Inbound

Overview

A grouping of non-resident shareholders holding over 60% of the HBC common shares transferred their shares to a newly-formed LLC under a Plan of Arrangement and pursuant to “rollover agreements” (presumably so termed because their HBC shares were not viewed as taxable Canadian property). HBC then purchased for cancellation the common shares of the minority shareholders for $11.00 per share, giving rise to deemed dividends equaling the excess over the paid-up capital of $7.26 per share. It was suggested that shareholders could consider selling into the market to avoid deemed dividend treatment.

The Company

A Canadian corporation amalgamated under the CBCA whose Common Shares trade on the TSX HBC is a premier North American department store retailer with a portfolio of real estate assets in the United States and Canada.

New Holdco

A Delaware LLC

The Continuing Shareholders

A group of HBC shareholders comprised of individuals and entities related to, or affiliated with, Richard A. Baker, Governor and Executive Chairman of HBC, Rhône Capital L.L.C., WeWork Property Advisors, Hanover, and Abrams. New Holdco was formed for the purposes of directly or indirectly acquiring the Company.

L & RB Entities

Collectively, Richard A. Baker, Lisa Baker, Lisa and Richard Baker Enterprises, LLC, Red Trust, Yellow Trust and Blue Trust;

L&T B Group

L&T B (Cayman) Inc.

Table of significant Company insiders’ percentage of common shares (preferred shares for Fabric)

Plan of Arrangement

1. a portion of the Common Shares held by the L & RB Entities will be transferred and assigned to New Holdco pursuant to a Rollover Agreement…
2. simultaneously with (i) above, each Common Share or Preferred Share held by the Continuing Shareholders (other than those being transferred pursuant to (i) above) will be transferred and assigned to New Holdco pursuant to Rollover Agreements…
3. each Common Share held by Dissenting Shareholders will be transferred to the Company in consideration for a claim against the Company.
4. each Common Share other than (a) Common Shares held by a Dissenting Shareholder who has validly exercised such holder’s Dissent Right, or (b) Common Shares held by New Holdco or the Continuing Shareholders, will be purchased by the Company in exchange for the “Consideration” of $11.00 in cash per Common Share.
5. each Preferred Share will be converted into a number of Common Shares calculated in accordance with the terms of the Preferred Shares.
6. each DSU and RSU will be transferred to the Company in exchange for a cash payment from the Company equal to the Consideration.
7. each Option will be transferred by the holder of such Option to the Company in exchange for a cash payment from the Company equal to the amount by which the Consideration exceeds the exercise price per Common Share of such Option.The cost to fund the Consideration is estimated to be approximately $1.11 billion, which will be funded through existing cash resources of the Company and the Debt Financing.

Canadian tax consequences

The Arrangement is structured as a purchase by the Company of Common Shares for cancellation. As a result, a Shareholder will be deemed to receive a dividend to the extent that the repurchase price exceeds the PUC of the Shareholder’s Common Shares, currently estimated to be $7.26 per Common Share. Following the date of the Circular, the Company will advise Holders of any material change to this estimate. As a result, Shareholders may prefer to sell their Common Shares in the public markets with a settlement date that is prior to the completion of the Arrangement.

US tax consequences

The receipt of cash in exchange for Common Shares pursuant to the Arrangement will be a taxable transaction for U.S. federal income tax purposes.

T]e Company does not believe it was a PFIC for 2018 and does not expect to be a PFIC for 2019.