Rayonier AM/Tembec -- summary under Canadian Buyco

Overview

Tembec, which was a TSX-listed CBCA corporation, agreed to a CBCA Plan of Arrangement with NYSE-listed Rayonier AM under which its (common) shares were to be acquired by Rayonier AM for consideration (at each Tembec shareholder’s option) of C$4.75 cash or 0.2542 of a Rayonier AM common share – except that proration would occur so as to result in the overall consideration being more or less fixed at 67% cash and 33% shares. However, the Plan of Arrangement specifies that Rayonier AM may designate a direct or indirect wholly-owned subsidiary to effect the acquisition. If this does not occur, then a large Delaware corporation (Rayonier AM) will be subject to obligations, such as to deliver shares in its capital, under a CBCA Plan of Arrangement. 19.9%, 18.0% and 15.9% of the Tembec shares were held by two US LPs and by Fairfax. No provision for exchangeable shares was made. For reasons that are not indicated, some preliminary steps in the Plan of Arrangement included a drop-down of assets of one subsidiary (Mattagami Railroad Company) into another

Tembec

Tembec is a TSX-listed integrated forest products company with operations principally located in Canada and France. Tembec was formed under the laws of Canada on January 16, 2008, as Tembec Arrangement Inc. It has 100M common shares (“Tembec Shares”) outstanding. Three shareholders (Oaktree Capital Management LP, Restructuring Capital Associates LP and Fairfax Financial Holdings Limited) hold 19.9%, 17.95% and 15.86% of the Tembec Shares. On February 29, 2008, the former Tembec ("Former Tembec") completed a recapitalization transaction pursuant to which Former Tembec became Tembec Holdings Inc. and Tembec Arrangement Inc. changed its name to Tembec Inc.

Rayonier AM

Rayonier AM, with approximately 456,000 metric tons of cellulose specialties sales in 2016, is a global leader in the production of cellulose specialties. It is a Delaware corporation with 43M Rayonier AM Shares outstanding, which are listed on the NYSE. Rayonier AM expects to issue approximately 8.4M Rayonier AM Shares to Tembec Shareholders under the Arrangement.

Plan of Arrangement

1. The Tembec Articles shall be amended to set out therein the stated capital of the Tembec Common Shares.
2. All the assets of Mattagami Railroad Company shall be transferred to Tembec Construction in exchange for Tembec Construction Preferred Shares.
3. Mattagami Railroad Company shall be deemed to have been liquidated into Tembec Industries.
4. Each Employee DSU, Employee Performance DSU, Employee PCSU and Director DSU shall transferred to Tembec in exchange for a cash payment from Tembec equal to the Consideration Cash Value, but with settlements to occur where required on an accelerated basis to comply with Code s. 409A.
5. Each warrant to purchase Tembec Shares pursuant to the 2012 IQ Loan Agreement and the 2013 IQ Loan Agreement shall be cancelled and converted into the right to receive from Rayonier AM an amount in cash based on the excess of the Consideration Cash Value over the exercise price.
6. All Tembec Shares held by Dissenting Shareholders shall be transferred in exchange for a debt claim against Rayonier AM.
7. Each Tembec Share that is a Cash Electing Share, shall be transferred to Rayonier AM in exchange for the Per Share Cash Amount of C$4.05 (increased to C$4.75).
8. Each Tembec Share that is a Stock Electing Share shall be transferred to Rayonier Am in exchange for the Per Share Stock Consideration of 0.2302 of a share of Rayonier AM Common Stock (increased to 0.2542.)
9. The stated capital of the Tembec Shares shall be reduced in an amount up to $500,000,000.

Rayonier AM may, at its sole discretion, designate a direct or indirect wholly-owned subsidiary of Rayonier AM ("Rayonier AM Sub") to be the acquirer for purposes of the Plan of Arrangement. If Rayonier AM makes such designation, all references to Rayonier AM in the above steps are references to Rayonier AM Sub.

Share and cash election

A registered holder of Tembec Shares may elect the Per Share Cash Amount; or (ii) Per Share Stock Consideration, subject to proration to ensure that no more than 63.3% (increased to 67%) of the aggregate Tembec Shares will receive the Per Share Cash Amount and no more than 36.7% (decreased to 33%) of the aggregate Tembec Shares will receive the Per Share Stock Consideration.

Support Agreement

Rayonier AM has entered into irrevocable support and voting agreements with each of Oaktree Capital Management L.P. and Restructuring Capital Associates L.P., who together represent approximately 37% of Tembec's outstanding shares, pursuant to which they have agreed to vote in favor of the Arrangement.

Canadian tax consequences

Resident Tembec Shareholders will realize a taxable disposition of their Tembec Shares under the Arrangement regardless of whether they elect, or are deemed to elect, to receive cash and/or Rayonier AM Shares. Non-resident Tembec Shareholders who do not hold their Tembec Shares as taxable Canadian property will not be subject to tax under the ITA on the disposition of their Tembec Shares.

U.S. tax consequences

The exchange of Tembec Shares for the consideration pursuant to the Arrangement will be a taxable transaction for Code purposes.