PWC Capital : VersaBank & PWC Capital Agree to Merge

LONDON, Ontario--(BUSINESS WIRE)--VersaBank (TSX: VB, VB.PR.A, VB.PR.B) ('VB') and PWC Capital Inc. (TSX: PWC, PWC.PR.A, PWC.PR.B, PWC.NT.A) ('PWC') today jointly announced that they have entered into an agreement to merge by means of an amalgamation (the 'Amalgamation') under the Bank Act (Canada). After the Amalgamation, which is subject to regulatory and other approvals, the combined entity (the 'Bank') will continue to be named VersaBank. Concurrently with the Amalgamation, PWC will undertake a series of transactions, such that immediately prior to the Amalgamation its issued and outstanding share capital will be converted into common shares of PWC, which will then be exchanged for VB common shares.

'The combined entity should benefit from a simplified structure, increased liquidity and greater access to capital. The management team is enthusiastic to be in a position to turn its full attention to deliver on VersaBank's business plans and growth initiatives once the Transaction is completed.'

The Amalgamation and related transactions (collectively, the 'Transaction') brings to a close the strategic review processes that VB and PWC began earlier this year.

'We are very pleased with the results of the strategic review process and we are excited about the Transaction and the opportunities it will provide to the combined entity moving forward', said David Taylor, President and Chief Executive Officer of PWC and VB. 'The combined entity should benefit from a simplified structure, increased liquidity and greater access to capital. The management team is enthusiastic to be in a position to turn its full attention to deliver on VersaBank's business plans and growth initiatives once the Transaction is completed.'

Transaction Highlights:

• Immediately prior to the Amalgamation:
  • each non-voting, non-participating Class 'B' Preferred Share in the capital of PWC ('PWC Class B Preferred Shares') and each $1,000 in principal amount of the 9% unsecured notes of PWC (the 'PWC Series C Notes'), maturing October 16, 2018, will be acquired by PWC for 102.385 and 4,784 PWC common shares, respectively, pursuant to a plan of arrangement (the 'Arrangement') under the Business Corporations Act (Canada);
  • the 7.5% notes of PWC, maturing March 31, 2017, and the non-voting, non-participating Class 'A' Preferred Shares in the capital of PWC will each be redeemed for a cash payment in accordance with their terms; and
  • certain indebtedness of PWC owing to 340268 Ontario Limited ('340268'), which is expected to be in the aggregate amount of approximately $11.7 million immediately prior to the Amalgamation, will be converted into 4,776 PWC common shares per $1,000 of indebtedness (the 'Debt Satisfaction').
• Pursuant to the Amalgamation, each PWC common share will be converted into Bank common shares on the basis of 36.652 PWC common shares for one Bank common shares and all of the outstanding VB securities will be converted into equivalent securities of the Bank on a one for one basis (other than the VersaBank common shares owned by PWC, which shall be cancelled pursuant to the Amalgamation).
• Upon completion of the Amalgamation it is anticipated that existing securityholders and lenders of PWC will own approximately of 64.9% of VersaBank common shares and existing common shareholders of VersaBank will own the remaining shares.

The board of directors of each of PWC and VB, after consultation with their respective financial and legal advisors, and on the unanimous recommendation of their respective independent committees, have resolved to unanimously recommend that their securityholders vote in favour of the Transaction.

VB's board of directors and independent committee have received the opinion of RBC Capital Markets, to the effect that, as of the date of such opinion, the effective consideration to be paid by VB for the incremental assets, net of liabilities being vended by PWC into the Bank pursuant to the Amalgamation, is fair, from a financial point of view, to VB. PWC's board of directors and independent committee have received the opinions of Crosbie & Company Inc., to the effect that: (i) the consideration to be received by the holders of PWC Class B Preferred Shares pursuant to the Arrangement and the Amalgamation is fair, from a financial point of view, to such holders, (ii) the consideration to be received by the holders of PWC Series C Notes pursuant to the Arrangement and the Amalgamation, is fair, from a financial point of view, to such holders and (iii) the Debt Satisfaction, the Arrangement and the consideration to be received by holders of PWC common shares pursuant to the Amalgamation is fair, from a financial point of view, to such holders.

PWC owns approximately 62.8% of VB's outstanding common shares. 340268, together with its affiliates and associates, is currently deemed to own or exercise control or direction over approximately 28% and 39% of the currently issued and outstanding VB common shares and PWC common shares, respectively. Patrick George, a director of PWC, is a director of 340268 and holds 12.5% of the outstanding shares of 340268. Additionally, 340268 has made a loan facility available to PWC up to an amount of $5,000,000 (of which approximately $4.5 million is expected to be drawn immediately prior to the Amalgamation) which, if approved by PWC shareholders, will be converted as part of the Debt Satisfaction described above and is included in the aggregate amount owing set out above. As a result certain aspects of the Transaction are 'related party transactions' under Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions ('MI 61-101').

In accordance with MI 61-101, Crosbie & Company Inc. will also be providing its 'formal valuation' of the PWC common shares and the Bank common shares to be received by holders of PWC common shares pursuant to the Amalgamation, which will be included in the information circular to be sent to the applicable PWC securityholders in connection with the Transaction.

Required Approvals

The Transaction is subject to the following securityholder approvals:

• 66 2/3% of the votes cast by holders of PWC Class B Preferred, PWC Series C Notes and PWC common shares, each voting as a separate class;
• a majority of the votes cast by holders of PWC common shares excluding shares held by certain related parties in accordance with MI 61-101;
• 66 2/3% of the votes cast by holders of VB common shares and VB preferred shares, voting together as a single class; and
• a majority of the votes cast by holders of VB common shares excluding shares held by certain insiders in accordance with the rules of the Toronto Stock Exchange (the 'TSX').

Each of the directors and executive officers of PWC and VB, along with 340268 have expressed their intention to vote in favour of the Transaction.

In addition, the Amalgamation is subject to certain regulatory approvals in Canada, including approvals from the Office of the Superintendent of Financial Institutions and the Minister of Finance, and the arrangement is subject to court approval. The transaction is subject to other customary closing conditions, including the approval of the TSX. The Transaction is expected to close in the first quarter of calendar 2017.

The terms and conditions of the Transaction will be disclosed in further detail in the respective information circulars to be mailed to the applicable PWC and VB securityholders in advance of their respective meetings to approve the Transaction. In addition, a copy of the material agreements and the information circulars and certain related documents will be filed with the Canadian securities regulatory authorities and will be available under PWC and VB's respective profiles at www.sedar.com.

While the Transaction is pending, PWC will not declare any further dividends on the PWC Class B Preferred Shares. Furthermore, PWC will seek the consent of the holders of the PWC Series C Notes to defer any further interest payments on the PWC Series C Notes while the Transaction is pending.

RBC Capital Markets is acting as financial advisor to VB and its special committee. Crosbie & Company Inc. is acting as financial advisor to PWC and its special committee.

About VersaBank

VersaBank, a technology based and digital Canadian Schedule I chartered bank, operates using an 'electronic branchless model'. It sources deposits, consumer loans, commercial loans and leases electronically. The Bank also makes residential development and commercial mortgages it sources through a well-established network of brokers and direct contact with its lending staff. VB's common shares trade on the Toronto Stock Exchange under the symbol VB.

About PWC Capital Inc.

PWC Capital Inc. is a holding company whose shares trade on the Toronto Stock Exchange and its principal subsidiary is VB. PWC currently owns approximately 62.8% of VB's issued common shares.

Forward-looking information

This news release may contain forward-looking information within the meaning of applicable securities laws that reflects the current expectations, estimates and projections of management about the future results, performance, achievements, prospects or opportunities for the combined entity following the Transaction and expectations regarding whether the Transaction will be consummated, including whether conditions to the consummation of the Transaction will be satisfied, or the timing for completing the Transaction. The words 'may', 'would', 'could', 'should', 'will', 'anticipate', 'believe', 'plan', 'expect', 'intend', 'estimate', 'aim', 'endeavour', 'project', 'continue', 'predict', 'potential', or the negative of these terms or other similar expressions have been used to identify these forward-looking statements.

Forward-looking statements are based upon a number of assumptions and are subject to a number of known and unknown risks and uncertainties, many of which are beyond management's control, and that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking statements. Management has attempted to identify important factors that could cause actual results, performance or achievements to vary from current expectations or estimates, expressed or implied, by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information.

The following factors could cause actual results to differ materially from those discussed in the forward-looking information: failure to satisfy the conditions to completion of the Transaction, including the required approval of PWC and VB's securityholders, court approval, certain regulatory approvals in Canada and obtaining the financing to redeem certain securities; and the occurrence of any event, change or other circumstance that could give rise to the amendment to or termination of the definitive agreements concerning the Transaction. Additional risks and uncertainties regarding VB and PWC are described in their respective most recent Annual Information Forms which are available on SEDAR at www.sedar.com.

This forward-looking information represents our views as of the date of this press release and such information should not be relied upon as representing management's views as of any date subsequent to the date of this document. While we anticipate that subsequent events and developments may cause our views to change, we do not intend to update this forward-looking information, except as required by applicable securities laws.