Vector/20-20 -- summary under Shares for Shares or Cash

Cash purchase

Proposed Quebec plan of arrangement under which holders of shares of TSX-listed 20-20 (valued at $75 million), other than Mignault Holding Inc. ("Mignault"), would receive $4 per share in cash (for an estimated 28% premium). Vector Capital Corporation is a private equity firm.

Provision for break fee of $3 million on specified 20-20 termination. Vector is to pay $4.5 million to 20-20 if there is a specified financing failure.

Rollover transaction

Mignault would sell approximately 80% of its 22.16% interest in 20-20 (held either directly or through Qualifying Holdco's as described below) to Vector for $4 per share in cash, and receive an equity interest of up to 9.9% in the wholly-owning grandparent of Vector ("Vector Parent") for the remaining 20% interest. This transaction is intended to occur on a rollover (s. 85(1) or 85.1) basis. Vector Parent then rolls the shares so acquired by it on a share-for-share rollover basis to its immediate subsidiary (Vector Holdco) which, in turn, transfers such shares on a share-for-share rollover basis to Vector.

Safe-income planning

Resident shareholders of 20-20 are permitted to transfer their shares to a Newco (a "Qualifying Holdco") in advance of the plan of arrangement, pay a safe income dividend out of their Qualifying Holdco and then sell their shares of Qualifying Holdco to Vector for the equivalent of $4 per 20-20 share held by their Qualifying Holdco. Permitted safe income dividends include "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 will no longer be outstanding as of the Effective Time" (p. 28).

Options

. Holders of 20-20 employee incentive options and deferred share units are deemed to be vested at the effective time of the plan of arrangement as the first step in the plan of arrangement, and then are immediately cashed out for their in-the-money value as the second step.

Canadian income taxation

There is Canadian income disclosure only respecting the sale of 20-20 shares for cash (a taxable transaction to residents, and with the 20-20 shares potentially not being taxable Canadian property to non-residents).