Privatizations

Overview

PCC, whose subordinate voting common shares trade on the TSX, holds approximately 2/3 of the common shares of the Company, with the balance of those common shares trading on the TSX. In order to eliminate the holding company discount for this structure and to effectively privatize the Company (thereby reducing costs) it is proposed that each of the minority’s common shares be exchanged under a CBCA Plan of Arrangement for 1.05 subordinate voting common shares of PCC and $0.01 of cash. The exchanging shareholders will thereby receive, as an economic matter, an incremental 0.7% interest in the assets and liabilities of the Company they already own, plus a 36.7% interest in the non-Company assets of PCC.

Eligible (i.e., taxable) minority shareholders may provide an s. 85 election form to PCC within 120 days of the Arrangement in order to secure rollover treatment. The exchange is taxable for U.S. purposes.

The Company

A CBCA corporation whose commons shares (the “Common Shares”) are listed on the TSX and that owns a controlling interest in each of Great-West Lifeco Inc. and IGM Financial Inc.

PCC

A CBCA corporation that controls 425,402,926 common shares (the “Common Shares”) of the Company, representing approximately 64.1% of the issued and outstanding Common Shares. The PCC Participating Preferred Shares entitle the holders to 10 votes per share, while the PCC Subordinate Voting Shares entitle the holder to one vote per share. The PCC Subordinate Voting Shares are listed on the TSX. While the PCC Subordinate Voting Shares to be received by the minority Common Shareholders (the “Minority Shareholders”) pursuant to the Reorganization will represent approximately 37% of the number of outstanding voting shares of PCC upon completion of the Reorganization (including the issuance of PCC Participating Preferred Shares to Pansolo and other holders of PCC Participating Preferred Shares pursuant to their Pre-emptive Right), such shares will represent approximately 21% of the voting power of the voting shares of PCC upon completion of the Reorganization.

Pansolo

Pansolo Holding Inc. a corporation incorporated under the CBCA and controlled by the Trust.

The Trust

The Desmarais Family Residuary Trust.

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171263 Canada Inc., a wholly-owned subsidiary of PCC.

Reasons for the Reorganization

The Minority Shareholders will receive, as an economic matter, an incremental 0.7% interest in the assets and liabilities of the Company they already own, plus a 36.7% interest in PCC’s assets and liabilities excluding shares of the Company, without effectively paying any additional consideration for these assets and liabilities. The Reorganization will eliminate the current dual-holding company structure of PCC and the Company which, in turn, is expected to reduce the discount to NAV at which the PCC Subordinate Voting Shares have traded.

CBCA Plan of Arrangement

1. Each Common Share of a validly dissenting holder (a “Dissenting Holder”) will be transferred to the Company for cancellation.
2. Each Common Share (other than those held by PCC, 171 or any other wholly-owned subsidiary of PCC and the Dissent Shares transferred to the Company) will be transferred by the holder thereof to PCC for the consideration (the “Consideration”) of 1.05 PCC Subordinate Voting Shares and (ii) $0.01 in cash.
3. PCC will assume the Company Option Plan and each Company Option outstanding immediately prior to the Effective Time will be exchanged for a Company Replacement Option which shall entitle the holder to purchase PCC Subordinate Voting Shares from PCC such number of PCC Subordinate Voting Shares as is equal to the product obtained when (i) 1.05, is multiplied by (ii) the number of Common Shares subject to such Company Option immediately prior to the Effective Time of the Arrangement.

Definition of Eligible Holder (for making of s. 85 election)

“Eligible Holder” means (i) a Canadian Resident or (ii) an Eligible Non-Resident.

“Canadian Resident” means a beneficial owner of Common Shares immediately prior to the Effective Time who is a resident of Canada for purposes of the Tax Act (other than a Tax Exempt Person), or a partnership any member of which is a resident of Canada for the purposes of the Tax Act (other than a Tax Exempt Person).

“Eligible Non-Resident” means a beneficial owner of Common Shares immediately prior to the Effective Time, who is not a resident of Canada for the purposes of the Tax Act, and whose Common Shares are “taxable Canadian property” and not “treaty-protected property”, in each case as defined in the Tax Act, or a partnership any member of which is not a resident of Canada for the purposes of the Tax Act, and whose Common Shares are “taxable Canadian property” and not “treaty protected property”.

Canadian tax consequences

Taxable exchange if no election

A Resident Holder whose Common Shares are exchanged for the Consideration pursuant to the Reorganization and who does not make a valid tax election referred to below (a “Tax Election”) with respect to the exchange in 2 above, will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Resident Holder’s Common Shares immediately before the exchange.

Tax Election

In general, an Eligible Holder may select an elected amount so as to fully or partially defer realizing a capital gain for the purposes of the Tax Act on the exchange. A tax instruction letter (the “Tax Instruction Letter”) providing certain instructions for making a Tax Election may be obtained at PCC’s website. To make a Tax Election, an Eligible Holder must provide the necessary information in accordance with the procedures set out in the Tax Instruction Letter within 120 days after the Effective Date.

U.S. tax consequences

Taxable exchange

The exchange by a U.S. Holder of the Common Shares for PCC Subordinate Voting Shares and cash will be a taxable transaction for U.S. federal income tax purposes.

PFIC status

Based on the income, assets, and activities of the Company and its subsidiaries, including those of Great-West Lifeco Inc.’s subsidiaries engaged in the active conduct of an insurance business, the Company does not believe that it was a PFIC for the taxable year ending December 31, 2019, and it does not expect to be treated as a PFIC for the current taxable year.

Overview

Under the proposed privatization of the Corporation pursuant to a CBCA Plan of Arrangement, the public shareholders would receive cash for their common shares, and the specifically-listed “Rollover Shareholders” (holding 38% of the common shares) would receive common shares of the newly-incorporated purchaser, which is an indirect subsidiary of Power Corporation of Canada. The Circular does not mention whether the “Rollover” contemplated is under s. 85 or 85.1.

The Corporation

A TSX-listed CBCA corporation that manufactures LED lighting solutions. 25,941,748 common shares (the “Common Shares”) are issued and outstanding.

The Purchaser

The Purchaser was incorporated under the CBCA and is a wholly-owned Subsidiary of Power Energy Corporation, which is a wholly-owned subsidiary of Power Corporation of Canada and was established in 2012, with an objective to invest in the sustainable and renewable energy sector.

Rollover Shareholders

The Rollover Shareholders are shareholders listed in the Circular who collectively own or exercise control or direction over approximately 38% of the outstanding common shares of the Corporation and have agreed pursuant to their respective support and voting agreements to transfer common shares of the Corporation to the Purchaser in exchange for shares of the Purchaser as part of the Arrangement. The Rollover Shareholders include François-Xavier Souvay (the Chairman, President and CEO), who holds 4,175,003 common shares (16.1% of the issued and outstanding).

Plan of Arrangement

(a) each Shareholder, other than the Rollover Shareholders in respect of Common Shares transferred to the Purchaser in exchange for Purchaser Shares and other than dissenting Shareholders, will be entitled to receive from the Purchaser $21.25 in cash for each Common Share;

(b) each Rollover Shareholder will be entitled to receive one common share of the Purchaser for each Common Share transferred to the Purchaser;

(c) each holder of vested Options shall be entitled, at his/her option, to either (i) receive a cash payment from the Corporation for each vested Option in an amount equal to $21.25 less the applicable exercise price and applicable withholding in respect of such Option; or (ii) continue to hold each vested Option which shall be governed by the Stock Option Plan and any applicable Option Agreement;

(d) each holder of unvested Options shall continue to hold such options, which shall be governed by the Stock Option Plan as amended to take into account the privatization of the Corporation; and

(e) each holder of DSUs, RSUs or PSUs, whether vested or unvested, shall be entitled to receive a cash payment from the Corporation for each unit equal to the amount of $21.25, less applicable withholding (which assumes, in the case of any unvested PSUs, a level of attainment of the Corporation's performance objectives at 100%).

Debt financing of privatization

Pursuant to a debt commitment letter dated April 26, 2017, a Canadian Chartered Bank has agreed to make available to the Purchaser a 5-year non-revolving term facility in the principal amount of $100,000,000. The proceeds will be used to finance a portion of the total consideration payable by the Purchaser in connection with the Arrangement.

Equity financing of privatization

On April 26, 2017, the Purchaser entered into equity commitment letters with each of Power Energy and Mica3 (an entity controlled by Michel Ringuet, a director of the Corporation) pursuant to which they agreed to make direct or indirect cash equity investments in the Purchaser in a maximum aggregate amount of $277,000,000 in the case of Power Energy (such amount to be reduced, as applicable, in the event that the Purchaser does not require the full amount by reason of the Purchaser having obtained funds from other sources) and $3,000,000 in the case of Mica3 to finance a portion of the total consideration payable by the Purchaser in connection with the Arrangement.

Canadian tax consequences

A resident Canadian shareholder (other than a Rollover Shareholder, whose consequences are not discussed) will realize a capital gain (or a capital loss) equal to the amount by which the aggregate cash payment exceeds (or is less than) the aggregate of the adjusted cost base to the resident holder of such Common Shares and any reasonable costs of disposition.