AIP/Canam -- summary under Canadian Buyco

Overview

The acquisition of Canam by the Purchaser (a subsidiary of AIP) occurred for cash consideration of $12.30 per share (the “Consideration” - implying a total enterprise value including debt of $875M), subject to two exceptions.

• First, a group of shareholders, collectively holding 27% of the Canam shares and consisting of (i) the CEO (Mr. Dutil) or family members or holding companies, holding 12% of the shares, and (ii) two Quebec-based Funds, holding 15% of the shares, were permitted to first transfer their shares into new Quebec Holdcos (having no other assets, and no liabilities). The Holdcos were then permitted to pay specified types of dividends (e.g., under s. 84(1) or as stock dividends) to their shareholders. The Holdco shareholders then sold their Holdco shares as part of the Quebec Plan of Arrangement for cash consideration (corresponding to the transaction value of the underlying Canam shares) except as described below.
• Second, members of the same 27% group could timely elect to transfer their Canam or Holdco shares to the Purchaser for Purchaser shares with a value agreed to correspond to the cash consideration. It was anticipated that these “Rollover Shareholders” would hold as much as 40% of the equity of the Purchaser (which was also capitalized with debt).

Canam

A TSX-listed Quebec corporation that directly or through subsidiaries manufactures structural steel products in Canada and the U.S. 75.6% of its 2016 consolidated revenues were derived from the U.S. and at Decembeer 31, 2016, 54.6% of its consolidated plant and equipment was held in the U.S.

Purchaser

The Purchaser is a special-purpose entity that was incorporated for the purposes of completing the Arrangement and, prior to the Arrangement, is wholly owned by an affiliate of AIP. After Closing, all of the securities of the Purchaser will be held by the affiliate of AIP and by the Rollover Shareholders.

AIP

American Industrial Partners (which is headquartered in New York) is an operationally oriented middle-market private equity firm.

Rollover Shareholders

Placements CMI Inc., Marcel Dutil, 9085-6063 Québec Inc., Hélène Dutil, Idmed Inc., Marc Dutil, Charles Dutil, Sophie Dutil Jones, and Anne-Marie Dutil Blatchford and any holding corporation controlled by such Persons (collectively, the “Dutil Shareholders”) and Caisse de dépôt et placement du Québec (“CDPQ”) and Fonds de solidarité des travailleurs du Québec (F.T.Q.) (“FSTQ.”)

The Shares owned or controlled by each Rollover Shareholder are as follows:

Dutil Shareholders

The individuals included in the Dutil Shareholders (listed above) are members of the Dutil family and include Marcel Dutil, Chairman of the Board of the Corporation, Marc Dutil, the President and Chief Executive Officer of the Corporation, Anne-Marie Dutil Blatchford, a director of the Corporation, Hélène Dutil, Charles Dutil and Sophie Dutil Jones.

CDPQ

CDPQ is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans.

FSTQ

FSTQ is a development capital fund that was created on the initiative of the FTQ, Québec’s largest central labour body.

Holdco Alternative

The Purchaser may in its sole discretion, permit persons (“Qualifying Holdco Shareholders”) that (i) are resident in Canada (including a partnership if all members are resident in Canada); (ii) are not exempt from tax under Part I of the Tax Act; (iii) are registered owners of Shares; and (iv) elect in respect of such Shares, by notice in writing provided to the Purchaser (or the Depositary) not later than 5:00 p.m. (Montreal time) on the 10^th business day prior to the effective date of the Arrangement, to sell all of their shares of a corporation (a “Qualifying Holdco”), which shall not be comprised of more than two classes of shares, that meets specified conditions including those listed below:

• such Qualifying Holdco was incorporated under the QBCA not earlier than the date of the Arrangement Agreement, unless written consent is obtained from the Purchaser;
• it is a single purpose corporation that has not carried on any business, has no employees, has not held any assets other than Shares and nominal cash, has never entered into any transaction other than those relating to and necessary for the ownership of Shares or, with the Purchaser’s consent, such other transactions as are necessary to facilitate the transactions described in the Plan of Arrangement;
• at the effective time of the Arrangement (the “Effective Time”), it has no liabilities (except under the terms of the Holdco Alternative);
• “at the Effective Time, it will not have such Qualifying Holdco will not have unpaid declared dividends and, prior to the Effective Time, such Qualifying Holdco shall not have paid any dividends or other distributions, other than an increase in stated capital, a stock dividend, a cash dividend financed with a daylight loan or a dividend paid through the issuance of a promissory note with a determined principal amount and any such promissory note issued in relation to the payment of any such dividend shall no longer be outstanding as of the Effective Time;”
• it shall have no shares outstanding other than the shares being disposed to the Purchaser by its shareholder, who shall be the sole beneficial owner of such shares;
• the Qualifying Holdco Shareholder shall indemnify the Corporation and Purchaser for all liabilities of the Qualifying Holdco (other than tax liabilities of the Qualifying Holdco that arise as a result of the Qualifying Holdco disposing of the Shares after the Effective Date); and
• each Qualifying Holdco Shareholder will be required to enter into a share purchase agreement acceptable to the Purchaser.

Each Qualifying Holdco Shareholder that has elected the Holdco Alternative will be required to enter into a Holdco Agreement providing for the acquisition of all issued and outstanding shares of the Qualifying Holdco in a form consistent with the foregoing.

Quebec headquarters

The Purchaser has agreed to cause the Corporation’s headquarters to remain in Québec so long as the Purchaser owns a majority of the outstanding Shares of the Corporation.

Plan of Arrangement

1. each outstanding Share (other than the Shares (i) held by the dissenting Shareholders; (ii) held by the Qualifying Holdcos; or (iii) that are Rollover Shares) shall be transferred by the holder thereof to the Purchaser in exchange for the Consideration;
2. each outstanding Holdco Share that is not a Rollover Share and that is held by a Qualifying Holdco Shareholder shall be transferred by the holder thereof to the Purchaser in exchange for the Holdco Consideration (being a cash amount equal to (i)(a) the aggregate of the Consideration multiplied by the number of Shares held by such Qualifying Holdco; multiplied by (b) the value of the outstanding Holdco Shares of such Qualifying Holdco other than Rollover Shares divided by the value of the outstanding Holdco Shares of such Qualifying Holdco; (ii) divided by the number of outstanding Holdco Shares (other than Rollover Shares) of such Qualifying Holdco;
3. each outstanding Rollover Share (being the Shares or Holdco Shares to be transferred and assigned by a Rollover Shareholder to the Purchaser pursuant to a Rollover Agreement in exchange for Purchaser Shares as set forth in such Rollover Agreement) shall be transferred by to the Purchaser pursuant to the applicable Rollover Agreement in exchange for Purchaser Shares; and
4. each understanding Share held by a Dissenting Shareholder shall be transferred to the Purchaser.

Capitalization of Purchaser

The Rollover Shareholders have entered into agreements with the Purchaser pursuant to which CDPQ has agreed to make a cash contribution to the Purchaser and the Rollover Shareholders have agreed to make an equity contribution to the Purchaser through the transfer and assignment to the Purchaser, as provided for in the Plan of Arrangement, of all of the Shares owned by the Rollover Shareholders, except for 700,114 Shares held by Placements CMI Inc. and up to 1,436,800 Shares held by FSTQ (which includes Shares under discretionary management) which will be sold to the Purchaser for the cash consideration contemplated by the Plan of Arrangement. It is expected that the Rollover Shareholders would own as much as 40% of equity in the Purchaser upon Closing. The agreements entered into between the Rollover Shareholders and the Purchaser also provide that they will enter into a shareholders agreement at Closing. The transfer of the Rollover Shares will be made at fair market value, being $12.30 per Rollover Share, and the parties to the Rollover Agreement will agree that the consideration received in exchange has an equivalent fair market value. The PUrchaser has obtained commitments from Morgan Stanley Senior FUnding Inc. for a U.S.$100M and U.S.$350M senior secured revolving and term loan credit facility, respectively, of which Cdn.$233M will be used to repay existing indebtedness.

Canadian tax consequences

The acquisition of the Shares that are not Rollover Shares will occur on a taxable basis