have substantially similar terms and conditions to such Options to the extent applicable, or may be granted on a freestanding basis, not related to any Option. The grant date of any Stock Appreciation Right under the Plan will be the date on which the Stock Appreciation Right is awarded by the Committee or such other future date as the Committee shall determine in its sole discretion. No Stock Appreciation Right shall be exercisable on or after the tenth anniversary of its grant date. Stock Appreciation Rights shall be evidenced by an Award Agreement, whether as part of the Award Agreement governing the terms of the Options, if any, to which such Stock Appreciation Right relates or pursuant to a separate Award Agreement with respect to freestanding Stock Appreciation Rights, in each case containing such provisions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters.

(b) Vesting and Exercisability. Except as otherwise determined by the Committee at or after grant, and subject to the Participant’s continued employment or service with his or her Employer on such date, each Stock Appreciation Right awarded to a Participant under the Plan shall become vested and exercisable in accordance with the vesting schedule provided in the Participant’s Award Agreement, but in no event later than ten years from the date of grant. Stock Appreciation Rights awarded under the Plan may vest either on a cliff-vesting or a pro rata basis. Unless otherwise determined by the Committee and specified in the Award Agreement evidencing the grant of Freestanding SARs, each Freestanding SAR shall become vested and exercisable in four approximately equal installments on the first four anniversaries of the date of grant. Stock Appreciation Rights granted in tandem with an Option shall become vested and exercisable on the same date or dates as the Options with which such Stock Appreciation Rights are associated vest and become exercisable. Stock Appreciation Rights may also become exercisable, in whole or in part, upon the occurrence of any event or events, including a Change in Control, as specified in the Plan, or specified by the Committee, in its discretion, either at or after the grant date of the applicable Stock Appreciation Right. In its discretion, the Committee may also establish performance conditions (in lieu of, or in addition to, time-based vesting) with respect to the exercisability of any Stock Appreciation Rights. No Stock Appreciation Rights shall be exercisable on or after the tenth anniversary of their grant date. The Committee may impose such conditions with respect to the exercise of Stock Appreciation Rights, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. Stock Appreciation Rights that are granted in tandem with an Option may only be exercised upon the surrender of the right to exercise such Option for an equivalent number of shares of Stock, and may be exercised only with respect to the shares of Stock for which the related Option is then exercisable.

(c) Settlement. Subject to Section 13(a), upon exercise of a Stock Appreciation Right, the Participant shall be entitled to receive payment in the form, determined by the Committee, of cash or shares of Stock having a Fair Market Value equal to such cash amount, or a combination of shares of Stock and cash having an aggregate value equal to such amount, determined by multiplying:

(i) any increase in the Fair Market Value of one share of Stock on the exercise date over the price fixed by the Committee on the grant date of such Stock Appreciation Right, which may not be less than the Fair Market Value of a share of Stock on the grant date of such Stock Appreciation Right, by

(ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised;

provided, however, that on the grant date, the Committee may establish, in its sole discretion, a maximum amount per share which will be payable upon exercise of a Stock Appreciation Right.

SECTION 9. DEFERRED SHARE UNITS

(a) Grant. Freestanding Deferred Share Units may be granted to Participants at such time or times as shall be determined by the Committee without regard to any election by the Participant to defer receipt of any compensation or bonus amount payable to him. The grant date of any freestanding Deferred Share Unit under the Plan will be the date on which such freestanding Deferred Share Unit is awarded by the Committee or on such other future date as the Committee shall determine in its sole discretion. In addition, on fixed dates established by the Committee and subject to such terms and conditions as the Committee shall determine, the Committee may permit a Participant to elect to defer receipt of all or a portion of his annual compensation and/or annual incentive bonus (“Deferred Annual Amount”) payable by the Company or a Subsidiary and receive in lieu thereof an Award of elective Deferred Share Units (“Elective Deferred Share Units”) equal to the greatest whole number which may be obtained by dividing (i) the amount of the Deferred Annual Amount, by (ii) the Fair Market Value of one share of Stock on the date of payment of such compensation and/or annual bonus. Each Award of Deferred Share Units shall be evidenced by an Award Agreement that shall specify (x) the number of shares of Stock to which the Deferred Share Units pertain, (y) the time and form of payment of the Deferred Share Units and (z) such terms and conditions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters. Upon the grant of Deferred Share Units pursuant to the Plan, the Company shall establish a notional account for the Participant and will record in such account the number of Deferred Share Units awarded to the Participant. No shares of Stock will be issued to the Participant at the time an award of Deferred Share Units is granted. Deferred Share Units may become payable on a Change in Control, Termination of Service or on a specified date or dates set forth in the Award Agreement evidencing such Deferred Share Units. Notwithstanding anything in this Plan to the contrary, Deferred Share Units granted to a Participant who is a Canadian Taxpayer shall only be redeemable and the value thereof payable to such Participant (or, in the event of such Participant’s death, such Participant’s beneficiary) upon a Termination of Service of such Participant (including due to death).

(b) Rights as a Stockholder. The Committee shall determine whether and to what extent Dividend Equivalents will be credited to the account of, or paid currently to, a Participant receiving an Award of Deferred Share Units. Unless otherwise provided by the Committee at or after the grant date, (i) any cash dividends or distributions credited to the Participant’s account shall be deemed to have been invested in additional Deferred Share Units on the record date established for the related dividend or distribution in an amount equal to the greatest whole number which may be obtained by dividing (A) the value of such dividend or distribution on the record date by (B) the Fair Market Value of one share of Stock on such date, and such additional Deferred Share Unit shall be subject to the same terms and conditions as are applicable in respect of the Deferred Share Unit with respect to which such dividends or distributions were payable, and (ii) if any such dividends or distributions are paid in shares of Stock or other securities, such shares and other securities shall be subject to the same vesting, performance and other restrictions as apply to the Deferred Share Unit with respect to which they were paid. A Participant shall not have any rights as a stockholder in respect of Deferred

Share Units awarded pursuant to the Plan (including, without limitation, the right to vote on any matter submitted to the Company’s stockholders) until such time as the shares of Stock attributable to such Deferred Share Units have been issued to such Participant or his beneficiary. A Participant who is a Canadian Taxpayer shall not be considered the owner of the Common Stock underlying Deferred Share Units granted to such Participant.

(c) Vesting. Unless the Committee provides otherwise at or after the grant date, the portion of each Award of Deferred Share Units that consists of freestanding Deferred Share Units, together with any Dividend Equivalents credited with respect thereto, will be subject to a Restriction Period. Except as otherwise determined by the Committee at the time of grant, and subject to the Participant’s continued Service with his or her Employer on such date, the Restriction Period with respect to Deferred Share Units that vest solely based on the passage of time shall lapse in four approximately equal installments on the first through fourth anniversaries of the grant date and the Restriction Period with respect to performance-based Deferred Share Units shall lapse, to the extent Performance Goals have been achieved, three years after the grant date, in each case in accordance with the schedule provided in Participant’s Award Agreement. The Restriction Period may lapse with respect to portions of Deferred Share Units on a pro rata basis, or it may lapse at one time with respect to all Deferred Share Units in an Award. The Restriction Period shall also lapse, in whole or in part, upon the occurrence of any event or events, including a Change in Control, specified in the Plan, or specified by the Committee, in its discretion, on the grant date of the applicable Award. In its discretion, the Committee may also establish performance-based vesting conditions with respect to Awards of Deferred Share Units (in lieu of, or in addition to, time-based vesting) based on one or more of the Performance Goals listed in Section 5(c); provided that any Award of Deferred Share Units made to any Executive Officer that is intended to qualify as “other performance based compensation” under Section 162(m) of the Code shall be subject to the same restrictions and limitations applicable to Awards of Performance Shares and Performance Units under Sections 5(d) and 5(g), during a Performance Cycle selected by the Committee. The portion of each Award of Deferred Share Units that consists of Elective Deferred Share Units, together with any Dividend Equivalents credited with respect thereto, shall not be subject to any Restriction Period and shall be non-forfeitable at all times. Notwithstanding anything in this Plan to the contrary, Deferred Share Units granted to a Participant who is a Canadian Taxpayer shall only be redeemable and the value thereof payable to such Participant (or in the event of death, such Participant’s beneficiary) upon a Termination of Service of such Participant (including due to death).

(d) Further Deferral Elections. A Participant may elect to further defer receipt of shares of Stock issuable in respect of Deferred Share Units (or an installment of an Award) for a specified period or until a specified event, subject in each case to the Committee’s approval and to such terms as are determined by the Committee, all in its sole discretion. Subject to any exceptions adopted by the Committee, such election must generally be made at least 12 months prior to the prior settlement date of such Deferred Share Units (or any such installment thereof) whether pursuant to this Section 9 or Section 13 and must defer settlement for at least five years. A further deferral opportunity does not have to be made available to all Participants, and different terms and conditions may apply with respect to the further deferral opportunities made available to different Participants. This Section 9(d) shall not apply to Deferred Share Units granted to a Participant who is a Canadian Taxpayer.

(e) Settlement. Subject to this Section 9 and Section 13, upon the date specified in the Award Agreement evidencing the Deferred Share Units (or, in the case of a Participant who is a Canadian Taxpayer, in accordance with the procedures set out in the Award Agreement evidencing the Deferred Share Units) for each such Deferred Share Unit the Participant shall

receive, in the Committee’s discretion, (i) a cash payment equal to the Fair Market Value of one share of Stock as of such payment date, (ii) one share of Stock or (iii) any combination of cash and shares of Stock. In no event shall any payment or settlement of Deferred Share Units granted to a Participant who is a Canadian Taxpayer take place later than December 31 of the first calendar year commencing after the year in which the Termination of Service of such Participant takes place.

(a) Generally. The Committee may grant other stock-based Awards, including, but not limited to, the outright grant of Stock in satisfaction of obligations of the Company or any Affiliate thereof under another compensatory plan, program or arrangement, modified Awards intended to comply with or structured in accordance with the provisions of applicable non-U.S. law or practice, or the sale of Stock, in such amounts and subject to such terms and conditions as the Committee shall determine, including, but not limited to, the satisfaction of Performance Goals. Each other-stock based Award shall be evidenced by an Award Agreement that shall specify the terms and conditions applicable thereto. Any other stock-based Award may entail the transfer of actual shares of Stock or the payment of the value of such Award in cash based upon the value of a specified number of shares of Stock, or any combination of the foregoing, as determined by the Committee. The terms of any other stock-based Award need not be uniform in application to all (or any class of) Participants, and each other stock-based award granted to any Participant (whether or not at the same time) may have different terms.

(b) Termination of Service. In addition to any other terms and conditions that may be specified by the Committee, each other stock-based award shall specify the impact of a Termination of Service upon the rights of a Participant in respect of such Award. At the discretion of the Committee, such conditions may be the same as apply with respect to Restricted Stock or Restricted Stock Units, or may contain terms that are more or less favorable to the Participant.

SECTION 11. DIVIDEND EQUIVALENTS

(a) Generally. Dividend Equivalents may be granted to Participants at such time or times as shall be determined by the Committee; provided that no Dividend Equivalents shall be paid with respect to any unearned Performance Shares or Performance Units. Dividend Equivalents may be granted in tandem with other Awards, in addition to other Awards, or freestanding and unrelated to other Awards. The grant date of any Dividend Equivalents under the Plan will be the date on which the Dividend Equivalent is awarded by the Committee, or such other date as the Committee shall determine in its sole discretion. Dividend Equivalents shall be evidenced in writing, whether as part of the Award Agreement governing the terms of the Award, if any, to which such Dividend Equivalent relates, or pursuant to a separate Award Agreement with respect to freestanding Dividend Equivalents, in each case, containing such provisions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters.

SECTION 12. TERMINATION OF EMPLOYMENT OR SERVICE.

(a) Termination Due to Death. Unless otherwise determined by the Committee at or after the time the Award is granted and set forth in the Award Agreement covering such Award, if a Participant’s employment or service terminates due to the Participant’s death:

(i) With respect to Performance Awards, the Participant’s Designated Beneficiary shall be entitled to a distribution of, and such Performance Awards shall be deemed immediately vested to the extent of, the same number or value of Performance Awards (without pro-ration) that would have been payable for the Performance Cycle had his or her Service

continued until the end of the applicable Performance Cycle as if target performance levels had been achieved. Any Stock issuable in respect of such Performance Awards or value of Performance Awards payable in cash that become payable in accordance with the preceding sentence shall be paid on the earlier of (x) the date the Performance Award would have been paid had the Participant remained in Service through the original payment date and (y) January 31 of the year following the Participant’s death.

(ii) All Service Awards shall immediately vest.

(iii) All Service Awards (other than Options and SARs) shall be paid on the earlier of (x) the date the Award would have been paid had the Participant remained in Service through the original payment date and (y) January 31 of the year following the Participant’s death.

(iv) All Options and SARs shall remain outstanding until the first anniversary of the date of death or the Award’s normal expiration date, whichever is earlier, after which any unexercised Options and SARs shall immediately terminate.

(b) Termination Due to Disability. Unless otherwise determined by the Committee at or after the time the Award is granted and set forth in the Award Agreement covering such Award, if a Participant’s employment or service terminates due to the Participant’s Disability:

(i) With respect to Performance Awards, the Participant shall be entitled to a distribution of, and such Performance Awards shall be deemed vested to the extent of, the same number or value of Performance Awards (without pro-ration) that would have been payable for the Performance Cycle had his or her Service continued until the end of the applicable Performance Cycle, subject to satisfaction of the applicable Performance Goals. Any Stock issuable in respect of Performance Awards or value of Performance Awards payable in cash that become payable in accordance with the preceding sentence shall be paid at the same time as the Awards are paid to other Participants (or at such earlier time as the Committee may permit).

(ii) All Service Awards shall immediately vest.

(iv) All Options and SARs shall remain outstanding until the first anniversary of the date of termination or the Award’s normal expiration date, whichever is earlier, after which any unexercised Options and SARs shall immediately terminate.

(c) Retirement. Unless otherwise determined by the Committee at or after the grant date and set forth in the Award Agreement covering such Award, if a Participant’s Service terminates due to the Participant’s Retirement,

(i) With respect to Performance Awards, the Participant shall be entitled to a distribution of, and such Performance Awards shall be deemed vested to the extent of, the number or value of Performance Awards that would have been payable for the Performance Cycle had his or her Service continued until the end of the applicable Performance Cycle, subject to satisfaction of the applicable Performance Goals, multiplied by a fraction, the numerator of which is the number of days elapsed from the commencement of the Performance Cycle through the date of his or her Retirement and the denominator of which is the number of days in the Performance Cycle, and the remainder of each such Performance Award shall be forfeited and canceled as of the date of such Retirement. Any Stock issuable in respect of Performance Awards or value of Performance Awards payable in cash that become

payable in accordance with the preceding sentence shall be paid at the same time as the Performance Awards are paid to other Participants (or at such earlier time as the Committee may permit).

(ii) With respect to Service Awards, such Service Awards shall be deemed vested to the extent of, or the Restricted Period shall lapse with respect to, as applicable, the number of shares of Stock subject to such Service Award multiplied by a fraction, the numerator of which is the number of days elapsed from the date of grant of the Service Award through the date of his or her Retirement and the denominator of which is the number of days from the grant date of the Service Award to the date such Service Award would have vested had the Participant’s Service continued through the original service period, and the remainder of each such Award shall be forfeited and canceled as of the date of such Retirement.

(iii) Vested Service Awards (other than Options and SARs) shall be paid on the earlier of (x) the date the Service Award would have been paid (or the Restricted Period would have lapsed) had the Participant remained in Service through the original payment date and (y) January 31 of the year following the Participant’s Termination of Service.

Notwithstanding anything to the contrary contained in this Plan, if the Award is a Specified Award and the Participant is a Specified Employee, and a Vested Award would otherwise be paid to the Participant pursuant to and on the date specified in clause (iii)(y) above, any such payment required to be made to such Participant under this Plan upon or following the Participant’s Termination of Service shall be delayed until six months after the Participant’s Termination of Service (or, if earlier, upon the Participant’s death) to the extent necessary to comply with, and avoid imposition on the Participant of any tax penalty imposed under, Section 409A of the Code. Should payments be delayed in accordance with the preceding sentence, the accumulated payment that would have been made but for the period of the delay shall be paid in a single lump sum as soon as administratively practicable following the six month anniversary of the Participant’s Termination of Service, and not later than 90 days after such six month anniversary.

(iv) All vested Options and SARs shall remain outstanding until the fifth anniversary of the date of termination or the Award’s normal expiration date, whichever is earlier, after which any unexercised Options and SARs shall immediately terminate.

(v) The Committee may condition the vesting, distribution, exercise or continuation of such Awards following Retirement on the Participant’s refraining from engaging in conduct that is detrimental to the Company (such as competing with the Company or soliciting employees or customers of the Company) following Retirement.

(d) Termination for Cause. Unless otherwise determined by the Committee at or after the grant date and set forth in the Award Agreement covering such Award, if a Participant’s employment or service terminates for Cause, all Options and SARs, whether vested or unvested, and all other Awards that are unvested, unexercisable or with respect to which the Restricted Period has not lapsed shall be immediately forfeited and canceled, effective as of the date of the Participant’s Termination of Service.

(e) Involuntary Termination for any Other Reason. Unless otherwise determined by the Committee at or after the time the Award is granted and set forth in the Award Agreement covering such Award, if a Participant’s employment or service is terminated by the Company for any reason other than death, Disability, Retirement or Cause,

(i) all Performance Awards for which the Performance Cycle has been completed and which are earned but unpaid as of the date of Termination of Service shall be paid at the same times as the Performance Award is paid to other Participants, and all other Awards that are

unvested, unexercisable or with respect to which the Restricted Period has not lapsed shall be immediately forfeited and canceled as of the date of Termination of Service.

(ii) All vested Options and SARs shall remain outstanding until the 90^th day after of the date of Termination of Service or the Award’s normal expiration date, whichever is earlier, after which any unexercised Options and SARs shall immediately terminate.

(f) Voluntary Termination by the Participant. Unless otherwise determined by the Committee at or after the time the Award is granted and set forth in the Award Agreement covering such Performance Shares or Performance Units, if a Participant terminates his or her Service with the Company (other than by reason of death, Disability or Retirement), all Options and SARs, whether vested or unvested, and all other Awards that are unvested, unexercisable or with respect to which the Restricted Period has not lapsed shall be immediately forfeited and canceled, effective as of the date of the Participant’s Termination of Service.

(g) Termination in Connection with a Change in Control. Notwithstanding anything to the contrary in this Section 12, Section 13 shall determine the treatment of Awards upon a Change in Control.

SECTION 13. CHANGE IN CONTROL

(a) Change in Control. Unless otherwise determined by the Committee, as otherwise provided in an Award Agreement, or as provided in Section 13(b) or 13(d), in the event of a Change in Control,

(i) no cancellation, termination, acceleration of exercisability or vesting, lapse of any Restriction Period or settlement or other payment shall occur with respect to any such outstanding Awards, provided that such outstanding Awards shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted Award, an “Alternative Award”) by the New Employer, provided that any Alternative Award must:

(A) be based on shares of Stock that are traded on an established U.S. securities market;

(B) provide the Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment;

(D) have terms and conditions which provide that in the event that the Participant suffers a Termination for Business Reasons within 24 months after the occurrence of a Change in Control:

(I) all outstanding Service Awards held by a terminated Participant shall become vested and exercisable and the Restriction Period on all such outstanding Service Awards shall lapse;

(II) each outstanding Performance Award held by a terminated Participant (a) with a Performance Cycle in progress at the time of the Termination for Business Reasons, shall be deemed to be earned and become vested and/or paid out in an amount equal to the product of (u) such Participant’s target award opportunity with respect to such Award for the Performance Cycle in question and (v) the greater of the level of actual achievement of the Performance Goals (which Performance Goals shall be adjusted, if necessary or appropriate, to reflect the portion of the Performance Cycle that has

been completed) as of the date of the Change in Control and as of the last day of the fiscal quarter ended on or immediately prior to the date of Termination of Service, (b) with a completed Performance Cycle as of the date of either the Change in Control or the Termination for Business Reasons shall be deemed to be earned and become vested and/or paid out in an amount equal to the product of (w) such Participant’s target award opportunity with respect to such Award for the Performance Cycle in question and (x) the actual level of achievement of the Performance Goals, and (c) with a Performance Cycle that has not yet commenced at the time of the Termination for Business Reasons, shall be deemed to be earned and become vested and/or paid out in an amount equal to the product of (y) such Participant’s target award opportunity with respect to such Award for the Performance Cycle in question and (z) 100% and (unless determined otherwise by the Committee) the portion of any Performance Award that does not vest in accordance with this paragraph shall be forfeited and canceled without any payment therefor as of the date of Termination of Service; and

(III) notwithstanding anything in this Section 13(a)(i)(D), with respect to any Award granted during the year in which the Change in Control occurs, unless otherwise determined by the Committee prior to the Change in Control, the number of outstanding Awards held by a terminated Participant that shall become vested and exercisable, the number of Awards with respect to which the Restriction Period shall lapse and/or the number of Awards that shall be earned and become vested and/or paid out, as applicable, shall be multiplied by a fraction, the numerator of which is the number of days elapsed from the first day of the calendar year in which the Change in Control occurs (or, if later, the date the Participant commenced Service) through the date of the Participant’s Termination of Service and the denominator of which is the number of days in such calendar year and (unless determined otherwise by the Committee) the remainder of each such Award shall be forfeited and canceled without any payment therefor as of the date of Termination of Service.

(IV) Payments. To the extent permitted under Section 15(l), all amounts payable hereunder shall be payable in full, as soon as reasonably practicable, but in no event later than 10 business days, following termination.

(ii) with respect to Awards other than Specified Awards, if no Alternative Awards are available, then immediately prior to the consummation of the transaction constituting the Change in Control, (A) all unvested Service Awards shall vest and the Restriction Period on all such outstanding Service Awards shall lapse; (B) (1) each outstanding Performance Award with a Performance Cycle in progress or a completed Performance Cycle at the time of the Change in Control shall be deemed to be earned and become vested and/or paid out in an amount equal to the product of (w) such Participant’s target award opportunity with respect to such Award for the Performance Cycle in question and (x) the level of actual achievement of the Performance Goals as of the date of the Change in Control (which Performance Goals shall be adjusted, if necessary or appropriate, to reflect the portion of the Performance Cycle that has been completed), (2) each outstanding Performance Award with a Performance Cycle that has not commenced at the time of the Change in Control shall be deemed to be earned and become vested and/or paid out in an amount equal to product of (y) such Participant’s target award opportunity with respect to such Award for the Performance Cycle in question and (z) 100%, and (3) all other Performance Awards shall lapse and be canceled and forfeited upon consummation of the Change in Control; and (C) shares of Stock underlying all Restricted Stock, Restricted Stock Units, Performance

Shares, Performance Units, Deferred Share Units and other stock-based Awards that are vested or for which the Restricted Period has lapsed (as provided in this Section 13(a) or otherwise) shall be issued or released to the Participant holding such Award. Notwithstanding the foregoing, with respect to any Award granted during the year in which the Change in Control occurs, unless otherwise determined by the Committee prior to the Change in Control, the number of outstanding Awards that shall become vested and exercisable, with respect to which the Restriction Period shall lapse, and/or that shall be earned and become vested and/or paid out, as applicable, as provided above shall be multiplied by a fraction, the numerator of which is the number of days elapsed from the first day of the calendar year in which the Change in Control occurs (or, if later, the date the Participant commenced Service) through the date of the Change in Control and the denominator of which is the number of days in such calendar year, and (unless determined otherwise by the Committee) the remainder of each such Award shall be forfeited and canceled without any payment therefor as of the date of the Change in Control.

(iii) with respect to Specified Awards, in the event of a Change in Control that is not a Specified Change in Control, if no Alternative Awards are available, or Alternative Awards may not be issued in a manner that complies with Section 409A of the Code or without the imposition of any additional taxes or interest under Section 409A of the Code, the Committee, as constituted immediately prior to the Change in Control, may determine that Awards may be settled through a cash payment equal to the Change in Control Price multiplied by the number of vested Awards (reduced by any required exercise price) plus interest from the later of the vesting date and the Change in Control through the date of payment at a rate determined by the Committee as constituted immediately prior to the Change in Control to the extent to that such settlement shall not subject the Participant holding such Award to any additional taxes or interest under Section 409A of the Code or in such other manner that shall comply with Section 409A of the Code.

(b) Specified Change in Control. Unless otherwise determined by the Committee at or prior to the time of grant or as otherwise provided in an Award Agreement entered into after November 3, 2008, notwithstanding anything in this Plan with respect to any Specified Awards, in the event of a Specified Change in Control then all of the Specified Awards shall be subject to the treatment provided in Section 13(a)(ii) as if they were Awards other than Specified Awards (it being understood for this purpose that Alternative Awards shall be deemed unavailable for such Specified Awards). Unless otherwise determined by the Committee at or prior to the time of grant or as otherwise provided in an Award Agreement entered into after November 3, 2008, in each case in compliance with Section 409A of the Code, no other Change in Control shall trigger any payment, issuance, release or settlement of a Specified Award.

(c) Termination for Business Reasons Prior to a Change in Control. Unless otherwise determined by the Committee at or after the time of grant, any Participant whose employment or service is terminated due to a Termination for Business Reasons within 3 months prior to the occurrence of a Change in Control shall be treated, solely for the purposes of this Plan (including, without limitation, this Section 13) as continuing in the Company’s employment or service until the occurrence of such Change in Control, and to have been terminated immediately thereafter.

(d) Committee Discretion. Notwithstanding anything in this Section 13 to the contrary, except as otherwise provided in an Award Agreement, if the Committee as constituted immediately prior to the Change in Control determines in its sole discretion, then all Awards shall be canceled in exchange for a cash payment equal to (x)(A) in the case of Option and SAR Awards that are vested (as provided in Section 13(a) or otherwise), the excess, if any, of the Change in Control

Price over the exercise price for such Option or SAR and (B) in the case of all other Awards that are vested or for which the Restricted Period has lapsed (as provided in Section 13(a) or otherwise), the Change in Control Price, multiplied by (y) the aggregate number of shares of Common Stock covered by such Award, provided, however, that no Specified Award shall be cancelled in exchange for a cash payment unless the Change in Control is a Specified Change in Control or such payment may be made without the imposition of any additional taxes or interest under Section 409A of the Code. The Committee may, in its sole discretion, accelerate the exercisability or vesting or lapse of any Restriction Period with respect to all or any portion of any outstanding Award immediately prior to the consummation of the transaction constituting the Change in Control, provided, however, that no such acceleration or vesting or lapse may be exercised with respect to any Specified Award to the extent that such exercise would result in the imposition of any additional tax, interest or penalty under Section 409A of the Code.

SECTION 14. EFFECTIVE DATE, AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN

The Plan shall be effective on the Effective Date, and shall continue in effect, unless sooner terminated pursuant to this Section 14, until the tenth anniversary of the Effective Date. The Board of Directors or the Committee may at any time in its sole discretion, for any reason whatsoever, terminate or suspend the Plan, and from time to time, subject to obtaining any regulatory approval, including that of the New York Stock Exchange and the Toronto Stock Exchange, if applicable, may amend or modify the Plan; provided that without the approval by a majority of the votes cast at a duly constituted meeting of shareholders of the Company, no amendment or modification to the Plan may (i) materially increase the benefits accruing to Participants under the Plan, (ii) except as otherwise expressly provided in Section 4(d), increase the number of shares of Stock subject to the Plan or the individual Award limitations specified in Section 4(c), (iii) modify the class of persons eligible for participation in the Plan (iv) allow Options to be issued with an exercise price below Fair Market Value on the date of grant (v) extend the term of any Award granted under the Plan beyond its original expiry date or (vi) materially modify the Plan in any other way that would require shareholder approval under any regulatory requirement that the Committee determines to be applicable, including, without limitation, the rules of the New York Stock Exchange and the Toronto Stock Exchange. Notwithstanding any provisions of the Plan to the contrary, neither the Board of Directors nor the Committee may, without the consent of the affected Participant, amend, modify or terminate the Plan in any manner that would adversely affect any Award theretofore granted under the Plan or result in the imposition of an additional tax, interest or penalty under Section 409A of the Code.

SECTION 15. GENERAL PROVISIONS

(a) Withholding. The Employer shall have the right to deduct from all amounts paid to a Participant in cash (whether under this Plan or otherwise) any amount of taxes required by law to be withheld in respect of Awards under this Plan as may be necessary in the opinion of the Employer to satisfy tax withholding required under the laws of any country, state, province, city or other jurisdiction, including but not limited to income taxes, capital gains taxes, transfer taxes, and social security contributions that are required by law to be withheld. In the case of payments of Awards in the form of Stock, at the Committee’s discretion, the Participant shall be required to either pay to the Employer the amount of any taxes required to be withheld with respect to such Stock or, in lieu thereof, the Employer shall have the right to retain (or the Participant may be offered the opportunity to elect to tender) the number of shares of Stock whose Fair Market Value equals such amount required to be withheld.

(b) Nontransferability of Awards. Except as provided herein or in an Award Agreement, no Award may be sold, assigned, transferred, pledged or otherwise encumbered except by will or the laws of descent and distribution; provided that the Committee may permit (on such terms and conditions as it shall establish) a Participant to transfer an Award for no consideration to the Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests (“Permitted Transferees”). No amendment to the Plan or to any Award shall permit transfers other than in accordance with the preceding sentence. Any attempt by a Participant to sell, assign, transfer, pledge or encumber an Award without complying with the provisions of the Plan shall be void and of no effect. Except to the extent required by law, no right or interest of any Participant shall be subject to any lien, obligation or liability of the Participant. All rights with respect to Awards granted to a Participant under the Plan shall be exercisable during the Participant’s lifetime only by such Participant or, if applicable, his or her Permitted Transferee(s). The rights of a Permitted Transferee shall be limited to the rights conveyed to such Permitted Transferee, who shall be subject to and bound by the terms of the agreement or agreements between the Participant and the Company.

(c) No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its Employees, in cash or property, in a manner which is not expressly authorized under the Plan.

(d) No Right to Employment. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Employer. The grant of an Award hereunder, and any future grant of Awards under the Plan is entirely voluntary, and at the complete discretion of the Company. Neither the grant of an Award nor any future grant of Awards by the Company shall be deemed to create any obligation to grant any further Awards, whether or not such a reservation is explicitly stated at the time of such a grant. The Plan shall not be deemed to constitute, and shall not be construed by the Participant to constitute, part of the terms and conditions of employment and participation in the Plan shall not be deemed to constitute, and shall not be deemed by the Participant to constitute, an employment or labor relationship of any kind with the Company. The Employer expressly reserves the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein and in any agreement entered into with respect to an Award. The Company expressly reserves the right to require, as a condition of participation in the Plan, that Award recipients agree and acknowledge the above in writing. Further, the Company expressly reserves the right to require Award recipients, as a condition of participation, to consent in writing to the collection, transfer from the Employer to the Company and third parties, storage and use of personal data for purposes of administering the Plan.

(e) No Rights as Shareholder. Subject to the provisions of the applicable Award contained in the Plan and in the Award Agreement, no Participant, Permitted Transferee or Designated Beneficiary shall have any rights as a shareholder with respect to any shares of Stock to be distributed under the Plan until he or she has become the holder thereof.

(f) Forfeiture for Financial Reporting Misconduct; Other Compensation Clawbacks. If the Company is required to prepare an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws, and if a

Participant knowingly or grossly negligently engaged in the misconduct or knowingly or grossly negligently failed to prevent the misconduct as determined by the Committee, or if the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, then the Participant shall forfeit and disgorge to the Company (i) any Awards granted or vested and all gains earned or accrued due to the exercise of Options or SARS or sale of any Stock during the 12-month period following the filing of the financial document embodying such financial reporting requirement and (ii) any other Awards that vested based on the materially non- complying financial reporting. The Company may also cancel or reduce, or require a Participant to forfeit and disgorge to the Company or reimburse the Company for, any Awards granted or vested and any gains earned or accrued, due to the exercise, vesting or settlement of Awards or sale of any Stock pursuant to an Award under the Plan, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act) or otherwise.

(g) Construction of the Plan. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Delaware (without reference to the principles of conflicts of law).

(h) Compliance with Legal and Exchange Requirements. The Plan, the granting and exercising of Awards thereunder, and any obligations of the Company under the Plan, shall be subject to all applicable federal, state, and foreign country laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required, and to any rules or regulations of any exchange on which the Stock is listed. The Company, in its discretion, may postpone the granting and exercising of Awards, the issuance or delivery of Stock under any Award or any other action permitted under the Plan to permit the Company, with reasonable diligence, to complete such stock exchange listing or registration or qualification of such Stock or other required action under any federal, state or foreign country law, rule, or regulation and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock in compliance with applicable laws, rules, and regulations. The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Stock in violation of any such laws, rules, or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Awards. Neither the Company nor its directors or officers shall have any obligation or liability to a Participant with respect to any Award (or Stock issuable thereunder) that shall lapse because of such postponement.

(i) Deferrals. Subject to the requirements of Section 409A of the Code, the Committee may postpone the exercising of Awards, the issuance or delivery of Stock under, or the payment of cash in respect of, any Award or any action permitted under the Plan, upon such terms and conditions as the Committee may establish from time to time. Subject to the requirements of Section 409A of the Code, a Participant may electively defer receipt of the shares of Stock or cash otherwise payable in respect of any Award (including, without limitation, any shares of Stock issuable upon the exercise of an Option other than an Incentive Stock Option) upon such terms and conditions as the Committee may establish from time to time.

(j) Indemnification. Each person who is or shall have been a member of the Committee and each delegate of such Committee shall be indemnified and held harmless by the Company

against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be made a party or in which he or she may be involved in by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided that the Company is given an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it personally. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.

(k) Amendment of Award. In the event that the Committee shall determine that such action would, taking into account such factors as it deems relevant, be beneficial to the Company, the Committee may affirmatively act to amend, modify or terminate any outstanding Award at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including without limitation, change the date or dates as of which (A) an Option or SAR becomes exercisable, (B) a Performance Share or Performance Unit is deemed earned, or (C) Restricted Stock, Restricted Stock Units, Deferred Share Units and other Stock-based Awards becomes nonforfeitable, except that no outstanding Option may be amended or otherwise modified or exchanged (other than in connection with a transaction described in Section 4(d)) in a manner that would have the effect of reducing its original exercise price or otherwise constitute repricing. Any such action by the Committee shall be subject to the Participant’s consent if the Committee determines that such action would adversely affect the Participant’s rights under such Award, whether in whole or in part. The Committee may, in its sole discretion, accelerate the exercisability or vesting or lapse of any Restriction Period with respect to all or any portion of any outstanding Award at any time. Notwithstanding any provisions of the Plan to the contrary, the Committee may not, without the consent of the affected Participant, amend, modify or terminate an outstanding Award or exercise any discretion in any manner that would result in the imposition of an additional tax, interest or penalty under Section 409A of the Code.

(l) 409A Compliance. The Plan is intended to be administered in a manner consistent with the requirements, where applicable, of Section 409A of the Code. Where reasonably possible and practicable, the Plan shall be administered in a manner to avoid the imposition on Participants of immediate tax recognition and additional taxes pursuant to such Section 409A. Notwithstanding the foregoing, neither the Company nor the Committee, nor any of the Company’s directors, officers or employees shall have any liability to any person in the event such Section 409A applies to any such Award in a manner that results in adverse tax consequences for the Participant or any of his beneficiaries or transferees. Notwithstanding any provision of this Plan or any Award Agreement to the contrary, the Board of the Directors or the Committee may unilaterally amend, modify or terminate the Plan or any outstanding Award, including but not limited to changing the form of Award, if the Board or Committee determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A of the Code.

(m) No Impact on Benefits. Except as may otherwise be specifically stated under any employee benefit plan, policy or program, no amount payable in respect of any Award shall be treated as compensation for purposes of calculating a Participant’s right under any such plan, policy or program.

(n) No Constraint on Corporate Action. Nothing in this Plan shall be construed (a) to limit, impair or otherwise affect the Company’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets or (b) to limit the right or power of the Company, or any Subsidiary, to take any action which such entity deems to be necessary or appropriate.

(o) Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed in the construction of this Plan.

December 11, 2019

Exhibit 10.11

DOMTAR CORPORATION

ANNUAL INCENTIVE PLAN FOR MEMBERS OF THE MANAGEMENT COMMITTEE

SECTION 1. PURPOSE

The purposes of the Plan are to enable the Company and its Subsidiaries to attract, retain, motivate and reward the best qualified executive officers by providing them with the opportunity to earn competitive compensation directly linked to the Company’s performance.

SECTION 2. DEFINITIONS

Unless the context requires otherwise; the following words as used in the Plan shall have the meanings ascribed to each below, it being understood that masculine, feminine and neuter pronouns are used interchangeably and that each comprehends the others.

(a) “Act” means the Securities and Exchange Act of 1934, as amended.

(b) “Board” means the Board of Directors of the Company.

(d) “Committee” means the Human Resources and Compensation Committee of the Board or such other committee of the Board as the Board shall designate from time to time, consisting of two or more members, each of whom is an “independent” director under New York Stock Exchange Listing requirements, a “Non-Employee Director” within the meaning of Rule 16b-3, as promulgated under the Act, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.

(e)“Company” means Domtar Corporation.

(f)“Covered Employee” shall have the meaning set forth in Section 162(m).

(g) “Executive Officer” means a member of the Company’s Management Committee, as appointed from time to time by the Board of Directors upon recommendation of the Committee after consultation with the President and Chief Executive Officer.

(h)“Omnibus Plan” means the Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan.

(i) “Participant” means each Executive Officer of the Company and Covered Employee, as well as any former member of the Management Committee who retained Management Committee-level benefits and is still employed by the Company.

(j) “Performance Period” means each fiscal year or another period as designated by the Committee, so long as such period does not exceed one year.

(k) “Plan” means this Domtar Corporation Annual Incentive Plan, as set forth herein and as may hereafter be amended from time to time.

(l) “Section 162(m)” means Section 162(m) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

(m) “Subsidiary” means any business entity in which the Company owns, directly or indirectly, fifty percent (50%) or more of the total combined voting power of all classes of stock entitled to vote, and any other business organization, regardless of form, in which the Company possesses, directly or indirectly, 50% or more of the total combined equity interests.

SECTION 3. ADMINISTRATION

The Committee shall administer and interpret the Plan, provided that, in no event, shall the Plan be interpreted in a manner which would cause any award intended to be qualified as performance based compensation under Section 162(m) to fail to so qualify. The Committee shall establish the performance objectives for any fiscal year or other Performance Period determined by the Committee in accordance with Section 4 and certify whether such performance objectives have been obtained. Any determination made by the Committee under the Plan shall be final and conclusive. The Committee may employ such legal counsel, consultants and agents (including counsel or agents who are employees of the Company or a Subsidiary) as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant or agent and any computation received from such consultant or agent. All expenses incurred in the administration of the Plan, including, without limitation, for the engagement of any counsel, consultant or agent, shall be paid by the Company. No member or former member of the Board or the Committee shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan other than as a result of such individual’s willful misconduct.

SECTION 4. BONUSES

(a) Performance Criteria. Within 90 days after each Performance Period begins (or such other date as may be required or permitted under Section 162(m)) but not later than the date on which 25% of the performance period has lapsed, the Committee shall establish the performance objective or objectives that must be satisfied in order for a Participant to receive a bonus award for such Performance Period. Unless the Committee determines at the time of grant not to qualify the award as performance-based compensation under Section 162(m), any such performance objectives will be based upon the relative or comparative achievement of one or more of the following criteria, whether in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies, as determined by the Committee for the Performance Period: operating earnings, net earnings, income, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, total shareholder return, return on the Company’s assets, increase in the Company’s earnings or earnings per share, revenue growth, share price performance, return on invested capital, operating income, pre- or post-tax, income, net income, economic value added, cash flow, improvement in or attainment of expense levels, improvement in or attainment of working capital levels, return on equity, debt reduction, gross profit, market share, cost reductions, workplace safety goals, workforce satisfaction and diversity goals, employee retention, completion of key projects, strategic plan development, and implementation and achievement of synergy targets. Performance Goals may be established on a Company-wide basis or with respect to one or more business units, divisions, Subsidiaries, or products; and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.

When establishing Performance Goals for a Performance Period, the Committee may exclude any or all “unusual or infrequently occurring items” as determined under U.S. generally accepted accounting principles and as identified in the financial statements, notes to the financial statements or management’s discussion and analysis in the annual report, including, without

limitation, the charges or costs associated with closures and restructurings of the Company or any Subsidiary, discontinued operations, unusual or infrequently occurring items, capital gains and losses, dividends, share repurchase, other unusual, infrequently occurring or non-recurring items, and the cumulative effects of accounting changes. Except in the case of Awards to Executive Officers intended to be “other performance-based compensation” under Section 162(m)(4) of the Code, the Committee may also adjust the Performance Goals for any Performance Cycle as it deems equitable in recognition of unusual, infrequently occurring or non-recurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine (including, without limitation, any adjustments that would result in the Company paying non-deductible compensation to a Participant).

(b) Maximum Amount Payable. If the Committee certifies in writing that any of the performance objectives established for the relevant Performance Period under Section 4(a) has been satisfied, and subject to Section 4(c) or applicable law, each Participant who is employed by the Company or one of its Subsidiaries on the last day of the Performance Period for which the bonus is payable shall be entitled to receive an annual bonus in an amount not to exceed $5,000,000. If a Participant’s employment terminates for any reason other than resignation or for Cause (as such term is defined in the Omnibus Plan) (including, without limitation, his or her death, disability or retirement as these terms may be defined in the Omnibus Plan) prior to the last day of the Performance Period for which the bonus is payable, the maximum bonus payable to such Participant under the preceding sentence shall be multiplied by a fraction, the numerator of which is the number of days that have elapsed during the Performance Period in which the termination occurs prior to and including the date of the Participant’s termination of employment and the denominator of which is the total number of days in the Performance Period.

(c) Termination of Employment. Unless otherwise determined by the Committee in its sole discretion at the time the performance criteria are selected for a particular Performance Period in accordance with Section 4(a), if a Participant’s employment terminates for any reason prior to the date on which the award is paid hereunder, such Participant shall not earn and shall forfeit all rights to any and all awards which have not yet been paid under the Plan; provided that if a Participant’s employment terminates as a result of death, disability or retirement (as these terms may be defined in the Omnibus Plan) the Committee shall give consideration at its sole discretion to the payment of a full or partial bonus with regard to, respectively, the entirety or portion of the Performance Period worked. Notwithstanding the foregoing, if a Participant’s employment terminates for any reason prior to the date on which the award is paid hereunder, the Committee, in its discretion, may waive any forfeiture pursuant to Section 4 in whole or in part. The Committee has exercised such discretion in the Severance Program for Management Committee Members.

(d) Negative Discretion. Notwithstanding anything else contained in Section 4(b) to the contrary (but subject to Section 4(f)), the Committee shall have the right, in its absolute discretion, (i) to reduce or eliminate the amount otherwise payable to any Participant under Section 4(b) based on individual performance or any other factors that the Committee, in its discretion, shall deem appropriate and (ii) to establish rules or procedures that have the effect of limiting the amount payable to each Participant to an amount that is less than the maximum amount otherwise authorized under Section 4(b).

(e) Compensation Clawbacks. The Company may cancel or reduce, or require a Participant to forfeit and disgorge to the Company or reimburse the Company for, any bonus awards granted or paid under the Plan, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and

Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act) or otherwise.

(f) Change in Control. Notwithstanding anything to the contrary contained herein, in the event of a Change in Control, the annual bonus payable pursuant to Section 4(b) with respect to the fiscal year in which the Change in Control occurs shall not be less than the bonus amount accrued on the books and records of the Company as of the date of the Change in Control.

SECTION 5. PAYMENT

Except as otherwise provided hereunder, payment of any bonus amount determined under Section 4 shall be made to each Participant as soon as practicable after the Committee certifies that one or more of the applicable performance objectives have been attained (or, in the case of any bonus payable under the provisions of Section 4(d), after the Committee determines the amount of any such bonus) and in any event within two and a half months of the end of the fiscal year in which the Performance Period ends.

SECTION 6. FORM OF PAYMENT

The Committee shall determine whether any bonus payable under the Plan is payable in cash, in shares of Common Stock or in any combination thereof. Awards of shares under this Plan may be issued under the Omnibus Plan in forms including, without limitation, Restricted Stock and Restricted Stock Units. The Committee shall have the right to impose whatever conditions it deems appropriate with respect to the award of shares of Common Stock, including conditioning the vesting of such shares on the performance of additional service.

SECTION 7. GENERAL PROVISIONS

(a) Effectiveness of the Plan. The Plan shall be effective with respect to Performance Periods beginning on or after March 7, 2007 and ending on or before December 31, 2012, unless the term hereof is extended by action of the Board, subject in the case of years after 2012 to approval by the Company’s shareholders at or before its 2013 annual meeting of shareholders. Upon approval by the Company’s shareholders at or before its 2013 annual meeting of shareholders and at each additional meeting of shareholders at which this Plan is approved by the Company’s shareholders, the Performance Periods and the term hereof shall be extended for an additional five years.

(b) Amendment and Termination. Notwithstanding Section 7(a), the Board or the Committee may at any time amend, suspend, discontinue or terminate the Plan; provided; however, that no such action shall be effective without approval by the shareholders of the Company to the extent necessary to continue to qualify the amounts payable hereunder to Covered Employees as performance-based compensation under Section 162(m).

(c) Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and shall not be effective until received by the Committee. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant, the beneficiary shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate. If a Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares, unless the Participant has designated otherwise.

(d) No Right of Continued Employment. Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company or any of its Subsidiaries.

(e) No Limitation on Corporate Actions. Nothing contained in the Plan shall be construed to prevent the Company or any Subsidiary from taking any corporate action which is deemed by it to be appropriate or in its best interest, whether or not such action would have an adverse effect on any awards made under the Plan. No employee, beneficiary or other person shall have any claim against the Company or any Subsidiary as a result of any such action.

(f) Non-alienation of Benefits. Except as expressly provided herein, no Participant or beneficiary shall have the power or right to transfer, anticipate, or otherwise encumber the Participant’s interest under the Plan. The Company’s obligations under this Plan are not assignable or transferable except to (i) a corporation which acquires all or substantially all of the Company’s assets or (ii) any corporation into which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participant’s beneficiaries; heirs, executors, administrators or successors in interest.

(g) Withholding. Any amount payable to a Participant or a beneficiary under this Plan shall be subject to any applicable Federal, state and local income and employment taxes and any other amounts that the Company or a Subsidiary is required at law to deduct and withhold from such payment.

(h) Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

(i) Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to the principles of conflict of laws.

(j) Headings. Headings are inserted in this Plan for convenience of reference only and are to be ignored in a construction of the provisions of the Plan.

December 11, 2019

Exhibit 10.15

Amended and Restated
DC SERP for Designated
executives of Domtar Personal Care

As in effect on March 31, 2014, amended and restated as of November 1, 2016 and further on January 1, 2019

Table of Contents

Introduction1

Definitions1

Retirement5

Non-Vested Termination of Employment5

Vested Termination6

Death6

Disability6

Administration6

Funding6

10.

Non-Alienation of Benefits7

11.

Conflicts or Inconsistencies7

12.

Amendments7

13.

General Provisions7

Appendix

1.	Introduction

1.1	The present document constitutes the DC SERP for Designated Executives of Domtar Personal Care, hereinafter called the “Personal Care DC SERP”.

1.2	The purpose of the Personal Care DC SERP is to provide designated executives of the Company with additional retirement benefits in excess of those that may be payable in accordance with the provisions of the Base U.S. Savings Plans, as defined below.

1.3	On November 1, 2016, the Personal Care DC SERP was amended and restated in order to adopt claims procedures.

1.4	On January 1, 2019, the Personal Care DC SERP is being amended and restated in order to reflect changes in the record-keeping arrangement and in the definition of Notional Return.

2.	Definitions

2.1

Annual Contribution Credit: for a given calendar year, the excess, if any, of the percentage, as set in Appendix “A”, of the Member’s Earnings, over the Company’s contribution to the Base U.S. Savings Plan in respect of the period of the calendar year as a Member of the Personal Care DC SERP. For the purposes of this paragraph, a Member is assumed to contribute to the Base U.S. Savings Plan such amount that would result in the maximum Company contribution.

In any given calendar year, the aggregate of the Annual Contribution Credit and the Annual Contributions Credit received under the DC SERP for Designated Executives of Domtar combined with the aggregate contributions and pension credits received under the base plans of the DC SERP for Designated Executives of Domtar, if any, and the Base U.S. Savings Plan shall not exceed the percentage, as set in the Appendix “A”, of the Member’s Earnings.

Annual Contribution Credits are credited by the Company to the Personal Care DC SERP Notional Account at the end of the calendar year for which they have been determined, or upon Separation from Service if earlier.

Annual Contribution Credits are invested in the Notional Investment Options in accordance with Section 2.11.

2.2	Base U.S. Savings Plan: the Domtar U.S. Salaried 401(k) Plan and the Domtar Personal Care 401(k) Plan, as may be amended from time to time, for the period of service as a Member of the Personal Care DC SERP.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

2.3	Board: the Board of Directors of Domtar Corporation.

2.4	Code: the U.S. Internal Revenue Code of 1986, as amended.

2.5	Company: means Domtar Corporation and any of its subsidiaries or affiliated companies.

2.6	Earnings: compensation as defined under the Base U.S. Savings Plan in respect of periods in which the executive is a Member of the Personal Care DC SERP.

2.7	HR Committee: the Human Resources Committee of the Board.

2.8	Management Committee: means the management committee of Domtar Corporation.

2.9	Member: any executives of Domtar Personal Care division as recommended by the Management Committee or its designee as specified in the Appendix.

2.10	Normal Retirement Date: with respect to a Member, the first day of the month coinciding with or immediately following the Member’s sixty-fifth (65th) birthday.

2.11	Notional Investment Options: unless not administratively feasible, the Company shall provide the same notional investment options to Members as are provided under the Base U.S. Savings Plan.

On January 1, 2019, the Member’s Personal Care DC SERP Notional Account shall be notionally invested by the Record-keeper in the notional investment option selected by the Member for the 2018 plan year. Thereafter, the Member may elect to change how the Member’s DC SERP Notional Account is notionally invested by the Record-keeper by making an election as to the proportional allocation between the Notional Investment Options made available by the Company, subject to the terms of the Record-keeping Agreement and any rules prescribed by the Company. The Company shall not be responsible for the performance of the Notional Investment Options offered.

The Company reserves the right to change the Notional Investment Options offered under the Personal Care DC SERP at any time, and from time to time, at its sole discretion.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

In the absence of direction provided by the Member or if the direction does not fully address the entirety of the Member’s Personal Care DC SERP Notional Account, the balance of the Member’s Personal Care DC SERP Notional Account shall, pending receipt of such direction, be notionally invested in the Notional Investment Option that is the same as the default fund under the Base U.S. Savings Plan.

2.12	Notional Return: for a given calendar year prior to 2019, the Annual Credited Notional Return as defined in the Personal Care DC SERP prior to the January 1, 2019 restatement.

For a given calendar year beginning on or after January 1, 2019, for all Members, Notional Return means, with respect to each Personal Care DC SERP Notional Account, the notional interest, notional dividends, notional gains or losses allocated to the Personal Care DC SERP Notional Account during the year based on the Members’ notional investment options. Notional Returns will be allocated through the last day of the month preceding the month in which the value of the Personal Care DC SERP Notional Account is paid.

Notional Returns will be net of all reasonable fees and expenses.

2.13	Personal Care DC SERP Notional Account: shall, at any date whatsoever, be the sum of the notional Annual Contribution Credits, the Notional Returns and the Transferred DC SERP Notional Account, if any, in the name of the Member under the Personal Care DC SERP.

2.14	Record-keeper: means a licensed annuity provider, a trust company or an investment management company, including any combination or successors thereof appointed by the Company to administer the Personal Care DC SERP Notional Accounts.

2.15	Record-keeping Agreement: means any agreement or agreements now or hereafter executed between the Company and the Record-keeper for purposes of this Personal Care DC SERP.

2.16	Section 409A: section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

2.17

Separation from Service: occurs (or a Member Separates from Service) when the Member ceases to be employed by the Company and all entities considered a single employer with the Company under Code Sections 414(b) and (c) as a result of the Member’s death, retirement, or other termination of employment. Whether a Separation from Service takes place is based on all the relevant facts and circumstances and determined in accordance with U.S. Treas. Reg. 1.409A-1(h)(1).

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

2.18

Transferred DC SERP Notional Account: if applicable, the Member’s DC SERP Notional Account transferred from the DC SERP for Designated executives of Domtar as of the end of the year the Member becomes a Member of the Personal Care DC SERP and cease to participate in the DC SERP for Designated executives of Domtar or upon payment of benefits if earlier.

2.19	U.S. Taxpayer: a Member who

Is a U.S. citizen; or

Is a foreign national/U.S. permanent resident (“green card” holder); or

Is a foreign national who meets the “substantial physical presence” test during an applicable calendar year; or

Is a “dual status” individual and either

Who declares that he is a U.S. Taxpayer (under (a), (b), or (c) above); or

ii)

Who the Company determines is a U.S. Taxpayer (under (a), (b), or (c) above).

Is subject to U.S. federal income tax under the terms of the Canada-United States Tax Convention (1980) and the Protocols in effect thereunder; or

Whose benefits under this Personal Care DC SERP are otherwise subject to taxation in the U.S.

2.20	Year of Service: a Member shall be credited with service in an amount equal to the aggregate of the following (applied without duplication):

years of service as a Member of the DC SERP for Designated executives of Domtar Personal Care; and

years of service as a Member of the DC SERP for Designated Executives of Domtar.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

3.	Retirement

A Member who Separates from Service on or after age 55, after completing two (2) Years of Service as a Member, shall receive as soon as practicable from the Company in accordance with the Personal Care DC SERP, a lump sum payment equal to his Personal Care DC SERP Notional Account. Such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid to the U.S. Taxpayer, if any.

4.	Non-Vested Termination of Employment

A Member who Separates from Service, for a reason other than death, before completing two (2) Years of Service as a Member is not entitled to any benefit under the Personal Care DC SERP.

5.	Vested Termination

A Member who Separates from Service, for a reason other than death, prior to age 55 after completing two (2) Years of Service as a Member shall receive as soon as practicable from the Company in accordance with the Personal Care DC SERP, a lump sum payment equal to his Personal Care DC SERP Notional Account. Such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid, if any.

Death

If a Member Separates from Service by reason of death, his estate shall receive from the Company, in accordance with the Personal Care DC SERP, a lump sum payment equal to his Personal Care DC SERP Notional Account. Any such payment shall be made within 90 days of the date of the Member’s death.

7.	Disability

A Member who is considered disabled under the Base U.S. Savings Plans, and who continues, on that basis, to accrue credited service, or company contributions under such Base U.S. Savings Plans, as the case may be, shall continue to accrue Annual Contribution Credits for the purposes of the Personal Care DC SERP, on the basis of his salary rate at the time his disability began.

Benefits will only be paid from the Personal Care DC SERP upon the Member’s actual Separation from Service, as described in Sections 3, 4, 5 or 6 above, as applicable.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

8.	Administration

The HR Committee is responsible for the administration of the Personal Care DC SERP, the supervision of its application and the interpretation of its provisions.

Funding

Benefits under the Personal Care DC SERP are not funded. They are paid from the Company’s general revenues.

10.	Non-Alienation of Benefits

No benefit payable under the provisions of the Personal Care DC SERP shall be in any manner capable of anticipation, surrender, commutation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; nor shall any such benefit be in any manner subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in any applicable legislation.

11.	Conflicts or Inconsistencies

In the event of any conflict or inconsistency between the provisions of the Personal Care DC SERP and the provisions of the Base U.S. Savings Plans, the provisions of the Personal Care DC SERP shall prevail.

12.	Amendments

The Company reserves the right to amend or terminate the Personal Care DC SERP at any time. Subject to Section 13.6, no change or termination shall adversely affect any benefits that have accrued up to the effective date of such change, which effective date shall not precede the date on which the change is communicated to the Member. Notwithstanding the foregoing, any amendment to this Personal Care DC SERP which is the result of a change to the Base U.S. Savings Plans shall take effect as of the same date as applicable in respect of the amendment to the Base U.S. Savings Plans.

13.	General Provisions

13.1

Currency

Notwithstanding anything to the contrary herein, all payments under the Personal Care DC SERP shall be in U.S. currency. Any Annual Contribution Credit and any future Notional Returns on such Annual Contribution Credit shall be in U.S. currency.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

13.2	Withholding and reporting

All payments under the Personal Care DC SERP are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to applicable legislation.

13.3	Interpretation

The Personal Care DC SERP shall be interpreted, with respect to a Member, in accordance with the laws of the same jurisdiction as applicable for purposes of the Member’s employment agreement with the Company, which is in force at the relevant time, or in the absence of an employment agreement, with the law of the State of South Carolina for a Member employed in the United States.

13.4

Entire Agreement

Except to the extent expressly contemplated by the HR Committee at the time of adoption of the Personal Care DC SERP, the Personal Care DC SERP supersedes and replaces any and all prior plans, agreements, arrangements or understandings between the Company and the Member regarding any retirement benefits to be provided to the Member in excess of those that may be payable in accordance with the provisions of the Base U.S. Savings Plans.

13.5	Severability

Should any of the provisions of the Personal Care DC SERP and/or conditions be illegal or not enforceable, it or they shall be considered severable and the Personal Care DC SERP and the remaining conditions shall remain in full force and effect and be binding upon the parties as though the said provision or provisions had never been included.

13.6

Enurement

The Personal Care DC SERP shall enure to the benefit of and be binding upon the respective successors of the parties hereto, and the heirs, administrators and legal representatives of the Member.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

13.7	Section 409A

Neither the Company nor any of its directors, officers or employees shall have any liability to a Member in the event Section 409A applies to any benefit paid or provided pursuant to the Personal Care DC SERP in a manner that results in adverse tax consequences for the Member or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under the Personal Care DC SERP if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

13.8Claims Procedure

The HR Committee shall adopt claims procedures, with respect to Members who are U.S. Taxpayers, in accordance with Department of Labor Regulations Section 2560.503-1.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

APPENDIX

The percentage set out for the purpose of Section 2.1 for designated executives are as follows:


Name	Percentage	Effective Date
Mike Fagan	11.0%	January 1^st 2015
Brad Goodwin	10.0%	March 31, 2014

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated November 1, 2016, and further on January 1, 2019

DOMTAR CORPORATION – SUBSIDIARY COMPANIES

Exhibit 21

As of December 31, 2019


Domtar Corporation
	Domtar Industries LLC
		Domtar Funding Limited Liability Company
		E.B. Eddy Paper, Inc.
	Ariva Distribution Inc.
	Domtar A.W. LLC
		Domtar Wisconsin Dam Corp.
	Domtar Europe Sprl
	Domtar AI Inc.
		Attends Healthcare Products, Inc.
			Innovative Absorbent Technologies, LLC
		EAM Corporation
			Palmetto Enterprises LLC
		Domtar Personal Care Absorbent Hygiene Inc.
			Associated Hygienic Products LLC
		Home Delivery Incontinent Supplies Co.
			Reassure, LLC
	Domtar Paper Company, LLC
		Domtar Delaware Holdings, LLC
		Domtar Delaware Investments Inc.
		Domtar Delaware Holdings Inc.
			Domtar Luxembourg Investments Sarl
				Zither L Investments Sarl
					Zither Personal Care DAC
					Zither L Financial Sarl
						Domtar Personal Care Europe, S.L.U.
							Laboratorios Indas, S.A.U.
								Indas Portugal-Produtos de Saude Sociedade Unipessoal, LDA
								Indas S.A.R.L. A.U.
								Indas EURL
					Domtar Acquisition Sweden AB
						Attends Healthcare Holdings AB
							Attends AB
							Attends Healthcare AB
								Attends AS
					Attends Healthcare Ltd
						Attends Healthcare Finance Ltd
							Attends Healthcare Investments Ltd
								Attends Healthcare Group Ltd
					Attends GmbH (Germany)
					Attends BVBA
					Attends Ltd
					Attends OY
					Attends BV
					Attends GmbH (Switzerland)
					Attends GmbH (Austria)
					Attends Europe GmbH
				Domtar Pacific Papers ULC
					Domtar Pulp and Paper General Partnership (held 0.001% by DPP ULC and 99.999% by DInc)
					Domtar Inc.
						Domtar Asia Limited
						Brompton Lands Limited
						Domtar Hong Kong Limited (held 34% by DInc. and 66% by DPC, LLC)

DOMTAR CORPORATION – SUBSIDIARY COMPANIES

Exhibit 21

As of December 31, 2019

AFFILIATED COMPANIES - (% held)


Celluforce Inc.		(44%)
Clergue Forest Management Inc.	-	(24%)
Forest Insurance Limited	-	(17%)
Red Lake Forest Management Inc.	-	(50% of class A shares)
Northshore Forest Inc.		(42%)
Ondaadiziwin Forest Management Inc.		(25%)
Prisma Renewable Composites, LLC		(55%)
Vermilion Forest Management Co.		(24.17 class A shares)

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-213800) and Form S-8 (No. 333-181181 and No. 333-141213) of Domtar Corporation of our report dated February 25, 2020 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.

/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Charlotte, North Carolina

February 25, 2020

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John D. Williams, certify that:

1.	I have reviewed this annual report on Form 10-K of Domtar Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 25, 2020

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Buron, certify that:

1.	I have reviewed this annual report on Form 10-K of Domtar Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 25, 2020

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies that to his knowledge, the Company’s Annual Report on Form 10-K for the period ended December 31, 2019 (the “Form 10-K”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 25, 2020

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Date: February 25, 2020

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer

SENSITIVITY ANALYSIS
(In millions of dollars, unless otherwise noted)
Each $10/unit change in the selling price of the following products¹:
Papers
Business Papers	$	14
Commercial Print & Publishing Papers		9
Specialty & Packaging Papers		5
Pulp - net position
Softwood	$	11
Fluff		7
Hardwood		1
Foreign exchange
(US $0.01 change in relative value to the Canadian dollar before hedging)		11
(US $0.01 change in relative value to the EURO before hedging)		2
Energy²
Natural gas: $0.25/MMBtu change in price before hedging		6

		Useful life
Water rights		40 years
Customer relationships		10 to 40 years
Technology		7 to 20 years
Non-Compete agreements		9 years
Licence rights		12 years

	Issued and outstanding common shares (millions of shares)			Common stock, at par		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity
				$		$			$			$			$
Balance at December 31, 2016		62.6			1		1,963			1,211			(499	)		2,676
Stock-based compensation, net of tax		0.1			—		6			—			—			6
Net loss		—			—		—			(258	)		—			(258	)
Net derivative losses on cash flow hedges:
Net gains arising during the period, net of tax of $(5)		—			—		—			—			6			6
Less: Reclassification adjustment for gains included in net loss, net of tax of $5		—			—		—			—			(9	)		(9	)
Foreign currency translation adjustments		—			—		—			—			146			146
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(5)		—			—		—			—			20			20
Cash dividends declared		—			—		—			(104	)		—			(104	)
Balance at December 31, 2017		62.7			1		1,969			849			(336	)		2,483
Stock-based compensation, net of tax		0.2			—		12			—			—			12
Net earnings		—			—		—			283			—			283
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $10		—			—		—			—			(30	)		(30	)
Less: Reclassification adjustment for gains included in net earnings, net of tax of $1		—			—		—			—			(2	)		(2	)
Foreign currency translation adjustments		—			—		—			—			(91	)		(91	)
Change in unrecognized losses and prior service cost related to pension and post-retirement benefit plans, net of tax of $3		—			—		—			—			(8	)		(8	)
Cash dividends declared		—			—		—			(109	)		—			(109	)
Balance at December 31, 2018		62.9			1		1,981			1,023			(467	)		2,538
Stock-based compensation, net of tax		0.2			—		8			—			—			8
Net earnings		—			—		—			84			—			84
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(3)		—			—		—			—			11			11
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(3)		—			—		—			—			8			8
Foreign currency translation adjustments		—			—		—			—			21			21
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(13)		—			—		—			—			34			34
Stock repurchase		(6.2	)		—		(219	)		—			—			(219	)
Cash dividends declared		—			—		—			(109	)		—			(109	)
Balance at December 31, 2019		56.9			1		1,770			998			(393	)		2,376

	Year ended December 31, 2019			Year ended December 31, 2018			Year ended December 31, 2017
	$			$			$
Operating activities
Net earnings (loss)		84			283			(258	)
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation and amortization		293			308			321
Deferred income taxes and tax uncertainties (NOTE 10)		(16	)		13			(207	)
Impairment of long-lived assets (NOTE 4)		58			7			578
Net gains on disposals of property, plant and equipment		—			(4	)		(13	)
Stock-based compensation expense		9			8			6
Equity loss, net		2			2			—
Other		—			(1	)		2
Changes in assets and liabilities, excluding the effect of acquisition of business
Receivables		96			18			(72	)
Inventories		(16	)		(24	)		21
Prepaid expenses		2			2			5
Trade and other payables		(67	)		24			35
Income and other taxes		(43	)		(32	)		12
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		29			(46	)		(32	)
Other assets and other liabilities		11			(4	)		51
Cash flows from operating activities		442			554			449
Investing activities
Additions to property, plant and equipment		(255	)		(195	)		(182	)
Proceeds from disposals of property, plant and equipment and sale of business		1			5			19
Acquisition of business, net of cash acquired (NOTE 3)		—			—			(8	)
Other		—			(6	)		—
Cash flows used for investing activities		(254	)		(196	)		(171	)
Financing activities
Dividend payments		(110	)		(108	)		(104	)
Stock repurchase		(219	)		—			—
Net change in bank indebtedness		9			—			(12	)
Change in revolving credit facility		80			—			(50	)
Proceeds from receivables securitization facility		205			85			45
Repayments of receivables securitization facility		(200	)		(60	)		(90	)
Repayments of long-term debt		(1	)		(301	)		(64	)
Other		(1	)		2			1
Cash flows used for financing activities		(237	)		(382	)		(274	)
Net (decrease) increase in cash and cash equivalents		(49	)		(24	)		4
Impact of foreign exchange on cash		(1	)		(4	)		10
Cash and cash equivalents at beginning of year		111			139			125
Cash and cash equivalents at end of year		61			111			139
Supplemental cash flow information
Net cash payments for:
Interest		46			57			58
Income taxes		59			71			33

NOTE 1	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	56
NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	63
NOTE 3	ACQUISITION OF BUSINESS	65
NOTE 4	IMPAIRMENT OF LONG-LIVED ASSETS	66
NOTE 5	STOCK-BASED COMPENSATION	67
NOTE 6	EARNINGS (LOSS) PER COMMON SHARE	71
NOTE 7	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	72
NOTE 8	OTHER OPERATING LOSS (INCOME), NET	81
NOTE 9	INTEREST EXPENSE, NET	82
NOTE 10	INCOME TAXES	83
NOTE 11	INVENTORIES	88
NOTE 12	PROPERTY, PLANT AND EQUIPMENT	89
NOTE 13	LEASES	90
NOTE 14	INTANGIBLE ASSETS	92
NOTE 15	OTHER ASSETS	93
NOTE 16	CLOSURE AND RESTRUCTURING COSTS AND LIABILITY	94
NOTE 17	TRADE AND OTHER PAYABLES	96
NOTE 18	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	97
NOTE 19	LONG-TERM DEBT	99
NOTE 20	OTHER LIABILITIES AND DEFERRED CREDITS	101
NOTE 21	SHAREHOLDERS’ EQUITY	102
NOTE 22	COMMITMENTS AND CONTINGENCIES	104
NOTE 23	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	107
NOTE 24	SEGMENT DISCLOSURES	112
NOTE 25	SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	115