The York Downs Golf & Country Club INFORMATION CIRCULAR

Transcription

1 The York Downs Golf & Country Club INFORMATION CIRCULAR Table of Contents Date... 2 Overview of Vote on the Disposition of Club Lands... 2 Proxy Instructions... 2 Revocability of Proxy... 2 Persons Making the Solicitation... 3 Record Date... 3 Summary of the Purchase and Sale Agreement... 3 The Purchase and Sale Agreement... 3 The VTB Mortgage... 4 The Lease... 5 The Conditions... 5 Satisfaction of the Environmental Investigation Condition... 5 Voting Process... 6 When and Where?... 6 Who can vote?... 6 How will voting occur?... 6 What is the Resolution upon which Class B Shareholders will be voting?... 6 What else may I need to know before casting my vote?... 7 Important Considerations... 7 Implications of Passage and Failure of the Resolution... 7 Potential Taxation and Timing Considerations Associated with a Distribution of Net Sale Proceeds... 8 Process to Effect Dissolution of the Club... 9 Current York Downs Financial Model... 9 Additional Information...10

2 - 2 - Date This Information Circular is dated March 18, Overview of Vote on the Disposition of Club Lands At the Special Meeting of Shareholders (the Special Meeting ) of The York Downs Golf and Country Club, Limited (the Club ) on April 21, 2015, you will be asked to approve the proposed disposition of all the Club s lands as set out in the Purchase and Sale Agreement entered into by the Club with a syndicate of purchasers on November 21, 2014, as amended (the Purchase and Sale Agreement ). Under section 7.08 of the Club s By-laws, a proposed disposition of the Club s lands must be approved first by at least two-thirds (2/3) of votes cast by the members of the Board of Directors and by at least two-thirds (2/3) of votes cast by the voting members (i.e. the holders of Class B Shares) of the Club at the Special Meeting which has been convened for the purpose of approving such disposition. The sale has been approved by the Directors in accordance with the Club s By-laws. Accordingly, you will be asked to vote in favour of or against, the following resolution (the Resolution ): BE IT RESOLVED that the Purchase and Sale Agreement dated November 21, 2014, as amended, shall be approved. Details of the Purchase and Sale Agreement and its implications were provided at the Town Hall meeting held on January 29, 2015, as well as being mailed to each holder of a Class B Share and posted to the Club s website ( for access by voting Shareholders. Since the Town Hall meeting, the Board and the Purchasers (as defined herein) agreed on a settlement related to the environmental findings. This settlement had a minor impact on the original purchase price but relieved the Club from future liabilities related to environmental risks. For your convenience, the Purchase and Sale Agreement is further summarized below. Proxy Instructions Each Class B Shareholder is entitled to appoint a person (who need not be a holder of a Class B Share) to attend and act on his or her behalf at the upcoming Special Meeting or any adjournment or postponement thereof. If you wish to appoint a person other than the persons whose names are printed in the enclosed Form of Proxy for Special Meeting, please insert the name of your chosen proxyholder in block capitals in the space provided in this same form. The Class B Shares represented by the proxy will be voted on the Resolution in accordance with your instructions on the completed proxy and will be recorded on any ballot that may be called for. For greater clarity, if any Class B Shareholder specifies a choice with respect to the Resolution, the Class B Share attaching to each proxy will be voted accordingly. Revocability of Proxy A proxy may be revoked by instrument in writing executed by the holder of the applicable Class B Share or by such person s attorney authorized in writing and deposited either: a) at the Club at any time up to and including the last business day preceding the day of the Special Meeting

3 - 3 - or any adjournment thereof, at which the proxy is to be used; or b) with the chairman of the Special Meeting on the day of but before the commencement of, the Special Meeting, or adjournment thereof. Upon either of such deposits, the proxy is revoked. Persons Making the Solicitation The solicitation for votes by Class B Shareholders (or for their proxies, as applicable) at the upcoming Special Meeting is made on behalf of the Board. The solicitation will be made by mail, with all voting instructions, information and other related documentation sent to the mailing address of each registered holder of a Class B Share who is thereby eligible to vote on the Resolution. The cost of the solicitation is borne by the Club. Record Date In order to participate in the vote on the Resolution at the upcoming Special Meeting, each individual must be registered in the Club s records as holding a Class B Share on or before March 16, Summary of the Purchase and Sale Agreement The President reported at the January 29th Town Hall meeting that the Board had entered into a comprehensive transaction for the sale of the Club s lands with a syndicate of purchasers (the Purchasers ). You, as a Class B Shareholder and voting member of the Club, are invited to vote in favour of or against, the Resolution to approve this transaction. The transaction is composed of three interconnected elements: (1) The Purchase and Sale Agreement (relating to all of the Club s lands); (2) A Vendor-Take- Back Mortgage ( VTB Mortgage ) in favour of the Club; and (3) A lease of the purchased lands by the Club (the Lease ). Here is a summary of the key provisions of each element. Please review carefully before voting. The Purchase and Sale Agreement (1) Purchasers: Metropia Inc., The Sorbara Group Inc., PFG Land Corp., PAD Investments Ltd. carrying on business as Empire Communities and Pace Group Investments Ltd. (2) Purchase Price: $411,775,000. The price is subject to possible upward adjustment for any increase in the developable acreage over developable acres. There is no price adjustment if the number of developable acres is less. Note that the purchase price has been reduced from $412 million as a result of the negotiations related to the environmental assessment conclusions (see section Satisfaction of the Environmental Investigation Condition below for details). (3) Payments:

4 - 4 - (4) Deposit: $20,000,000 payable within five (5) business days after membership approval of the Agreement. (5) On Closing: 40% of the purchase price, approximately $165,000,000 (less the deposit) (6) Balance: The balance of the purchase price, approximately $247,000,000, is payable by a VTB Mortgage held by the Club. The principal of the VTB Mortgage becomes payable at the end of the term. (7) Closing: The Closing is set for June 30, 2015, (but not later than November 30, 2015) now subject only to Class B Shareholder approval. The VTB Mortgage (1) The principal is the balance of the purchase price (approximately $247,000,000); (2) The VTB Mortgage is a first mortgage on the lands; (3) The term of the VTB Mortgage is five (5) years from the Closing date; (4) The term of the VTB Mortgage may be extended for one (1) further year if the Lease is extended from five (5) to six (6) years; (5) If the Club terminates the Lease effective as of the second anniversary (this would be June 30, 2017 upon 6 months notice i.e. on January 1, if the Closing happens on June 30, 2015), the term of the VTB Mortgage is automatically reduced from 5 to 4 years (this means that the term of the VTB Mortgage would end on June 30, 2019) (6) The VTB Mortgage is interest-free for the first year; (7) For the remainder of the term, interest will be applied at the rate of 4% per annum calculated semi-annually and payable quarterly; (8) The VTB Mortgage obligations are jointly and severally guaranteed by the Purchasers; (9) The Purchasers may pre-pay the balance of the VTB Mortgage at any time, in whole or in part; (10) The Purchasers may obtain a partial discharge of the VTB Mortgage for all or a part of the East Lands (approximately 80 acres of excess land along Kennedy Road not currently being used by the Club as a golf course) by prepaying a proportionate amount of the principal; and (11) The balance of the VTB Mortgage becomes due and payable at the end of the term.

5 - 5 - The Lease As part of the transaction, the Club is entering into a long-term lease to use the Golf Course and facilities under the following terms: (1) Term: 5 years from the Closing Date (from June 30, 2015 to June 30, 2020). (2) Extension right: The Club may extend the Lease for one more year (i.e. from 5 years to 6 years) upon six (6) months notice. In that event, the mortgage will be extended for a further year. (3) Early termination right: The Club may terminate the Lease at any time after the second anniversary of the Lease upon six (6) months notice. If Closing happens on June 30, 2015, the Club may provide notice on or after January 1, 2017, to terminate the Lease at the earliest on June 30, (4) Rent: annual rent of $1.00 plus taxes, insurance, maintenance and utilities. The Conditions The completion of the transaction is subject to the following principal conditions: (1) An environmental investigation completed to the satisfaction of the Purchasers (this condition has been satisfied - see below); and (2) Approval by at least two-thirds (2/3) of votes cast by the voting members (i.e. the holders of Class B Shares) of the Club at the Special Meeting convened for the purpose of approving such disposition per Section 7.08 of the Club s By-laws. Satisfaction of the Environmental Investigation Condition The Purchasers have completed the environmental investigation and a report by the Purchasers experts (Golder Associates) was produced in due course. The report revealed that there was some contamination of the soil in a few areas. The report also indicated how the contamination should be remedied and an estimate of the costs to perform the remediation. The Club s experts (SPL Consultants Limited) reviewed the report produced by Golder Associates and agreed with some of the findings but disagreed with the remedial activities and their costs. This led to discussions between representatives of the Board and the Purchasers with assistance by experts and legal counsel. The conclusions of these discussions are that (1) the Purchasers declared themselves satisfied with the environmental report; (2) the cost of remediation was agreed to be $225,000; (3) the Purchasers agreed to assume all future risks and costs related to environmental matters on the lands (except those caused by York Downs in the period after February 24, 2015, and before Closing or as the tenant under the Lease after Closing); and (4) the cost of remediation will be deducted from the Purchase Price. The following is the net result of this agreement: (1) The Purchase Price of $412,000,000 is reduced to $411,775,000 to address the costs of remediation of the environmental issues; and

6 - 6 - (2) The Purchase and Sale Agreement and the Lease have been amended to confirm that the Purchasers are solely responsible for any environmental risks in the future (other than those specifically caused by York Downs while operating as a golf course during the period after February 24, 2015, and before Closing or under the Lease). In conclusion, the environmental investigation condition has been removed. This has not had a material effect on the Purchase and Sale Agreement except for the small price reduction. The Club is now in a position to determine if the remaining condition -- namely, approval of the Purchase and Sale Agreement by the voting members (i.e. Class B Shareholders) in accordance with Section 7.08 of the Club s By-laws will also be satisfied. That is the purpose of the vote. Voting Process When and Where? The vote will be held on April 21, 2015, at 7:00pm, at the Special Meeting called for the purpose of approving the Purchase and Sale Agreement. The Special Meeting will be held at the Clubhouse, located at th Avenue, Unionville, Ontario. Who can vote? Only holders of Class B Shares can vote. According to the Club s unaudited financial statements, as of November 30, 2014, there are 937 Class B Shares issued and outstanding. How will voting occur? Due to the importance of the resolution being considered at the Special Meeting on April 21, 2015, the Chairman intends to require a poll as contemplated under Section of the Club s By-laws. The Chairman will also propose that Mr. Jim Horn, CA, CPA and a partner in the firm Horn, Almand be appointed as a scrutineer with the consent of the meeting. You will find Mr. Horn s biography in the section Additional Information. Ballots will be distributed at the meeting and must be signed by either the Shareholder present in person or the person appointed as the proxy for the Shareholder. Completed ballots will be counted by the scrutineer and verified by KPMG. The meeting will be adjourned briefly while the process of counting ballots and reviewing proxies is completed and the scrutineer completes his report. What is the Resolution upon which Class B Shareholders will be voting? BE IT RESOLVED that the Purchase and Sale Agreement dated November 21, 2014, as amended, shall be approved.

7 - 7 - What else may I need to know before casting my vote? As this vote represents a defining moment in our history as a Club, the Board wishes to draw your attention to a number of important matters which we have summarized below under the sections entitled Important Considerations and Implications of Passage and Failure of the Resolution. We once again encourage each member to fully acquaint himself or herself with these matters as well as the contents of this Information Circular and the materials from the Town Hall meeting held January 25, 2015 and posted on the Club s website before casting your vote. Important Considerations When casting your vote, to ensure there is no confusion amongst the membership, the Board believes the following matters bear particular consideration and therefore wish to explicitly draw them to your attention: (1) The Purchase and Sale Agreement does not include a relocation of the Club. In fact, some bids included a relocation proposal. However, some of these proposals did not meet key considerations and the opportunity cost of each of the proposed relocation proposals was deemed to be too high. The opportunity cost of each relocation proposal was calculated as the sum of: (a) the price to acquire the proposed new property and renovate, as required, the golf course or clubhouse, and (b) the differential between the Purchase Price ($412M) and the purchase price offered by the bidder of such new property. (2) The timing and the amount of any distribution of the net sale proceeds is uncertain and cannot be guaranteed. The term net sale proceeds refers only to any capital gain from the sale of the lands. No moneys will be distributed to the members until (a) the tax position of the Club has been ascertained by our tax advisors KPMG, (b) the annual tax returns have been filed for each relevant year; and (c) there is comfort that Canada Revenue Agency is satisfied with the Club s position. This process is likely to take a minimum of 9-12 months from Closing. The distribution is also subject to any other potential claims against the Club. (3) In the event of a distribution of the net sale proceeds, both Class A and Class B Shares rank equally. As of the end of the last fiscal year, November 30, 2014, the unaudited financial statements of the Club indicate that there are 937 Class B Shares (voting) and 18,760 Class A Shares (non-voting) issued and outstanding. Implications of Passage and Failure of the Resolution (A) Implications of a YES Vote If two-thirds (2/3) of the votes cast by the voting members are in favour of the Resolution to approve the transaction (i.e. the Purchase and Sale Agreement including the VTB Mortgage and the Lease), all of the Club lands will be sold pursuant to the Agreement. It will then be up to the membership to decide how to proceed. There would essentially be two options available:

8 - 8 - (1) The members could decide to use a portion of the net sale proceeds to acquire another site and relocate York Downs. A portion of the net sale proceeds could also be distributed among the Shareholders. OR (2) The members could decide to distribute all of the net sale proceeds among the Shareholders and then proceed to dissolve the Club. Please note that the dissolution of the Club would require approval by two-thirds (2/3) of the Directors and approval, in a separate vote, of two-thirds (2/3) of the votes cast by the voting members as provided in Section 7.09 of the Club s By-laws. Prior to any further votes among the members, the Board plans to consult with the members to determine how they wish to proceed. Such consultations will be conducted in a timely fashion and findings reported promptly to the membership. The Board does not intend for this consultation and reporting process to extend beyond July 31, In the event that Resolution to approve the Purchase and Sale Agreement is passed, the Club plans to continue to operate in the same manner and with the same standard of service as it has in the past. Potential Taxation and Timing Considerations Associated with a Distribution of Net Sale Proceeds The net sale proceeds are estimated to be approximately $381M based on the financial model provided at the Town Hall meeting. This is based upon certain assumptions concerning anticipated expenses and as to how the net sale proceeds will be taxed. The actual amount of the Club s income tax liability will not be known until the income tax return has been filed and assessed by Canada Revenue Agency (the CRA ) and the period for re-assessment has expired. If the transaction closes before November 30, 2015, it will be reported and included in the Club s income tax return that must be filed by February 29, 2016, according to subsection 149(5) of the Income Tax Act (the Act ). Once that return is filed, it will be assessed by CRA and a notice of assessment could be expected sometime in late In that event, the re-assessment period would not expire until late Once the income tax treatment of the transaction has been confirmed, the Club, with the assistance of its tax advisors at KPMG, will be in a position to determine the most advantageous method of distributing the net sale proceeds to the Shareholders. In this regard, it will be particularly important for the Club to determine the amount of its capital dividend account ( CDA ). Simply stated, a company s CDA is made up of the undistributed balance of the excess of a company s capital gains over its taxable capital gains. In order to compute its capital dividend account, the Club will have to make the appropriate election under subsection 83(2) of the Act to validate its capital dividend payment. Under the Act, a company may elect to pay dividends out of its CDA. Such dividends are received tax-free by the Canadian resident shareholders. However, the ability to elect and pay such dividends is strictly limited to the actual amount of the company s CDA and any excess election is subject to payment of a severe tax penalty. Our auditors have calculated the CDA based upon their interpretation of the Act. However, the amount of the CDA has not been confirmed by CRA. It will be very important for

9 - 9 - the Club to accurately determine the amount of its CDA before electing and paying out a capital dividend to the Shareholders. The timing is uncertain and will depend upon the CRA. You will find the financial model in the materials sent out for the Town Hall meeting (available on the Club s website). It was prepared based upon the best available information including information concerning the number of issued shares of each Class. It was further premised on the assumption that the membership decided to distribute all of the net sale proceeds from the sale of Club lands. The amount of the net sale proceeds potentially available for distribution among the Shareholders will depend principally upon how these proceeds are taxed. The portion of the net sale proceeds potentially distributable with respect to each share will, in turn, depend upon the number of shares which are issued and outstanding. In short, the financial model is premised upon certain assumptions as to how the transaction proceeds will be taxed. Therefore, members need to appreciate that if the land is sold there will likely be little, if any, distribution of net sale proceeds to the Shareholders until there is certainty concerning the tax treatment of the sale and the amount of the CDA. Process to Effect Dissolution of the Club Dissolution of the Club requires the approval of two-thirds (2/3) of the Directors and confirmed by two-thirds of the votes cast by the Class B Shareholders at a special meeting which has been duly called for such purpose as provided in Section 7.09 of the Club s By-laws. If dissolution was approved, the assets would be distributable among the Shareholders. It is likely that the Club would need to hold back some amounts to meet expenses and potential liabilities, including taxes. If at the time a distribution is made in connection with a dissolution there are any unknown Shareholders or a Shareholder s whereabouts is unknown, that Shareholder s distribution would have to be dealt with in accordance with the corporate statute under which the Club is incorporated. (B) Implications of a NO Vote If the transaction is not approved by at least two-thirds (2/3) of the votes cast by the Class B Shareholders at the Special Meeting on April 21, 2015, the Club will carry on at its current location. Current York Downs Financial Model (i) Annual Operating Expenses The Club s annual operating expenses (2015 budget is approximately $4 million) are funded by Members annual dues. Historically, annual membership attrition has been offset by the recruitment of new members. For example, in 2014, in spite of the disruption due to the golf course improvement plan and the freeze on issuing new shares, the Club welcomed 30 new Trial Members and reached the budgeted playing cap. For planning purposes, it has been assumed that new members will continue to be attracted to York Downs and that annual dues will continue to be sufficient to fund operating expenses. (ii) Annual Capital Expenses Historically, the Club s annual capital expenses have been funded by new Member entrance fees. Over the last number of years, it has become apparent that this model is no longer

10 sustainable. This reality was a key driver of the recent sale of the 7.5 acres at the southeast corner of the Club s property. As a result of that land sale, the Club s cash reserves are healthy. Current reserves, combined with entrance fees currently receivable will fund the Club s capital requirements through the 2020 season. At that time, the Club s cash balance will essentially be reduced to zero and projected new member entrance fees will not be sufficient to fund capital requirements in subsequent years. A certain level of capital spending will be required simply to maintain the aging infrastructure of the buildings and the golf course. The Current 20-year Capital Plan (Appendix VII in the Town Hall materials) estimates $22 million in capital expenditures will be required over that period. The plan includes projects such as the replacement of the irrigation system and the renovation of the greens (2021), but does not include major renovation or potential replacement of the clubhouse. The decision to proceed or not with such projects will ultimately be up to the membership. As provided in Section 7.07(b) of the Club s By-laws, any capital expenditure in excess of $500,000 requires the approval of the voting membership. As with the recentlycompleted golf course improvement plan, major projects could involve a level of disruption to Club operations. (iii) Funding the Club s Future Requirements The Club has more than 80 acres of excess land along Kennedy Road (the East Lands). This land can be sold without encroaching on the golf property. (iv) Share Capital Structure Shortly after the receipt of the original unsolicited offer, the Club froze the issuance of new shares. A re-organization of the Club s share capital structure may be required to enable the Club to admit new members. Although the Board has not determined a definitive restructuring model, one key element would be to enshrine the current value of the Club s lands with the outstanding shares. This would ensure that the current value of the shares held by Shareholders would not be diluted by the introduction of new members and would also enable new members to be admitted and charged an acceptable entrance fee. Alternatively, changes could be made to membership requirements in order to permit new members to be admitted. Whatever method is used, the admission of new members can be facilitated without undue difficulties. Additional Information KPMG was appointed as the Club s auditor on October 28, Shareholders may contact the Club to request copies of the Club s audited annual financial statements for the year ending November 30, 2013 and/or the unaudited annual financial statements for the year ending November 30, The Club s audited annual financial statements for the year ending November 30, 2014 will be available on or after April 1, 2015, at which time a Shareholder may contact the Club to request a copy. For the purposes of this subsection, Shareholders may contact the Club by: a) registered mail at th Avenue, Unionville, Ontario L3R 0P1; b) facsimile at ; or c) to Diane Cave at DCave@yorkdowns.com. Mr. Jim Horn is a Chartered Professional Accountant and Chartered Accountant. He is a partner in the firm of Horn, Almand with his colleague, Gail Almand. Mr. Horn is a former partner of KPMG where he practiced for 29 years before forming his firm in The majority of the practice focuses on audit of not-for-profit organizations. Past assignments have included the

11 provision of independent oversight over voting procedures and results for Board elections and membership issues.